Investment Objective
<p>Xtrackers MSCI EAFE Hedged Equity ETF (the "fund") seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI EAFE US Dollar Hedged Index (the "Underlying Index").</p>
Fees and Expenses
<p>These are the fees and expenses that you will pay when you buy, hold and sell shares. You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below. </p>
PORTFOLIO TURNOVER 
<p>The fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may mean higher taxes if you are investing in a taxable account. These costs are not reflected in annual fund operating expenses or in the expense example, and can affect the fund's performance. During the most recent fiscal year, the fund's portfolio turnover rate was 9% of the average value of its portfolio.</p>
Principal Investment Strategies
<p>The fund, using a "passive" or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index, which is designed to track developed market performance while mitigating exposure to fluctuations between the value of the US dollar and the currencies of the countries included in the Underlying Index. The fund uses a full replication indexing strategy to seek to track the Underlying Index. As such, the fund invests directly in the component securities (or a substantial number of the component securities) of the Underlying Index in substantially the same weightings in which they are represented in the Underlying Index. If it is not possible for the fund to acquire component securities due to limited availability or regulatory restrictions, the fund may use a representative sampling indexing strategy to seek to track the Underlying Index instead of a full replication indexing strategy. "Representative sampling" is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to the Underlying Index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield), and liquidity measures similar to those of the Underlying Index. The fund may or may not hold all of the securities in the Underlying Index when using a representative sampling indexing strategy. The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the Underlying Index.</p><p>As of July 31, 2020, the Underlying Index consisted of 900 securities, with an average market capitalization of approximately $14.88 billion and a minimum market capitalization of approximately $1.21 billion, from issuers in the following countries: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. Under normal circumstances, the Underlying Index is rebalanced monthly. The fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index's rebalance schedule will result in corresponding changes to the fund's rebalance schedule.</p><p>The fund enters into forward currency contracts designed to offset the fund's exposure to foreign currencies. The fund hedges each foreign currency in the portfolio to US dollars by selling the applicable foreign currency forward at the one-month forward rate published by WM/Reuters.</p><p>The amount of forward contracts in the fund is based on the aggregate exposure of the fund and Underlying Index to each non-US currency based on currency weights as of the beginning of each month. While this approach is designed to minimize the impact of currency fluctuations on fund returns, this does not necessarily eliminate exposure to all currency fluctuations. The return of the forward currency contracts may not perfectly offset the actual fluctuations of non-US currencies relative to the US dollar. The fund may use non-deliverable forward ("NDF") contracts to execute its hedging transactions. An NDF is a contract where there is no physical settlement of two currencies at maturity (as opposed to deliverable forward contracts, which per their terms are settled by physical delivery of the currencies). Rather, based on the movement of the currencies and the contractually agreed upon exchange rate, a net cash settlement is made by one party to the other in US dollars.</p><p>The fund will normally invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the equity securities of issuers from Europe, Australia and the Far East and in instruments designed to hedge against the fund's exposure to non-US currencies. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of securities of issuers from Japan (24.4%).</p><p>
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of issuers in the financials sector (15.8%). The financials sector includes companies involved in banking, consumer finance, asset management and custody banks, as well as investment banking and brokerage and insurance. To the extent that the fund tracks the Underlying Index, the fund's investment in certain sectors or countries may change over time.</p><p>The fund may become "non-diversified," as defined under the Investment Company Act of 1940, as amended, solely as a result of a change in relative market capitalization or index weighting of one or more constituents of the index that the fund is designed to track. Shareholder approval will not be sought when the fund crosses from diversified to non-diversified status under such circumstances.</p><p>The fund or securities referred to herein are not sponsored, endorsed, issued, sold or promoted by MSCI, and MSCI bears no liability with respect to the fund or securities or any index on which the fund or securities are based.</p><p>
<b>Securities lending.</b> The fund may lend its portfolio securities to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. In connection with such loans, the fund receives liquid collateral equal to at least 102% of the value of the portfolio securities being lent. This collateral is marked to market on a daily basis. The fund may lend its portfolio securities in an amount up to 33 1/3% of its total assets.</p>
Main Risks
<p>
As with any investment, you could lose all or part of your investment in the fund, and the fund's performance could trail that of other investments. The fund is subject to the main risks noted below, any of which may adversely affect the fund's net asset value ("NAV"), trading price, yield, total return and ability to meet its investment objective, as well as numerous other risks that are described in greater detail in the section of this Prospectus entitled "Additional Information About Fund Strategies, Underlying Index Information and Risks" and in the Statement of Additional Information ("SAI").</p><p>
<b>Stock market risk.</b> When stock prices fall, you should expect the value of your investment to fall as well. Stock prices can be hurt by poor management on the part of the stock's issuer, shrinking product demand and other business risks. These may affect single companies as well as groups of companies. The market as a whole may not favor the types of investments the fund makes, which could adversely affect a stock's price, regardless of how well the company performs, or the fund's ability to sell a stock at an attractive price. There is a chance that stock prices overall will decline because stock markets tend to move in cycles, with periods of rising and falling prices. Events in the US and global financial markets, including actions taken by the US Federal Reserve or foreign central banks to stimulate or stabilize economic growth, may at times result in unusually high market volatility which could negatively affect performance. To the extent that the fund invests in a particular geographic region, capitalization or sector, the fund's performance may be affected by the general performance of that region, capitalization or sector.</p><p>
<b>Market disruption risk.</b> Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Market disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.</p><p>Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant uncertainty, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.</p><p>
<b>Foreign investment risk.</b> The fund faces the risks inherent in foreign investing. Adverse political, economic or social developments could undermine the value of the fund's investments or prevent the fund from realizing the full value of its investments. Financial reporting standards for companies based in foreign markets differ from those in the US. Additionally, foreign securities markets generally are smaller and less liquid than US markets. To the extent that the fund invests in non-US dollar denominated foreign securities, changes in currency exchange rates may affect the US dollar value of foreign securities or the income or gain received on these securities.</p><p>Foreign governments may restrict investment by foreigners, limit withdrawal of trading profit or currency from the country, restrict currency exchange or seize foreign investments. The investments of the fund may also be subject to foreign withholding taxes. Foreign brokerage commissions and other fees are generally higher than those for US investments, and the transactions and custody of foreign assets may involve delays in payment, delivery or recovery of money or investments.</p><p>Foreign markets can have liquidity risks beyond those typical of US markets. Because foreign exchanges generally are smaller and less liquid than US exchanges, buying and selling foreign investments can be more difficult and costly. Relatively small transactions can sometimes materially affect the price and availability of securities. In certain situations, it may become virtually impossible to sell an investment at a price that approaches portfolio management's estimate of its value. For the same reason, it may at times be difficult to value the fund's foreign investments. In addition, because non-US markets may be open on days when the fund does not price its shares, the value of the securities in the fund's portfolio may change on days when shareholders will not be able to purchase or sell the fund's shares.</p><p>
<b>Depositary receipt risk.</b> Depositary receipts involve similar risks to those associated with investments in securities of non-US issuers. Depositary receipts also may be less liquid than the underlying shares in their primary trading market.</p><p>
<b>European investment risk.</b> European financial markets have experienced volatility in recent years and have been adversely affected by concerns about economic downturns, credit rating downgrades, rising government debt level and possible default on or restructuring of government debt in several European countries. A default or debt restructuring by any European country would adversely impact holders of that country's debt, and sellers of credit default swaps linked to that country's creditworthiness. Most countries in Western Europe are members of the European Union (EU), which faces major issues involving its membership, structure, procedures and policies. In June 2016, citizens of the United Kingdom approved a referendum to leave the EU. On January 31, 2020, the United Kingdom officially withdrew from the EU pursuant to a withdrawal agreement, providing for a transition period in which the United Kingdom will seek to negotiate and finalize a trade deal with the EU. The transition period will end on December 31, 2020 and can no longer be extended under the terms of the withdrawal agreement. Significant uncertainty exists regarding any adverse economic and political effects the United Kingdom's withdrawal may have on the United Kingdom, other EU countries and the global economy, which could be significant, potentially resulting in increased volatility and illiquidity and lower economic growth.</p><p>European countries are also significantly affected by fiscal and monetary controls implemented by the European Economic and Monetary Union (EMU), and it is possible that the timing and substance of these controls may not address the needs of all EMU member countries. Investing in euro-denominated securities also risks exposure to a currency that may not fully reflect the strengths and weaknesses of the disparate economies that comprise Europe. There is continued concern over member state-level support for the euro, which could lead to certain countries leaving the EMU, the implementation of currency controls, or potentially the dissolution of the euro. The dissolution of the euro could have significant negative effects on European financial markets.</p><p>
<b>Small and medium-sized company risk. </b>Small and medium-sized company stocks tend to be more volatile than large company stocks. Because stock analysts are less likely to follow medium-sized companies, less information about them is available to investors. Industry-wide reversals may have a greater impact on small and medium-sized companies, since they lack the financial resources of larger companies. Small and medium-sized company stocks are typically less liquid than large company stocks.</p><p>
<b>Focus risk.</b> To the extent that the fund focuses its investments in particular industries, asset classes or sectors of the economy, any market price movements, regulatory or technological changes, or economic conditions affecting companies in those industries, asset classes or sectors may have a significant impact on the fund's performance.</p><p>
<b>Financials sector risk. </b>To the extent that the fund invests significantly in the financials sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the financials sector. The financials sector is subject to extensive government regulation, can be subject to relatively rapid change due to increasingly blurred distinctions between service segments, and can be significantly affected by availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, and price competition. </p><p>
<b>Forward currency contract risk.</b> The fund's forward currency contracts may not be successful in minimizing the impact of changes in the value of the non-US currencies against the US dollar. To the extent the fund's forward currency contracts are not successful, the US dollar value of your investment in the fund may go down. Furthermore, because no changes in the currency weights in the Underlying Index are made during the month to account for changes in the Underlying Index due to price movement of securities, corporate events, additions, deletions or any other changes, changes in the value of non-US currencies against the US dollar during the month may affect the value of the fund's investment. Currency exchange rates can be very volatile and can change quickly and unpredictably. Therefore, the value of an investment in the fund may also go up or down quickly and unpredictably and investors may lose money. NDFs may be less liquid than deliverable forward currency contracts. A lack of liquidity in NDFs of the hedged currency could adversely affect the fund's ability to hedge against currency fluctuations and properly track the Underlying Index.</p><p>
<b>Counterparty risk.</b> A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.</p><p>
<b>Passive investing risk. </b>Unlike a fund that is actively managed, in which portfolio management buys and sells securities based on research and analysis, the fund invests in securities included in, or representative of, the Underlying Index, regardless of their investment merits. Because the fund is designed to maintain a high level of exposure to the Underlying Index at all times, portfolio management generally will not buy or sell a security unless the security is added or removed, respectively, from the Underlying Index, and will not take any steps to invest defensively or otherwise reduce the risk of loss during market downturns.</p><p>
<b>Index-related risk.</b> The fund seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index as published by the index provider. There is no assurance that the Underlying Index provider will compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. Market disruptions could cause delays in the Underlying Index's rebalancing schedule. During any such delay, it is possible that the Underlying Index and, in turn, the fund will deviate from the Underlying Index's stated methodology and therefore experience returns different than those that would have been achieved under a normal rebalancing schedule. Generally, the index provider does not provide any warranty, or accept any liability, with respect to the quality, accuracy or completeness of the Underlying Index or its related data, and does not guarantee that the Underlying Index will be in line with its stated methodology. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its stated methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. The Advisor and its affiliates do not provide any warranty or guarantee against such errors. Therefore, the gains, losses or costs associated with the index provider's errors will generally be borne by the fund and its shareholders.</p><p>
<b>Tracking error risk.</b> The fund may be subject to tracking error, which is the divergence of the fund's performance from that of the Underlying Index. The performance of the fund may diverge from that of the Underlying Index for a number of reasons, including operating expenses, transaction costs, cash flows and operational inefficiencies. The fund's return also may diverge from the return of the Underlying Index because the fund bears the costs and risks associated with buying and selling securities (especially when rebalancing the fund's securities holdings to reflect changes in the Underlying Index) while such costs and risks are not factored into the return of the Underlying Index. Transaction costs, including brokerage costs, will decrease the fund's NAV to the extent not offset by the transaction fee payable by an "Authorized Participant" ("AP"). Market disruptions and regulatory restrictions could have an adverse effect on the fund's ability to adjust its exposure in order to track the Underlying Index. To the extent that portfolio management uses a representative sampling approach (investing in a representative selection of securities included in the Underlying Index rather than all securities in the Underlying Index), such approach may cause the fund's return to not be as well correlated with the return of the Underlying Index as would be the case if the fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index. In addition, the fund may not be able to invest in certain securities included in the Underlying Index, or invest in them in the exact proportions in which they are represented in the Underlying Index, due to government imposed legal restrictions or limitations, a lack of liquidity in the markets in which such securities trade, potential adverse tax consequences or other regulatory reasons. To the extent the fund calculates its net asset value based on fair value prices and the value of the Underlying Index is based on market prices (i.e., the value of the Underlying Index is not based on fair value prices), the fund's ability to track the Underlying Index may be adversely affected. Tracking error risk may be higher for funds that track a foreign index, or an index that includes foreign securities, because regulatory and reporting requirements may differ from those in the US, and there is a heightened risk associated with limited availability and reliability of data used to construct the index. Tracking error risk may also be heightened during times of increased market volatility or other unusual market conditions. For tax efficiency purposes, the fund may sell certain securities, and such sale may cause the fund to realize a loss and deviate from the performance of the Underlying Index. In light of the factors discussed above, the fund's return may deviate significantly from the return of the Underlying Index.</p><p>
<b>Market price risk. </b>Fund shares are listed for trading on an exchange and are bought and sold in the secondary market at market prices. The market prices of shares will fluctuate, in some cases materially, in response to changes in the NAV and supply and demand for shares. As a result, the trading prices of shares may deviate significantly from the NAV during periods of market volatility. The Advisor cannot predict whether shares will trade above, below or at their NAV. Given the fact that shares can be created and redeemed in Creation Units (defined below), the Advisor believes that large discounts or premiums to the NAV of shares should not be sustained in the long-term. If market makers exit the business or are unable to continue making markets in fund shares, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market). Further, while the creation/redemption feature is designed to make it likely that shares normally will trade close to the value of the fund's holdings, disruptions to creations and redemptions, including disruptions at market makers, APs or market participants, or during periods of significant market volatility, may result in market prices that differ significantly from the value of the fund's holdings. Although market makers will generally take advantage of differences between the NAV and the market price of fund shares through arbitrage opportunities, there is no guarantee that they will do so. In addition, the securities held by the fund may be traded in markets that close at a different time than the exchange on which the fund's shares trade. Liquidity in those securities may be reduced after the applicable closing times. Accordingly, during the time when the exchange is open but after the applicable market closing, fixing or settlement times, bid-ask spreads and the resulting premium or discount to the shares' NAV is likely to widen. The bid-ask spread of the fund may be wider in comparison to the bid-ask spread of other ETFs, given the liquidity of the fund's assets and the Underlying Index's (and thus the fund's) hedging strategy. Further, secondary markets may be subject to irregular trading activity, wide bid-ask spreads and extended trade settlement periods, which could cause a material decline in the fund's NAV. The fund's investment results are measured based upon the daily NAV of the fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by those APs creating and redeeming shares directly with the fund.</p><p>
<b>Liquidity risk.</b> In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. This risk can be ongoing for any security that does not trade actively or in large volumes, for any security that trades primarily on smaller markets, and for investments that typically trade only among a limited number of large investors (such as certain types of derivatives or restricted securities). In unusual market conditions, even normally liquid securities may be affected by a degree of liquidity risk. This may affect only certain securities or an overall securities market.</p><p>Although the fund primarily seeks to redeem shares of the fund on an in-kind basis, if the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss. This may be magnified in circumstances where redemptions from the fund may be higher than normal.</p><p>
<b>Geographic focus risk.</b> Focusing investments in a single country or few countries, or regions, involves increased political, regulatory and other risks. Market swings in such a targeted country, countries or regions are likely to have a greater effect on fund performance than they would in a more geographically diversified fund.</p><p>
<b>Operational and technology risk.</b> Cyber-attacks, disruptions, or failures that affect the fund's service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund's or its service providers' assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund's net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund's operations.</p><p>While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund's service providers could impact the ability to conduct the fund's operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.</p><p>
<b>Authorized Participant concentration risk.</b> The fund may have a limited number of financial institutions that may act as APs. Only APs who have entered into agreements with the fund's distributor may engage in creation or redemption transactions directly with the fund (as described in the section of this Prospectus entitled "Buying and Selling Shares"). If those APs exit the business or are unable to process creation and/or redemption orders, (including in situations where APs have limited or diminished access to capital required to post collateral) and no other AP is able to step forward to create and redeem in either of these cases, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market).</p><p>
<b>Non-diversification risk.</b> At any given time, due to the composition of the Underlying Index, the fund may be classified as "non-diversified" under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.</p><p>
<b>Securities lending risk. </b>Securities lending involves the risk that the fund may lose money because the borrower of the loaned securities fails to return the securities in a timely manner or at all. The fund could also lose money in the event of a decline in the value of the collateral provided for the loaned securities or a decline in the value of any investments made with cash collateral. These events, and securities lending in general, could trigger adverse tax consequences for the fund and its investors. For example, if the fund loans its securities, the fund and its investors may lose the ability to treat certain fund distributions associated with those securities as qualified dividend income.</p>
Past Performance
<p>
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund's performance from year to year and by showing how the fund's average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund's past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. Updated performance information is available on the fund's website at Xtrackers.com (the website does not form a part of this prospectus).</p>
<table>
<tr>
<td valign="top" align="left" />
<td valign="top" align="left">Returns</td>
<td valign="top" align="left">Period ending</td>
</tr>
<tr>
<td valign="top" align="left">Best Quarter</td>
<td valign="top" align="left">11.20%</td>
<td valign="top" align="left">March 31, 2019</td>
</tr>
<tr>
<td valign="top" align="left">Worst Quarter</td>
<td valign="top" align="left">-11.67%</td>
<td valign="top" align="left">December 31, 2018</td>
</tr>
<tr>
<td valign="top" align="left">Year-to-Date</td>
<td valign="top" align="left">-9.61%</td>
<td valign="top" align="left">June 30, 2020</td>
</tr>
</table><p></p>
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax.
After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts ("IRAs") or employee-sponsored retirement plans.
Investment Objective
<p>Xtrackers Japan JPX-Nikkei 400 Equity ETF (the "fund") seeks investment results that correspond generally to the performance, before fees and expenses, of the JPX-Nikkei 400 Index (the "Underlying Index").</p>
Fees and Expenses
<p>These are the fees and expenses that you will pay when you buy, hold and sell shares. You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below. </p>
PORTFOLIO TURNOVER 
<p>The fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may mean higher taxes if you are investing in a taxable account. These costs are not reflected in annual fund operating expenses or in the expense example, and can affect the fund's performance. During the most recent fiscal year, the fund's portfolio turnover rate was 12% of the average value of its portfolio.</p>
Principal Investment Strategies
<p>The fund, using a "passive" or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index, which is designed to track the performance of equity securities of issuers who are primarily listed on the following sections of Tokyo Stock Exchange ("TSE"): the 1st section, the 2nd section, Mothers or JASDAQ Stock Exchange ("JASDAQ"). The fund uses a full replication indexing strategy to seek to track the Underlying Index. As such, the fund invests directly in the component securities (or a substantial number of the component securities) of the Underlying Index in substantially the same weightings in which they are represented in the Underlying Index. If it is not possible for the fund to acquire component securities due to limited availability or regulatory restrictions, the fund may use a representative sampling indexing strategy to seek to track the Underlying Index instead of a full replication indexing strategy. "Representative sampling" is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to the Underlying Index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield), and liquidity measures similar to those of the Underlying Index. The fund may or may not hold all of the securities in the Underlying Index when using a representative sampling indexing strategy. The Underlying Index is comprised of the equity securities of the 400 highest scoring issuers listed on the TSE, as measured in return on equity, cumulative operating profit and current market value. The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the Underlying Index.</p><p>As of July 31, 2020, the Underlying Index consisted of 396 securities with an average market capitalization of approximately $10.83 billion and a minimum market capitalization of approximately $309 million. Under normal circumstances, the Underlying Index is rebalanced monthly. Under normal circumstances, the Underlying Index is rebalanced annually in August. The fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index's rebalance schedule will result in corresponding changes to the fund's rebalance schedule.</p><p>The fund will normally invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities from Japanese issuers. As of July 31, 2020, the Underlying Index was solely comprised of issuers in Japan. The fund will not enter into transactions to hedge against declines in the value of the fund's assets that are denominated in foreign currency.</p><p>
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of issuers in the industrials (21.9%) and consumer discretionary (15.1%) sectors. The industrials sector includes companies engaged in the manufacture and distribution of capital goods, such as those used in defense, construction and engineering, companies that manufacture and distribute electrical equipment and industrial machinery and those that provide commercial and transportation services and supplies. The consumer discretionary goods sector includes durable goods, apparel, entertainment and leisure, and automobiles. To the extent that the fund tracks the Underlying Index, the fund's investment in certain sectors may change over time.</p><p>The fund may become "non-diversified," as defined under the Investment Company Act of 1940, as amended, solely as a result of a change in relative market capitalization or index weighting of one or more constituents of the index that the fund is designed to track. Shareholder approval will not be sought when the fund crosses from diversified to non-diversified status under such circumstances.</p><p>Xtrackers Japan JPX-Nikkei 400 Equity ETF is not in any way sponsored, endorsed or promoted by Tokyo Stock Exchange, Inc. TSE and Nikkei Inc.</p><p>
<b>Securities lending.</b> The fund may lend its portfolio securities to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. In connection with such loans, the fund receives liquid collateral equal to at least 102% of the value of the portfolio securities being lent. This collateral is marked to market on a daily basis. The fund may lend its portfolio securities in an amount up to 33 1/3% of its total assets.</p>
Main Risks
<p>
As with any investment, you could lose all or part of your investment in the fund, and the fund's performance could trail that of other investments. The fund is subject to the main risks noted below, any of which may adversely affect the fund's net asset value ("NAV"), trading price, yield, total return and ability to meet its investment objective, as well as numerous other risks that are described in greater detail in the section of this Prospectus entitled "Additional Information About Fund Strategies, Underlying Index Information and Risks" and in the Statement of Additional Information ("SAI").</p><p>
<b>Stock market risk.</b> When stock prices fall, you should expect the value of your investment to fall as well. Stock prices can be hurt by poor management on the part of the stock's issuer, shrinking product demand and other business risks. These may affect single companies as well as groups of companies. The market as a whole may not favor the types of investments the fund makes, which could adversely affect a stock's price, regardless of how well the company performs, or the fund's ability to sell a stock at an attractive price. There is a chance that stock prices overall will decline because stock markets tend to move in cycles, with periods of rising and falling prices. Events in the US and global financial markets, including actions taken by the US Federal Reserve or foreign central banks to stimulate or stabilize economic growth, may at times result in unusually high market volatility which could negatively affect performance. To the extent that the fund invests in a particular geographic region, capitalization or sector, the fund's performance may be affected by the general performance of that region, capitalization or sector.</p><p>
<b>Market disruption risk.</b> Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Market disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.</p><p>Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant uncertainty, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.</p><p>
<b>Foreign investment risk.</b> The fund faces the risks inherent in foreign investing. Adverse political, economic or social developments could undermine the value of the fund's investments or prevent the fund from realizing the full value of its investments. Financial reporting standards for companies based in foreign markets differ from those in the US. Additionally, foreign securities markets generally are smaller and less liquid than US markets. To the extent that the fund invests in non-US dollar denominated foreign securities, changes in currency exchange rates may affect the US dollar value of foreign securities or the income or gain received on these securities.</p><p>Foreign governments may restrict investment by foreigners, limit withdrawal of trading profit or currency from the country, restrict currency exchange or seize foreign investments. The investments of the fund may also be subject to foreign withholding taxes. Foreign brokerage commissions and other fees are generally higher than those for US investments, and the transactions and custody of foreign assets may involve delays in payment, delivery or recovery of money or investments.</p><p>Foreign markets can have liquidity risks beyond those typical of US markets. Because foreign exchanges generally are smaller and less liquid than US exchanges, buying and selling foreign investments can be more difficult and costly. Relatively small transactions can sometimes materially affect the price and availability of securities. In certain situations, it may become virtually impossible to sell an investment at a price that approaches portfolio management's estimate of its value. For the same reason, it may at times be difficult to value the fund's foreign investments. In addition, because non-US markets may be open on days when the fund does not price its shares, the value of the securities in the fund's portfolio may change on days when shareholders will not be able to purchase or sell the fund's shares.</p><p>
<b>Depositary receipt risk.</b> Depositary receipts involve similar risks to those associated with investments in securities of non-US issuers. Depositary receipts also may be less liquid than the underlying shares in their primary trading market.</p><p>
<b>Risks related to investing in Japan.</b> The growth of Japan's economy has historically lagged behind that of its Asian neighbors and other major developed economies. The Japanese economy is heavily dependent on international trade and has been adversely affected by trade tariffs, other protectionist measures, competition from emerging economies and the economic conditions of its trading partners. Japan's relations with its neighbors, particularly China, North Korea, South Korea and Russia, have at times been strained due to territorial disputes, historical animosities and defense concerns. Most recently, the Japanese government has shown concern over the increased nuclear and military activity by North Korea. Strained relations may cause uncertainty in the Japanese markets and adversely affect the overall Japanese economy in times of crisis. China has become an important trading partner with Japan, yet the countries' political relationship has become strained. Should political tension increase, it could adversely affect the economy, especially the export sector, and destabilize the region as a whole. Japan is located in a part of the world that has historically been prone to natural disasters such as earthquakes, volcanoes and tsunamis and is economically sensitive to environmental events. Any such event, such as the major earthquake and tsunami which struck Japan in March 2011, could result in a significant adverse impact on the Japanese economy. Japan also remains heavily dependent on oil imports, and higher commodity prices could therefore have a negative impact on the economy. Furthermore, Japanese corporations often engage in high levels of corporate leveraging, extensive cross-purchases of the securities of other corporations and are subject to a changing corporate governance structure. Japan may be subject to risks relating to political, economic and labor risks. Any of these risks, individually or in the aggregate, could adversely affect investments in the fund.</p><p>
<b>Small and medium-sized company risk. </b>Small and medium-sized company stocks tend to be more volatile than large company stocks. Because stock analysts are less likely to follow medium-sized companies, less information about them is available to investors. Industry-wide reversals may have a greater impact on small and medium-sized companies, since they lack the financial resources of larger companies. Small and medium-sized company stocks are typically less liquid than large company stocks.</p><p>
<b>Focus risk.</b> To the extent that the fund focuses its investments in particular industries, asset classes or sectors of the economy, any market price movements, regulatory or technological changes, or economic conditions affecting companies in those industries, asset classes or sectors may have a significant impact on the fund's performance.</p><p>
<b>Industrials sector risk.</b> To the extent that the fund invests significantly in the industrials sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the industrials sector. Companies in the industrials sector may be adversely affected by changes in government regulation, world events and economic conditions. In addition, companies in the industrials sector may be adversely affected by environmental damages, product liability claims and exchange rates.</p><p>
<b>Consumer discretionary sector risk. </b>To the extent that the fund invests significantly in the consumer discretionary sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the consumer discretionary sector. Companies engaged in the consumer discretionary sector are subject to fluctuations in supply and demand. These companies may also be adversely affected by changes in consumer spending as a result of world events, political and economic conditions, commodity price volatility, changes in exchange rates, imposition of import controls, increased competition, depletion of resources and labor relations.</p><p>
<b>Currency risk.</b> Changes in currency exchange rates and the relative value of non-US currencies may affect the value of the fund's investment and the value of your fund shares. Because the fund's NAV is determined on the basis of the US dollar and the fund does not attempt to hedge against changes in the value of non-US currencies, investors may lose money if the foreign currency depreciates against the US dollar, even if the foreign currency value of the fund's holdings in that market increases. Conversely, the dollar value of your investment in the fund may go up if the value of the foreign currency appreciates against the US dollar. The value of the US dollar measured against other currencies is influenced by a variety of factors. These factors include: interest rates, national debt levels and trade deficits, changes in balances of payments and trade, domestic and foreign interest and inflation rates, global or regional political, economic or financial events, monetary policies of governments, actual or potential government intervention, and global energy prices. Political instability, the possibility of government intervention and restrictive or opaque business and investment policies may also reduce the value of a country's currency. Government monetary policies and the buying or selling of currency by a country's government may also influence exchange rates. Currency exchange rates can be very volatile and can change quickly and unpredictably. Therefore, the value of an investment in the fund may also go up or down quickly and unpredictably and investors may lose money.</p><p>
<b>Passive investing risk. </b>Unlike a fund that is actively managed, in which portfolio management buys and sells securities based on research and analysis, the fund invests in securities included in, or representative of, the Underlying Index, regardless of their investment merits. Because the fund is designed to maintain a high level of exposure to the Underlying Index at all times, portfolio management generally will not buy or sell a security unless the security is added or removed, respectively, from the Underlying Index, and will not take any steps to invest defensively or otherwise reduce the risk of loss during market downturns.</p><p>
<b>Index-related risk.</b> The fund seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index as published by the index provider. There is no assurance that the Underlying Index provider will compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. Market disruptions could cause delays in the Underlying Index's rebalancing schedule. During any such delay, it is possible that the Underlying Index and, in turn, the fund will deviate from the Underlying Index's stated methodology and therefore experience returns different than those that would have been achieved under a normal rebalancing schedule. Generally, the index provider does not provide any warranty, or accept any liability, with respect to the quality, accuracy or completeness of the Underlying Index or its related data, and does not guarantee that the Underlying Index will be in line with its stated methodology. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its stated methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. The Advisor and its affiliates do not provide any warranty or guarantee against such errors. Therefore, the gains, losses or costs associated with the index provider's errors will generally be borne by the fund and its shareholders.</p><p>
<b>Tracking error risk.</b> The fund may be subject to tracking error, which is the divergence of the fund's performance from that of the Underlying Index. The performance of the fund may diverge from that of the Underlying Index for a number of reasons, including operating expenses, transaction costs, cash flows and operational inefficiencies. The fund's return also may diverge from the return of the Underlying Index because the fund bears the costs and risks associated with buying and selling securities (especially when rebalancing the fund's securities holdings to reflect changes in the Underlying Index) while such costs and risks are not factored into the return of the Underlying Index. Transaction costs, including brokerage costs, will decrease the fund's NAV to the extent not offset by the transaction fee payable by an "Authorized Participant" ("AP"). Market disruptions and regulatory restrictions could have an adverse effect on the fund's ability to adjust its exposure in order to track the Underlying Index. To the extent that portfolio management uses a representative sampling approach (investing in a representative selection of securities included in the Underlying Index rather than all securities in the Underlying Index), such approach may cause the fund's return to not be as well correlated with the return of the Underlying Index as would be the case if the fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index. In addition, the fund may not be able to invest in certain securities included in the Underlying Index, or invest in them in the exact proportions in which they are represented in the Underlying Index, due to government imposed legal restrictions or limitations, a lack of liquidity in the markets in which such securities trade, potential adverse tax consequences or other regulatory reasons. To the extent the fund calculates its net asset value based on fair value prices and the value of the Underlying Index is based on market prices (i.e., the value of the Underlying Index is not based on fair value prices), the fund's ability to track the Underlying Index may be adversely affected. Tracking error risk may be higher for funds that track a foreign index, or an index that includes foreign securities, because regulatory and reporting requirements may differ from those in the US, and there is a heightened risk associated with limited availability and reliability of data used to construct the index. Tracking error risk may also be heightened during times of increased market volatility or other unusual market conditions. For tax efficiency purposes, the fund may sell certain securities, and such sale may cause the fund to realize a loss and deviate from the performance of the Underlying Index. In light of the factors discussed above, the fund's return may deviate significantly from the return of the Underlying Index.</p><p>
<b>Market price risk. </b>Fund shares are listed for trading on an exchange and are bought and sold in the secondary market at market prices. The market prices of shares will fluctuate, in some cases materially, in response to changes in the NAV and supply and demand for shares. As a result, the trading prices of shares may deviate significantly from the NAV during periods of market volatility. The Advisor cannot predict whether shares will trade above, below or at their NAV. Given the fact that shares can be created and redeemed in Creation Units (defined below), the Advisor believes that large discounts or premiums to the NAV of shares should not be sustained in the long-term. If market makers exit the business or are unable to continue making markets in fund shares, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market). Further, while the creation/redemption feature is designed to make it likely that shares normally will trade close to the value of the fund's holdings, disruptions to creations and redemptions, including disruptions at market makers, APs or market participants, or during periods of significant market volatility, may result in market prices that differ significantly from the value of the fund's holdings. Although market makers will generally take advantage of differences between the NAV and the market price of fund shares through arbitrage opportunities, there is no guarantee that they will do so. In addition, the securities held by the fund may be traded in markets that close at a different time than the exchange on which the fund's shares trade. Liquidity in those securities may be reduced after the applicable closing times. Accordingly, during the time when the exchange is open but after the applicable market closing, fixing or settlement times, bid-ask spreads and the resulting premium or discount to the shares' NAV is likely to widen. Further, secondary markets may be subject to irregular trading activity, wide bid-ask spreads and extended trade settlement periods, which could cause a material decline in the fund's NAV. The fund's investment results are measured based upon the daily NAV of the fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by those APs creating and redeeming shares directly with the fund.</p><p>
<b>Liquidity risk.</b> In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. This risk can be ongoing for any security that does not trade actively or in large volumes, for any security that trades primarily on smaller markets, and for investments that typically trade only among a limited number of large investors (such as certain types of derivatives or restricted securities). In unusual market conditions, even normally liquid securities may be affected by a degree of liquidity risk. This may affect only certain securities or an overall securities market.</p><p>Although the fund primarily seeks to redeem shares of the fund on an in-kind basis, if the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss. This may be magnified in circumstances where redemptions from the fund may be higher than normal.</p><p>
<b>Country concentration risk.</b> To the extent that the fund invests significantly in a single country, it is more likely to be impacted by events or conditions affecting that country. For example, political and economic conditions and changes in regulatory, tax or economic policy in a country could significantly affect the market in that country and in surrounding or related countries and have a negative impact on the fund's performance.</p><p>
<b>Operational and technology risk.</b> Cyber-attacks, disruptions, or failures that affect the fund's service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund's or its service providers' assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund's net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund's operations.</p><p>While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund's service providers could impact the ability to conduct the fund's operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.</p><p>
<b>Authorized Participant concentration risk.</b> The fund may have a limited number of financial institutions that may act as APs. Only APs who have entered into agreements with the fund's distributor may engage in creation or redemption transactions directly with the fund (as described in the section of this Prospectus entitled "Buying and Selling Shares"). If those APs exit the business or are unable to process creation and/or redemption orders, (including in situations where APs have limited or diminished access to capital required to post collateral) and no other AP is able to step forward to create and redeem in either of these cases, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market).</p><p>
<b>Non-diversification risk.</b> At any given time, due to the composition of the Underlying Index, the fund may be classified as "non-diversified" under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.</p><p>
<b>Counterparty risk.</b> A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.</p><p>
<b>Securities lending risk. </b>Securities lending involves the risk that the fund may lose money because the borrower of the loaned securities fails to return the securities in a timely manner or at all. The fund could also lose money in the event of a decline in the value of the collateral provided for the loaned securities or a decline in the value of any investments made with cash collateral. These events, and securities lending in general, could trigger adverse tax consequences for the fund and its investors. For example, if the fund loans its securities, the fund and its investors may lose the ability to treat certain fund distributions associated with those securities as qualified dividend income.</p>
Past Performance
<p>
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund's performance from year to year and by showing how the fund's average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund's past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. Updated performance information is available on the fund's website at Xtrackers.com (the website does not form a part of this prospectus).</p>
<table>
<tr>
<td valign="top" align="left" />
<td valign="top" align="left">Returns</td>
<td valign="top" align="left">Period ending</td>
</tr>
<tr>
<td valign="top" align="left">Best Quarter</td>
<td valign="top" align="left">8.70%</td>
<td valign="top" align="left">December 31, 2017</td>
</tr>
<tr>
<td valign="top" align="left">Worst Quarter</td>
<td valign="top" align="left">-14.72%</td>
<td valign="top" align="left">December 31, 2018</td>
</tr>
<tr>
<td valign="top" align="left">Year-to-Date</td>
<td valign="top" align="left">-6.79%</td>
<td valign="top" align="left">June 30, 2020</td>
</tr>
</table><p></p>
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax.
After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts ("IRAs") or employee-sponsored retirement plans.
Investment Objective
<p>Xtrackers J.P. Morgan ESG USD High Yield Corporate Bond ETF (the "fund") seeks investment results that correspond generally to the performance, before fees and expenses, of the J.P. Morgan ESG DM Corporate High Yield USD Index (the "Underlying Index").</p>
Fees and Expenses
<p>These are the fees and expenses that you will pay when you buy, hold and sell shares. You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below. </p>
PORTFOLIO TURNOVER 
<p>The fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may mean higher taxes if you are investing in a taxable account. These costs are not reflected in annual fund operating expenses or in the expense example, and can affect the fund's performance. During the most recent fiscal year, the fund's portfolio turnover rate was 113% of the average value of its portfolio. Prior to May 12, 2020, the fund tracked its prior underlying index, the Solactive USD High Yield Corporate Bond - Interest Rate Hedged Index. </p>
Principal Investment Strategies
<p>The fund, using a "passive" or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index, which applies environmental, social and governance ("ESG") considerations to a broader parent index. The Underlying Index generally aims to keep the broad characteristics of its parent index, the J.P. Morgan DM High Yield USD Index (a USD denominated high yield corporate bond index of developed market issuers), resulting in a broad high yield fixed income market exposure with ESG aspects.</p><p>The Underlying Index uses the J.P. Morgan DM High Yield USD Index as its parent index before implementing ESG considerations. Each issuer within the parent index is given an ESG score, and assigned to a quintile based on that score. All issuers within the lowest quintile are removed from consideration for the Underlying Index, and the remainder are either weighted up or down based on which quintile they were scored in; with the best performers being weighted more heavily, and the remaining lower scoring issuers being weighted more lightly.</p><p>The Index Provider obtains ESG factor valuations for each issuer in the parent index from RepRisk and Sustainalytics, which are investment research providers dedicated to responsible investing and ESG research. These ESG factor valuations are obtained from each provider and translated by the Index Provider to a range of 0 – 100, with 100 being the best possible score. The Index Provider's finalized ESG score for each issuer incorporates a 3-month rolling average of the scores from each individual provider. The Index Provider calculates ESG scores daily. </p><p>In addition, if an instrument is categorized as "green" by the Climate Bond Initiative ("CBI") under the criteria used by the CBI to certify bonds as being closely linked with green and climate friendly assets or projects, the security will be upgraded one quintile from the quintile to which it originally was assigned. Issuers involved in thermal coal, tobacco, weapons, or UN Global Compact principle violation are excluded from the index regardless of their ESG score.</p><p>The Underlying Index consists of fixed rate bonds, floating rate bonds, hybrid bonds, step-up bonds (securities that pay an initial interest rate but also have a feature where the rate increases at periodic intervals), payment-in-kind ("PIK") bonds, toggle bonds (PIK bonds where the issuer has an option to defer an interest payment by paying an increased coupon in the future), amortizer bonds (bonds where the principal on the debt is paid down regularly), perpetual bonds (a bond with no maturity date), Sukuk bonds (Islamic financial certificates) and all subordinated financial bonds excluding AT1 bonds (a category of bonds issued by banks designed to absorb losses if the bank's equity capital dips below a certain threshold), structured bonds, credit enhanced bonds, and securities issued by sovereign and quasi-sovereign entities (bonds issued by entities wholly-owned or guaranteed by the government). Additional exclusions include bonds with less than two years to maturity to enter the Underlying Index, less than 13 months to maturity if already part of the Underlying Index, and have less than $250 million of minimum issue size. The Underling Index only includes eligible bonds issued by countries in developed markets which currently are Australia, Austria, Belgium, Canada, Denmark, Finland, France, Germany, Greece, Ireland, Italy, Malta, Netherlands, New Zealand, Norway, Puerto Rico, Spain, Sweden, the United Kingdom, and the United States.</p><p>Inclusion in the Underlying Index is limited to USD denominated high yield securities of developed market issuers. Credit rating will be determined based on the following rules: (i) the middle rating of the S&P Global Ratings ("S&P"), Moody's Investors Services, Inc. ("Moody's") or Fitch Investors Services, Inc. ("Fitch"); (ii) the lower rating when two ratings are available; and (iii) the sole rating when only one rating is provided. Under normal circumstances, the Underlying Index is rebalanced on a monthly basis. The fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index's rebalance schedule will result in corresponding changes to the fund's rebalance schedule.</p><p>As of July 31, 2020, the Underlying Index was comprised of 1,832 bonds issued by 769 different issuers, with an average market capitalization of approximately $455 million and a minimum market capitalization of approximately $13 million. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of securities of issuers from the United States (87.7%). The fund uses a representative sampling indexing strategy in seeking to track the Underlying Index, meaning it generally will invest in a sample of securities in the index whose risk, return and other characteristics resemble the risk, return and other characteristics of the Underlying Index as a whole.</p><p>The fund will normally invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in corporate bonds rated high yield by credit rating agencies (e.g., S&P rating below BBB-). In addition, the fund will invest at least 80% of its total assets, but typically far more, in instruments that comprise the Underlying Index.</p><p>
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of issuers in the consumer (19.8%) sector. The consumer sector includes apparel/textiles, consumer products, diversified services (consumer/business solutions), food and beverage producers, food and beverage retail (restaurants), gaming/lodging/leisure, internet/ecommerce, non-food retail/specialty retail, supermarkets and retail pharmacy, and tobacco. To the extent that the fund tracks the Underlying Index, the fund's investment in certain sectors or countries may change over time.</p><p>The fund is not sponsored, endorsed, or promoted by J.P. Morgan Chase & Co., and J.P. Morgan Chase & Co. bears no liability with respect to any index on which the fund is based. </p><p>
<b>Securities lending.</b> The fund may lend its portfolio securities to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. In connection with such loans, the fund receives liquid collateral equal to at least 102% of the value of the portfolio securities being lent. This collateral is marked to market on a daily basis. The fund may lend its portfolio securities in an amount up to 33 1/3% of its total assets.</p>
Main Risks
<p>
As with any investment, you could lose all or part of your investment in the fund, and the fund's performance could trail that of other investments. The fund is subject to the main risks noted below, any of which may adversely affect the fund's net asset value ("NAV"), trading price, yield, total return and ability to meet its investment objective, as well as numerous other risks that are described in greater detail in the section of this Prospectus entitled "Additional Information About Fund Strategies, Underlying Index Information and Risks" and in the Statement of Additional Information ("SAI").</p><p>
<b>Fixed income markets risk.</b> The values of many types of debt securities have been reduced over a period of many years since the credit crisis started due to problems relating to subprime mortgages. These market problems have also affected debt securities that are not related to mortgage loans. In addition, broker-dealers and other market participants have been less willing to make a market in some types of debt instruments, which has impacted the liquidity of those instruments. These developments also have had a negative effect on the broader economy.</p><p>
<b>Market disruption risk.</b> Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Market disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.</p><p>Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant uncertainty, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.</p><p>
<b>ESG investment strategy risk.</b> The Underlying Index's ESG methodology, and thus the fund's investment strategy, limits the types and number of investment opportunities available to the fund and, as a result, the fund may underperform other funds that do not have an ESG focus. The Underlying Index's ESG methodology may result in the fund investing in securities or industry sectors that underperform the market as a whole or underperform other funds screened for ESG standards. In addition, the index provider may be unsuccessful in creating an index composed of companies that exhibit positive ESG characteristics. Regulatory changes or interpretations regarding the definitions and/or use of ESG criteria could have a material adverse effect on the fund's ability to invest in accordance with its investment policies and/or achieve its investment objective, as well as the ability of certain classes of investors to invest in funds following an ESG strategy such as the fund.</p><p>
<b>Fixed income securities risk.</b> Fixed-income securities are subject to the risk of the issuer's inability to meet principal and interest payments on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity, market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk). Lower rated fixed-income securities have greater volatility because there is less certainty that principal and interest payments will be made as scheduled. There is a risk that a lack of liquidity or other adverse credit market conditions may hamper the fund's ability to sell the debt securities in which it invests or to find and purchase debt instruments included in the Underlying Index.</p><p>
<b>Consumer sector risk. </b>To the extent that the fund invests significantly in the consumer sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the consumer sector. Companies engaged in the consumer sector are subject to fluctuations in supply and demand. These companies may also be adversely affected by changes in consumer spending as a result of world events, political and economic conditions, commodity price volatility, changes in exchange rates, imposition of import controls, increased competition, depletion of resources and labor relations.</p><p>
<b>High yield securities risk.</b> Securities that are rated below investment-grade (commonly referred to as "junk bonds," including those bonds rated lower than "BBB-" by Standard & Poor's Ratings Services and Fitch, Inc. or "Baa3" by Moody's Investors Services, Inc.), or are unrated, may be deemed speculative and may be more volatile than higher rated securities of similar maturity with respect to the issuer's continuing ability to meet principal and interest payments. High-yield debt securities' total return and yield may generally be expected to fluctuate more than the total return and yield of investment-grade debt securities. A real or perceived economic downturn or an increase in market interest rates could cause a decline in the value of high-yield debt securities, result in increased redemptions and/or result in increased portfolio turnover, which could result in a decline in the NAV of the fund, reduce liquidity for certain investments and/or increase costs. High-yield debt securities are often thinly traded and can be more difficult to sell and value accurately than investment-grade debt securities because there may be no established secondary market. Investments in high-yield debt securities could increase liquidity risk for the fund. In addition, the market for high-yield debt securities could experience sudden and sharp volatility, which is generally associated more with investments in stocks.</p><p>
<b>Interest rate risk.</b> When interest rates rise, prices of debt securities generally decline. The longer the duration of the fund's debt securities, the more sensitive the fund will be to interest rate changes. (As a general rule, a 1% rise in interest rates means a 1% fall in value for every year of duration.) Recent and potential future changes in monetary policy made by central banks or governments are likely to affect the level of interest rates. Rising interest rates may prompt redemptions from the fund. Although the fund primarily seeks to redeem shares of the fund on an in-kind basis, if the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss. The fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates. Certain countries have experienced negative interest rates on certain debt securities. Negative or very low interest rates could magnify the risks associated with changes in interest rates. In general, changing interest rates, including rates that fall below zero, could have unpredictable effects on markets and may expose debt and related markets to heightened volatility. During periods when interest rates are low or there are negative interest rates, the fund's yield (and total return) also may be low or the fund may be unable to maintain positive returns. In addition, in response to the COVID-19 pandemic, as with other serious economic disruptions, governmental authorities and regulators are enacting significant fiscal and monetary policy changes, including providing direct capital infusions into companies, creating new monetary programs and lowering interest rates considerably. These actions present heightened risks to debt instruments, and such risks could be even further heightened if these actions are unexpectedly or suddenly reversed or are ineffective in achieving their desired outcomes.</p><p>London Interbank Offered Rate (LIBOR), the benchmark rate for certain floating rate securities, is expected to be phased out by the end of 2021. The fund or the instruments in which the fund invests may be adversely affected by the phase out by, among other things, increased volatility or illiquidity. There remains uncertainty regarding the future use of LIBOR and the nature of any replacement reference rate and, accordingly, it is difficult to predict the impact to the fund of the transition away from LIBOR.</p><p>
<b>Credit risk. </b>The fund's performance could be hurt if an issuer of a debt security suffers an adverse change in financial condition that results in a payment default, security downgrade or inability to meet a financial obligation. Credit risk is greater for lower-rated securities. Because the issuers of junk bonds may be in uncertain financial health, the prices of their debt securities could be more vulnerable to bad economic news, or even the expectation of bad news, than investment-grade debt securities. Credit ratings may not be an accurate assessment of credit risk.</p><p>
<b>Prepayment and extension risk. </b>When interest rates fall, issuers of high interest debt obligations may pay off the debts earlier than expected (prepayment risk), and the fund may have to reinvest the proceeds at lower yields. When interest rates rise, issuers of lower interest debt obligations may pay off the debts later than expected (extension risk), thus keeping the fund's assets tied up in lower interest debt obligations. Ultimately, any unexpected behavior in interest rates could increase the volatility of the fund's share price and yield and could hurt fund performance. Prepayments could also create capital gains tax liability in some instances.</p><p>
<b>Foreign investment risk.</b> The fund faces the risks inherent in foreign investing. Adverse political, economic or social developments could undermine the value of the fund's investments or prevent the fund from realizing the full value of its investments. Financial reporting standards for companies based in foreign markets differ from those in the US. Additionally, foreign securities markets generally are smaller and less liquid than US markets.</p><p>Foreign governments may restrict investment by foreigners, limit withdrawal of trading profit or currency from the country, restrict currency exchange or seize foreign investments. The investments of the fund may also be subject to foreign withholding taxes. Foreign brokerage commissions and other fees are generally higher than those for US investments, and the transactions and custody of foreign assets may involve delays in payment, delivery or recovery of money or investments.</p><p>Foreign markets can have liquidity risks beyond those typical of US markets. Because foreign exchanges generally are smaller and less liquid than US exchanges, buying and selling foreign investments can be more difficult and costly. Relatively small transactions can sometimes materially affect the price and availability of securities. In certain situations, it may become virtually impossible to sell an investment at a price that approaches portfolio management's estimate of its value. For the same reason, it may at times be difficult to value the fund's foreign investments. In addition, because non-US markets may be open on days when the fund does not price its shares, the value of the securities in the fund's portfolio may change on days when shareholders will not be able to purchase or sell the fund's shares.</p><p>
<b>Focus risk.</b> To the extent that the fund focuses its investments in particular industries, asset classes or sectors of the economy, any market price movements, regulatory or technological changes, or economic conditions affecting companies in those industries, asset classes or sectors may have a significant impact on the fund's performance.</p><p>
<b>Restricted securities/Rule 144A securities risk. </b>The fund may invest a significant portion of its assets in securities offered pursuant to Rule 144A under the Securities Act of 1933, as amended (the "1933 Act"), which are restricted securities. They may be less liquid and more difficult to value than other investments because such securities may not be readily marketable in broad public markets. The fund may not be able to sell a restricted security promptly or at a reasonable price. Although there is a substantial institutional market for Rule 144A securities, it is not possible to predict exactly how the market for Rule 144A securities will develop. A restricted security that was liquid at the time of purchase may subsequently become illiquid and its value may decline as a result. Restricted securities that are deemed illiquid will count towards the fund's 15% limitation on illiquid securities. In addition, transaction costs may be higher for restricted securities than for more liquid securities. The fund may have to bear the expense of registering Rule 144A securities for resale and the risk of substantial delays in effecting the registration.</p><p>
<b>Liquidity risk.</b> In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. This risk can be ongoing for any security that does not trade actively or in large volumes, for any security that trades primarily on smaller markets, and for investments that typically trade only among a limited number of large investors (such as certain types of derivatives or restricted securities). In unusual market conditions, even normally liquid securities may be affected by a degree of liquidity risk. This may affect only certain securities or an overall securities market.</p><p>Although the fund primarily seeks to redeem shares of the fund on an in-kind basis, if the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss. This may be magnified in a rising interest rate environment or other circumstances where redemptions from the fund may be higher than normal.</p><p>
<b>Pricing risk. </b>If market conditions make it difficult to value some investments, the fund may value these investments using more subjective methods, such as fair value pricing. In such cases, the value determined for an investment could be different from the value realized upon such investment's sale. As a result, you could pay more than the market value when buying fund shares or receive less than the market value when selling fund shares.</p><p>
<b>Issuer-specific risk.</b> The value of an individual security or particular type of security may be more volatile than the market as a whole and may perform differently from the value of the market as a whole.</p><p>
<b>Passive investing risk. </b>Unlike a fund that is actively managed, in which portfolio management buys and sells securities based on research and analysis, the fund invests in securities included in, or representative of, the Underlying Index, regardless of their investment merits. Because the fund is designed to maintain a high level of exposure to the Underlying Index at all times, portfolio management generally will not buy or sell a security unless the security is added or removed, respectively, from the Underlying Index, and will not take any steps to invest defensively or otherwise reduce the risk of loss during market downturns.</p><p>
<b>Index-related risk.</b> The fund seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index as published by the index provider. There is no assurance that the Underlying Index provider will compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. Market disruptions could cause delays in the Underlying Index's rebalancing schedule. During any such delay, it is possible that the Underlying Index and, in turn, the fund will deviate from the Underlying Index's stated methodology and therefore experience returns different than those that would have been achieved under a normal rebalancing schedule. Generally, the index provider does not provide any warranty, or accept any liability, with respect to the quality, accuracy or completeness of the Underlying Index or its related data, and does not guarantee that the Underlying Index will be in line with its stated methodology. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its stated methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. The Advisor and its affiliates do not provide any warranty or guarantee against such errors. Therefore, the gains, losses or costs associated with the index provider's errors will generally be borne by the fund and its shareholders.</p><p>
<b>Tracking error risk.</b> The fund may be subject to tracking error, which is the divergence of the fund's performance from that of the Underlying Index. The performance of the fund may diverge from that of the Underlying Index for a number of reasons, including operating expenses, transaction costs, cash flows and operational inefficiencies. The fund's return also may diverge from the return of the Underlying Index because the fund bears the costs and risks associated with buying and selling securities (especially when rebalancing the fund's securities holdings to reflect changes in the Underlying Index) while such costs and risks are not factored into the return of the Underlying Index. Transaction costs, including brokerage costs, will decrease the fund's NAV to the extent not offset by the transaction fee payable by an "Authorized Participant" ("AP"). Market disruptions and regulatory restrictions could have an adverse effect on the fund's ability to adjust its exposure in order to track the Underlying Index. To the extent that portfolio management uses a representative sampling approach (investing in a representative selection of securities included in the Underlying Index rather than all securities in the Underlying Index), such approach may cause the fund's return to not be as well correlated with the return of the Underlying Index as would be the case if the fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index. In addition, the fund may not be able to invest in certain securities included in the Underlying Index, or invest in them in the exact proportions in which they are represented in the Underlying Index, due to government imposed legal restrictions or limitations, a lack of liquidity in the markets in which such securities trade, potential adverse tax consequences or other regulatory reasons. To the extent the fund calculates its net asset value based on fair value prices and the value of the Underlying Index is based on market prices (i.e., the value of the Underlying Index is not based on fair value prices), the fund's ability to track the Underlying Index may be adversely affected. Tracking error risk may be higher for funds that track a foreign index, or an index that includes foreign securities, because regulatory and reporting requirements may differ from those in the US, and there is a heightened risk associated with limited availability and reliability of data used to construct the index. Tracking error risk may also be heightened during times of increased market volatility or other unusual market conditions. For tax efficiency purposes, the fund may sell certain securities, and such sale may cause the fund to realize a loss and deviate from the performance of the Underlying Index. In light of the factors discussed above, the fund's return may deviate significantly from the return of the Underlying Index.</p><p>
<b>Market price risk. </b>Fund shares are listed for trading on an exchange and are bought and sold in the secondary market at market prices. The market prices of shares will fluctuate, in some cases materially, in response to changes in the NAV and supply and demand for shares. As a result, the trading prices of shares may deviate significantly from the NAV during periods of market volatility. The Advisor cannot predict whether shares will trade above, below or at their NAV. Given the fact that shares can be created and redeemed in Creation Units (defined below), the Advisor believes that large discounts or premiums to the NAV of shares should not be sustained in the long-term. If market makers exit the business or are unable to continue making markets in fund shares, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market). Further, while the creation/redemption feature is designed to make it likely that shares normally will trade close to the value of the fund's holdings, disruptions to creations and redemptions, including disruptions at market makers, APs or market participants, or during periods of significant market volatility, may result in market prices that differ significantly from the value of the fund's holdings. Although market makers will generally take advantage of differences between the NAV and the market price of fund shares through arbitrage opportunities, there is no guarantee that they will do so. In addition, the securities held by the fund may be traded in markets that close at a different time than the exchange on which the fund's shares trade. Liquidity in those securities may be reduced after the applicable closing times. Accordingly, during the time when the exchange is open but after the applicable market closing, fixing or settlement times, bid-ask spreads and the resulting premium or discount to the shares' NAV is likely to widen. Further, secondary markets may be subject to irregular trading activity, wide bid-ask spreads and extended trade settlement periods, which could cause a material decline in the fund's NAV. The fund's investment results are measured based upon the daily NAV of the fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by those APs creating and redeeming shares directly with the fund.</p><p>
<b>Operational and technology risk.</b> Cyber-attacks, disruptions, or failures that affect the fund's service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund's or its service providers' assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund's net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund's operations.</p><p>While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund's service providers could impact the ability to conduct the fund's operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.</p><p>
<b>Authorized Participant concentration risk.</b> The fund may have a limited number of financial institutions that may act as APs. Only APs who have entered into agreements with the fund's distributor may engage in creation or redemption transactions directly with the fund (as described in the section of this Prospectus entitled "Buying and Selling Shares"). If those APs exit the business or are unable to process creation and/or redemption orders, (including in situations where APs have limited or diminished access to capital required to post collateral) and no other AP is able to step forward to create and redeem in either of these cases, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market).</p><p>
<b>Counterparty risk.</b> A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.</p><p>
<b>Geographic focus risk.</b> Focusing investments in a single country or few countries, or regions, involves increased political, regulatory and other risks. Market swings in such a targeted country, countries or regions are likely to have a greater effect on fund performance than they would in a more geographically diversified fund.</p><p>
<b>Securities lending risk. </b>Securities lending involves the risk that the fund may lose money because the borrower of the loaned securities fails to return the securities in a timely manner or at all. The fund could also lose money in the event of a decline in the value of the collateral provided for the loaned securities or a decline in the value of any investments made with cash collateral. These events, and securities lending in general, could trigger adverse tax consequences for the fund and its investors. For example, if the fund loans its securities, the fund and its investors may lose the ability to treat certain fund distributions associated with those securities as qualified dividend income.</p>
Past Performance
<p>
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund's performance from year to year and by showing how the fund's average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund's past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. Updated performance information is available on the fund's website at Xtrackers.com (the website does not form a part of this prospectus).</p><p>Prior to May 12, 2020, the fund operated with a different investment strategy. Performance would have been different if the fund's current investment strategy had been in effect. Returns prior to May 12, 2020 reflect those of the fund when it was tracking the prior underlying index. </p>
<table>
<tr>
<td valign="top" align="left" />
<td valign="top" align="left">Returns</td>
<td valign="top" align="left">Period ending</td>
</tr>
<tr>
<td valign="top" align="left">Best Quarter</td>
<td valign="top" align="left">6.29%</td>
<td valign="top" align="left">March 31, 2019</td>
</tr>
<tr>
<td valign="top" align="left">Worst Quarter</td>
<td valign="top" align="left">-6.13%</td>
<td valign="top" align="left">December 31, 2018</td>
</tr>
<tr>
<td valign="top" align="left">Year-to-Date</td>
<td valign="top" align="left">-9.51%</td>
<td valign="top" align="left">June 30, 2020</td>
</tr>
</table><p></p>
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax.
After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts ("IRAs") or employee-sponsored retirement plans.
<p>
Effective May 12, 2020, the fund changed its underlying index to the J.P. Morgan ESG DM Corporate High Yield USD Index from the Solactive USD High Yield Corporate Bond - Interest Rate Hedged Index. Returns prior to May 12, 2020 reflect performance for the fund when it was seeking investment results of the prior underlying index.
</p><p>
J.P. Morgan DM Corporate HY Index replaced Solactive High Yield Corporate Bond Index (Long only component) as the fund's broad market benchmark because the Advisor believes the J.P. Morgan DM Corporate HY Index more accurately reflects the fund's current investment strategies.
</p>
Investment Objective
<p>Xtrackers MSCI Emerging Markets Hedged Equity ETF (the "fund") seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI EM US Dollar Hedged Index (the "Underlying Index").</p>
Fees and Expenses
<p>These are the fees and expenses that you will pay when you buy, hold and sell shares. You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below. </p>
PORTFOLIO TURNOVER 
<p>The fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may mean higher taxes if you are investing in a taxable account. These costs are not reflected in annual fund operating expenses or in the expense example, and can affect the fund's performance. During the most recent fiscal year, the fund's portfolio turnover rate was 20% of the average value of its portfolio.</p>
Principal Investment Strategies
<p>The fund, using a "passive" or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index, which is designed to track emerging market performance while mitigating exposure to fluctuations between the value of the US dollar and the currencies of the countries included in the Underlying Index. The fund uses a full replication indexing strategy to seek to track the Underlying Index. As such, the fund invests directly in the component securities (or a substantial number of the component securities) of the Underlying Index in substantially the same weightings in which they are represented in the Underlying Index. If it is not possible for the fund to acquire component securities due to limited availability or regulatory restrictions, the fund may use a representative sampling indexing strategy to seek to track the Underlying Index instead of a full replication indexing strategy. "Representative sampling" is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to the Underlying Index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield), and liquidity measures similar to those of the Underlying Index. The fund may or may not hold all of the securities in the Underlying Index when using a representative sampling indexing strategy. The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the Underlying Index.</p><p>As of July 31, 2020, the Underlying Index consisted of 1,385 securities, with an average market capitalization of approximately $4.53 billion and a minimum market capitalization of approximately $123 million, from issuers in the following countries: Argentina, Brazil, Chile, China, Colombia, Czech Republic, Egypt, Greece, Hungary, India, Indonesia, Malaysia, Mexico, Pakistan, Peru, Philippines,  Poland, Qatar, Russia, Saudi Arabia, South Africa, South Korea, Taiwan, Thailand, Turkey and the United Arab Emirates. Under normal circumstances, the Underlying Index is rebalanced monthly. The fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index's rebalance schedule will result in corresponding changes to the fund's rebalance schedule.</p><p>The fund enters into forward currency contracts designed to offset the fund's exposure to foreign currencies. The fund hedges each foreign currency in the portfolio to US dollars by selling the applicable foreign currency forward at the one-month forward rate published by WM/Reuters.</p><p>The amount of forward contracts in the fund is based on the aggregate exposure of the fund and Underlying Index to each non-US currency based on currency weights as of the beginning of each month. While this approach is designed to minimize the impact of currency fluctuations on fund returns, this does not necessarily eliminate exposure to all currency fluctuations. The return of the forward currency contracts may not perfectly offset the actual fluctuations of non-US currencies relative to the US dollar. The fund may use non-deliverable forward ("NDF") contracts to execute its hedging transactions. An NDF is a contract where there is no physical settlement of two currencies at maturity (as opposed to deliverable forward contracts, which per their terms are settled by physical delivery of the currencies). Rather, based on the movement of the currencies and the contractually agreed upon exchange rate, a net cash settlement is made by one party to the other in US dollars.</p><p>The fund will normally invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the equity securities of issuers from emerging markets countries and in instruments designed to hedge against the fund's exposure to non-US currencies.</p><p>Emerging market countries are countries that major international financial institutions, such as the World Bank, generally consider to be less economically mature than developed nations. Emerging market countries can include every nation in the world except the United States, Canada, Japan, Australia, New Zealand and most countries located in Western Europe. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of securities of issuers from China (41.1%). </p><p>
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of issuers in the information technology (18.4%), financials (18.1%) and consumer discretionary (18.0%) sectors. The information technology sector includes companies engaged in developing software and providing data processing and outsourced services, along with manufacturing and distributing communications equipment, computers and other electronic equipment and instruments. The financials sector includes companies involved in banking, consumer finance, asset management and custody banks, as well as investment banking and brokerage and insurance. The consumer discretionary goods sector includes durable goods, apparel, entertainment and leisure, and automobiles. To the extent that the fund tracks the Underlying Index, the fund's investment in certain sectors or countries may change over time.</p><p>The fund may become "non-diversified," as defined under the Investment Company Act of 1940, as amended, solely as a result of a change in relative market capitalization or index weighting of one or more constituents of the index that the fund is designed to track. Shareholder approval will not be sought when the fund crosses from diversified to non-diversified status under such circumstances.</p><p>The fund or securities referred to herein are not sponsored, endorsed, issued, sold or promoted by MSCI, and MSCI bears no liability with respect to the fund or securities or any index on which the fund or securities are based.</p><p>
<b>Securities lending.</b> The fund may lend its portfolio securities to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. In connection with such loans, the fund receives liquid collateral equal to at least 102% of the value of the portfolio securities being lent. This collateral is marked to market on a daily basis. The fund may lend its portfolio securities in an amount up to 33 1/3% of its total assets.</p>
Main Risks
<p>
As with any investment, you could lose all or part of your investment in the fund, and the fund's performance could trail that of other investments. The fund is subject to the main risks noted below, any of which may adversely affect the fund's net asset value ("NAV"), trading price, yield, total return and ability to meet its investment objective, as well as numerous other risks that are described in greater detail in the section of this Prospectus entitled "Additional Information About Fund Strategies, Underlying Index Information and Risks" and in the Statement of Additional Information ("SAI").</p><p>
<b>Stock market risk.</b> When stock prices fall, you should expect the value of your investment to fall as well. Stock prices can be hurt by poor management on the part of the stock's issuer, shrinking product demand and other business risks. These may affect single companies as well as groups of companies. The market as a whole may not favor the types of investments the fund makes, which could adversely affect a stock's price, regardless of how well the company performs, or the fund's ability to sell a stock at an attractive price. There is a chance that stock prices overall will decline because stock markets tend to move in cycles, with periods of rising and falling prices. Events in the US and global financial markets, including actions taken by the US Federal Reserve or foreign central banks to stimulate or stabilize economic growth, may at times result in unusually high market volatility which could negatively affect performance. To the extent that the fund invests in a particular geographic region, capitalization or sector, the fund's performance may be affected by the general performance of that region, capitalization or sector.</p><p>
<b>Market disruption risk.</b> Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Market disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.</p><p>Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant uncertainty, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.</p><p>
<b>Foreign investment risk.</b> The fund faces the risks inherent in foreign investing. Adverse political, economic or social developments could undermine the value of the fund's investments or prevent the fund from realizing the full value of its investments. Financial reporting standards for companies based in foreign markets differ from those in the US. Additionally, foreign securities markets generally are smaller and less liquid than US markets. To the extent that the fund invests in non-US dollar denominated foreign securities, changes in currency exchange rates may affect the US dollar value of foreign securities or the income or gain received on these securities.</p><p>Foreign governments may restrict investment by foreigners, limit withdrawal of trading profit or currency from the country, restrict currency exchange or seize foreign investments. The investments of the fund may also be subject to foreign withholding taxes. Foreign brokerage commissions and other fees are generally higher than those for US investments, and the transactions and custody of foreign assets may involve delays in payment, delivery or recovery of money or investments.</p><p>Foreign markets can have liquidity risks beyond those typical of US markets. Because foreign exchanges generally are smaller and less liquid than US exchanges, buying and selling foreign investments can be more difficult and costly. Relatively small transactions can sometimes materially affect the price and availability of securities. In certain situations, it may become virtually impossible to sell an investment at a price that approaches portfolio management's estimate of its value. For the same reason, it may at times be difficult to value the fund's foreign investments. In addition, because non-US markets may be open on days when the fund does not price its shares, the value of the securities in the fund's portfolio may change on days when shareholders will not be able to purchase or sell the fund's shares.</p><p>
<b>Depositary receipt risk.</b> Depositary receipts involve similar risks to those associated with investments in securities of non-US issuers. Depositary receipts also may be less liquid than the underlying shares in their primary trading market.</p><p>
<b>Emerging market securities risk. </b>The securities of issuers located in emerging markets tend to be more volatile and less liquid than securities of issuers located in more mature economies, and emerging markets generally have less diverse and less mature economic structures and less stable political systems than those of developed countries. The securities of issuers located or doing substantial business in emerging markets are often subject to rapid and large changes in price.</p><p>
<b>Small and medium-sized company risk. </b>Small and medium-sized company stocks tend to be more volatile than large company stocks. Because stock analysts are less likely to follow medium-sized companies, less information about them is available to investors. Industry-wide reversals may have a greater impact on small and medium-sized companies, since they lack the financial resources of larger companies. Small and medium-sized company stocks are typically less liquid than large company stocks.</p><p>
<b>Focus risk.</b> To the extent that the fund focuses its investments in particular industries, asset classes or sectors of the economy, any market price movements, regulatory or technological changes, or economic conditions affecting companies in those industries, asset classes or sectors may have a significant impact on the fund's performance.</p><p>
<b>Information technology sector risk.</b> To the extent that the fund invests significantly in the information technology sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the information technology sector. Information technology companies are particularly vulnerable to government regulation and competition, both domestically and internationally, including competition from foreign competitors with lower production costs. Information technology companies also face competition for services of qualified personnel. Additionally, the products of information technology companies may face obsolescence due to rapid technological development and frequent new product introduction by competitors. Finally, information technology companies are heavily dependent on patent and intellectual property rights, the loss or impairment of which may adversely affect profitability.</p><p>
<b>Financials sector risk. </b>To the extent that the fund invests significantly in the financials sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the financials sector. The financials sector is subject to extensive government regulation, can be subject to relatively rapid change due to increasingly blurred distinctions between service segments, and can be significantly affected by availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, and price competition. </p><p>
<b>Consumer discretionary sector risk. </b>To the extent that the fund invests significantly in the consumer discretionary sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the consumer discretionary sector. Companies engaged in the consumer discretionary sector are subject to fluctuations in supply and demand. These companies may also be adversely affected by changes in consumer spending as a result of world events, political and economic conditions, commodity price volatility, changes in exchange rates, imposition of import controls, increased competition, depletion of resources and labor relations.</p><p>
<b>Forward currency contract risk.</b> The fund's forward currency contracts may not be successful in minimizing the impact of changes in the value of the non-US currencies against the US dollar. To the extent the fund's forward currency contracts are not successful, the US dollar value of your investment in the fund may go down. Furthermore, because no changes in the currency weights in the Underlying Index are made during the month to account for changes in the Underlying Index due to price movement of securities, corporate events, additions, deletions or any other changes, changes in the value of non-US currencies against the US dollar during the month may affect the value of the fund's investment. Currency exchange rates can be very volatile and can change quickly and unpredictably. Therefore, the value of an investment in the fund may also go up or down quickly and unpredictably and investors may lose money. NDFs may be less liquid than deliverable forward currency contracts. A lack of liquidity in NDFs of the hedged currency could adversely affect the fund's ability to hedge against currency fluctuations and properly track the Underlying Index.</p><p>
<b>Counterparty risk.</b> A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.</p><p>
<b>Passive investing risk. </b>Unlike a fund that is actively managed, in which portfolio management buys and sells securities based on research and analysis, the fund invests in securities included in, or representative of, the Underlying Index, regardless of their investment merits. Because the fund is designed to maintain a high level of exposure to the Underlying Index at all times, portfolio management generally will not buy or sell a security unless the security is added or removed, respectively, from the Underlying Index, and will not take any steps to invest defensively or otherwise reduce the risk of loss during market downturns.</p><p>
<b>Index-related risk.</b> The fund seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index as published by the index provider. There is no assurance that the Underlying Index provider will compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. Market disruptions could cause delays in the Underlying Index's rebalancing schedule. During any such delay, it is possible that the Underlying Index and, in turn, the fund will deviate from the Underlying Index's stated methodology and therefore experience returns different than those that would have been achieved under a normal rebalancing schedule. Generally, the index provider does not provide any warranty, or accept any liability, with respect to the quality, accuracy or completeness of the Underlying Index or its related data, and does not guarantee that the Underlying Index will be in line with its stated methodology. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its stated methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. The Advisor and its affiliates do not provide any warranty or guarantee against such errors. Therefore, the gains, losses or costs associated with the index provider's errors will generally be borne by the fund and its shareholders.</p><p>
<b>Tracking error risk.</b> The fund may be subject to tracking error, which is the divergence of the fund's performance from that of the Underlying Index. The performance of the fund may diverge from that of the Underlying Index for a number of reasons, including operating expenses, transaction costs, cash flows and operational inefficiencies. The fund's return also may diverge from the return of the Underlying Index because the fund bears the costs and risks associated with buying and selling securities (especially when rebalancing the fund's securities holdings to reflect changes in the Underlying Index) while such costs and risks are not factored into the return of the Underlying Index. Transaction costs, including brokerage costs, will decrease the fund's NAV to the extent not offset by the transaction fee payable by an "Authorized Participant" ("AP"). Market disruptions and regulatory restrictions could have an adverse effect on the fund's ability to adjust its exposure in order to track the Underlying Index. To the extent that portfolio management uses a representative sampling approach (investing in a representative selection of securities included in the Underlying Index rather than all securities in the Underlying Index), such approach may cause the fund's return to not be as well correlated with the return of the Underlying Index as would be the case if the fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index. In addition, the fund may not be able to invest in certain securities included in the Underlying Index, or invest in them in the exact proportions in which they are represented in the Underlying Index, due to government imposed legal restrictions or limitations, a lack of liquidity in the markets in which such securities trade, potential adverse tax consequences or other regulatory reasons. To the extent the fund calculates its net asset value based on fair value prices and the value of the Underlying Index is based on market prices (i.e., the value of the Underlying Index is not based on fair value prices), the fund's ability to track the Underlying Index may be adversely affected. Tracking error risk may be higher for funds that track a foreign index, or an index that includes foreign securities, because regulatory and reporting requirements may differ from those in the US, and there is a heightened risk associated with limited availability and reliability of data used to construct the index. Tracking error risk may also be heightened during times of increased market volatility or other unusual market conditions. For tax efficiency purposes, the fund may sell certain securities, and such sale may cause the fund to realize a loss and deviate from the performance of the Underlying Index. In light of the factors discussed above, the fund's return may deviate significantly from the return of the Underlying Index.</p><p>
<b>Market price risk. </b>Fund shares are listed for trading on an exchange and are bought and sold in the secondary market at market prices. The market prices of shares will fluctuate, in some cases materially, in response to changes in the NAV and supply and demand for shares. As a result, the trading prices of shares may deviate significantly from the NAV during periods of market volatility. The Advisor cannot predict whether shares will trade above, below or at their NAV. Given the fact that shares can be created and redeemed in Creation Units (defined below), the Advisor believes that large discounts or premiums to the NAV of shares should not be sustained in the long-term. If market makers exit the business or are unable to continue making markets in fund shares, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market). Further, while the creation/redemption feature is designed to make it likely that shares normally will trade close to the value of the fund's holdings, disruptions to creations and redemptions, including disruptions at market makers, APs or market participants, or during periods of significant market volatility, may result in market prices that differ significantly from the value of the fund's holdings. Although market makers will generally take advantage of differences between the NAV and the market price of fund shares through arbitrage opportunities, there is no guarantee that they will do so. In addition, the securities held by the fund may be traded in markets that close at a different time than the exchange on which the fund's shares trade. Liquidity in those securities may be reduced after the applicable closing times. Accordingly, during the time when the exchange is open but after the applicable market closing, fixing or settlement times, bid-ask spreads and the resulting premium or discount to the shares' NAV is likely to widen. Further, secondary markets may be subject to irregular trading activity, wide bid-ask spreads and extended trade settlement periods, which could cause a material decline in the fund's NAV. The fund's investment results are measured based upon the daily NAV of the fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by those APs creating and redeeming shares directly with the fund.</p><p>
<b>Liquidity risk.</b> In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. This risk can be ongoing for any security that does not trade actively or in large volumes, for any security that trades primarily on smaller markets, and for investments that typically trade only among a limited number of large investors (such as certain types of derivatives or restricted securities). In unusual market conditions, even normally liquid securities may be affected by a degree of liquidity risk. This may affect only certain securities or an overall securities market.</p><p>Although the fund primarily seeks to redeem shares of the fund on an in-kind basis, if the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss. This may be magnified in circumstances where redemptions from the fund may be higher than normal.</p><p>
<b>Geographic focus risk.</b> Focusing investments in a single country or few countries, or regions, involves increased political, regulatory and other risks. Market swings in such a targeted country, countries or regions are likely to have a greater effect on fund performance than they would in a more geographically diversified fund.</p><p>
<b>Operational and technology risk.</b> Cyber-attacks, disruptions, or failures that affect the fund's service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund's or its service providers' assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund's net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund's operations.</p><p>While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund's service providers could impact the ability to conduct the fund's operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.</p><p>
<b>Authorized Participant concentration risk.</b> The fund may have a limited number of financial institutions that may act as APs. Only APs who have entered into agreements with the fund's distributor may engage in creation or redemption transactions directly with the fund (as described in the section of this Prospectus entitled "Buying and Selling Shares"). If those APs exit the business or are unable to process creation and/or redemption orders, (including in situations where APs have limited or diminished access to capital required to post collateral) and no other AP is able to step forward to create and redeem in either of these cases, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market).</p><p>
<b>Non-diversification risk.</b> At any given time, due to the composition of the Underlying Index, the fund may be classified as "non-diversified" under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.</p><p>
<b>Securities lending risk. </b>Securities lending involves the risk that the fund may lose money because the borrower of the loaned securities fails to return the securities in a timely manner or at all. The fund could also lose money in the event of a decline in the value of the collateral provided for the loaned securities or a decline in the value of any investments made with cash collateral. These events, and securities lending in general, could trigger adverse tax consequences for the fund and its investors. For example, if the fund loans its securities, the fund and its investors may lose the ability to treat certain fund distributions associated with those securities as qualified dividend income.</p>
Past Performance
<p>
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund's performance from year to year and by showing how the fund's average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund's past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. Updated performance information is available on the fund's website at Xtrackers.com (the website does not form a part of this prospectus).</p>
<table>
<tr>
<td valign="top" align="left" />
<td valign="top" align="left">Returns</td>
<td valign="top" align="left">Period ending</td>
</tr>
<tr>
<td valign="top" align="left">Best Quarter</td>
<td valign="top" align="left">9.54%</td>
<td valign="top" align="left">March 31, 2019</td>
</tr>
<tr>
<td valign="top" align="left">Worst Quarter</td>
<td valign="top" align="left">-13.21%</td>
<td valign="top" align="left">September 30, 2015</td>
</tr>
<tr>
<td valign="top" align="left">Year-to-Date</td>
<td valign="top" align="left">-5.30%</td>
<td valign="top" align="left">June 30, 2020</td>
</tr>
</table><p></p>
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax.
After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts ("IRAs") or employee-sponsored retirement plans.
Investment Objective
<p>Xtrackers MSCI EAFE High Dividend Yield Equity ETF (the "fund") seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI EAFE High Dividend Yield Index (the "Underlying Index").</p>
Fees and Expenses
<p>These are the fees and expenses that you will pay when you buy, hold and sell shares. You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below. </p>
PORTFOLIO TURNOVER 
<p>The fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may mean higher taxes if you are investing in a taxable account. These costs are not reflected in annual fund operating expenses or in the expense example, and can affect the fund's performance. During the most recent fiscal year, the fund's portfolio turnover rate was 57% of the average value of its portfolio.</p>
Principal Investment Strategies
<p>The fund, using a "passive" or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index, which is designed to track developed market performance.</p><p>The fund uses a full replication indexing strategy to seek to track the Underlying Index. As such, the fund invests directly in the component securities (or a substantial number of the component securities) of the Underlying Index in substantially the same weightings in which they are represented in the Underlying Index. If it is not possible for the fund to acquire component securities due to limited availability or regulatory restrictions, the fund may use a representative sampling indexing strategy to seek to track the Underlying Index instead of a full replication indexing strategy. "Representative sampling" is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to the Underlying Index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield), and liquidity measures similar to those of the Underlying Index. The fund may or may not hold all of the securities in the Underlying Index when using a representative sampling indexing strategy. The Underlying Index is designed to reflect the performance of equities (excluding REITs) in its parent index, the MSCI EAFE Index, with higher dividend income and quality characteristics than average dividend yields of equities in the parent index, where such higher dividend income and quality characteristics are both sustainable and persistent. The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the Underlying Index.</p><p>The Underlying Index is a free float adjusted market capitalization weighted index. As of July 31, 2020, the Underlying Index consisted of 117 securities, with an average market capitalization of approximately $16.11 billion and a minimum market capitalization of approximately $1.55 billion from issuers in the following countries: Australia, Belgium, Denmark, Finland, France, Germany, Hong Kong, Israel, Italy, Japan, Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland and the United Kingdom. Under normal circumstances. the Underlying Index is rebalanced semi-annually in May and November. The fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index's rebalance schedule will result in corresponding changes to the fund's rebalance schedule.</p><p>The fund will normally invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities located in developed countries in Europe, Australasia and the Far East. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of securities of issuers from the United Kingdom (22.1%) and Japan (19.1%). The fund will not enter into transactions to hedge against declines in the value of the fund's assets that are denominated in foreign currency.</p><p>
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of issuers in the financials sector (21%). The financials sector includes companies involved in banking, consumer finance, asset management and custody banks, as well as investment banking and brokerage and insurance. To the extent that the fund tracks the Underlying Index, the fund's investment in certain sectors or countries may change over time.</p><p>While the fund is currently classified as "non-diversified" under the Investment Company Act of 1940, it may operate as or become classified as "diversified" over time. The fund could again become non-diversified solely as a result of a change in relative market capitalization or index weighting of one or more constituents of the index that the fund is designed to track. Shareholder approval will not be sought when the fund crosses from diversified to non-diversified status under such circumstances.</p><p>The fund or securities referred to herein are not sponsored, endorsed, issued, sold or promoted by MSCI, and MSCI bears no liability with respect to the fund or securities or any index on which the fund or securities are based.</p><p>
<b>Securities lending.</b> The fund may lend its portfolio securities to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. In connection with such loans, the fund receives liquid collateral equal to at least 102% of the value of the portfolio securities being lent. This collateral is marked to market on a daily basis. The fund may lend its portfolio securities in an amount up to 33 1/3% of its total assets.</p>
Main Risks
<p>
As with any investment, you could lose all or part of your investment in the fund, and the fund's performance could trail that of other investments. The fund is subject to the main risks noted below, any of which may adversely affect the fund's net asset value ("NAV"), trading price, yield, total return and ability to meet its investment objective, as well as numerous other risks that are described in greater detail in the section of this Prospectus entitled "Additional Information About Fund Strategies, Underlying Index Information and Risks" and in the Statement of Additional Information ("SAI").</p><p>
<b>Stock market risk.</b> When stock prices fall, you should expect the value of your investment to fall as well. Stock prices can be hurt by poor management on the part of the stock's issuer, shrinking product demand and other business risks. These may affect single companies as well as groups of companies. The market as a whole may not favor the types of investments the fund makes, which could adversely affect a stock's price, regardless of how well the company performs, or the fund's ability to sell a stock at an attractive price. There is a chance that stock prices overall will decline because stock markets tend to move in cycles, with periods of rising and falling prices. Events in the US and global financial markets, including actions taken by the US Federal Reserve or foreign central banks to stimulate or stabilize economic growth, may at times result in unusually high market volatility which could negatively affect performance. To the extent that the fund invests in a particular geographic region, capitalization or sector, the fund's performance may be affected by the general performance of that region, capitalization or sector.</p><p>
<b>Market disruption risk.</b> Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Market disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.</p><p>Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant uncertainty, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.</p><p>
<b>Dividend-paying stock risk.</b> As a category, dividend-paying stocks may underperform non-dividend paying stocks (and the stock market as a whole) over any period of time. In addition, issuers of dividend-paying stocks may have discretion to defer or stop paying dividends for a stated period of time, or the anticipated acceleration of dividends may not occur as a result of, among other things, a sharp rise in interest rates or an economic downturn. If the dividend-paying stocks held by the fund reduce or stop paying dividends, the fund's ability to generate income may be adversely affected.</p><p>
<b>Foreign investment risk.</b> The fund faces the risks inherent in foreign investing. Adverse political, economic or social developments could undermine the value of the fund's investments or prevent the fund from realizing the full value of its investments. Financial reporting standards for companies based in foreign markets differ from those in the US. Additionally, foreign securities markets generally are smaller and less liquid than US markets. To the extent that the fund invests in non-US dollar denominated foreign securities, changes in currency exchange rates may affect the US dollar value of foreign securities or the income or gain received on these securities.</p><p>Foreign governments may restrict investment by foreigners, limit withdrawal of trading profit or currency from the country, restrict currency exchange or seize foreign investments. The investments of the fund may also be subject to foreign withholding taxes. Foreign brokerage commissions and other fees are generally higher than those for US investments, and the transactions and custody of foreign assets may involve delays in payment, delivery or recovery of money or investments.</p><p>Foreign markets can have liquidity risks beyond those typical of US markets. Because foreign exchanges generally are smaller and less liquid than US exchanges, buying and selling foreign investments can be more difficult and costly. Relatively small transactions can sometimes materially affect the price and availability of securities. In certain situations, it may become virtually impossible to sell an investment at a price that approaches portfolio management's estimate of its value. For the same reason, it may at times be difficult to value the fund's foreign investments. In addition, because non-US markets may be open on days when the fund does not price its shares, the value of the securities in the fund's portfolio may change on days when shareholders will not be able to purchase or sell the fund's shares.</p><p>
<b>Depositary receipt risk.</b> Depositary receipts involve similar risks to those associated with investments in securities of non-US issuers. Depositary receipts also may be less liquid than the underlying shares in their primary trading market.</p><p>
<b>European investment risk.</b> European financial markets have experienced volatility in recent years and have been adversely affected by concerns about economic downturns, credit rating downgrades, rising government debt level and possible default on or restructuring of government debt in several European countries. A default or debt restructuring by any European country would adversely impact holders of that country's debt, and sellers of credit default swaps linked to that country's creditworthiness. Most countries in Western Europe are members of the European Union (EU), which faces major issues involving its membership, structure, procedures and policies. In June 2016, citizens of the United Kingdom approved a referendum to leave the EU. On January 31, 2020, the United Kingdom officially withdrew from the EU pursuant to a withdrawal agreement, providing for a transition period in which the United Kingdom will seek to negotiate and finalize a trade deal with the EU. The transition period will end on December 31, 2020 and can no longer be extended under the terms of the withdrawal agreement. Significant uncertainty exists regarding any adverse economic and political effects the United Kingdom's withdrawal may have on the United Kingdom, other EU countries and the global economy, which could be significant, potentially resulting in increased volatility and illiquidity and lower economic growth.</p><p>European countries are also significantly affected by fiscal and monetary controls implemented by the European Economic and Monetary Union (EMU), and it is possible that the timing and substance of these controls may not address the needs of all EMU member countries. Investing in euro-denominated securities also risks exposure to a currency that may not fully reflect the strengths and weaknesses of the disparate economies that comprise Europe. There is continued concern over member state-level support for the euro, which could lead to certain countries leaving the EMU, the implementation of currency controls, or potentially the dissolution of the euro. The dissolution of the euro could have significant negative effects on European financial markets.</p><p>
<b>Small and medium-sized company risk. </b>Small and medium-sized company stocks tend to be more volatile than large company stocks. Because stock analysts are less likely to follow medium-sized companies, less information about them is available to investors. Industry-wide reversals may have a greater impact on small and medium-sized companies, since they lack the financial resources of larger companies. Small and medium-sized company stocks are typically less liquid than large company stocks.</p><p>
<b>Focus risk.</b> To the extent that the fund focuses its investments in particular industries, asset classes or sectors of the economy, any market price movements, regulatory or technological changes, or economic conditions affecting companies in those industries, asset classes or sectors may have a significant impact on the fund's performance.</p><p>
<b>Financials sector risk. </b>To the extent that the fund invests significantly in the financials sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the financials sector. The financials sector is subject to extensive government regulation, can be subject to relatively rapid change due to increasingly blurred distinctions between service segments, and can be significantly affected by availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, and price competition. </p><p>
<b>Currency risk.</b> Changes in currency exchange rates and the relative value of non-US currencies may affect the value of the fund's investment and the value of your fund shares. Because the fund's NAV is determined on the basis of the US dollar and the fund does not attempt to hedge against changes in the value of non-US currencies, investors may lose money if the foreign currency depreciates against the US dollar, even if the foreign currency value of the fund's holdings in that market increases. Conversely, the dollar value of your investment in the fund may go up if the value of the foreign currency appreciates against the US dollar. The value of the US dollar measured against other currencies is influenced by a variety of factors. These factors include: interest rates, national debt levels and trade deficits, changes in balances of payments and trade, domestic and foreign interest and inflation rates, global or regional political, economic or financial events, monetary policies of governments, actual or potential government intervention, and global energy prices. Political instability, the possibility of government intervention and restrictive or opaque business and investment policies may also reduce the value of a country's currency. Government monetary policies and the buying or selling of currency by a country's government may also influence exchange rates. Currency exchange rates can be very volatile and can change quickly and unpredictably. Therefore, the value of an investment in the fund may also go up or down quickly and unpredictably and investors may lose money.</p><p>
<b>Passive investing risk. </b>Unlike a fund that is actively managed, in which portfolio management buys and sells securities based on research and analysis, the fund invests in securities included in, or representative of, the Underlying Index, regardless of their investment merits. Because the fund is designed to maintain a high level of exposure to the Underlying Index at all times, portfolio management generally will not buy or sell a security unless the security is added or removed, respectively, from the Underlying Index, and will not take any steps to invest defensively or otherwise reduce the risk of loss during market downturns.</p><p>
<b>Index-related risk.</b> The fund seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index as published by the index provider. There is no assurance that the Underlying Index provider will compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. Market disruptions could cause delays in the Underlying Index's rebalancing schedule. During any such delay, it is possible that the Underlying Index and, in turn, the fund will deviate from the Underlying Index's stated methodology and therefore experience returns different than those that would have been achieved under a normal rebalancing schedule. Generally, the index provider does not provide any warranty, or accept any liability, with respect to the quality, accuracy or completeness of the Underlying Index or its related data, and does not guarantee that the Underlying Index will be in line with its stated methodology. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its stated methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. The Advisor and its affiliates do not provide any warranty or guarantee against such errors. Therefore, the gains, losses or costs associated with the index provider's errors will generally be borne by the fund and its shareholders.</p><p>
<b>Tracking error risk.</b> The fund may be subject to tracking error, which is the divergence of the fund's performance from that of the Underlying Index. The performance of the fund may diverge from that of the Underlying Index for a number of reasons, including operating expenses, transaction costs, cash flows and operational inefficiencies. The fund's return also may diverge from the return of the Underlying Index because the fund bears the costs and risks associated with buying and selling securities (especially when rebalancing the fund's securities holdings to reflect changes in the Underlying Index) while such costs and risks are not factored into the return of the Underlying Index. Transaction costs, including brokerage costs, will decrease the fund's NAV to the extent not offset by the transaction fee payable by an "Authorized Participant" ("AP"). Market disruptions and regulatory restrictions could have an adverse effect on the fund's ability to adjust its exposure in order to track the Underlying Index. To the extent that portfolio management uses a representative sampling approach (investing in a representative selection of securities included in the Underlying Index rather than all securities in the Underlying Index), such approach may cause the fund's return to not be as well correlated with the return of the Underlying Index as would be the case if the fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index. In addition, the fund may not be able to invest in certain securities included in the Underlying Index, or invest in them in the exact proportions in which they are represented in the Underlying Index, due to government imposed legal restrictions or limitations, a lack of liquidity in the markets in which such securities trade, potential adverse tax consequences or other regulatory reasons. To the extent the fund calculates its net asset value based on fair value prices and the value of the Underlying Index is based on market prices (i.e., the value of the Underlying Index is not based on fair value prices), the fund's ability to track the Underlying Index may be adversely affected. Tracking error risk may be higher for funds that track a foreign index, or an index that includes foreign securities, because regulatory and reporting requirements may differ from those in the US, and there is a heightened risk associated with limited availability and reliability of data used to construct the index. Tracking error risk may also be heightened during times of increased market volatility or other unusual market conditions. For tax efficiency purposes, the fund may sell certain securities, and such sale may cause the fund to realize a loss and deviate from the performance of the Underlying Index. In light of the factors discussed above, the fund's return may deviate significantly from the return of the Underlying Index.</p><p>
<b>Market price risk. </b>Fund shares are listed for trading on an exchange and are bought and sold in the secondary market at market prices. The market prices of shares will fluctuate, in some cases materially, in response to changes in the NAV and supply and demand for shares. As a result, the trading prices of shares may deviate significantly from the NAV during periods of market volatility. The Advisor cannot predict whether shares will trade above, below or at their NAV. Given the fact that shares can be created and redeemed in Creation Units (defined below), the Advisor believes that large discounts or premiums to the NAV of shares should not be sustained in the long-term. If market makers exit the business or are unable to continue making markets in fund shares, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market). Further, while the creation/redemption feature is designed to make it likely that shares normally will trade close to the value of the fund's holdings, disruptions to creations and redemptions, including disruptions at market makers, APs or market participants, or during periods of significant market volatility, may result in market prices that differ significantly from the value of the fund's holdings. Although market makers will generally take advantage of differences between the NAV and the market price of fund shares through arbitrage opportunities, there is no guarantee that they will do so. In addition, the securities held by the fund may be traded in markets that close at a different time than the exchange on which the fund's shares trade. Liquidity in those securities may be reduced after the applicable closing times. Accordingly, during the time when the exchange is open but after the applicable market closing, fixing or settlement times, bid-ask spreads and the resulting premium or discount to the shares' NAV is likely to widen. Further, secondary markets may be subject to irregular trading activity, wide bid-ask spreads and extended trade settlement periods, which could cause a material decline in the fund's NAV. The fund's investment results are measured based upon the daily NAV of the fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by those APs creating and redeeming shares directly with the fund.</p><p>
<b>Liquidity risk.</b> In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. This risk can be ongoing for any security that does not trade actively or in large volumes, for any security that trades primarily on smaller markets, and for investments that typically trade only among a limited number of large investors (such as certain types of derivatives or restricted securities). In unusual market conditions, even normally liquid securities may be affected by a degree of liquidity risk. This may affect only certain securities or an overall securities market.</p><p>Although the fund primarily seeks to redeem shares of the fund on an in-kind basis, if the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss. This may be magnified in circumstances where redemptions from the fund may be higher than normal.</p><p>
<b>Geographic focus risk.</b> Focusing investments in a single country or few countries, or regions, involves increased political, regulatory and other risks. Market swings in such a targeted country, countries or regions are likely to have a greater effect on fund performance than they would in a more geographically diversified fund.</p><p>
<b>Operational and technology risk.</b> Cyber-attacks, disruptions, or failures that affect the fund's service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund's or its service providers' assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund's net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund's operations.</p><p>While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund's service providers could impact the ability to conduct the fund's operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.</p><p>
<b>Authorized Participant concentration risk.</b> The fund may have a limited number of financial institutions that may act as APs. Only APs who have entered into agreements with the fund's distributor may engage in creation or redemption transactions directly with the fund (as described in the section of this Prospectus entitled "Buying and Selling Shares"). If those APs exit the business or are unable to process creation and/or redemption orders, (including in situations where APs have limited or diminished access to capital required to post collateral) and no other AP is able to step forward to create and redeem in either of these cases, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market).</p><p>
<b>Non-diversification risk.</b> The fund is classified as non-diversified under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.
</p><p>If the fund becomes classified as "diversified" over time and again becomes non-diversified as a result of a change in relative market capitalization or index weighting of one or more constituents of the index that the fund is designed to track, non-diversification risk would apply. </p><p>
<b>Counterparty risk.</b> A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.</p><p>
<b>Securities lending risk. </b>Securities lending involves the risk that the fund may lose money because the borrower of the loaned securities fails to return the securities in a timely manner or at all. The fund could also lose money in the event of a decline in the value of the collateral provided for the loaned securities or a decline in the value of any investments made with cash collateral. These events, and securities lending in general, could trigger adverse tax consequences for the fund and its investors. For example, if the fund loans its securities, the fund and its investors may lose the ability to treat certain fund distributions associated with those securities as qualified dividend income.</p>
Past Performance
<p>
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund's performance from year to year and by showing how the fund's average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund's past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. Updated performance information is available on the fund's website at Xtrackers.com (the website does not form a part of this prospectus).</p><p>Prior to February 13, 2018, the fund sought investment results that corresponded generally to the performance, before the fund's fees and expenses, of the MSCI EAFE High Dividend Yield US Dollar Hedged Index.</p>
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax.
After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts ("IRAs") or employee-sponsored retirement plans.
<table>
<tr>
<td valign="top" align="left" />
<td valign="top" align="left">Returns</td>
<td valign="top" align="left">Period ending</td>
</tr>
<tr>
<td valign="top" align="left">Best Quarter</td>
<td valign="top" align="left">10.64%</td>
<td valign="top" align="left">March 31, 2019</td>
</tr>
<tr>
<td valign="top" align="left">Worst Quarter</td>
<td valign="top" align="left">-10.44%</td>
<td valign="top" align="left">December 31, 2018</td>
</tr>
<tr>
<td valign="top" align="left">Year-to-Date</td>
<td valign="top" align="left">-15.88%</td>
<td valign="top" align="left">June 30, 2020</td>
</tr>
</table><p></p>
Investment Objective
<p>Xtrackers International Real Estate ETF (the "fund") seeks investment results that correspond generally to the performance, before fees and expenses, of the iSTOXX Developed and Emerging Markets ex USA PK VN Real Estate Index (the "Underlying Index").</p>
Fees and Expenses
<p>These are the fees and expenses that you will pay when you buy, hold and sell shares. You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below. </p>
<p>The Advisor has contractually agreed through September 30, 2021 to waive its fees and/or reimburse fund expenses to the extent necessary to prevent the operating expenses of the fund (excluding interest expense, taxes, brokerage expenses, distribution fees or expenses, litigation expenses and other extraordinary expenses) from exceeding 0.10% of the fund's average daily net assets. This agreement may only be terminated by the fund's Board (and may not be terminated by the Advisor) prior to that time. </p>
PORTFOLIO TURNOVER 
<p>The fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may mean higher taxes if you are investing in a taxable account. These costs are not reflected in annual fund operating expenses or in the expense example, and can affect the fund's performance. During the most recent fiscal year, the fund's portfolio turnover rate was 12% of the average value of its portfolio. </p>
Principal Investment Strategies
<p>The fund, using a "passive" or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index, which is a free-float capitalization weighted index that provides exposure to publicly traded real estate securities in countries outside the United States, excluding Pakistan and Vietnam.</p><p>Portfolio management uses a representative sampling indexing strategy in seeking to track the Underlying Index, meaning it generally will invest in a sample of securities in the index whose risk, return and other characteristics resemble the risk, return and other characteristics of the Underlying Index as a whole. The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the Underlying Index. Investments in such depositary receipts will count towards the fund's 80% investment policy discussed above with respect to the instruments that comprise the fund's Underlying Index. The Underlying Index is composed of real estate securities including equity real estate investment trusts ("REITs") from companies incorporated outside the United States, excluding Pakistan and Vietnam.</p><p>Under normal circumstances, the Underlying Index is reconstituted and rebalanced quarterly. The fund reconstitutes and rebalances its portfolio in accordance with the Underlying Index, and therefore, any changes to the Underlying Index's reconstitution and rebalance schedule will result in corresponding changes in the fund's reconstitution and rebalance schedule.</p><p>As of July 31, 2020, the Underlying Index consisted of 545 securities, with an average market capitalization of approximately $1.646 billion and a minimum market capitalization of approximately $28 million, from issuers in the following countries: Australia, Austria, Belgium, Brazil, Canada, Chile, China, Denmark, Egypt, Finland, France, Germany, Greece, Hong Kong, India, Indonesia, Ireland, Israel, Italy, Japan, Malaysia, Mexico, New Zealand, Norway, Philippines, Poland, Russia, Singapore, South Africa, South Korea, Spain, Switzerland, Taiwan, Thailand, Turkey and the United Kingdom. The fund will normally invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in real estate securities of issuers from countries outside the United States. As of July 31, 2020, the Underlying Index was substantially comprised of securities of issuers from Japan (20.4%). The fund will not enter into transactions to hedge against declines in the value of the fund's assets that are denominated in foreign currency. </p><p>
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated. As of July 31, 2020, the Underlying Index was wholly comprised of issuers in the real estate sector. To the extent that the fund tracks the Underlying Index, the fund's investment in certain sectors or countries may change over time.</p><p>Xtrackers International Real Estate ETF is neither sponsored nor promoted, distributed or in any other manner supported by STOXX Limited, Zug, Switzerland, Deutsche Börse Group or their licensors, research partners or data providers.</p><p>
<b>Securities lending.</b> The fund may lend its portfolio securities to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. In connection with such loans, the fund receives liquid collateral equal to at least 102% of the value of the portfolio securities being lent. This collateral is marked to market on a daily basis. The fund may lend its portfolio securities in an amount up to 33 1/3% of its total assets.</p>
Main Risks
<p>
As with any investment, you could lose all or part of your investment in the fund, and the fund's performance could trail that of other investments. The fund is subject to the main risks noted below, any of which may adversely affect the fund's net asset value ("NAV"), trading price, yield, total return and ability to meet its investment objective, as well as numerous other risks that are described in greater detail in the section of this Prospectus entitled "Additional Information About Fund Strategies, Underlying Index Information and Risks" and in the Statement of Additional Information ("SAI").</p><p>
<b>Stock market risk.</b> When stock prices fall, you should expect the value of your investment to fall as well. Stock prices can be hurt by poor management on the part of the stock's issuer, shrinking product demand and other business risks. These may affect single companies as well as groups of companies. The market as a whole may not favor the types of investments the fund makes, which could adversely affect a stock's price, regardless of how well the company performs, or the fund's ability to sell a stock at an attractive price. There is a chance that stock prices overall will decline because stock markets tend to move in cycles, with periods of rising and falling prices. Events in the US and global financial markets, including actions taken by the US Federal Reserve or foreign central banks to stimulate or stabilize economic growth, may at times result in unusually high market volatility which could negatively affect performance. To the extent that the fund invests in a particular geographic region, capitalization or sector, the fund's performance may be affected by the general performance of that region, capitalization or sector.</p><p>
<b>Market disruption risk.</b> Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Market disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.</p><p>Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant uncertainty, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.</p><p>
<b>Real estate sector risk. </b>The fund's assets will be concentrated in the real estate sector, which means the fund will be more affected by the performance of the real estate sector than a fund that was not concentrated.</p><p>Adverse economic, business or political developments affecting real estate could have a major effect on the value of the fund's investments. Investing in real estate securities (which include REITs) may subject the fund to risks associated with the direct ownership of real estate. Changes in interest rates may also affect the value of the fund's investment in real estate securities. Real estate securities are dependent upon specialized management skills, have limited diversification and are, therefore, subject to risks inherent in operating and financing a limited number of projects. Real estate securities are also subject to heavy cash flow dependency and defaults by borrowers. Real estate companies may be adversely affected by the recent pandemic spread of the novel coronavirus known as COVID-19, which has led to decreased economic activity, widespread business and other closures and rapid increases in unemployment that may cause increased defaults on rent, loans or other obligations and increase the probability of an economic recession or depression. Highly leveraged real estate companies are particularly vulnerable to the effects of an economic downturn (including an economic downturn caused by the COVID-19 pandemic). In addition, if applicable, a REIT could fail to qualify for favorable tax treatment under applicable tax law and could fail to maintain its exemption from the registration requirements of the Investment Company Act of 1940, as amended.</p><p>
<b>Foreign investment risk.</b> The fund faces the risks inherent in foreign investing. Adverse political, economic or social developments could undermine the value of the fund's investments or prevent the fund from realizing the full value of its investments. Financial reporting standards for companies based in foreign markets differ from those in the US. Additionally, foreign securities markets generally are smaller and less liquid than US markets. To the extent that the fund invests in non-US dollar denominated foreign securities, changes in currency exchange rates may affect the US dollar value of foreign securities or the income or gain received on these securities.</p><p>Foreign governments may restrict investment by foreigners, limit withdrawal of trading profit or currency from the country, restrict currency exchange or seize foreign investments. The investments of the fund may also be subject to foreign withholding taxes. Foreign brokerage commissions and other fees are generally higher than those for US investments, and the transactions and custody of foreign assets may involve delays in payment, delivery or recovery of money or investments.</p><p>Foreign markets can have liquidity risks beyond those typical of US markets. Because foreign exchanges generally are smaller and less liquid than US exchanges, buying and selling foreign investments can be more difficult and costly. Relatively small transactions can sometimes materially affect the price and availability of securities. In certain situations, it may become virtually impossible to sell an investment at a price that approaches portfolio management's estimate of its value. For the same reason, it may at times be difficult to value the fund's foreign investments. In addition, because non-US markets may be open on days when the fund does not price its shares, the value of the securities in the fund's portfolio may change on days when shareholders will not be able to purchase or sell the fund's shares.</p><p>
<b>Depositary receipt risk.</b> Depositary receipts involve similar risks to those associated with investments in securities of non-US issuers. Depositary receipts also may be less liquid than the underlying shares in their primary trading market.</p><p>
<b>Emerging market securities risk. </b>The securities of issuers located in emerging markets tend to be more volatile and less liquid than securities of issuers located in more mature economies, and emerging markets generally have less diverse and less mature economic structures and less stable political systems than those of developed countries. The securities of issuers located or doing substantial business in emerging markets are often subject to rapid and large changes in price.</p><p>
<b>Geographic focus risk.</b> Focusing investments in a single country or few countries, or regions, involves increased political, regulatory and other risks. Market swings in such a targeted country, countries or regions are likely to have a greater effect on fund performance than they would in a more geographically diversified fund.</p><p>
<b>Risks related to investing in Asia.</b> Investment in securities of issuers in Asia involves risks and special considerations not typically associated with investment in the US securities markets. Certain Asian economies have experienced high inflation, high unemployment, currency devaluations and restrictions, and over-extension of credit. Many Asian economies have experienced rapid growth and industrialization, and there is no assurance that this growth rate will be maintained. During the recent global recession, many of the export-driven Asian economies experienced the effects of the economic slowdown in the United States and Europe, and certain Asian governments implemented stimulus plans, low-rate monetary policies and currency devaluations. Economic events in any one Asian country may have a significant economic effect on the entire Asian region, as well as on major trading partners outside Asia. Any adverse event in the Asian markets may have a significant adverse effect on some or all of the economies of Asian countries in which the fund invests. Many Asian countries are subject to political risk, including corruption and regional conflict with neighboring countries. In addition, many Asian countries are subject to social and labor risks associated with demands for improved political, economic and social conditions. </p><p>
<b>Currency risk.</b> Changes in currency exchange rates and the relative value of non-US currencies may affect the value of the fund's investment and the value of your fund shares. Because the fund's NAV is determined on the basis of the US dollar and the fund does not attempt to hedge against changes in the value of non-US currencies, investors may lose money if the foreign currency depreciates against the US dollar, even if the foreign currency value of the fund's holdings in that market increases. Conversely, the dollar value of your investment in the fund may go up if the value of the foreign currency appreciates against the US dollar. The value of the US dollar measured against other currencies is influenced by a variety of factors. These factors include: interest rates, national debt levels and trade deficits, changes in balances of payments and trade, domestic and foreign interest and inflation rates, global or regional political, economic or financial events, monetary policies of governments, actual or potential government intervention, and global energy prices. Political instability, the possibility of government intervention and restrictive or opaque business and investment policies may also reduce the value of a country's currency. Government monetary policies and the buying or selling of currency by a country's government may also influence exchange rates. Currency exchange rates can be very volatile and can change quickly and unpredictably. Therefore, the value of an investment in the fund may also go up or down quickly and unpredictably and investors may lose money.</p><p>
<b>Small and medium-sized company risk. </b>Small and medium-sized company stocks tend to be more volatile than large company stocks. Because stock analysts are less likely to follow medium-sized companies, less information about them is available to investors. Industry-wide reversals may have a greater impact on small and medium-sized companies, since they lack the financial resources of larger companies. Small and medium-sized company stocks are typically less liquid than large company stocks.</p><p>
<b>Passive investing risk. </b>Unlike a fund that is actively managed, in which portfolio management buys and sells securities based on research and analysis, the fund invests in securities included in, or representative of, the Underlying Index, regardless of their investment merits. Because the fund is designed to maintain a high level of exposure to the Underlying Index at all times, portfolio management generally will not buy or sell a security unless the security is added or removed, respectively, from the Underlying Index, and will not take any steps to invest defensively or otherwise reduce the risk of loss during market downturns.</p><p>
<b>Index-related risk.</b> The fund seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index as published by the index provider. There is no assurance that the Underlying Index provider will compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. Market disruptions could cause delays in the Underlying Index's rebalancing schedule. During any such delay, it is possible that the Underlying Index and, in turn, the fund will deviate from the Underlying Index's stated methodology and therefore experience returns different than those that would have been achieved under a normal rebalancing schedule. Generally, the index provider does not provide any warranty, or accept any liability, with respect to the quality, accuracy or completeness of the Underlying Index or its related data, and does not guarantee that the Underlying Index will be in line with its stated methodology. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its stated methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. The Advisor and its affiliates do not provide any warranty or guarantee against such errors. Therefore, the gains, losses or costs associated with the index provider's errors will generally be borne by the fund and its shareholders.</p><p>
<b>Tracking error risk.</b> The fund may be subject to tracking error, which is the divergence of the fund's performance from that of the Underlying Index. The performance of the fund may diverge from that of the Underlying Index for a number of reasons, including operating expenses, transaction costs, cash flows and operational inefficiencies. The fund's return also may diverge from the return of the Underlying Index because the fund bears the costs and risks associated with buying and selling securities (especially when rebalancing the fund's securities holdings to reflect changes in the Underlying Index) while such costs and risks are not factored into the return of the Underlying Index. Transaction costs, including brokerage costs, will decrease the fund's NAV to the extent not offset by the transaction fee payable by an "Authorized Participant" ("AP"). Market disruptions and regulatory restrictions could have an adverse effect on the fund's ability to adjust its exposure in order to track the Underlying Index. To the extent that portfolio management uses a representative sampling approach (investing in a representative selection of securities included in the Underlying Index rather than all securities in the Underlying Index), such approach may cause the fund's return to not be as well correlated with the return of the Underlying Index as would be the case if the fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index. In addition, the fund may not be able to invest in certain securities included in the Underlying Index, or invest in them in the exact proportions in which they are represented in the Underlying Index, due to government imposed legal restrictions or limitations, a lack of liquidity in the markets in which such securities trade, potential adverse tax consequences or other regulatory reasons. To the extent the fund calculates its net asset value based on fair value prices and the value of the Underlying Index is based on market prices (i.e., the value of the Underlying Index is not based on fair value prices), the fund's ability to track the Underlying Index may be adversely affected. Tracking error risk may be higher for funds that track a foreign index, or an index that includes foreign securities, because regulatory and reporting requirements may differ from those in the US, and there is a heightened risk associated with limited availability and reliability of data used to construct the index. Tracking error risk may also be heightened during times of increased market volatility or other unusual market conditions. For tax efficiency purposes, the fund may sell certain securities, and such sale may cause the fund to realize a loss and deviate from the performance of the Underlying Index. In light of the factors discussed above, the fund's return may deviate significantly from the return of the Underlying Index.</p><p>
<b>Market price risk. </b>Fund shares are listed for trading on an exchange and are bought and sold in the secondary market at market prices. The market prices of shares will fluctuate, in some cases materially, in response to changes in the NAV and supply and demand for shares. As a result, the trading prices of shares may deviate significantly from the NAV during periods of market volatility. The Advisor cannot predict whether shares will trade above, below or at their NAV. Given the fact that shares can be created and redeemed in Creation Units (defined below), the Advisor believes that large discounts or premiums to the NAV of shares should not be sustained in the long-term. If market makers exit the business or are unable to continue making markets in fund shares, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market). Further, while the creation/redemption feature is designed to make it likely that shares normally will trade close to the value of the fund's holdings, disruptions to creations and redemptions, including disruptions at market makers, APs or market participants, or during periods of significant market volatility, may result in market prices that differ significantly from the value of the fund's holdings. Although market makers will generally take advantage of differences between the NAV and the market price of fund shares through arbitrage opportunities, there is no guarantee that they will do so. In addition, the securities held by the fund may be traded in markets that close at a different time than the exchange on which the fund's shares trade. Liquidity in those securities may be reduced after the applicable closing times. Accordingly, during the time when the exchange is open but after the applicable market closing, fixing or settlement times, bid-ask spreads and the resulting premium or discount to the shares' NAV is likely to widen. Further, secondary markets may be subject to irregular trading activity, wide bid-ask spreads and extended trade settlement periods, which could cause a material decline in the fund's NAV. The fund's investment results are measured based upon the daily NAV of the fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by those APs creating and redeeming shares directly with the fund.</p><p>
<b>Liquidity risk.</b> In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. This risk can be ongoing for any security that does not trade actively or in large volumes, for any security that trades primarily on smaller markets, and for investments that typically trade only among a limited number of large investors (such as certain types of derivatives or restricted securities). In unusual market conditions, even normally liquid securities may be affected by a degree of liquidity risk. This may affect only certain securities or an overall securities market.</p><p>Although the fund primarily seeks to redeem shares of the fund on an in-kind basis, if the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss. This may be magnified in circumstances where redemptions from the fund may be higher than normal.</p><p>
<b>Pricing risk. </b>If market conditions make it difficult to value some investments, the fund may value these investments using more subjective methods, such as fair value pricing. In such cases, the value determined for an investment could be different from the value realized upon such investment's sale. As a result, you could pay more than the market value when buying fund shares or receive less than the market value when selling fund shares.</p><p>
<b>Securities lending risk. </b>Securities lending involves the risk that the fund may lose money because the borrower of the loaned securities fails to return the securities in a timely manner or at all. The fund could also lose money in the event of a decline in the value of the collateral provided for the loaned securities or a decline in the value of any investments made with cash collateral. These events, and securities lending in general, could trigger adverse tax consequences for the fund and its investors. For example, if the fund loans its securities, the fund and its investors may lose the ability to treat certain fund distributions associated with those securities as qualified dividend income.</p><p>
<b>Counterparty risk.</b> A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.</p><p>
<b>Derivatives risk. </b>Risks associated with derivatives include the risk that the derivative is not well correlated with the security, index or currency to which it relates; the risk that derivatives may result in losses or missed opportunities; the risk that the fund will be unable to sell the derivative because of an illiquid secondary market; the risk that a counterparty is unwilling or unable to meet its obligation; and the risk that the derivative transaction could expose the fund to the effects of leverage, which could increase the fund's exposure to the market and magnify potential losses. There is no guarantee that derivatives, to the extent employed, will have the intended effect, and their use could cause lower returns or even losses to the fund. The use of derivatives by the fund to hedge risk may reduce the opportunity for gain by offsetting the positive effect of favorable price movements.</p><p>
<b>Futures risk. </b>The value of a futures contract tends to increase and decrease in tandem with the value of the underlying instrument. A decision as to whether, when and how to use futures involves the exercise of skill and judgment and even a well-conceived futures transaction may be unsuccessful because of market behavior or unexpected events. In addition to the derivatives risks discussed above, the prices of futures can be highly volatile, using futures can lower total return and the potential loss from futures can exceed the fund's initial investment in such contracts.</p><p>
<b>Operational and technology risk.</b> Cyber-attacks, disruptions, or failures that affect the fund's service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund's or its service providers' assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund's net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund's operations.</p><p>While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund's service providers could impact the ability to conduct the fund's operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.</p><p>
<b>Authorized Participant concentration risk.</b> The fund may have a limited number of financial institutions that may act as APs. Only APs who have entered into agreements with the fund's distributor may engage in creation or redemption transactions directly with the fund (as described in the section of this Prospectus entitled "Buying and Selling Shares"). If those APs exit the business or are unable to process creation and/or redemption orders, (including in situations where APs have limited or diminished access to capital required to post collateral) and no other AP is able to step forward to create and redeem in either of these cases, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market).</p>
Past Performance
<p>
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund's performance from year to year and by showing how the fund's average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund's past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. Updated performance information is available on the fund's website at Xtrackers.com (the website does not form a part of this prospectus).</p><p>Prior to February 22, 2019, the fund operated with a different investment strategy. Performance would have been different if the fund's current investment strategy had been in effect. Returns for prior periods reflect those of the prior Underlying Index. </p>
<table>
<tr>
<td valign="top" align="left" />
<td valign="top" align="left">Returns</td>
<td valign="top" align="left">Period ending</td>
</tr>
<tr>
<td valign="top" align="left">Best Quarter</td>
<td valign="top" align="left">12.50%</td>
<td valign="top" align="left">March 31, 2019</td>
</tr>
<tr>
<td valign="top" align="left">Worst Quarter</td>
<td valign="top" align="left">-13.05%</td>
<td valign="top" align="left">September 30, 2015</td>
</tr>
<tr>
<td valign="top" align="left">Year-to-Date</td>
<td valign="top" align="left">-21.01%</td>
<td valign="top" align="left">June 30, 2020</td>
</tr>
</table><p></p>
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax.
After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts ("IRAs") or employee-sponsored retirement plans.
Investment Objective
<p>Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF (the "fund") seeks investment results that correspond generally to the performance, before fees and expenses, of the Bloomberg Barclays MSCI US Corporate Sustainability SRI Sector/Credit/Maturity Neutral Index (the "Underlying Index").</p>
Fees and Expenses
<p>These are the fees and expenses that you will pay when you buy, hold and sell shares. You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below. </p>
PORTFOLIO TURNOVER 
<p>The fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may mean higher taxes if you are investing in a taxable account. These costs are not reflected in annual fund operating expenses or in the expense example, and can affect the fund's performance. During the most recent fiscal year, the fund's portfolio turnover rate was 57% of the average value of its portfolio. Prior to May 12, 2020, the fund tracked its prior underlying index, the Solactive Investment Grade Bond - Interest Rate Hedged Index. </p>
Principal Investment Strategies
<p>The fund, using a "passive" or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index, which applies environmental, social and governance ("ESG") considerations to a broader parent index. The Underlying Index generally aims to keep the broad characteristics of its parent index, the Bloomberg Barclays US Corporate Index (an investment grade corporate bond universe), resulting in a broad investment grade fixed income market exposure with ESG aspects. The Underlying Index uses the Bloomberg Barclays US Corporate Index as its parent index, and then via the index methodology the following screens are implemented: </p><p>ESG criteria</p><ul>
<li>Issuers with ESG scores lower than BBB are excluded from the Underlying Index, per MSCI's ESG scoring methodology which Bloomberg Barclays uses for the Underlying Index);</li>
</ul><p>Controversies</p><ul>
<li>These are controversies regarding the negative ESG impact of a company's operations, product and services, as assessed by MSCI's ESG Controversies monitoring system;</li>
</ul><p>Specified business activities</p><ul>
<li>These include adult entertainment, alcohol, gambling, tobacco, nuclear and controversial weapons, civilian firearms, nuclear power and genetically modified organisms. </li>
</ul><p>Once all relevant companies are screened out, the remaining companies are included in the Underlying Index and are reweighted in a manner designed for the Underlying Index to approximate the properties of the parent index across three factors: sector, maturity and rating. </p><p>Currently, the bonds eligible for inclusion in the Underlying Index include US dollar-denominated corporate bonds that: (i) are rated investment-grade using the middle rating of Moody's Investor Services, Inc. ("Moody's"), S&P Global Ratings ("S&P"), and Fitch Investors Services, Inc. ("Fitch"); (ii) have at least $300 million minimum par amount outstanding; and (iii) have at least one year to maturity. Under normal circumstances, the Underlying Index is rebalanced on a monthly basis. The fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index's rebalance schedule will result in corresponding changes to the fund's rebalance schedule.</p><p>As of July 31, 2020, the Underlying Index was comprised of 3,672 bonds issued by 531 different issuers, with an average market capitalization of approximately $1.06 billion and a minimum market capitalization of approximately $226 million, from issuers in the following countries: Australia, Bermuda, Canada, Cayman Islands, Chile, China, Colombia, France, Germany, Guernsey, Ireland, Italy, Japan, Luxembourg, Mexico, Netherlands, Spain, Sweden, the United Kingdom, and the United States. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of securities of issuers from the United States (81.9%). The fund uses a representative sampling indexing strategy in seeking to track the Underlying Index, meaning it generally will invest in a sample of securities in the index whose risk, return and other characteristics resemble the risk, return and other characteristics of the Underlying Index as a whole.</p><p>The fund will normally invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in corporate bonds rated investment grade by credit rating agencies (e.g., S&P rating of BBB- or above). In addition, the fund will invest at least 80% of its total assets, but typically far more, in instruments that comprise the Underlying Index.</p><p>
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of issuers in the financials sector (27.9%) and the consumer staples sector (18.2%). The financials sector includes companies involved in banking, consumer finance, asset management and custody banks, as well as investment banking and brokerage and insurance. The consumer staples sector includes companies whose businesses are less sensitive to economic cycles, such as manufacturers and distributors of food, beverages and producers of non-durable household goods and personal products. To the extent that the fund tracks the Underlying Index, the fund's investment in certain sectors or countries may change over time.</p><p>Neither Bloomberg nor Barclays is affiliated with DBX Advisors LLC, and neither approves, endorses, reviews or recommends Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF. </p><p>
<b>Securities lending.</b> The fund may lend its portfolio securities to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. In connection with such loans, the fund receives liquid collateral equal to at least 102% of the value of the portfolio securities being lent. This collateral is marked to market on a daily basis. The fund may lend its portfolio securities in an amount up to 33 1/3% of its total assets.</p>
Main Risks
<p>
As with any investment, you could lose all or part of your investment in the fund, and the fund's performance could trail that of other investments. The fund is subject to the main risks noted below, any of which may adversely affect the fund's net asset value ("NAV"), trading price, yield, total return and ability to meet its investment objective, as well as numerous other risks that are described in greater detail in the section of this Prospectus entitled "Additional Information About Fund Strategies, Underlying Index Information and Risks" and in the Statement of Additional Information ("SAI").</p><p>
<b>Fixed income markets risk.</b> The values of many types of debt securities have been reduced over a period of many years since the credit crisis started due to problems relating to subprime mortgages. These market problems have also affected debt securities that are not related to mortgage loans. In addition, broker-dealers and other market participants have been less willing to make a market in some types of debt instruments, which has impacted the liquidity of those instruments. These developments also have had a negative effect on the broader economy.</p><p>
<b>Market disruption risk.</b> Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Market disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.</p><p>Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant uncertainty, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.</p><p>
<b>ESG investment strategy risk.</b> The Underlying Index's ESG methodology, and thus the fund's investment strategy, limits the types and number of investment opportunities available to the fund and, as a result, the fund may underperform other funds that do not have an ESG focus. The Underlying Index's ESG methodology may result in the fund investing in securities or industry sectors that underperform the market as a whole or underperform other funds screened for ESG standards. In addition, the index provider may be unsuccessful in creating an index composed of companies that exhibit positive ESG characteristics. Regulatory changes or interpretations regarding the definitions and/or use of ESG criteria could have a material adverse effect on the fund's ability to invest in accordance with its investment policies and/or achieve its investment objective, as well as the ability of certain classes of investors to invest in funds following an ESG strategy such as the fund.</p><p>
<b>Fixed income securities risk.</b> Fixed-income securities are subject to the risk of the issuer's inability to meet principal and interest payments on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity, market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk). Lower rated fixed-income securities have greater volatility because there is less certainty that principal and interest payments will be made as scheduled. There is a risk that a lack of liquidity or other adverse credit market conditions may hamper the fund's ability to sell the debt securities in which it invests or to find and purchase debt instruments included in the Underlying Index.</p><p>
<b>Interest rate risk.</b> When interest rates rise, prices of debt securities generally decline. The longer the duration of the fund's debt securities, the more sensitive the fund will be to interest rate changes. (As a general rule, a 1% rise in interest rates means a 1% fall in value for every year of duration.) Recent and potential future changes in monetary policy made by central banks or governments are likely to affect the level of interest rates. Rising interest rates may prompt redemptions from the fund. Although the fund primarily seeks to redeem shares of the fund on an in-kind basis, if the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss. The fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates. Certain countries have experienced negative interest rates on certain debt securities. Negative or very low interest rates could magnify the risks associated with changes in interest rates. In general, changing interest rates, including rates that fall below zero, could have unpredictable effects on markets and may expose debt and related markets to heightened volatility. During periods when interest rates are low or there are negative interest rates, the fund's yield (and total return) also may be low or the fund may be unable to maintain positive returns. In addition, in response to the COVID-19 pandemic, as with other serious economic disruptions, governmental authorities and regulators are enacting significant fiscal and monetary policy changes, including providing direct capital infusions into companies, creating new monetary programs and lowering interest rates considerably. These actions present heightened risks to debt instruments, and such risks could be even further heightened if these actions are unexpectedly or suddenly reversed or are ineffective in achieving their desired outcomes.</p><p>London Interbank Offered Rate (LIBOR), the benchmark rate for certain floating rate securities, is expected to be phased out by the end of 2021. The fund or the instruments in which the fund invests may be adversely affected by the phase out by, among other things, increased volatility or illiquidity. There remains uncertainty regarding the future use of LIBOR and the nature of any replacement reference rate and, accordingly, it is difficult to predict the impact to the fund of the transition away from LIBOR.</p><p>
<b>Credit risk. </b>The fund's performance could be hurt if an issuer of a debt security suffers an adverse change in financial condition that results in a payment default, security downgrade or inability to meet a financial obligation. Credit risk is greater for lower-rated securities. Because the issuers of lower rated investment grade bonds may be in uncertain financial health, the prices of their debt securities could be more vulnerable to bad economic news, or even the expectation of bad news, than higher rated investment-grade debt securities. Credit ratings may not be an accurate assessment of credit risk.</p><p>
<b>Prepayment and extension risk. </b>When interest rates fall, issuers of high interest debt obligations may pay off the debts earlier than expected (prepayment risk), and the fund may have to reinvest the proceeds at lower yields. When interest rates rise, issuers of lower interest debt obligations may pay off the debts later than expected (extension risk), thus keeping the fund's assets tied up in lower interest debt obligations. Ultimately, any unexpected behavior in interest rates could increase the volatility of the fund's share price and yield and could hurt fund performance. Prepayments could also create capital gains tax liability in some instances.</p><p>
<b>Focus risk.</b> To the extent that the fund focuses its investments in particular industries, asset classes or sectors of the economy, any market price movements, regulatory or technological changes, or economic conditions affecting companies in those industries, asset classes or sectors may have a significant impact on the fund's performance.</p><p>
<b>Consumer staples sector risk. </b>To the extent that the fund invests significantly in the consumer staples sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the consumer staples sector. Companies in the consumer staples sector may be adversely affected by changes in the global economy, consumer spending, competition, demographics and consumer preferences, and production spending. Companies in the consumer staples sector are also affected by changes in government regulation, global economic, environmental and political events, economic conditions and the depletion of resources. In addition, companies in the consumer staples sector may be subject to risks pertaining to the supply of, demand for and prices of raw materials. The prices of raw materials fluctuate in response to a number of factors, including, without limitation, changes in government agricultural support programs, exchange rates, import and export controls, changes in international agricultural and trading policies, and seasonal and weather conditions.</p><p>
<b>Financials sector risk. </b>To the extent that the fund invests significantly in the financials sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the financials sector. The financials sector is subject to extensive government regulation, can be subject to relatively rapid change due to increasingly blurred distinctions between service segments, and can be significantly affected by availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, and price competition. </p><p>
<b>Foreign investment risk.</b> The fund faces the risks inherent in foreign investing. Adverse political, economic or social developments could undermine the value of the fund's investments or prevent the fund from realizing the full value of its investments. Financial reporting standards for companies based in foreign markets differ from those in the US. Additionally, foreign securities markets generally are smaller and less liquid than US markets.</p><p>Foreign governments may restrict investment by foreigners, limit withdrawal of trading profit or currency from the country, restrict currency exchange or seize foreign investments. The investments of the fund may also be subject to foreign withholding taxes. Foreign brokerage commissions and other fees are generally higher than those for US investments, and the transactions and custody of foreign assets may involve delays in payment, delivery or recovery of money or investments.</p><p>Foreign markets can have liquidity risks beyond those typical of US markets. Because foreign exchanges generally are smaller and less liquid than US exchanges, buying and selling foreign investments can be more difficult and costly. Relatively small transactions can sometimes materially affect the price and availability of securities. In certain situations, it may become virtually impossible to sell an investment at a price that approaches portfolio management's estimate of its value. For the same reason, it may at times be difficult to value the fund's foreign investments. In addition, because non-US markets may be open on days when the fund does not price its shares, the value of the securities in the fund's portfolio may change on days when shareholders will not be able to purchase or sell the fund's shares.</p><p>
<b>Liquidity risk.</b> In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. This risk can be ongoing for any security that does not trade actively or in large volumes, for any security that trades primarily on smaller markets, and for investments that typically trade only among a limited number of large investors (such as certain types of derivatives or restricted securities). In unusual market conditions, even normally liquid securities may be affected by a degree of liquidity risk. This may affect only certain securities or an overall securities market.</p><p>Although the fund primarily seeks to redeem shares of the fund on an in-kind basis, if the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss. This may be magnified in a rising interest rate environment or other circumstances where redemptions from the fund may be higher than normal.</p><p>
<b>Pricing risk. </b>If market conditions make it difficult to value some investments, the fund may value these investments using more subjective methods, such as fair value pricing. In such cases, the value determined for an investment could be different from the value realized upon such investment's sale. As a result, you could pay more than the market value when buying fund shares or receive less than the market value when selling fund shares.</p><p>
<b>Issuer-specific risk.</b> The value of an individual security or particular type of security may be more volatile than the market as a whole and may perform differently from the value of the market as a whole.</p><p>
<b>Passive investing risk. </b>Unlike a fund that is actively managed, in which portfolio management buys and sells securities based on research and analysis, the fund invests in securities included in, or representative of, the Underlying Index, regardless of their investment merits. Because the fund is designed to maintain a high level of exposure to the Underlying Index at all times, portfolio management generally will not buy or sell a security unless the security is added or removed, respectively, from the Underlying Index, and will not take any steps to invest defensively or otherwise reduce the risk of loss during market downturns.</p><p>
<b>Index-related risk.</b> The fund seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index as published by the index provider. There is no assurance that the Underlying Index provider will compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. Market disruptions could cause delays in the Underlying Index's rebalancing schedule. During any such delay, it is possible that the Underlying Index and, in turn, the fund will deviate from the Underlying Index's stated methodology and therefore experience returns different than those that would have been achieved under a normal rebalancing schedule. Generally, the index provider does not provide any warranty, or accept any liability, with respect to the quality, accuracy or completeness of the Underlying Index or its related data, and does not guarantee that the Underlying Index will be in line with its stated methodology. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its stated methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. The Advisor and its affiliates do not provide any warranty or guarantee against such errors. Therefore, the gains, losses or costs associated with the index provider's errors will generally be borne by the fund and its shareholders.</p><p>
<b>Tracking error risk.</b> The fund may be subject to tracking error, which is the divergence of the fund's performance from that of the Underlying Index. The performance of the fund may diverge from that of the Underlying Index for a number of reasons, including operating expenses, transaction costs, cash flows and operational inefficiencies. The fund's return also may diverge from the return of the Underlying Index because the fund bears the costs and risks associated with buying and selling securities (especially when rebalancing the fund's securities holdings to reflect changes in the Underlying Index) while such costs and risks are not factored into the return of the Underlying Index. Transaction costs, including brokerage costs, will decrease the fund's NAV to the extent not offset by the transaction fee payable by an "Authorized Participant" ("AP"). Market disruptions and regulatory restrictions could have an adverse effect on the fund's ability to adjust its exposure in order to track the Underlying Index. To the extent that portfolio management uses a representative sampling approach (investing in a representative selection of securities included in the Underlying Index rather than all securities in the Underlying Index), such approach may cause the fund's return to not be as well correlated with the return of the Underlying Index as would be the case if the fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index. In addition, the fund may not be able to invest in certain securities included in the Underlying Index, or invest in them in the exact proportions in which they are represented in the Underlying Index, due to government imposed legal restrictions or limitations, a lack of liquidity in the markets in which such securities trade, potential adverse tax consequences or other regulatory reasons. To the extent the fund calculates its net asset value based on fair value prices and the value of the Underlying Index is based on market prices (i.e., the value of the Underlying Index is not based on fair value prices), the fund's ability to track the Underlying Index may be adversely affected. Tracking error risk may be higher for funds that track a foreign index, or an index that includes foreign securities, because regulatory and reporting requirements may differ from those in the US, and there is a heightened risk associated with limited availability and reliability of data used to construct the index. Tracking error risk may also be heightened during times of increased market volatility or other unusual market conditions. For tax efficiency purposes, the fund may sell certain securities, and such sale may cause the fund to realize a loss and deviate from the performance of the Underlying Index. In light of the factors discussed above, the fund's return may deviate significantly from the return of the Underlying Index.</p><p>
<b>Market price risk. </b>Fund shares are listed for trading on an exchange and are bought and sold in the secondary market at market prices. The market prices of shares will fluctuate, in some cases materially, in response to changes in the NAV and supply and demand for shares. As a result, the trading prices of shares may deviate significantly from the NAV during periods of market volatility. The Advisor cannot predict whether shares will trade above, below or at their NAV. Given the fact that shares can be created and redeemed in Creation Units (defined below), the Advisor believes that large discounts or premiums to the NAV of shares should not be sustained in the long-term. If market makers exit the business or are unable to continue making markets in fund shares, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market). Further, while the creation/redemption feature is designed to make it likely that shares normally will trade close to the value of the fund's holdings, disruptions to creations and redemptions, including disruptions at market makers, APs or market participants, or during periods of significant market volatility, may result in market prices that differ significantly from the value of the fund's holdings. Although market makers will generally take advantage of differences between the NAV and the market price of fund shares through arbitrage opportunities, there is no guarantee that they will do so. In addition, the securities held by the fund may be traded in markets that close at a different time than the exchange on which the fund's shares trade. Liquidity in those securities may be reduced after the applicable closing times. Accordingly, during the time when the exchange is open but after the applicable market closing, fixing or settlement times, bid-ask spreads and the resulting premium or discount to the shares' NAV is likely to widen. Further, secondary markets may be subject to irregular trading activity, wide bid-ask spreads and extended trade settlement periods, which could cause a material decline in the fund's NAV. The fund's investment results are measured based upon the daily NAV of the fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by those APs creating and redeeming shares directly with the fund.</p><p>
<b>Operational and technology risk.</b> Cyber-attacks, disruptions, or failures that affect the fund's service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund's or its service providers' assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund's net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund's operations.</p><p>While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund's service providers could impact the ability to conduct the fund's operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.</p><p>
<b>Authorized Participant concentration risk.</b> The fund may have a limited number of financial institutions that may act as APs. Only APs who have entered into agreements with the fund's distributor may engage in creation or redemption transactions directly with the fund (as described in the section of this Prospectus entitled "Buying and Selling Shares"). If those APs exit the business or are unable to process creation and/or redemption orders, (including in situations where APs have limited or diminished access to capital required to post collateral) and no other AP is able to step forward to create and redeem in either of these cases, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market).</p><p>
<b>Counterparty risk.</b> A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.</p><p>
<b>Geographic focus risk.</b> Focusing investments in a single country or few countries, or regions, involves increased political, regulatory and other risks. Market swings in such a targeted country, countries or regions are likely to have a greater effect on fund performance than they would in a more geographically diversified fund.</p><p>
<b>Securities lending risk. </b>Securities lending involves the risk that the fund may lose money because the borrower of the loaned securities fails to return the securities in a timely manner or at all. The fund could also lose money in the event of a decline in the value of the collateral provided for the loaned securities or a decline in the value of any investments made with cash collateral. These events, and securities lending in general, could trigger adverse tax consequences for the fund and its investors. For example, if the fund loans its securities, the fund and its investors may lose the ability to treat certain fund distributions associated with those securities as qualified dividend income.</p>
Past Performance
<p>
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund's performance from year to year and by showing how the fund's average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund's past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. Updated performance information is available on the fund's website at Xtrackers.com (the website does not form a part of this prospectus).</p><p>Prior to May 12, 2020, the fund operated with a different investment strategy. Performance would have been different if the fund's current investment strategy had been in effect. Returns prior to May 12, 2020 reflect those of the fund when it was tracking the prior underlying index. </p>
<table>
<tr>
<td valign="top" align="left" />
<td valign="top" align="left">Returns</td>
<td valign="top" align="left">Period ending</td>
</tr>
<tr>
<td valign="top" align="left">Best Quarter</td>
<td valign="top" align="left">4.09%</td>
<td valign="top" align="left">March 31, 2019</td>
</tr>
<tr>
<td valign="top" align="left">Worst Quarter</td>
<td valign="top" align="left">-3.53%</td>
<td valign="top" align="left">December 31, 2018</td>
</tr>
<tr>
<td valign="top" align="left">Year-to-Date</td>
<td valign="top" align="left">-5.53%</td>
<td valign="top" align="left">June 30, 2020</td>
</tr>
</table><p></p>
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax.
After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts ("IRAs") or employee-sponsored retirement plans.
<p>
Effective May 12, 2020, the fund changed its underlying index to the Bloomberg Barclays MSCI US Corporate Sustainability SRI Sector/Credit/Maturity Neutral Index from the Solactive USD Investment Grade Bond - Interest Rate Hedged Index. Returns prior to May 12, 2020 reflect performance for the fund when it was seeking investment results of the prior underlying index.
</p><p>
Bloomberg Barclays U.S. Aggregate Bond Index replaced Solactive Investment Grade Bond Index (Long only component) as the fund's broad market benchmark because the Advisor believes the Bloomberg Barclays U.S. Aggregate Bond Index more accurately reflects the fund's current investment strategies.
</p>
Investment Objective
<p>The Xtrackers MSCI Germany Hedged Equity ETF (the "fund") seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI Germany US Dollar Hedged Index (the "Underlying Index").</p>
Fees and Expenses
<p>These are the fees and expenses that you will pay when you buy, hold and sell shares. You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below. </p>
PORTFOLIO TURNOVER 
<p>The fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may mean higher taxes if you are investing in a taxable account. These costs are not reflected in annual fund operating expenses or in the expense example, and can affect the fund's performance. During the most recent fiscal year, the fund's portfolio turnover rate was 14% of the average value of its portfolio.</p>
Principal Investment Strategies
<p>The fund, using a "passive" or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index, which is designed to track the performance of the German equity market while mitigating exposure to fluctuations between the value of the US dollar and the euro. The fund uses a full replication indexing strategy to seek to track the Underlying Index. As such, the fund invests directly in the component securities (or a substantial number of the component securities) of the Underlying Index in substantially the same weightings in which they are represented in the Underlying Index. If it is not possible for the fund to acquire component securities due to limited availability or regulatory restrictions, the fund may use a representative sampling indexing strategy to seek to track the Underlying Index instead of a full replication indexing strategy. "Representative sampling" is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to the Underlying Index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield), and liquidity measures similar to those of the Underlying Index. The fund may or may not hold all of the securities in the Underlying Index when using a representative sampling indexing strategy. The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the Underlying Index.</p><p>As of July 31, 2020, the Underlying Index consisted of 62 securities, with an average market capitalization of approximately $20.51 billion and a minimum market capitalization of approximately $1.63 billion. Under normal circumstances, the Underlying Index is rebalanced monthly. The fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index's rebalance schedule will result in corresponding changes to the fund's rebalance schedule.</p><p>The fund enters into forward currency contracts designed to offset the fund's exposure to the euro. The fund hedges the euro to the US dollar by selling euro currency forwards at the one-month forward rate published by WM/Reuters. The amount of forward contracts in the fund is based on the aggregate exposure of the fund and Underlying Index to the euro based on currency weights as of the beginning of each month. While this approach is designed to minimize the impact of currency fluctuations on fund returns, this does not necessarily eliminate exposure to all currency fluctuations. The return of the forward currency contracts may not perfectly offset the actual fluctuations of the euro relative to the US dollar.</p><p>The fund may use non-deliverable forward ("NDF") contracts to execute its hedging transactions. An NDF is a contract where there is no physical settlement of two currencies at maturity (as opposed to deliverable forward contracts, which per their terms are settled by physical delivery of the currencies). Rather, based on the movement of the currencies and the contractually agreed upon exchange rate, a net cash settlement is made by one party to the other in US dollars.</p><p>The fund will normally invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the equity securities of German issuers and in instruments designed to hedge against the fund's exposure to the euro. As of July 31, 2020, the Underlying Index was solely comprised of securities of issuers from Germany.</p><p>
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of issuers in the information technology (16.3%), consumer discretionary (15.7%) and in the financials (15.2%) sectors. The information technology sector includes companies engaged in developing software and providing data processing and outsourced services, along with manufacturing and distributing communications equipment, computers and other electronic equipment and instruments. The consumer discretionary goods sector includes durable goods, apparel, entertainment and leisure, and automobiles. The financials sector includes companies involved in banking, consumer finance, asset management and custody banks, as well as investment banking and brokerage and insurance. To the extent that the fund tracks the Underlying Index, the fund's investment in certain sectors may change over time.</p><p>While the fund is currently classified as "non-diversified" under the Investment Company Act of 1940, it may operate as or become classified as "diversified" over time. The fund could again become non-diversified solely as a result of a change in relative market capitalization or index weighting of one or more constituents of the index that the fund is designed to track. Shareholder approval will not be sought when the fund crosses from diversified to non-diversified status under such circumstances.</p><p>The fund or securities referred to herein are not sponsored, endorsed, issued, sold or promoted by MSCI, and MSCI bears no liability with respect to the fund or securities or any index on which the fund or securities are based.</p><p>
<b>Securities lending.</b> The fund may lend its portfolio securities to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. In connection with such loans, the fund receives liquid collateral equal to at least 102% of the value of the portfolio securities being lent. This collateral is marked to market on a daily basis. The fund may lend its portfolio securities in an amount up to 33 1/3% of its total assets.</p>
Main Risks
<p>
As with any investment, you could lose all or part of your investment in the fund, and the fund's performance could trail that of other investments. The fund is subject to the main risks noted below, any of which may adversely affect the fund's net asset value ("NAV"), trading price, yield, total return and ability to meet its investment objective, as well as numerous other risks that are described in greater detail in the section of this Prospectus entitled "Additional Information About Fund Strategies, Underlying Index Information and Risks" and in the Statement of Additional Information ("SAI").</p><p>
<b>Stock market risk.</b> When stock prices fall, you should expect the value of your investment to fall as well. Stock prices can be hurt by poor management on the part of the stock's issuer, shrinking product demand and other business risks. These may affect single companies as well as groups of companies. The market as a whole may not favor the types of investments the fund makes, which could adversely affect a stock's price, regardless of how well the company performs, or the fund's ability to sell a stock at an attractive price. There is a chance that stock prices overall will decline because stock markets tend to move in cycles, with periods of rising and falling prices. Events in the US and global financial markets, including actions taken by the US Federal Reserve or foreign central banks to stimulate or stabilize economic growth, may at times result in unusually high market volatility which could negatively affect performance. To the extent that the fund invests in a particular geographic region, capitalization or sector, the fund's performance may be affected by the general performance of that region, capitalization or sector.</p><p>
<b>Market disruption risk.</b> Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Market disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.</p><p>Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant uncertainty, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.</p><p>
<b>Foreign investment risk.</b> The fund faces the risks inherent in foreign investing. Adverse political, economic or social developments could undermine the value of the fund's investments or prevent the fund from realizing the full value of its investments. Financial reporting standards for companies based in foreign markets differ from those in the US. Additionally, foreign securities markets generally are smaller and less liquid than US markets. To the extent that the fund invests in non-US dollar denominated foreign securities, changes in currency exchange rates may affect the US dollar value of foreign securities or the income or gain received on these securities.</p><p>Foreign governments may restrict investment by foreigners, limit withdrawal of trading profit or currency from the country, restrict currency exchange or seize foreign investments. The investments of the fund may also be subject to foreign withholding taxes. Foreign brokerage commissions and other fees are generally higher than those for US investments, and the transactions and custody of foreign assets may involve delays in payment, delivery or recovery of money or investments.</p><p>Foreign markets can have liquidity risks beyond those typical of US markets. Because foreign exchanges generally are smaller and less liquid than US exchanges, buying and selling foreign investments can be more difficult and costly. Relatively small transactions can sometimes materially affect the price and availability of securities. In certain situations, it may become virtually impossible to sell an investment at a price that approaches portfolio management's estimate of its value. For the same reason, it may at times be difficult to value the fund's foreign investments. In addition, because non-US markets may be open on days when the fund does not price its shares, the value of the securities in the fund's portfolio may change on days when shareholders will not be able to purchase or sell the fund's shares.</p><p>
<b>Depositary receipt risk.</b> Depositary receipts involve similar risks to those associated with investments in securities of non-US issuers. Depositary receipts also may be less liquid than the underlying shares in their primary trading market.</p><p>
<b>Risks related to investing in Germany.</b> The German economy is dependent on the other countries in Europe as key trade partners. Exports account for more than one-third of Germany's output and are a key element in German economic expansion. Reduction in spending by European countries on German products and services or negative changes in any of these countries may cause an adverse impact on the German economy. In addition, the US is a large trade and investment partner of Germany. Decreasing US imports, new trade regulations, changes in the US dollar exchange rates or a recession in the US may also have an adverse impact on the German economy.</p><p>Investing in German issuers involves political, social and regulatory risks. Certain sectors and regions of Germany have experienced high unemployment and social unrest. These issues may have an adverse effect on the German economy or the German industries or sectors in which the fund invests. Heavy regulation of labor and product markets is pervasive in Germany. These regulations may stifle economic growth or result in extended recessionary periods.</p><p></p><p>
<b>European investment risk.</b> European financial markets have experienced volatility in recent years and have been adversely affected by concerns about economic downturns, credit rating downgrades, rising government debt level and possible default on or restructuring of government debt in several European countries. A default or debt restructuring by any European country would adversely impact holders of that country's debt, and sellers of credit default swaps linked to that country's creditworthiness. Most countries in Western Europe are members of the European Union (EU), which faces major issues involving its membership, structure, procedures and policies. In June 2016, citizens of the United Kingdom approved a referendum to leave the EU. On January 31, 2020, the United Kingdom officially withdrew from the EU pursuant to a withdrawal agreement, providing for a transition period in which the United Kingdom will seek to negotiate and finalize a trade deal with the EU. The transition period will end on December 31, 2020 and can no longer be extended under the terms of the withdrawal agreement. Significant uncertainty exists regarding any adverse economic and political effects the United Kingdom's withdrawal may have on the United Kingdom, other EU countries and the global economy, which could be significant, potentially resulting in increased volatility and illiquidity and lower economic growth.</p><p>European countries are also significantly affected by fiscal and monetary controls implemented by the European Economic and Monetary Union (EMU), and it is possible that the timing and substance of these controls may not address the needs of all EMU member countries. Investing in euro-denominated securities also risks exposure to a currency that may not fully reflect the strengths and weaknesses of the disparate economies that comprise Europe. There is continued concern over member state-level support for the euro, which could lead to certain countries leaving the EMU, the implementation of currency controls, or potentially the dissolution of the euro. The dissolution of the euro could have significant negative effects on European financial markets.</p><p>
<b>Small and medium-sized company risk. </b>Small and medium-sized company stocks tend to be more volatile than large company stocks. Because stock analysts are less likely to follow medium-sized companies, less information about them is available to investors. Industry-wide reversals may have a greater impact on small and medium-sized companies, since they lack the financial resources of larger companies. Small and medium-sized company stocks are typically less liquid than large company stocks.</p><p>
<b>Focus risk.</b> To the extent that the fund focuses its investments in particular industries, asset classes or sectors of the economy, any market price movements, regulatory or technological changes, or economic conditions affecting companies in those industries, asset classes or sectors may have a significant impact on the fund's performance.</p><p>
<b>Information technology sector risk.</b> To the extent that the fund invests significantly in the information technology sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the information technology sector. Information technology companies are particularly vulnerable to government regulation and competition, both domestically and internationally, including competition from foreign competitors with lower production costs. Information technology companies also face competition for services of qualified personnel. Additionally, the products of information technology companies may face obsolescence due to rapid technological development and frequent new product introduction by competitors. Finally, information technology companies are heavily dependent on patent and intellectual property rights, the loss or impairment of which may adversely affect profitability.</p><p>
<b>Consumer discretionary sector risk. </b>To the extent that the fund invests significantly in the consumer discretionary sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the consumer discretionary sector. Companies engaged in the consumer discretionary sector are subject to fluctuations in supply and demand. These companies may also be adversely affected by changes in consumer spending as a result of world events, political and economic conditions, commodity price volatility, changes in exchange rates, imposition of import controls, increased competition, depletion of resources and labor relations.</p><p>
<b>Financials sector risk. </b>To the extent that the fund invests significantly in the financials sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the financials sector. The financials sector is subject to extensive government regulation, can be subject to relatively rapid change due to increasingly blurred distinctions between service segments, and can be significantly affected by availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, and price competition. </p><p>
<b>Forward currency contract risk.</b> The fund's forward currency contracts may not be successful in minimizing the impact of changes in the value of the non-US currencies against the US dollar. To the extent the fund's forward currency contracts are not successful, the US dollar value of your investment in the fund may go down. Furthermore, because no changes in the currency weights in the Underlying Index are made during the month to account for changes in the Underlying Index due to price movement of securities, corporate events, additions, deletions or any other changes, changes in the value of non-US currencies against the US dollar during the month may affect the value of the fund's investment. Currency exchange rates can be very volatile and can change quickly and unpredictably. Therefore, the value of an investment in the fund may also go up or down quickly and unpredictably and investors may lose money. NDFs may be less liquid than deliverable forward currency contracts. A lack of liquidity in NDFs of the hedged currency could adversely affect the fund's ability to hedge against currency fluctuations and properly track the Underlying Index.</p><p>
<b>Counterparty risk.</b> A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.</p><p>
<b>Passive investing risk. </b>Unlike a fund that is actively managed, in which portfolio management buys and sells securities based on research and analysis, the fund invests in securities included in, or representative of, the Underlying Index, regardless of their investment merits. Because the fund is designed to maintain a high level of exposure to the Underlying Index at all times, portfolio management generally will not buy or sell a security unless the security is added or removed, respectively, from the Underlying Index, and will not take any steps to invest defensively or otherwise reduce the risk of loss during market downturns.</p><p>
<b>Index-related risk.</b> The fund seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index as published by the index provider. There is no assurance that the Underlying Index provider will compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. Market disruptions could cause delays in the Underlying Index's rebalancing schedule. During any such delay, it is possible that the Underlying Index and, in turn, the fund will deviate from the Underlying Index's stated methodology and therefore experience returns different than those that would have been achieved under a normal rebalancing schedule. Generally, the index provider does not provide any warranty, or accept any liability, with respect to the quality, accuracy or completeness of the Underlying Index or its related data, and does not guarantee that the Underlying Index will be in line with its stated methodology. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its stated methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. The Advisor and its affiliates do not provide any warranty or guarantee against such errors. Therefore, the gains, losses or costs associated with the index provider's errors will generally be borne by the fund and its shareholders.</p><p>
<b>Tracking error risk.</b> The fund may be subject to tracking error, which is the divergence of the fund's performance from that of the Underlying Index. The performance of the fund may diverge from that of the Underlying Index for a number of reasons, including operating expenses, transaction costs, cash flows and operational inefficiencies. The fund's return also may diverge from the return of the Underlying Index because the fund bears the costs and risks associated with buying and selling securities (especially when rebalancing the fund's securities holdings to reflect changes in the Underlying Index) while such costs and risks are not factored into the return of the Underlying Index. Transaction costs, including brokerage costs, will decrease the fund's NAV to the extent not offset by the transaction fee payable by an "Authorized Participant" ("AP"). Market disruptions and regulatory restrictions could have an adverse effect on the fund's ability to adjust its exposure in order to track the Underlying Index. To the extent that portfolio management uses a representative sampling approach (investing in a representative selection of securities included in the Underlying Index rather than all securities in the Underlying Index), such approach may cause the fund's return to not be as well correlated with the return of the Underlying Index as would be the case if the fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index. In addition, the fund may not be able to invest in certain securities included in the Underlying Index, or invest in them in the exact proportions in which they are represented in the Underlying Index, due to government imposed legal restrictions or limitations, a lack of liquidity in the markets in which such securities trade, potential adverse tax consequences or other regulatory reasons. To the extent the fund calculates its net asset value based on fair value prices and the value of the Underlying Index is based on market prices (i.e., the value of the Underlying Index is not based on fair value prices), the fund's ability to track the Underlying Index may be adversely affected. Tracking error risk may be higher for funds that track a foreign index, or an index that includes foreign securities, because regulatory and reporting requirements may differ from those in the US, and there is a heightened risk associated with limited availability and reliability of data used to construct the index. Tracking error risk may also be heightened during times of increased market volatility or other unusual market conditions. For tax efficiency purposes, the fund may sell certain securities, and such sale may cause the fund to realize a loss and deviate from the performance of the Underlying Index. In light of the factors discussed above, the fund's return may deviate significantly from the return of the Underlying Index.</p><p>
<b>Market price risk. </b>Fund shares are listed for trading on an exchange and are bought and sold in the secondary market at market prices. The market prices of shares will fluctuate, in some cases materially, in response to changes in the NAV and supply and demand for shares. As a result, the trading prices of shares may deviate significantly from the NAV during periods of market volatility. The Advisor cannot predict whether shares will trade above, below or at their NAV. Given the fact that shares can be created and redeemed in Creation Units (defined below), the Advisor believes that large discounts or premiums to the NAV of shares should not be sustained in the long-term. If market makers exit the business or are unable to continue making markets in fund shares, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market). Further, while the creation/redemption feature is designed to make it likely that shares normally will trade close to the value of the fund's holdings, disruptions to creations and redemptions, including disruptions at market makers, APs or market participants, or during periods of significant market volatility, may result in market prices that differ significantly from the value of the fund's holdings. Although market makers will generally take advantage of differences between the NAV and the market price of fund shares through arbitrage opportunities, there is no guarantee that they will do so. In addition, the securities held by the fund may be traded in markets that close at a different time than the exchange on which the fund's shares trade. Liquidity in those securities may be reduced after the applicable closing times. Accordingly, during the time when the exchange is open but after the applicable market closing, fixing or settlement times, bid-ask spreads and the resulting premium or discount to the shares' NAV is likely to widen. The bid-ask spread of the fund may be wider in comparison to the bid-ask spread of other ETFs, given the liquidity of the fund's assets and the Underlying Index's (and thus the fund's) hedging strategy. Further, secondary markets may be subject to irregular trading activity, wide bid-ask spreads and extended trade settlement periods, which could cause a material decline in the fund's NAV. The fund's investment results are measured based upon the daily NAV of the fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by those APs creating and redeeming shares directly with the fund.</p><p>
<b>Liquidity risk.</b> In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. This risk can be ongoing for any security that does not trade actively or in large volumes, for any security that trades primarily on smaller markets, and for investments that typically trade only among a limited number of large investors (such as certain types of derivatives or restricted securities). In unusual market conditions, even normally liquid securities may be affected by a degree of liquidity risk. This may affect only certain securities or an overall securities market.</p><p>Although the fund primarily seeks to redeem shares of the fund on an in-kind basis, if the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss. This may be magnified in circumstances where redemptions from the fund may be higher than normal.</p><p>
<b>Country concentration risk.</b> To the extent that the fund invests significantly in a single country, it is more likely to be impacted by events or conditions affecting that country. For example, political and economic conditions and changes in regulatory, tax or economic policy in a country could significantly affect the market in that country and in surrounding or related countries and have a negative impact on the fund's performance.</p><p>
<b>Operational and technology risk.</b> Cyber-attacks, disruptions, or failures that affect the fund's service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund's or its service providers' assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund's net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund's operations.</p><p>While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund's service providers could impact the ability to conduct the fund's operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.</p><p>
<b>Authorized Participant concentration risk.</b> The fund may have a limited number of financial institutions that may act as APs. Only APs who have entered into agreements with the fund's distributor may engage in creation or redemption transactions directly with the fund (as described in the section of this Prospectus entitled "Buying and Selling Shares"). If those APs exit the business or are unable to process creation and/or redemption orders, (including in situations where APs have limited or diminished access to capital required to post collateral) and no other AP is able to step forward to create and redeem in either of these cases, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market).</p><p>
<b>Non-diversification risk.</b> The fund is classified as non-diversified under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.
</p><p>If the fund becomes classified as "diversified" over time and again becomes non-diversified as a result of a change in relative market capitalization or index weighting of one or more constituents of the index that the fund is designed to track, non-diversification risk would apply. </p><p>
<b>Securities lending risk. </b>Securities lending involves the risk that the fund may lose money because the borrower of the loaned securities fails to return the securities in a timely manner or at all. The fund could also lose money in the event of a decline in the value of the collateral provided for the loaned securities or a decline in the value of any investments made with cash collateral. These events, and securities lending in general, could trigger adverse tax consequences for the fund and its investors. For example, if the fund loans its securities, the fund and its investors may lose the ability to treat certain fund distributions associated with those securities as qualified dividend income.</p>
Past Performance
<p>
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund's performance from year to year and by showing how the fund's average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund's past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. Updated performance information is available on the fund's website at Xtrackers.com (the website does not form a part of this prospectus).</p><p>Effective May 31, 2013, changes were made to the fund's investment objective. Prior to May 31, 2013, the fund was known as dbx-trackers MSCI Canada Hedged Equity Fund (DBCN). Returns reflect performance for DBCN and its underlying hedged and unhedged indices through May 31, 2013.</p>
<table>
<tr>
<td valign="top" align="left" />
<td valign="top" align="left">Returns</td>
<td valign="top" align="left">Period ending</td>
</tr>
<tr>
<td valign="top" align="left">Best Quarter</td>
<td valign="top" align="left">20.94%</td>
<td valign="top" align="left">March 31, 2015</td>
</tr>
<tr>
<td valign="top" align="left">Worst Quarter</td>
<td valign="top" align="left">-13.41%</td>
<td valign="top" align="left">December 31, 2018</td>
</tr>
<tr>
<td valign="top" align="left">Year-to-Date</td>
<td valign="top" align="left">-6.61%</td>
<td valign="top" align="left">June 30, 2020</td>
</tr>
</table><p></p>
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax.
After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts ("IRAs") or employee-sponsored retirement plans.
Investment Objective
<p>The Xtrackers MSCI All China Equity ETF (the "fund") seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI China All Shares Index (the "Underlying Index").</p>
Fees and Expenses
<p>These are the fees and expenses that you will pay when you buy, hold and sell shares. You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below. </p>
<p>To the extent the fund invests in the shares of an affiliated fund, the Advisor has contractually agreed, until November 14, 2021, to waive fees and/or reimburse the fund's expenses to limit the fund's current operating expenses (except for interest expense, taxes, brokerage expenses, distribution fees or expenses, litigation expenses and other extraordinary expenses) by an amount equal to the acquired fund's fees and expenses attributable to the fund's investments in affiliated funds. In addition, the Advisor has contractually agreed until September 30, 2021, to waive a portion of its management fees to the extent necessary to prevent the operating expenses (except for interest expense, taxes, brokerage expenses, distribution fees or expenses, litigation expenses and other extraordinary expenses) of the fund from exceeding 0.50% of the fund's average daily net assets. These agreements may only be terminated by the fund's Board (and may not be terminated by the Advisor) prior to that time. </p>
PORTFOLIO TURNOVER 
<p>The fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may mean higher taxes if you are investing in a taxable account. These costs are not reflected in annual fund operating expenses or in the expense example, and can affect the fund's performance. During the most recent fiscal year, the fund's portfolio turnover rate was 14% of the average value of its portfolio.</p>
Principal Investment Strategies
<p>The fund, using a "passive" or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index, which is designed to capture large- and mid-capitalization representation across all China securities listed in Hong Kong, Shanghai and Shenzhen. The Underlying Index includes A-Shares, H-Shares, B-Shares, Red chips and P chips share classes, as well as securities of Chinese companies listed outside of China (e.g. American depositary receipts). DBX Advisors LLC (the "Advisor") expects that, over time, the correlation between the fund's performance and that of the Underlying Index, before fees and expenses, will be 95% or better. A figure of 100% would indicate perfect correlation. </p><p>A-Shares are equity securities issued by companies incorporated in mainland China and are denominated and traded in renminbi ("RMB") on the Shenzhen and Shanghai Stock Exchanges. Under current regulations in the People's Republic of China ("China" or the "PRC"), foreign investors can invest in the domestic PRC securities markets through certain market-access programs. These programs include the Qualified Foreign Institutional Investor ("QFII") or a Renminbi Qualified Foreign Institutional Investor ("RQFII") licenses obtained from the China Securities Regulatory Commission ("CSRC"). QFII and RQFII investors have also registered with China's State Administration of Foreign Exchange ("SAFE") to invest foreign freely convertible currencies (in the case of a QFII) and RMB (in the case of an RQFII) in the PRC for the purpose of investing in the PRC's domestic securities markets.</p><p>B-Shares are equity securities issued by companies incorporated in China and are denominated and traded in U.S. dollars and Hong Kong dollars ("HKD") on the Shanghai and Shenzhen Stock Exchanges, respectively. B-Shares are available to foreign investors. H-Shares are equity securities issued by companies incorporated in mainland China and are denominated and traded in HKD on the Hong Kong Stock Exchange and other foreign exchanges.</p><p>Red chips and P chips are equity securities issued by companies incorporated outside of mainland China and listed on the Hong Kong Stock Exchange. Companies that issue Red chips generally base their businesses in mainland China and are controlled, either directly or indirectly, by the state, provincial or municipal governments of the PRC. Companies that issue P chips generally are nonstate-owned Chinese companies incorporated outside of mainland China that satisfy the following criteria: (i) the company is controlled by PRC individuals, (ii) the company derives more than 80% of its revenue from the PRC and (iii) the company allocates more than 60% of its assets in the PRC.</p><p>The Advisor expects to use a representative sampling indexing strategy to seek to track the Underlying Index. As such, the Advisor expects to invest in a representative sample of the component securities of the Underlying Index that collectively has an investment profile similar to the Underlying Index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield), and liquidity measures similar to those of the Underlying Index. The Advisor expects to obtain exposure to the A-Share components of the Underlying Index indirectly by investing in the Xtrackers MSCI China A Inclusion Equity ETF (the "Underlying Fund"). The Advisor may also invest in Xtrackers Harvest CSI 300 China A-Shares ETF and Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF (the "Xtrackers Harvest ETFs", and together with the Underlying Fund, the "Xtrackers China A-Shares ETFs") or other affiliated funds advised by the Advisor and sub-advised by Harvest Global Investments Limited ("HGI"), a licensed RQFII, that invests in A-Shares directly. Currently, the fund invests in the Underlying Fund. The fund does not currently intend to invest in A-Shares directly. To obtain exposure to the balance of the Underlying Index, the Advisor intends to invest directly in the components of the Underlying Index. The Underlying Fund may invest in A-Shares and other permitted China securities listed on the Shanghai and Shenzhen Stock Exchanges through the Shanghai-Hong Kong Stock Connect program ("Shanghai Connect") or the Shenzhen-Hong Kong Stock Connect program ("Shenzhen Connect," and together with Shanghai Connect, "Stock Connect"). Stock Connect is a securities trading and clearing program between either the Shanghai Stock Exchange or Shenzhen Stock Exchange and The Stock Exchange of Hong Kong Limited ("SEHK"), China Securities Depository and Clearing Corporation Limited and Hong Kong Securities Clearing Company Limited. Stock Connect is designed to permit mutual stock market access between mainland China and Hong Kong by allowing investors to trade and settle shares on each market via their local exchanges. Trading through Stock Connect is subject to a daily quota ("Daily Quota"), which limits the maximum net purchases on any particular day by Hong Kong investors (and foreign investors trading through Hong Kong) trading PRC listed securities and PRC investors trading Hong Kong listed securities trading through the relevant Stock Connect, and as such, buy orders for A-Shares would be rejected once the Daily Quota is exceeded (although a fund will be permitted to sell A-Shares regardless of the Daily Quota balance). The Daily Quota is not specific to any fund, but to all investors investing through the Stock Connect.</p><p>The Xtrackers Harvest ETFs, through their subadvisor, may invest in A-Shares and other permitted China securities listed on the Shanghai and Shenzhen Stock Exchanges via the RQFII license of HGI. The Xtrackers Harvest ETFs may also invest in A-Shares listed and traded on Stock Connect.</p><p>The Underlying Fund invests directly in A-Shares through Stock Connect. Under Stock Connect, the Underlying Fund's trading of eligible A-Shares listed on the SSE or the SZSE, as applicable, would be effectuated through the Advisor. Additionally, the Xtrackers Harvest ETFs' direct investments in A-Shares will be limited in part by the Daily Quota applicable to Stock Connect. Investment companies are not currently within the types of entities that are eligible for an RQFII or QFII license. Because the Underlying Fund does not satisfy the criteria to qualify as an RQFII or QFII itself, the Underlying Fund intends to invest directly in A-Shares via Stock Connect and, in the future, may also utilize any QFII or RQFII license applied for by and granted to the Advisor and/or a subadvisor.</p><p>The fund will normally invest at least 80% of its total assets in securities of issuers that comprise either directly or indirectly the Underlying Index or securities with economic characteristics similar to those included in the Underlying Index. While the fund intends to invest primarily in H-Shares, B-Shares, Red chips, P chips, and shares of the Underlying Fund, the fund also may invest in securities of issuers not included in the Underlying Index, the Xtrackers Harvest ETFs, futures contracts, stock index futures, swap contracts and other types of derivative instruments, and other pooled investment vehicles, including affiliated and/or foreign investment companies, that the Advisor believes will help the fund to achieve its investment objective. The remainder of the fund's assets will be invested primarily in money market instruments and cash equivalents. Under normal circumstances, the fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the equity securities of Chinese companies or in derivative instruments and other securities that provide investment exposure to Chinese companies.</p><p>As of July 31, 2020, the Underlying Index consisted of 748 securities with an average market capitalization of approximately $5.19 billion and a minimum market capitalization of approximately $538 million. Under normal circumstances, the Underlying Index is rebalanced on a quarterly basis, usually as of the close of the last business day of February, May, August, and November. The pro forma Underlying Index is generally announced nine business days before the effective date. The fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index's rebalance schedule will result in corresponding changes to the fund's rebalance schedule.</p><p>
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that the Underlying Index is concentrated. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of issuers in the consumer discretionary (23.9%), financial services (16.6%) and communication services (15.6%) sectors. The consumer discretionary goods sector includes durable goods, apparel, entertainment and leisure, and automobiles. The financial services sector includes companies involved in banking, consumer finance, asset management and custody banks, as well as investment banking and brokerage and insurance. The communication services sector includes companies that facilitate communication and offer related content and information through various mediums. It includes telecom and media and entertainment companies including producers of interactive gaming products and companies engaged in content and information creation or distribution through proprietary platforms. To the extent that the fund tracks the Underlying Index, the fund's investment in certain sectors may change over time.</p><p>The fund or securities referred to herein are not sponsored, endorsed, issued, sold or promoted by MSCI, and MSCI bears no liability with respect to the fund or securities or any index on which the fund or securities are based.</p><p>
<b>Securities lending.</b> The fund may lend its portfolio securities to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. In connection with such loans, the fund receives liquid collateral equal to at least 102% of the value of the portfolio securities being lent. This collateral is marked to market on a daily basis. The fund may lend its portfolio securities in an amount up to 33 1/3% of its total assets.</p>
Main Risks
<p>
As with any investment, you could lose all or part of your investment in the fund, and the fund's performance could trail that of other investments. The fund is subject to the main risks noted below, any of which may adversely affect the fund's net asset value ("NAV"), trading price, yield, total return and ability to meet its investment objective, as well as numerous other risks that are described in greater detail in the section of this Prospectus entitled "Additional Information About Fund Strategies, Underlying Index Information and Risks" and in the Statement of Additional Information ("SAI").</p><p>Because the fund invests in one or more Underlying Funds, the risks listed here include those of the Underlying Funds as well as those of the fund itself. Therefore, in these risk descriptions the term "the fund" may refer to the fund itself, one or more Underlying Funds, or both.</p><p>
<b>Stock market risk.</b> When stock prices fall, you should expect the value of your investment to fall as well. Stock prices can be hurt by poor management on the part of the stock's issuer, shrinking product demand and other business risks. These may affect single companies as well as groups of companies. The market as a whole may not favor the types of investments the fund makes, which could adversely affect a stock's price, regardless of how well the company performs, or the fund's ability to sell a stock at an attractive price. There is a chance that stock prices overall will decline because stock markets tend to move in cycles, with periods of rising and falling prices. Events in the US and global financial markets, including actions taken by the US Federal Reserve or foreign central banks to stimulate or stabilize economic growth, may at times result in unusually high market volatility which could negatively affect performance. To the extent that the fund invests in a particular geographic region, capitalization or sector, the fund's performance may be affected by the general performance of that region, capitalization or sector.</p><p>
<b>Market disruption risk.</b> Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Market disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.</p><p>Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant uncertainty, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.</p><p>
<b>Special risk considerations relating to the RQFII regime and investments in A-Shares.</b> The Advisor's ability to achieve the fund's investment objective by investing in the component securities of the Underlying Index is dependent on the continuous availability of A-Shares. Because the fund will not be able to invest directly in A-Shares beyond the limits that may be imposed by Stock Connect, the size of the fund's direct investment in A-Shares may be limited. If the subadvisor is unable to maintain its RQFII status, the subadvisor may seek to gain exposure to the A-Share market by investing in securities not included in the Underlying Index, futures contracts, swaps and other derivative instruments, and other pooled investment vehicles, including foreign and/or affiliated funds, that provide exposure to the A-Share market until access via a RQFII license can be re-obtained. A revocation or elimination of the RQFII license may not only adversely affect the ability of the fund to invest directly in A-Shares, but also the willingness of swap counterparties to engage in swaps and the performance of pooled investment vehicles linked to the performance of A-Shares. Therefore, any such revocation or elimination may have a material adverse effect on the ability of the fund to achieve its investment objective. These risks are compounded by the fact that at present there are only a limited number of firms and counterparties that have QFII or RQFII status. In addition, the RQFII license may be revoked by Chinese regulators if, among other things, the subadvisor fails to observe SAFE and other applicable Chinese regulations, which could also lead to other adverse consequences, including the requirement that the fund dispose of its A-Shares holdings. There can be no guarantee that the fund will be able to invest in appropriate futures contracts, swaps and other derivative instruments, and the PRC government may at times restrict the ability of firms regulated in the PRC to make such instruments available. In addition, there are custody risks associated with investing through an RQFII, where, due to requirements regarding establishing a custody account in the joint names of the fund and the subadvisor's creditors than if the fund had an account in its name only. If the fund is unable to obtain sufficient exposure to the performance of the Underlying Index due to the unavailability of RQFII license or other investments that provide exposure to the performance of A-Shares, the fund could, among other actions, limit or suspend creations until the subadvisor determines that the requisite exposure to the Underlying Index is obtainable. During the period that creations are limited or suspended, the fund could trade at a significant premium or discount to the NAV and could experience substantial redemptions. Alternatively, the fund could change its investment objective by, for example, seeking to track an alternative index that does not include A-Shares as its component securities, or decide to liquidate the fund.</p><p>On May 7, 2020, the People's Bank of China ("PBOC") and SAFE jointly issued the Regulations on Funds of Securities and Futures Investment by Foreign Institutional Investors (PBOC & SAFE Announcement [2020] No. 2) (the "Regulations") which came into effect on June 6, 2020. The Regulations supersede certain post-registration rules applicable to QFII and RQFII regimes. One of the key changes of the Regulations is the removal of quota restrictions on investment. However, as of the date of this prospectus, this is a relatively new development, and there is no guarantee that the quotas will continue to be relaxed.</p><p>
<b>Special risk considerations of investing in China. </b>Investing in securities of Chinese issuers involves certain risks and considerations not typically associated with investing in securities of US issuers, including, among others, (i) more frequent (and potentially widespread) trading suspensions and government interventions with respect to Chinese issuers, resulting in lack of liquidity and in price volatility, (ii) currency revaluations and other currency exchange rate fluctuations or blockage, (iii) the nature and extent of intervention by the Chinese government in the Chinese securities markets (including both direct and indirect market stabilization efforts, which may affect valuations of Chinese issuers), whether such intervention will continue and the impact of such intervention or its discontinuation, (iv) the risk of nationalization or expropriation of assets, (v) the risk that the Chinese government may decide not to continue to support economic reform programs, (vi) limitations on the use of brokers (or action by the Chinese government that discourages brokers from serving international clients), (vii) higher rates of inflation, (viii) greater political, economic and social uncertainty, (ix) higher market volatility caused by any potential regional territorial conflicts or natural disasters, (x) the risk of increased trade tariffs, embargoes and other trade or regulatory limitations, (xi) restrictions on foreign ownership, (xii) custody risks associated with investing through Stock Connect, an RQFII or other programs to access the Chinese securities markets, (xiii) both interim and permanent market regulations which may affect the ability of certain stockholders to sell Chinese securities when it would otherwise be advisable, and (xiv) different and less stringent financial reporting standards.</p><p>From time to time, and as recently as early 2020 with the coronavirus known as COVID-19, China has experienced outbreaks of infectious illnesses, and the country may be subject to other infectious illnesses, diseases or other public health emergencies in the future. Any public health emergency could reduce consumer demand or economic output, result in market closures, travel restrictions or quarantines, and generally have a significant impact on the Chinese economy, which in turn could adversely affect the fund's investments.</p><p>
<b>Underlying funds risk.</b> To the extent the fund invests a substantial portion of its assets in one or more Underlying Funds, the fund's performance will be directly related to the performance of an Underlying Fund. The fund's investments in other investment companies subject the fund to the risks affecting those investment companies. </p><p>In addition, the fund indirectly pays a portion of the expenses incurred by an Underlying Fund, which lowers performance. To the extent that the fund's allocations favor an Underlying Fund with higher expenses, the overall cost of investing paid by the fund will be higher.</p><p>
<b>A-Shares tax risk.</b> Uncertainties in the Chinese tax rules governing taxation of income and gains from investments in A-Shares could result in unexpected tax liabilities for the fund or Underlying Fund. China generally imposes withholding tax at a rate of 10% on dividends and interest derived by nonresident enterprises (including QFIIs and RQFIIs) from issuers resident in China. China also imposes withholding tax at a rate of 10% on capital gains derived by nonresident enterprises from investments in an issuer resident in China, subject to an exemption or reduction pursuant to domestic law or a double taxation agreement or arrangement.</p><p>Since the respective inception of the Shanghai – Hong Kong and Shenzhen – Hong Kong Stock Connect programs, foreign investors (including the fund) investing in A-Shares through Stock Connect would be temporarily exempt from the PRC corporate income tax and value- added tax on the gains on disposal of such A-Shares. Dividends would be subject to PRC corporate income tax on a withholding basis at 10%, unless reduced under a double tax treaty with China upon application to and obtaining approval from the competent tax authority. Since November 17, 2014, the corporate income tax for QFIIs and RQFIIs, with respect to capital gains, has been temporarily lifted. The withholding tax relating to the realized gains from shares in land-rich companies prior to November 17, 2014 has been paid by the fund, while realized gains from shares in non-land-rich companies prior to November 17, 2014 were granted by treaty relief pursuant to the PRC-US Double Taxation Agreement. During 2015, revenue authorities in the PRC made arrangements for the collection of capital gains taxes for investments realized between November 17, 2009 and November 16, 2014. The fund could be subject to tax liability for any tax payments for which reserves have not been made or that were not previously withheld. The impact of any such tax liability on the fund's return could be substantial. The fund may also be liable to the Advisor or subadvisor for any tax that is imposed on the Advisor or subadvisor by the PRC with respect to the fund's investments. If the fund's direct investments in A-Shares through the Advisor's or subadvisor's RQFII license become subject to repatriation restrictions or delays, the fund may be unable to satisfy distribution requirements applicable to RICs under the Internal Revenue Code, and be subject to tax at the fund level. The current PRC tax laws and regulations and interpretations thereof may be revised or amended in the future, potentially retroactively, including with respect to the possible liability of the fund for the taxation of income and gains from investments in A-Shares through Stock Connect or obligations of an RQFII. The withholding taxes on dividends, interest and capital gains may in principle be subject to a reduced rate under an applicable tax treaty, but the application of such treaties in the case of an RQFII acting for a foreign investor such as the fund is also uncertain. Finally, it is also unclear whether an RQFII would also be eligible for PRC Business Tax ("BT") exemption, which has been granted to QFIIs, with respect to gains derived prior to May 1, 2016. In practice, the BT has not been collected. However, the imposition of such taxes on the fund could have a material adverse effect on the fund's returns. Since May 1, 2016, RQFIIs are exempt from PRC value-added tax, which replaced the BT with respect to gains realized from the disposal of securities, including A-Shares.</p><p>The PRC rules for taxation of RQFIIs (and QFIIs) are evolving and certain tax regulations to be issued by the PRC State Administration of Taxation and/or PRC Ministry of Finance to clarify the subject matter may apply retrospectively, even if such rules are adverse to the fund and its shareholders.</p><p>If the PRC begins applying tax rules regarding the taxation of income from A-Shares investments to RQFIIs and/or begins collecting capital gains taxes on such investments (whether made through Stock Connect or an RQFII), the fund or Underlying Fund could be subject to withholding tax liability in excess of the amount reserved (if any). The impact of any such tax liability on the fund's or Underlying Fund's return could be substantial. The fund will be liable to the Advisor or subadvisor for any Chinese tax that is imposed on the Advisor or subadvisor with respect to the fund's investments.</p><p>As described below under "Taxes – Taxes on Distributions," the fund may elect, for US federal income tax purposes, to treat Chinese taxes (including withholding taxes) paid by the fund as paid by its shareholders. Even if the fund is qualified to make that election and does so, however, your ability to claim a credit for certain Chinese taxes may be limited under general US tax principles.</p><p>In addition, to the extent the fund invests in swaps and other derivative instruments, such investments may be less tax-efficient from a US tax perspective than direct investment in A-Shares and may be subject to special US federal income tax rules that could adversely affect the fund. Also the fund may be required to periodically adjust its positions in those instruments to comply with certain regulatory requirements which may further cause these investments to be less efficient than a direct investment in A-Shares.</p><p>Should the Chinese government impose restrictions on the fund's ability to repatriate funds associated with direct investment in A-Shares, the fund may be unable to satisfy distribution requirements applicable to regulated investment companies ("RICs") under the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), and the fund may therefore be subject to fund-level US federal taxes.</p><p>
<b>Risks of investing through Stock Connect.</b> Trading through Stock Connect is subject to a number of restrictions that may affect the fund's investments and returns. For example, trading through Stock Connect is subject to the Daily Quota, which may restrict or preclude the fund's ability to invest in A-Shares through Stock Connect ("Stock Connect A-Shares"). In addition, investments made through Stock Connect are subject to trading, clearance and settlement procedures that are relatively untested in the PRC, which could pose risks to the fund. Moreover, Stock Connect A-Shares generally may not be sold, purchased or otherwise transferred other than through Stock Connect in accordance with applicable rules. A primary feature of Stock Connect is the application of the home market's laws and rules applicable to investors in A-Shares. Therefore, the fund's investments in Stock Connect A-Shares are generally subject to PRC securities regulations and listing rules, among other restrictions. Finally, while foreign investors currently are exempted from paying capital gains or value-added taxes on income and gains from investments in Stock Connect A-Shares, these PRC tax rules could be changed, which could result in unexpected tax liabilities for the fund.</p><p>Stock Connect will only operate on days when both the Chinese and Hong Kong markets are open for trading and when banking services are available in both markets on the corresponding settlement days. Therefore, an investment in A-Shares through Stock Connect may subject the fund to the risk of price fluctuations on days when the Chinese markets are open, but Stock Connect is not trading.</p><p>The Stock Connect program is a relatively new program. Further developments are likely and there can be no assurance as to the program's continued existence or whether future developments regarding the program may restrict or adversely affect the fund's investments or returns. In addition, the application and interpretation of the laws and regulations of Hong Kong and the PRC, and the rules, policies or guidelines published or applied by relevant regulators and exchanges in respect of the Stock Connect program are uncertain, and they may have a detrimental effect on the fund's investments and returns.</p><p>
<b>Depositary receipt risk.</b> Depositary receipts involve similar risks to those associated with investments in securities of non-US issuers. Depositary receipts also may be less liquid than the underlying shares in their primary trading market.</p><p>
<b>Derivatives risk. </b>Risks associated with derivatives include the risk that the derivative is not well correlated with the security, index or currency to which it relates; the risk that derivatives may result in losses or missed opportunities; the risk that the fund will be unable to sell the derivative because of an illiquid secondary market; the risk that a counterparty is unwilling or unable to meet its obligation; and the risk that the derivative transaction could expose the fund to the effects of leverage, which could increase the fund's exposure to the market and magnify potential losses. There is no guarantee that derivatives, to the extent employed, will have the intended effect, and their use could cause lower returns or even losses to the fund. The use of derivatives by the fund to hedge risk may reduce the opportunity for gain by offsetting the positive effect of favorable price movements.</p><p>
<b>Currency and repatriation risk.</b> The Underlying Index is calculated in onshore RMB (CNY), whereas the fund's reference currency is the US dollar. As a result, the fund's return may be adversely affected by currency exchange rates. Further, although offshore RMB and onshore RMB are the same currency, they trade at different rates. To the extent the fund needs to exchange offshore RMB and onshore RMB, any divergence between offshore RMB and onshore RMB may adversely impact shareholders. The value of the US dollar measured against other currencies is influenced by a variety of factors. These factors include: interest rates, national debt levels and trade deficits, changes in balances of payments and trade, domestic and foreign interest and inflation rates, global or regional political, economic or financial events, monetary policies of governments, actual or potential government intervention, global energy prices, political instability and government monetary policies and the buying or selling of currencies by a country's government.</p><p>In addition, the Chinese government heavily regulates the domestic exchange of foreign currencies within China. Chinese law requires that all domestic transactions must be settled in RMB, places significant restrictions on the remittance of foreign currencies, and strictly regulates currency exchange from RMB. There is no assurance that there will always be sufficient amounts of RMB for the fund to remain fully invested. Repatriations by RQFIIs are currently permitted daily and are not subject to repatriation restrictions or prior regulatory approval. However, there is no assurance that Chinese rules and regulations will not change or that repatriation restrictions will not be imposed in the future. Further, such changes to the Chinese rules and regulations may be applied retroactively. Any restrictions on repatriation of the fund's portfolio investments may have an adverse effect on the fund's ability to meet redemption requests.</p><p>
<b>Counterparty risk.</b> A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.</p><p>
<b>Focus risk.</b> To the extent that the fund focuses its investments in particular industries, asset classes or sectors of the economy, any market price movements, regulatory or technological changes, or economic conditions affecting companies in those industries, asset classes or sectors may have a significant impact on the fund's performance.</p><p>
<b>Consumer discretionary sector risk. </b>To the extent that the fund invests significantly in the consumer discretionary sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the consumer discretionary sector. Companies engaged in the consumer discretionary sector are subject to fluctuations in supply and demand. These companies may also be adversely affected by changes in consumer spending as a result of world events, political and economic conditions, commodity price volatility, changes in exchange rates, imposition of import controls, increased competition, depletion of resources and labor relations.</p><p>
<b>Financials sector risk. </b>To the extent that the fund invests significantly in the financials sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the financials sector. The financials sector is subject to extensive government regulation, can be subject to relatively rapid change due to increasingly blurred distinctions between service segments, and can be significantly affected by availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, and price competition. </p><p>
<b>Communication services sector risk.</b> To the extent that the fund invests significantly in the communication services sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the communication services sector. Companies in the communications services sector can be adversely affected by, among other things, changes in government regulation, intense competition, dependency on patent protection, equipment incompatibility, changing consumer preferences, technological obsolescence, and large capital expenditures and debt burdens.</p><p>
<b>Passive investing risk. </b>Unlike a fund that is actively managed, in which portfolio management buys and sells securities based on research and analysis, the fund invests in securities included in, or representative of, the Underlying Index, regardless of their investment merits. Because the fund is designed to maintain a high level of exposure to the Underlying Index at all times, portfolio management generally will not buy or sell a security unless the security is added or removed, respectively, from the Underlying Index, and will not take any steps to invest defensively or otherwise reduce the risk of loss during market downturns.</p><p>
<b>Index-related risk.</b> The fund seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index as published by the index provider. There is no assurance that the Underlying Index provider will compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. Market disruptions could cause delays in the Underlying Index's rebalancing schedule. During any such delay, it is possible that the Underlying Index and, in turn, the fund will deviate from the Underlying Index's stated methodology and therefore experience returns different than those that would have been achieved under a normal rebalancing schedule. Generally, the index provider does not provide any warranty, or accept any liability, with respect to the quality, accuracy or completeness of the Underlying Index or its related data, and does not guarantee that the Underlying Index will be in line with its stated methodology. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its stated methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. The Advisor and its affiliates do not provide any warranty or guarantee against such errors. Therefore, the gains, losses or costs associated with the index provider's errors will generally be borne by the fund and its shareholders.</p><p>
<b>Liquidity risk.</b> In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. This risk can be ongoing for any security that does not trade actively or in large volumes, for any security that trades primarily on smaller markets, and for investments that typically trade only among a limited number of large investors (such as certain types of derivatives or restricted securities). In unusual market conditions, even normally liquid securities may be affected by a degree of liquidity risk. This may affect only certain securities or an overall securities market.</p><p>Although the fund primarily seeks to redeem shares of the fund on an in-kind basis, if the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss. This may be magnified in circumstances where redemptions from the fund may be higher than normal.</p><p>
<b>Pricing risk. </b>If market conditions make it difficult to value some investments (including China A-Shares), the fund may value these investments using more subjective methods, such as fair value pricing. In such cases, the value determined for an investment could be different from the value realized upon such investment's sale. As a result, you could pay more than the market value when buying fund shares or receive less than the market value when selling fund shares.</p><p>
<b>Tracking error risk.</b> The performance of the fund may diverge from that of its Underlying Index for a number of reasons, including operating expenses, transaction costs, cash flows and operational inefficiencies. The fund's return also may diverge from the return of the Underlying Index because the fund bears the costs and risks associated with buying and selling securities (especially when rebalancing the fund's securities holdings to reflect changes in the Underlying Index) while such costs and risks are not factored into the return of the Underlying Index. Transaction costs, including brokerage costs, will decrease the fund's NAV to the extent not offset by the transaction fee payable by an "Authorized Participant" ("AP"). Market disruptions and regulatory restrictions could have an adverse effect on the fund's ability to adjust its exposure to the required levels in order to track the Underlying Index. In addition, to the extent that portfolio management uses a representative sampling approach (investing in a representative selection of securities included in the Underlying Index rather than all securities in the Underlying Index) it may cause the fund to not be as well correlated with the return of the Underlying Index as would be the case if the fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. In addition, the fund may not be able to invest in certain securities included in the Underlying Index, or invest in them in the exact proportions in which they are represented in the Underlying Index, due to legal restrictions or limitations imposed by the governments of certain countries, a lack of liquidity in the markets in which such securities trade, potential adverse tax consequences or other regulatory reasons. To the extent the fund calculates its NAV based on fair value prices and the value of the Underlying Index is based on securities' closing prices (i.e., the value of the Underlying Index is not based on fair value prices), the fund's ability to track the Underlying Index may be adversely affected. The performance of the fund also may diverge from that of the Underlying Index if the Advisor and/or subadvisor seek to gain exposure to A-Shares by investing in securities not included in the Underlying Index, derivative instruments, and other pooled investment vehicles because the subadvisor is unable to maintain its RQFII status, or the Stock Connect Daily Quota has been exhausted. For tax efficiency purposes, the fund may sell certain securities, and such sale may cause the fund to realize a loss and deviate from the performance of the Underlying Index. In light of the factors discussed above, the fund's return may deviate significantly from the return of the Underlying Index.</p><p>
<b>Market price risk. </b>Fund shares are listed for trading on an exchange and are bought and sold in the secondary market at market prices. The market prices of shares will fluctuate, in some cases materially, in response to changes in the NAV and supply and demand for shares. As a result, the trading prices of shares may deviate significantly from the NAV during periods of market volatility. The Advisor cannot predict whether shares will trade above, below or at their NAV. Given the fact that shares can be created and redeemed in Creation Units (defined below), the Advisor believes that large discounts or premiums to the NAV of shares should not be sustained in the long-term. If market makers exit the business or are unable to continue making markets in fund shares, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market). Further, while the creation/redemption feature is designed to make it likely that shares normally will trade close to the value of the fund's holdings, disruptions to creations and redemptions, including disruptions at market makers, APs or market participants, or during periods of significant market volatility, may result in market prices that differ significantly from the value of the fund's holdings. Although market makers will generally take advantage of differences between the NAV and the market price of fund shares through arbitrage opportunities, there is no guarantee that they will do so. In addition, the securities held by the fund may be traded in markets that close at a different time than the exchange on which the fund's shares trade. Liquidity in those securities may be reduced after the applicable closing times. Accordingly, during the time when the exchange is open but after the applicable market closing, fixing or settlement times, bid-ask spreads and the resulting premium or discount to the shares' NAV is likely to widen. The bid/ask spread of the fund may be wider in comparison to the bid/ask spread of other ETFs, due to the Fund's exposure to A-Shares. Further, secondary markets may be subject to irregular trading activity, wide bid-ask spreads and extended trade settlement periods, which could cause a material decline in the fund's NAV. The fund's investment results are measured based upon the daily NAV of the fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by those APs creating and redeeming shares directly with the fund.</p><p>
<b>Valuation risk. </b>Because non-US markets may be open on days when the fund does not price its shares, the value of the securities in the fund's portfolio may change on days when shareholders will not be able to purchase or sell the fund's shares.</p><p>
<b>Operational and technology risk.</b> Cyber-attacks, disruptions, or failures that affect the fund's service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund's or its service providers' assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund's net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund's operations.</p><p>While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund's service providers could impact the ability to conduct the fund's operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.</p><p>
<b>Authorized Participant concentration risk.</b> The fund may have a limited number of financial institutions that may act as APs. Only APs who have entered into agreements with the fund's distributor may engage in creation or redemption transactions directly with the fund (as described in the section of this Prospectus entitled "Buying and Selling Shares"). If those APs exit the business or are unable to process creation and/or redemption orders, (including in situations where APs have limited or diminished access to capital required to post collateral) and no other AP is able to step forward to create and redeem in either of these cases, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market).</p><p>
<b>Non-diversification risk.</b> The fund is classified as non-diversified under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.
</p><p>
<b>Country concentration risk.</b> To the extent that the fund invests significantly in a single country, it is more likely to be impacted by events or conditions affecting that country. For example, political and economic conditions and changes in regulatory, tax or economic policy in a country could significantly affect the market in that country and in surrounding or related countries and have a negative impact on the fund's performance.</p><p>
<b>Medium-sized company risk.</b> Medium-sized company stocks tend to be more volatile than large company stocks. Because stock analysts are less likely to follow medium-sized companies, less information about them is available to investors. Industry-wide reversals may have a greater impact on medium-sized companies, since they lack the financial resources of larger companies. Medium-sized company stocks are typically less liquid than large company stocks.</p><p>
<b>Securities lending risk. </b>Securities lending involves the risk that the fund may lose money because the borrower of the loaned securities fails to return the securities in a timely manner or at all. The fund could also lose money in the event of a decline in the value of the collateral provided for the loaned securities or a decline in the value of any investments made with cash collateral. These events, and securities lending in general, could trigger adverse tax consequences for the fund and its investors. For example, if the fund loans its securities, the fund and its investors may lose the ability to treat certain fund distributions associated with those securities as qualified dividend income.</p>
Past Performance
<p>
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund's performance from year to year and by showing how the fund's average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund's past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. Updated performance information is available on the fund's website at Xtrackers.com (the website does not form a part of this prospectus).</p><p>Effective November 30, 2015, changes were made to the fund's investment objective. Prior to November 30, 2015, the fund sought investment results that corresponded generally to the performance, before fees and expenses, of the MSCI All China Index. Thus, performance prior to that date reflects the fund's prior investment objective.</p>
<table>
<tr>
<td valign="top" align="left" />
<td valign="top" align="left">Returns</td>
<td valign="top" align="left">Period ending</td>
</tr>
<tr>
<td valign="top" align="left">Best Quarter</td>
<td valign="top" align="left">22.09%</td>
<td valign="top" align="left">March 31, 2019</td>
</tr>
<tr>
<td valign="top" align="left">Worst Quarter</td>
<td valign="top" align="left">-26.70%</td>
<td valign="top" align="left">September 30, 2015</td>
</tr>
<tr>
<td valign="top" align="left">Year-to-Date</td>
<td valign="top" align="left">3.00%</td>
<td valign="top" align="left">June 30, 2020</td>
</tr>
</table><p></p>
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax.
After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts ("IRAs") or employee-sponsored retirement plans.
Investment Objective
<p>The Xtrackers MSCI All World ex US High Dividend Yield Equity ETF (the "fund") seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI ACWI ex USA High Dividend Yield Index (the "Underlying Index").</p>
Fees and Expenses
<p>These are the fees and expenses that you will pay when you buy, hold and sell shares. You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below. </p>
PORTFOLIO TURNOVER 
<p>The fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may mean higher taxes if you are investing in a taxable account. These costs are not reflected in annual fund operating expenses or in the expense example, and can affect the fund's performance. During the most recent fiscal year, the fund's portfolio turnover rate was 40% of the average value of its portfolio.</p>
Principal Investment Strategies
<p>The fund, using a "passive" or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index, which is designed to track the performance of equity securities in developed and emerging stock markets (excluding the United States).</p><p>The fund uses a full replication indexing strategy to seek to track the Underlying Index. As such, the fund invests directly in the component securities (or a substantial number of the component securities) of the Underlying Index in substantially the same weightings in which they are represented in the Underlying Index. If it is not possible for the fund to acquire component securities due to limited availability or regulatory restrictions, the fund may use a representative sampling indexing strategy to seek to track the Underlying Index instead of a full replication indexing strategy. "Representative sampling" is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to the Underlying Index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield), and liquidity measures similar to those of the Underlying Index. The fund may or may not hold all of the securities in the Underlying Index when using a representative sampling indexing strategy. The Underlying Index is designed to reflect the performance of equities (excluding real estate investment trusts ("REITs")) in its parent index, the MSCI ACWI ex USA Index, with higher dividend income and quality characteristics than average dividend yields of equities in the parent index, where such higher dividend income and quality characteristics are both sustainable and persistent. The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the Underlying Index.</p><p>The Underlying Index is a free float adjusted market capitalization weighted index. As of July 31, 2020, the Underlying Index consisted of 351 securities, with an average market capitalization of approximately $9.38 billion and a minimum market capitalization of approximately $128 million, from issuers in the following countries: Australia, Belgium, Brazil, Canada, Chile, China, Colombia, Denmark, Egypt, Finland, France, Germany, Greece, Hong Kong, India, Indonesia, Israel, Italy, Japan, Malaysia, Mexico, Netherlands, New Zealand, Norway, Pakistan, Peru, Philippines, Poland, Portugal, Qatar, Russia, Saudi Arabia, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Arab Emirates and the United Kingdom. Under normal circumstances, the Underlying Index is rebalanced semi-annually in May and November. The fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index's rebalance schedule will result in corresponding changes to the fund's rebalance schedule.</p><p>The fund will normally invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities of issuers located in countries other than the United States. The fund will not enter into transactions to hedge against declines in the value of the fund's assets that are denominated in foreign currency.</p><p>
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of issuers in the financials (27.6%) sector. The financials sector includes companies involved in banking, consumer finance, asset management and custody banks, as well as investment banking and brokerage and insurance. To the extent that the fund tracks the Underlying Index, the fund's investment in certain sectors or countries may change over time.</p><p>The fund may become "non-diversified," as defined under the Investment Company Act of 1940, as amended, solely as a result of a change in relative market capitalization or index weighting of one or more constituents of the index that the fund is designed to track. Shareholder approval will not be sought when the fund crosses from diversified to non-diversified status under such circumstances.</p><p>The fund or securities referred to herein are not sponsored, endorsed, issued, sold or promoted by MSCI, and MSCI bears no liability with respect to the fund or securities or any index on which the fund or securities are based.</p><p>
<b>Securities lending.</b> The fund may lend its portfolio securities to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. In connection with such loans, the fund receives liquid collateral equal to at least 102% of the value of the portfolio securities being lent. This collateral is marked to market on a daily basis. The fund may lend its portfolio securities in an amount up to 33 1/3% of its total assets.</p>
Main Risks
<p>
As with any investment, you could lose all or part of your investment in the fund, and the fund's performance could trail that of other investments. The fund is subject to the main risks noted below, any of which may adversely affect the fund's net asset value ("NAV"), trading price, yield, total return and ability to meet its investment objective, as well as numerous other risks that are described in greater detail in the section of this Prospectus entitled "Additional Information About Fund Strategies, Underlying Index Information and Risks" and in the Statement of Additional Information ("SAI").</p><p>
<b>Stock market risk.</b> When stock prices fall, you should expect the value of your investment to fall as well. Stock prices can be hurt by poor management on the part of the stock's issuer, shrinking product demand and other business risks. These may affect single companies as well as groups of companies. The market as a whole may not favor the types of investments the fund makes, which could adversely affect a stock's price, regardless of how well the company performs, or the fund's ability to sell a stock at an attractive price. There is a chance that stock prices overall will decline because stock markets tend to move in cycles, with periods of rising and falling prices. Events in the US and global financial markets, including actions taken by the US Federal Reserve or foreign central banks to stimulate or stabilize economic growth, may at times result in unusually high market volatility which could negatively affect performance. To the extent that the fund invests in a particular geographic region, capitalization or sector, the fund's performance may be affected by the general performance of that region, capitalization or sector.</p><p>
<b>Market disruption risk.</b> Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Market disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.</p><p>Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant uncertainty, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.</p><p>
<b>Dividend-paying stock risk.</b> As a category, dividend-paying stocks may underperform non-dividend paying stocks (and the stock market as a whole) over any period of time. In addition, issuers of dividend-paying stocks may have discretion to defer or stop paying dividends for a stated period of time, or the anticipated acceleration of dividends may not occur as a result of, among other things, a sharp rise in interest rates or an economic downturn. If the dividend-paying stocks held by the fund reduce or stop paying dividends, the fund's ability to generate income may be adversely affected.</p><p>
<b>Foreign investment risk.</b> The fund faces the risks inherent in foreign investing. Adverse political, economic or social developments could undermine the value of the fund's investments or prevent the fund from realizing the full value of its investments. Financial reporting standards for companies based in foreign markets differ from those in the US. Additionally, foreign securities markets generally are smaller and less liquid than US markets. To the extent that the fund invests in non-US dollar denominated foreign securities, changes in currency exchange rates may affect the US dollar value of foreign securities or the income or gain received on these securities.</p><p>Foreign governments may restrict investment by foreigners, limit withdrawal of trading profit or currency from the country, restrict currency exchange or seize foreign investments. The investments of the fund may also be subject to foreign withholding taxes. Foreign brokerage commissions and other fees are generally higher than those for US investments, and the transactions and custody of foreign assets may involve delays in payment, delivery or recovery of money or investments.</p><p>Foreign markets can have liquidity risks beyond those typical of US markets. Because foreign exchanges generally are smaller and less liquid than US exchanges, buying and selling foreign investments can be more difficult and costly. Relatively small transactions can sometimes materially affect the price and availability of securities. In certain situations, it may become virtually impossible to sell an investment at a price that approaches portfolio management's estimate of its value. For the same reason, it may at times be difficult to value the fund's foreign investments. In addition, because non-US markets may be open on days when the fund does not price its shares, the value of the securities in the fund's portfolio may change on days when shareholders will not be able to purchase or sell the fund's shares.</p><p>
<b>Depositary receipt risk.</b> Depositary receipts involve similar risks to those associated with investments in securities of non-US issuers. Depositary receipts also may be less liquid than the underlying shares in their primary trading market.</p><p>
<b>European investment risk.</b> European financial markets have experienced volatility in recent years and have been adversely affected by concerns about economic downturns, credit rating downgrades, rising government debt level and possible default on or restructuring of government debt in several European countries. A default or debt restructuring by any European country would adversely impact holders of that country's debt, and sellers of credit default swaps linked to that country's creditworthiness. Most countries in Western Europe are members of the European Union (EU), which faces major issues involving its membership, structure, procedures and policies. In June 2016, citizens of the United Kingdom approved a referendum to leave the EU. On January 31, 2020, the United Kingdom officially withdrew from the EU pursuant to a withdrawal agreement, providing for a transition period in which the United Kingdom will seek to negotiate and finalize a trade deal with the EU. The transition period will end on December 31, 2020 and can no longer be extended under the terms of the withdrawal agreement. Significant uncertainty exists regarding any adverse economic and political effects the United Kingdom's withdrawal may have on the United Kingdom, other EU countries and the global economy, which could be significant, potentially resulting in increased volatility and illiquidity and lower economic growth.</p><p>European countries are also significantly affected by fiscal and monetary controls implemented by the European Economic and Monetary Union (EMU), and it is possible that the timing and substance of these controls may not address the needs of all EMU member countries. Investing in euro-denominated securities also risks exposure to a currency that may not fully reflect the strengths and weaknesses of the disparate economies that comprise Europe. There is continued concern over member state-level support for the euro, which could lead to certain countries leaving the EMU, the implementation of currency controls, or potentially the dissolution of the euro. The dissolution of the euro could have significant negative effects on European financial markets.</p><p>
<b>Emerging market securities risk. </b>The securities of issuers located in emerging markets tend to be more volatile and less liquid than securities of issuers located in more mature economies, and emerging markets generally have less diverse and less mature economic structures and less stable political systems than those of developed countries. The securities of issuers located or doing substantial business in emerging markets are often subject to rapid and large changes in price.</p><p>
<b>Small and medium-sized company risk. </b>Small and medium-sized company stocks tend to be more volatile than large company stocks. Because stock analysts are less likely to follow medium-sized companies, less information about them is available to investors. Industry-wide reversals may have a greater impact on small and medium-sized companies, since they lack the financial resources of larger companies. Small and medium-sized company stocks are typically less liquid than large company stocks.</p><p>
<b>Focus risk.</b> To the extent that the fund focuses its investments in particular industries, asset classes or sectors of the economy, any market price movements, regulatory or technological changes, or economic conditions affecting companies in those industries, asset classes or sectors may have a significant impact on the fund's performance.</p><p>
<b>Financials sector risk. </b>To the extent that the fund invests significantly in the financials sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the financials sector. The financials sector is subject to extensive government regulation, can be subject to relatively rapid change due to increasingly blurred distinctions between service segments, and can be significantly affected by availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, and price competition. </p><p>
<b>Currency risk.</b> Changes in currency exchange rates and the relative value of non-US currencies may affect the value of the fund's investment and the value of your fund shares. Because the fund's NAV is determined on the basis of the US dollar and the fund does not attempt to hedge against changes in the value of non-US currencies, investors may lose money if the foreign currency depreciates against the US dollar, even if the foreign currency value of the fund's holdings in that market increases. Conversely, the dollar value of your investment in the fund may go up if the value of the foreign currency appreciates against the US dollar. The value of the US dollar measured against other currencies is influenced by a variety of factors. These factors include: interest rates, national debt levels and trade deficits, changes in balances of payments and trade, domestic and foreign interest and inflation rates, global or regional political, economic or financial events, monetary policies of governments, actual or potential government intervention, and global energy prices. Political instability, the possibility of government intervention and restrictive or opaque business and investment policies may also reduce the value of a country's currency. Government monetary policies and the buying or selling of currency by a country's government may also influence exchange rates. Currency exchange rates can be very volatile and can change quickly and unpredictably. Therefore, the value of an investment in the fund may also go up or down quickly and unpredictably and investors may lose money.</p><p>
<b>Passive investing risk. </b>Unlike a fund that is actively managed, in which portfolio management buys and sells securities based on research and analysis, the fund invests in securities included in, or representative of, the Underlying Index, regardless of their investment merits. Because the fund is designed to maintain a high level of exposure to the Underlying Index at all times, portfolio management generally will not buy or sell a security unless the security is added or removed, respectively, from the Underlying Index, and will not take any steps to invest defensively or otherwise reduce the risk of loss during market downturns.</p><p>
<b>Index-related risk.</b> The fund seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index as published by the index provider. There is no assurance that the Underlying Index provider will compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. Market disruptions could cause delays in the Underlying Index's rebalancing schedule. During any such delay, it is possible that the Underlying Index and, in turn, the fund will deviate from the Underlying Index's stated methodology and therefore experience returns different than those that would have been achieved under a normal rebalancing schedule. Generally, the index provider does not provide any warranty, or accept any liability, with respect to the quality, accuracy or completeness of the Underlying Index or its related data, and does not guarantee that the Underlying Index will be in line with its stated methodology. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its stated methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. The Advisor and its affiliates do not provide any warranty or guarantee against such errors. Therefore, the gains, losses or costs associated with the index provider's errors will generally be borne by the fund and its shareholders.</p><p>
<b>Tracking error risk.</b> The fund may be subject to tracking error, which is the divergence of the fund's performance from that of the Underlying Index. The performance of the fund may diverge from that of the Underlying Index for a number of reasons, including operating expenses, transaction costs, cash flows and operational inefficiencies. The fund's return also may diverge from the return of the Underlying Index because the fund bears the costs and risks associated with buying and selling securities (especially when rebalancing the fund's securities holdings to reflect changes in the Underlying Index) while such costs and risks are not factored into the return of the Underlying Index. Transaction costs, including brokerage costs, will decrease the fund's NAV to the extent not offset by the transaction fee payable by an "Authorized Participant" ("AP"). Market disruptions and regulatory restrictions could have an adverse effect on the fund's ability to adjust its exposure in order to track the Underlying Index. To the extent that portfolio management uses a representative sampling approach (investing in a representative selection of securities included in the Underlying Index rather than all securities in the Underlying Index), such approach may cause the fund's return to not be as well correlated with the return of the Underlying Index as would be the case if the fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index. In addition, the fund may not be able to invest in certain securities included in the Underlying Index, or invest in them in the exact proportions in which they are represented in the Underlying Index, due to government imposed legal restrictions or limitations, a lack of liquidity in the markets in which such securities trade, potential adverse tax consequences or other regulatory reasons. To the extent the fund calculates its net asset value based on fair value prices and the value of the Underlying Index is based on market prices (i.e., the value of the Underlying Index is not based on fair value prices), the fund's ability to track the Underlying Index may be adversely affected. Tracking error risk may be higher for funds that track a foreign index, or an index that includes foreign securities, because regulatory and reporting requirements may differ from those in the US, and there is a heightened risk associated with limited availability and reliability of data used to construct the index. Tracking error risk may also be heightened during times of increased market volatility or other unusual market conditions. For tax efficiency purposes, the fund may sell certain securities, and such sale may cause the fund to realize a loss and deviate from the performance of the Underlying Index. In light of the factors discussed above, the fund's return may deviate significantly from the return of the Underlying Index.</p><p>
<b>Market price risk. </b>Fund shares are listed for trading on an exchange and are bought and sold in the secondary market at market prices. The market prices of shares will fluctuate, in some cases materially, in response to changes in the NAV and supply and demand for shares. As a result, the trading prices of shares may deviate significantly from the NAV during periods of market volatility. The Advisor cannot predict whether shares will trade above, below or at their NAV. Given the fact that shares can be created and redeemed in Creation Units (defined below), the Advisor believes that large discounts or premiums to the NAV of shares should not be sustained in the long-term. If market makers exit the business or are unable to continue making markets in fund shares, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market). Further, while the creation/redemption feature is designed to make it likely that shares normally will trade close to the value of the fund's holdings, disruptions to creations and redemptions, including disruptions at market makers, APs or market participants, or during periods of significant market volatility, may result in market prices that differ significantly from the value of the fund's holdings. Although market makers will generally take advantage of differences between the NAV and the market price of fund shares through arbitrage opportunities, there is no guarantee that they will do so. In addition, the securities held by the fund may be traded in markets that close at a different time than the exchange on which the fund's shares trade. Liquidity in those securities may be reduced after the applicable closing times. Accordingly, during the time when the exchange is open but after the applicable market closing, fixing or settlement times, bid-ask spreads and the resulting premium or discount to the shares' NAV is likely to widen. Further, secondary markets may be subject to irregular trading activity, wide bid-ask spreads and extended trade settlement periods, which could cause a material decline in the fund's NAV. The fund's investment results are measured based upon the daily NAV of the fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by those APs creating and redeeming shares directly with the fund.</p><p>
<b>Liquidity risk.</b> In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. This risk can be ongoing for any security that does not trade actively or in large volumes, for any security that trades primarily on smaller markets, and for investments that typically trade only among a limited number of large investors (such as certain types of derivatives or restricted securities). In unusual market conditions, even normally liquid securities may be affected by a degree of liquidity risk. This may affect only certain securities or an overall securities market.</p><p>Although the fund primarily seeks to redeem shares of the fund on an in-kind basis, if the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss. This may be magnified in circumstances where redemptions from the fund may be higher than normal.</p><p>
<b>Geographic focus risk.</b> Focusing investments in a single country or few countries, or regions, involves increased political, regulatory and other risks. Market swings in such a targeted country, countries or regions are likely to have a greater effect on fund performance than they would in a more geographically diversified fund.</p><p>
<b>Operational and technology risk.</b> Cyber-attacks, disruptions, or failures that affect the fund's service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund's or its service providers' assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund's net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund's operations.</p><p>While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund's service providers could impact the ability to conduct the fund's operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.</p><p>
<b>Authorized Participant concentration risk.</b> The fund may have a limited number of financial institutions that may act as APs. Only APs who have entered into agreements with the fund's distributor may engage in creation or redemption transactions directly with the fund (as described in the section of this Prospectus entitled "Buying and Selling Shares"). If those APs exit the business or are unable to process creation and/or redemption orders, (including in situations where APs have limited or diminished access to capital required to post collateral) and no other AP is able to step forward to create and redeem in either of these cases, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market).</p><p>
<b>Non-diversification risk.</b> At any given time, due to the composition of the Underlying Index, the fund may be classified as "non-diversified" under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.</p><p>
<b>Counterparty risk.</b> A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.</p><p>
<b>Securities lending risk. </b>Securities lending involves the risk that the fund may lose money because the borrower of the loaned securities fails to return the securities in a timely manner or at all. The fund could also lose money in the event of a decline in the value of the collateral provided for the loaned securities or a decline in the value of any investments made with cash collateral. These events, and securities lending in general, could trigger adverse tax consequences for the fund and its investors. For example, if the fund loans its securities, the fund and its investors may lose the ability to treat certain fund distributions associated with those securities as qualified dividend income.</p>
Past Performance
<p>
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund's performance from year to year and by showing how the fund's average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund's past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. Updated performance information is available on the fund's website at Xtrackers.com (the website does not form a part of this prospectus).</p><p>Prior to February 13, 2018, the fund sought investment results that corresponded generally to the performance, before the fund's fees and expenses, of the MSCI ACWI ex USA High Dividend Yield US Dollar Hedged Index.</p>
<table>
<tr>
<td valign="top" align="left" />
<td valign="top" align="left">Returns</td>
<td valign="top" align="left">Period ending</td>
</tr>
<tr>
<td valign="top" align="left">Best Quarter</td>
<td valign="top" align="left">9.50%</td>
<td valign="top" align="left">March 31, 2019</td>
</tr>
<tr>
<td valign="top" align="left">Worst Quarter</td>
<td valign="top" align="left">-9.53%</td>
<td valign="top" align="left">December 31, 2018</td>
</tr>
<tr>
<td valign="top" align="left">Year-to-Date</td>
<td valign="top" align="left">-17.55%</td>
<td valign="top" align="left">June 30, 2020</td>
</tr>
</table><p></p>
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax.
After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts ("IRAs") or employee-sponsored retirement plans.
Investment Objective
<p>The Xtrackers MSCI Japan Hedged Equity ETF (the "fund") seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI Japan US Dollar Hedged Index (the "Underlying Index").</p>
Fees and Expenses
<p>These are the fees and expenses that you will pay when you buy, hold and sell shares. You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below. </p>
PORTFOLIO TURNOVER 
<p>The fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may mean higher taxes if you are investing in a taxable account. These costs are not reflected in annual fund operating expenses or in the expense example, and can affect the fund's performance. During the most recent fiscal year, the fund's portfolio turnover rate was 12% of the average value of its portfolio.</p>
Principal Investment Strategies
<p>The fund, using a "passive" or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index, which is designed to track the performance of the Japanese equity market while mitigating exposure to fluctuations between the value of the US dollar and the Japanese yen. The fund uses a full replication indexing strategy to seek to track the Underlying Index. As such, the fund invests directly in the component securities (or a substantial number of the component securities) of the Underlying Index in substantially the same weightings in which they are represented in the Underlying Index. If it is not possible for the fund to acquire component securities due to limited availability or regulatory restrictions, the fund may use a representative sampling indexing strategy to seek to track the Underlying Index instead of a full replication indexing strategy. "Representative sampling" is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to the Underlying Index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield), and liquidity measures similar to those of the Underlying Index. The fund may or may not hold all of the securities in the Underlying Index when using a representative sampling indexing strategy. The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the Underlying Index.</p><p>As of July 31, 2020, the Underlying Index consisted of 320 securities, with an average market capitalization of approximately $10.22 billion and a minimum market capitalization of approximately $1.22 billion. Under normal circumstances, the Underlying Index is rebalanced monthly. The fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index's rebalance schedule will result in corresponding changes to the fund's rebalance schedule.</p><p>The fund enters into forward currency contracts designed to offset the fund's exposure to the Japanese yen. The fund hedges the Japanese yen to the US dollar by selling Japanese yen currency forwards at the one-month forward rate published by WM/Reuters. </p><p>The amount of forward contracts in the fund is based on the aggregate exposure of the fund and Underlying Index to the Japanese yen based on currency weights as of the beginning of each month. While this approach is designed to minimize the impact of currency fluctuations on fund returns, this does not necessarily eliminate exposure to all currency fluctuations. The return of the forward currency contracts may not perfectly offset the actual fluctuations of the Japanese yen relative to the US dollar. The fund may use non-deliverable forward ("NDF") contracts to execute its hedging transactions. An NDF is a contract where there is no physical settlement of two currencies at maturity (as opposed to deliverable forward contracts, which per their terms are settled by physical delivery of the currencies). Rather, based on the movement of the currencies and the contractually agreed upon exchange rate, a net cash settlement is made by one party to the other in US dollars.</p><p>The fund will normally invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the equity securities of Japanese issuers and in instruments designed to hedge against the fund's exposure to the Japanese yen. As of July 31, 2020, the Underlying Index was solely comprised of securities of issuers from Japan.</p><p>
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of issuers in the industrials (19.7%) and consumer discretionary (17.6%) sectors. The industrials sector includes companies engaged in the manufacture and distribution of capital goods, such as those used in defense, construction and engineering, companies that manufacture and distribute electrical equipment and industrial machinery and those that provide commercial and transportation services and supplies. The consumer discretionary goods sector includes durable goods, apparel, entertainment and leisure, and automobiles. To the extent that the fund tracks the Underlying Index, the fund's investment in certain sectors may change over time.</p><p>The fund may become "non-diversified," as defined under the Investment Company Act of 1940, as amended, solely as a result of a change in relative market capitalization or index weighting of one or more constituents of the index that the fund is designed to track. Shareholder approval will not be sought when the fund crosses from diversified to non-diversified status under such circumstances.</p><p>The fund or securities referred to herein are not sponsored, endorsed, issued, sold or promoted by MSCI, and MSCI bears no liability with respect to the fund or securities or any index on which the fund or securities are based.</p><p>
<b>Securities lending.</b> The fund may lend its portfolio securities to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. In connection with such loans, the fund receives liquid collateral equal to at least 102% of the value of the portfolio securities being lent. This collateral is marked to market on a daily basis. The fund may lend its portfolio securities in an amount up to 33 1/3% of its total assets.</p>
Main Risks
<p>
As with any investment, you could lose all or part of your investment in the fund, and the fund's performance could trail that of other investments. The fund is subject to the main risks noted below, any of which may adversely affect the fund's net asset value ("NAV"), trading price, yield, total return and ability to meet its investment objective, as well as numerous other risks that are described in greater detail in the section of this Prospectus entitled "Additional Information About Fund Strategies, Underlying Index Information and Risks" and in the Statement of Additional Information ("SAI").</p><p>
<b>Stock market risk.</b> When stock prices fall, you should expect the value of your investment to fall as well. Stock prices can be hurt by poor management on the part of the stock's issuer, shrinking product demand and other business risks. These may affect single companies as well as groups of companies. The market as a whole may not favor the types of investments the fund makes, which could adversely affect a stock's price, regardless of how well the company performs, or the fund's ability to sell a stock at an attractive price. There is a chance that stock prices overall will decline because stock markets tend to move in cycles, with periods of rising and falling prices. Events in the US and global financial markets, including actions taken by the US Federal Reserve or foreign central banks to stimulate or stabilize economic growth, may at times result in unusually high market volatility which could negatively affect performance. To the extent that the fund invests in a particular geographic region, capitalization or sector, the fund's performance may be affected by the general performance of that region, capitalization or sector.</p><p>
<b>Market disruption risk.</b> Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Market disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.</p><p>Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant uncertainty, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.</p><p>
<b>Foreign investment risk.</b> The fund faces the risks inherent in foreign investing. Adverse political, economic or social developments could undermine the value of the fund's investments or prevent the fund from realizing the full value of its investments. Financial reporting standards for companies based in foreign markets differ from those in the US. Additionally, foreign securities markets generally are smaller and less liquid than US markets. To the extent that the fund invests in non-US dollar denominated foreign securities, changes in currency exchange rates may affect the US dollar value of foreign securities or the income or gain received on these securities.</p><p>Foreign governments may restrict investment by foreigners, limit withdrawal of trading profit or currency from the country, restrict currency exchange or seize foreign investments. The investments of the fund may also be subject to foreign withholding taxes. Foreign brokerage commissions and other fees are generally higher than those for US investments, and the transactions and custody of foreign assets may involve delays in payment, delivery or recovery of money or investments.</p><p>Foreign markets can have liquidity risks beyond those typical of US markets. Because foreign exchanges generally are smaller and less liquid than US exchanges, buying and selling foreign investments can be more difficult and costly. Relatively small transactions can sometimes materially affect the price and availability of securities. In certain situations, it may become virtually impossible to sell an investment at a price that approaches portfolio management's estimate of its value. For the same reason, it may at times be difficult to value the fund's foreign investments. In addition, because non-US markets may be open on days when the fund does not price its shares, the value of the securities in the fund's portfolio may change on days when shareholders will not be able to purchase or sell the fund's shares.</p><p>
<b>Depositary receipt risk.</b> Depositary receipts involve similar risks to those associated with investments in securities of non-US issuers. Depositary receipts also may be less liquid than the underlying shares in their primary trading market.</p><p>
<b>Risks related to investing in Japan.</b> The growth of Japan's economy has historically lagged behind that of its Asian neighbors and other major developed economies. The Japanese economy is heavily dependent on international trade and has been adversely affected by trade tariffs, other protectionist measures, competition from emerging economies and the economic conditions of its trading partners. Japan's relations with its neighbors, particularly China, North Korea, South Korea and Russia, have at times been strained due to territorial disputes, historical animosities and defense concerns. Most recently, the Japanese government has shown concern over the increased nuclear and military activity by North Korea. Strained relations may cause uncertainty in the Japanese markets and adversely affect the overall Japanese economy in times of crisis. China has become an important trading partner with Japan, yet the countries' political relationship has become strained. Should political tension increase, it could adversely affect the economy, especially the export sector, and destabilize the region as a whole. Japan is located in a part of the world that has historically been prone to natural disasters such as earthquakes, volcanoes and tsunamis and is economically sensitive to environmental events. Any such event, such as the major earthquake and tsunami which struck Japan in March 2011, could result in a significant adverse impact on the Japanese economy. Japan also remains heavily dependent on oil imports, and higher commodity prices could therefore have a negative impact on the economy. Furthermore, Japanese corporations often engage in high levels of corporate leveraging, extensive cross-purchases of the securities of other corporations and are subject to a changing corporate governance structure. Japan may be subject to risks relating to political, economic and labor risks. Any of these risks, individually or in the aggregate, could adversely affect investments in the fund.</p><p>
<b>Small and medium-sized company risk. </b>Small and medium-sized company stocks tend to be more volatile than large company stocks. Because stock analysts are less likely to follow medium-sized companies, less information about them is available to investors. Industry-wide reversals may have a greater impact on small and medium-sized companies, since they lack the financial resources of larger companies. Small and medium-sized company stocks are typically less liquid than large company stocks.</p><p>
<b>Focus risk.</b> To the extent that the fund focuses its investments in particular industries, asset classes or sectors of the economy, any market price movements, regulatory or technological changes, or economic conditions affecting companies in those industries, asset classes or sectors may have a significant impact on the fund's performance.</p><p>
<b>Consumer discretionary sector risk. </b>To the extent that the fund invests significantly in the consumer discretionary sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the consumer discretionary sector. Companies engaged in the consumer discretionary sector are subject to fluctuations in supply and demand. These companies may also be adversely affected by changes in consumer spending as a result of world events, political and economic conditions, commodity price volatility, changes in exchange rates, imposition of import controls, increased competition, depletion of resources and labor relations.</p><p>
<b>Industrials sector risk.</b> To the extent that the fund invests significantly in the industrials sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the industrials sector. Companies in the industrials sector may be adversely affected by changes in government regulation, world events and economic conditions. In addition, companies in the industrials sector may be adversely affected by environmental damages, product liability claims and exchange rates.</p><p>
<b>Forward currency contract risk.</b> The fund's forward currency contracts may not be successful in minimizing the impact of changes in the value of the non-US currencies against the US dollar. To the extent the fund's forward currency contracts are not successful, the US dollar value of your investment in the fund may go down. Furthermore, because no changes in the currency weights in the Underlying Index are made during the month to account for changes in the Underlying Index due to price movement of securities, corporate events, additions, deletions or any other changes, changes in the value of non-US currencies against the US dollar during the month may affect the value of the fund's investment. Currency exchange rates can be very volatile and can change quickly and unpredictably. Therefore, the value of an investment in the fund may also go up or down quickly and unpredictably and investors may lose money. NDFs may be less liquid than deliverable forward currency contracts. A lack of liquidity in NDFs of the hedged currency could adversely affect the fund's ability to hedge against currency fluctuations and properly track the Underlying Index.</p><p>
<b>Counterparty risk.</b> A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.</p><p>
<b>Passive investing risk. </b>Unlike a fund that is actively managed, in which portfolio management buys and sells securities based on research and analysis, the fund invests in securities included in, or representative of, the Underlying Index, regardless of their investment merits. Because the fund is designed to maintain a high level of exposure to the Underlying Index at all times, portfolio management generally will not buy or sell a security unless the security is added or removed, respectively, from the Underlying Index, and will not take any steps to invest defensively or otherwise reduce the risk of loss during market downturns.</p><p>
<b>Index-related risk.</b> The fund seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index as published by the index provider. There is no assurance that the Underlying Index provider will compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. Market disruptions could cause delays in the Underlying Index's rebalancing schedule. During any such delay, it is possible that the Underlying Index and, in turn, the fund will deviate from the Underlying Index's stated methodology and therefore experience returns different than those that would have been achieved under a normal rebalancing schedule. Generally, the index provider does not provide any warranty, or accept any liability, with respect to the quality, accuracy or completeness of the Underlying Index or its related data, and does not guarantee that the Underlying Index will be in line with its stated methodology. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its stated methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. The Advisor and its affiliates do not provide any warranty or guarantee against such errors. Therefore, the gains, losses or costs associated with the index provider's errors will generally be borne by the fund and its shareholders.</p><p>
<b>Tracking error risk.</b> The fund may be subject to tracking error, which is the divergence of the fund's performance from that of the Underlying Index. The performance of the fund may diverge from that of the Underlying Index for a number of reasons, including operating expenses, transaction costs, cash flows and operational inefficiencies. The fund's return also may diverge from the return of the Underlying Index because the fund bears the costs and risks associated with buying and selling securities (especially when rebalancing the fund's securities holdings to reflect changes in the Underlying Index) while such costs and risks are not factored into the return of the Underlying Index. Transaction costs, including brokerage costs, will decrease the fund's NAV to the extent not offset by the transaction fee payable by an "Authorized Participant" ("AP"). Market disruptions and regulatory restrictions could have an adverse effect on the fund's ability to adjust its exposure in order to track the Underlying Index. To the extent that portfolio management uses a representative sampling approach (investing in a representative selection of securities included in the Underlying Index rather than all securities in the Underlying Index), such approach may cause the fund's return to not be as well correlated with the return of the Underlying Index as would be the case if the fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index. In addition, the fund may not be able to invest in certain securities included in the Underlying Index, or invest in them in the exact proportions in which they are represented in the Underlying Index, due to government imposed legal restrictions or limitations, a lack of liquidity in the markets in which such securities trade, potential adverse tax consequences or other regulatory reasons. To the extent the fund calculates its net asset value based on fair value prices and the value of the Underlying Index is based on market prices (i.e., the value of the Underlying Index is not based on fair value prices), the fund's ability to track the Underlying Index may be adversely affected. Tracking error risk may be higher for funds that track a foreign index, or an index that includes foreign securities, because regulatory and reporting requirements may differ from those in the US, and there is a heightened risk associated with limited availability and reliability of data used to construct the index. Tracking error risk may also be heightened during times of increased market volatility or other unusual market conditions. For tax efficiency purposes, the fund may sell certain securities, and such sale may cause the fund to realize a loss and deviate from the performance of the Underlying Index. In light of the factors discussed above, the fund's return may deviate significantly from the return of the Underlying Index.</p><p>
<b>Market price risk. </b>Fund shares are listed for trading on an exchange and are bought and sold in the secondary market at market prices. The market prices of shares will fluctuate, in some cases materially, in response to changes in the NAV and supply and demand for shares. As a result, the trading prices of shares may deviate significantly from the NAV during periods of market volatility. The Advisor cannot predict whether shares will trade above, below or at their NAV. Given the fact that shares can be created and redeemed in Creation Units (defined below), the Advisor believes that large discounts or premiums to the NAV of shares should not be sustained in the long-term. If market makers exit the business or are unable to continue making markets in fund shares, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market). Further, while the creation/redemption feature is designed to make it likely that shares normally will trade close to the value of the fund's holdings, disruptions to creations and redemptions, including disruptions at market makers, APs or market participants, or during periods of significant market volatility, may result in market prices that differ significantly from the value of the fund's holdings. Although market makers will generally take advantage of differences between the NAV and the market price of fund shares through arbitrage opportunities, there is no guarantee that they will do so. In addition, the securities held by the fund may be traded in markets that close at a different time than the exchange on which the fund's shares trade. Liquidity in those securities may be reduced after the applicable closing times. Accordingly, during the time when the exchange is open but after the applicable market closing, fixing or settlement times, bid-ask spreads and the resulting premium or discount to the shares' NAV is likely to widen. The bid-ask spread of the fund may be wider in comparison to the bid-ask spread of other ETFs, given the liquidity of the fund's assets and the Underlying Index's (and thus the fund's) hedging strategy. Further, secondary markets may be subject to irregular trading activity, wide bid-ask spreads and extended trade settlement periods, which could cause a material decline in the fund's NAV. The fund's investment results are measured based upon the daily NAV of the fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by those APs creating and redeeming shares directly with the fund.</p><p>
<b>Liquidity risk.</b> In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. This risk can be ongoing for any security that does not trade actively or in large volumes, for any security that trades primarily on smaller markets, and for investments that typically trade only among a limited number of large investors (such as certain types of derivatives or restricted securities). In unusual market conditions, even normally liquid securities may be affected by a degree of liquidity risk. This may affect only certain securities or an overall securities market.</p><p>Although the fund primarily seeks to redeem shares of the fund on an in-kind basis, if the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss. This may be magnified in circumstances where redemptions from the fund may be higher than normal.</p><p>
<b>Country concentration risk.</b> To the extent that the fund invests significantly in a single country, it is more likely to be impacted by events or conditions affecting that country. For example, political and economic conditions and changes in regulatory, tax or economic policy in a country could significantly affect the market in that country and in surrounding or related countries and have a negative impact on the fund's performance.</p><p>
<b>Operational and technology risk.</b> Cyber-attacks, disruptions, or failures that affect the fund's service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund's or its service providers' assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund's net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund's operations.</p><p>While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund's service providers could impact the ability to conduct the fund's operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.</p><p>
<b>Authorized Participant concentration risk.</b> The fund may have a limited number of financial institutions that may act as APs. Only APs who have entered into agreements with the fund's distributor may engage in creation or redemption transactions directly with the fund (as described in the section of this Prospectus entitled "Buying and Selling Shares"). If those APs exit the business or are unable to process creation and/or redemption orders, (including in situations where APs have limited or diminished access to capital required to post collateral) and no other AP is able to step forward to create and redeem in either of these cases, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market).</p><p>
<b>Non-diversification risk.</b> At any given time, due to the composition of the Underlying Index, the fund may be classified as "non-diversified" under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.</p><p>
<b>Securities lending risk. </b>Securities lending involves the risk that the fund may lose money because the borrower of the loaned securities fails to return the securities in a timely manner or at all. The fund could also lose money in the event of a decline in the value of the collateral provided for the loaned securities or a decline in the value of any investments made with cash collateral. These events, and securities lending in general, could trigger adverse tax consequences for the fund and its investors. For example, if the fund loans its securities, the fund and its investors may lose the ability to treat certain fund distributions associated with those securities as qualified dividend income.</p>
Past Performance
<p>
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund's performance from year to year and by showing how the fund's average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund's past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. Updated performance information is available on the fund's website at Xtrackers.com (the website does not form a part of this prospectus).</p>
<table>
<tr>
<td valign="top" align="left" />
<td valign="top" align="left">Returns</td>
<td valign="top" align="left">Period ending</td>
</tr>
<tr>
<td valign="top" align="left">Best Quarter</td>
<td valign="top" align="left">20.65%</td>
<td valign="top" align="left">March 31, 2013</td>
</tr>
<tr>
<td valign="top" align="left">Worst Quarter</td>
<td valign="top" align="left">-16.97%</td>
<td valign="top" align="left">December 31, 2018</td>
</tr>
<tr>
<td valign="top" align="left">Year-to-Date</td>
<td valign="top" align="left">-7.34%</td>
<td valign="top" align="left">June 30, 2020</td>
</tr>
</table><p></p>
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax.
After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts ("IRAs") or employee-sponsored retirement plans.
Investment Objective
<p>The Xtrackers MSCI China A Inclusion Equity ETF (the "fund") seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI China A Inclusion Index (the "Underlying Index").</p>
Fees and Expenses
<p>These are the fees and expenses that you will pay when you buy, hold and sell shares. You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below. </p>
PORTFOLIO TURNOVER 
<p>The fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may mean higher taxes if you are investing in a taxable account. These costs are not reflected in annual fund operating expenses or in the expense example, and can affect the fund's performance. During the most recent fiscal year, the fund's portfolio turnover rate was 27% of the average value of its portfolio.</p>
Principal Investment Strategies
<p>The fund, using a "passive" or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index, which is designed to track the equity market performance of China A-Shares that are accessible through the Shanghai-Hong Kong Stock Connect program ("Shanghai Connect") or the Shenzhen- Hong Kong Stock Connect program ("Shenzhen Connect," and together with Shanghai Connect, "Stock Connect"). "A-Shares" are equity securities issued by companies incorporated in mainland China and are denominated in renminbi ("RMB"). Certain eligible A-Shares are traded on the Shanghai Stock Exchange ("SSE") or Shenzhen Stock Exchange ("SZSE"). The Underlying Index is designed to track the inclusion of A-Shares in the MSCI Emerging Markets Index over time and is constructed by MSCI, Inc. (the "Index Provider" or "MSCI") by applying eligibility criteria for the MSCI Global Investable Market Indexes ("GIMI"), and then excluding small-capitalization A-Shares (as determined by MSCI), A-Shares suspended for trading for more than 50 days in the past 12 months and A-Shares that are not accessible through Stock Connect. The Underlying Index is weighted by each issuer's free float-adjusted market capitalization (i.e., includes only shares that are readily available for trading in the market) available to foreign investors and includes only large-capitalization companies, as determined by MSCI. The fund intends to invest in A-Shares included in the Underlying Index primarily through Stock Connect. Stock Connect is a securities trading and clearing program with an aim to achieve mutual stock market access between the People's Republic of China ("China" or the "PRC") and Hong Kong. Stock Connect was developed by Hong Kong Exchanges and Clearing Limited, the SSE (in the case of Shanghai Connect) or the SZSE (in the case of Shenzhen Connect), and China Securities Depository and Clearing Corporation Limited ("CSDCC"). Under Stock Connect, the fund's trading of eligible A-Shares listed on the SSE or the SZSE, as applicable, would be effectuated through DBX Advisors LLC (the "Advisor"). Trading through Stock Connect is subject to a daily quota ("Daily Quota"), which limits the maximum net purchases on any particular day by Hong Kong investors (and foreign investors trading through Hong Kong) trading PRC listed securities and PRC investors trading Hong Kong listed securities trading through the relevant Stock Connect, and as such, buy orders for A-Shares would be rejected once the Daily Quota is exceeded (although the fund will be permitted to sell A-Shares regardless of the Daily Quota balance). The Daily Quota is not specific to the fund, but to all investors investing through the Stock Connect. From time to time, other stock exchanges in China may participate in Stock Connect, and A-Shares listed and traded on such other stock exchanges and accessible through Stock Connect may be added to the Underlying Index, as determined by MSCI.</p><p>Under current regulations in China, foreign investors can also invest in the PRC's domestic securities markets through certain market-access programs. These programs include the Qualified Foreign Institutional Investor ("QFII") program and the Renminbi Qualified Foreign Institutional Investor ("RQFII") program, where investors will be required to obtain a license from the China Securities Regulatory Commission ("CSRC") in order to participate in these programs. QFII and RQFII investors will also need to register with China's State Administration of Foreign Exchange ("SAFE") to invest foreign freely convertible currencies (in the case of a QFII) and RMB (in the case of an RQFII) in the PRC for the purpose of investing in the PRC's domestic securities markets.</p><p>The fund intends to invest directly in A-Shares through Stock Connect, but, in the future, may also utilize an RQFII license applied for by and granted to the Advisor and/or a subadvisor subsequently appointed for the fund. In the event the Advisor obtains an RQFII license, or appoints a subadvisor that has such license, under certain circumstances, including when the fund's ability to invest in A-Shares through Stock Connect is restricted as a result of the Daily Quota or otherwise, the Advisor and/or a subadvisor, on behalf of the fund, may invest in A-Shares and other permitted China securities listed on the SSE and SZSE through the QFII or RQFII license. Accordingly, the fund's direct investments in A-Shares will be limited in part by the Daily Quota of Stock Connect through the QFII or RQFII license. Investment companies are not currently within the types of entities that are eligible for an RQFII or QFII license.</p><p>The Advisor expects to use a full replication indexing strategy to seek to track the Underlying Index. As such, the Advisor expects to invest directly in the component securities (or a substantial number of the component securities) of the Underlying Index in substantially the same weightings in which they are represented in the Underlying Index. If it is not possible for the Advisor to acquire component securities due to limited availability or regulatory restrictions, the Advisor may use a representative sampling indexing strategy to seek to track the Underlying Index instead of a full replication indexing strategy. "Representative sampling" is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to the Underlying Index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield), and liquidity measures similar to those of the Underlying Index. The fund may or may not hold all of the securities in the Underlying Index when the Advisor is using a representative sampling indexing strategy.</p><p>The fund will normally invest at least 80% of its total assets in securities (including depositary receipts in respect of such securities) of issuers that comprise the Underlying Index. The fund will seek to achieve its investment objective by primarily investing directly in A-Shares. Because the fund does not satisfy the criteria to qualify as an RQFII or QFII itself, the fund intends to invest directly in A-Shares via Stock Connect and, in the future, may also utilize any QFII or RQFII license applied for by and granted to the Advisor and/or a subadvisor. While the fund intends to invest primarily and directly in A-Shares, the fund also may invest in securities of issuers not included in the Underlying Index, futures contracts, stock index futures, swap contracts and other types of derivative instruments, and other pooled investment vehicles, including exchange-traded funds ("ETFs"), whether or not managed by the Advisor, as well as foreign investment companies, that the Advisor believes will help the fund to achieve its investment objective. The remainder of the fund's assets will be invested primarily in money market instruments and cash equivalents. Under normal circumstances, the fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in A-Shares of Chinese issuers or in derivative instruments and other securities that provide investment exposure to A-Shares of Chinese issuers.</p><p>As of July 31, 2020, the Underlying Index consisted of 473 securities with an average market capitalization of approximately $3.29 billion and a minimum market capitalization of approximately $613 million. Under normal circumstances, the Underlying Index is rebalanced quarterly in February, May, August and November. The fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index's rebalance schedule will result in corresponding changes to the fund's rebalance schedule.</p><p>The fund is classified as a non-diversified fund under the Investment Company Act of 1940, as amended (the "1940 Act"). The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that the Underlying Index is concentrated. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of issuers in the financials (21.1%) and consumer staples (17.1%) sectors. The financials sector includes companies involved in banking, consumer finance, asset management and custody banks, as well as investment banking and brokerage and insurance. The consumer staples sector includes companies whose businesses are less sensitive to economic cycles, such as manufacturers and distributors of food, beverages and producers of non-durable household goods and personal products. To the extent that the fund tracks the Underlying Index, the fund's investment in certain sectors may change over time.</p><p>While the fund is currently classified as "non-diversified" under the Investment Company Act of 1940, it may operate as or become classified as "diversified" over time. The fund could again become non-diversified solely as a result of a change in relative market capitalization or index weighting of one or more constituents of the index that the fund is designed to track. Shareholder approval will not be sought when the fund crosses from diversified to non-diversified status under such circumstances.</p><p>The fund or securities referred to herein are not sponsored, endorsed, issued, sold or promoted by MSCI, and MSCI bears no liability with respect to the fund or securities or any index on which the fund or securities are based.</p><p>
<b>Securities lending.</b> The fund may lend its portfolio securities to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. In connection with such loans, the fund receives liquid collateral equal to at least 102% of the value of the portfolio securities being lent. This collateral is marked to market on a daily basis. The fund may lend its portfolio securities in an amount up to 33 1/3% of its total assets.</p>
Main Risks
<p>
As with any investment, you could lose all or part of your investment in the fund, and the fund's performance could trail that of other investments. The fund is subject to the main risks noted below, any of which may adversely affect the fund's net asset value ("NAV"), trading price, yield, total return and ability to meet its investment objective, as well as numerous other risks that are described in greater detail in the section of this Prospectus entitled "Additional Information About Fund Strategies, Underlying Index Information and Risks" and in the Statement of Additional Information ("SAI").</p><p>
<b>Stock market risk.</b> When stock prices fall, you should expect the value of your investment to fall as well. Stock prices can be hurt by poor management on the part of the stock's issuer, shrinking product demand and other business risks. These may affect single companies as well as groups of companies. The market as a whole may not favor the types of investments the fund makes, which could adversely affect a stock's price, regardless of how well the company performs, or the fund's ability to sell a stock at an attractive price. There is a chance that stock prices overall will decline because stock markets tend to move in cycles, with periods of rising and falling prices. Events in the US and global financial markets, including actions taken by the US Federal Reserve or foreign central banks to stimulate or stabilize economic growth, may at times result in unusually high market volatility which could negatively affect performance. To the extent that the fund invests in a particular geographic region, capitalization or sector, the fund's performance may be affected by the general performance of that region, capitalization or sector.</p><p>
<b>Market disruption risk.</b> Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Market disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.</p><p>Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant uncertainty, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.</p><p>
<b>Special risk considerations relating to investments in A-Shares.</b> The Advisor's ability to achieve its investment objective by investing in the component securities of the Underlying Index is dependent on the continuous availability of A-Shares. The fund intends to invest directly in A-Shares through Stock Connect, but, in the future, may also utilize an RQFII license applied for by and granted to the Advisor and/or a subadvisor. Because the fund will not be able to invest directly in A-Shares beyond the Daily Quota to which Stock Connect is subject, the size of the fund's direct investment in A-Shares may be limited. If the Daily Quota and/or RQFII license is or becomes inadequate to meet the investment needs of the fund or if the Advisor and/or subadvisor becomes unable to maintain its RQFII status, the Advisor may seek to gain exposure to the A-Share market by investing in securities not included in the Underlying Index, futures contracts, swaps and other derivative instruments, and other pooled investment vehicles, including foreign and/or affiliated funds, that provide exposure to the A-Share market until the Daily Quota accommodates the fund's investment needs. A revocation in or elimination of the RQFII license, or constraints of the Daily Quota, may not only adversely affect the ability of the fund to invest directly in A-Shares, but also the willingness of swap counterparties to engage in swaps and the performance of pooled investment vehicles linked to the performance of A-Shares. Therefore, any such revocation or elimination of the RQFII license or the constraints of the Daily Quota may have a material adverse effect on the ability of the fund to achieve its investment objective.</p><p>These risks are compounded by the fact that at present there are only a limited number of firms and counterparties that have QFII or RQFII status. In addition, an RQFII license may be revoked by Chinese regulators if, among other things, the Advisor and/or a subadvisor fails to observe SAFE and other applicable Chinese regulations, which could also lead to other adverse consequences, including the requirement that the fund dispose of its A-Shares holdings. There can be no guarantee that the fund will be able to invest in appropriate futures contracts, swaps and other derivative instruments, and the PRC government may at times restrict the ability of firms regulated in the PRC to make such instruments available. In addition, there are custody risks associated with investing through an RQFII, where, due to requirements regarding establishing a custody account in the joint names of the fund and the RQFII, the fund's assets may not be as well protected from the claims of the RQFII's creditors than if the fund had an account in its name only.</p><p>If the fund is unable to obtain sufficient exposure to the performance of the Underlying Index due to the limited availability of the Daily Quota or other investments that provide exposure to the performance of A-Shares, the fund could, among other actions, limit or suspend creations until the Advisor determines that the requisite exposure to the Underlying Index is obtainable. During the period that creations are limited or suspended, the fund could trade at a significant premium or discount to the NAV and could experience substantial redemptions. Alternatively, the fund could change its investment objective by, for example, seeking to track an alternative index that does not include A-Shares as its component securities, or decide to liquidate the fund.</p><p>On May 7, 2020, the People's Bank of China ("PBOC") and SAFE jointly issued the Regulations on Funds of Securities and Futures Investment by Foreign Institutional Investors (PBOC & SAFE Announcement [2020] No. 2) (the "Regulations") which came into effect on June 6, 2020. The Regulations supersede certain post-registration rules applicable to QFII and RQFII regimes. One of the key changes of the Regulations is the removal of quota restrictions on investment. However, as of the date of this prospectus, this is a relatively new development, and there is no guarantee that the quotas will continue to be relaxed.</p><p>
<b>Risks of investing through Stock Connect.</b> Trading through Stock Connect is subject to a number of restrictions that may affect the fund's investments and returns. For example, trading through Stock Connect is subject to the Daily Quota, which may restrict or preclude the fund's ability to invest in A-Shares through Stock Connect ("Stock Connect A-Shares"). In addition, investments made through Stock Connect are subject to trading, clearance and settlement procedures that are relatively untested in the PRC, which could pose risks to the fund. Moreover, Stock Connect A-Shares generally may not be sold, purchased or otherwise transferred other than through Stock Connect in accordance with applicable rules. A primary feature of Stock Connect is the application of the home market's laws and rules applicable to investors in A-Shares. Therefore, the fund's investments in Stock Connect A-Shares are generally subject to PRC securities regulations and listing rules, among other restrictions. Finally, while foreign investors currently are exempted from paying capital gains or value-added taxes on income and gains from investments in Stock Connect A-Shares, these PRC tax rules could be changed, which could result in unexpected tax liabilities for the fund.</p><p>Stock Connect will only operate on days when both the Chinese and Hong Kong markets are open for trading and when banking services are available in both markets on the corresponding settlement days. Therefore, an investment in A-Shares through Stock Connect may subject the fund to the risk of price fluctuations on days when the Chinese markets are open, but Stock Connect is not trading.</p><p>The Stock Connect program is a relatively new program. Further developments are likely and there can be no assurance as to the program's continued existence or whether future developments regarding the program may restrict or adversely affect the fund's investments or returns. In addition, the application and interpretation of the laws and regulations of Hong Kong and the PRC, and the rules, policies or guidelines published or applied by relevant regulators and exchanges in respect of the Stock Connect program are uncertain, and they may have a detrimental effect on the fund's investments and returns.</p><p>
<b>Special risk considerations of investing in China. </b>Investing in securities of Chinese issuers involves certain risks and considerations not typically associated with investing in securities of US issuers, including, among others, (i) more frequent (and potentially widespread) trading suspensions and government interventions with respect to Chinese issuers, resulting in lack of liquidity and in price volatility, (ii) currency revaluations and other currency exchange rate fluctuations or blockage, (iii) the nature and extent of intervention by the Chinese government in the Chinese securities markets (including both direct and indirect market stabilization efforts, which may affect valuations of Chinese issuers), whether such intervention will continue and the impact of such intervention or its discontinuation, (iv) the risk of nationalization or expropriation of assets, (v) the risk that the Chinese government may decide not to continue to support economic reform programs, (vi) limitations on the use of brokers (or action by the Chinese government that discourages brokers from serving international clients), (vii) higher rates of inflation, (viii) greater political, economic and social uncertainty, (ix) higher market volatility caused by any potential regional territorial conflicts or natural disasters, (x) the risk of increased trade tariffs, embargoes and other trade or regulatory limitations, (xi) restrictions on foreign ownership, (xii) custody risks associated with investing through Stock Connect, an RQFII or other programs to access the Chinese securities markets, (xiii) both interim and permanent market regulations which may affect the ability of certain stockholders to sell Chinese securities when it would otherwise be advisable, and (xiv) different and less stringent financial reporting standards.</p><p>From time to time, and as recently as early 2020 with the coronavirus known as COVID-19, China has experienced outbreaks of infectious illnesses, and the country may be subject to other infectious illnesses, diseases or other public health emergencies in the future. Any public health emergency could reduce consumer demand or economic output, result in market closures, travel restrictions or quarantines, and generally have a significant impact on the Chinese economy, which in turn could adversely affect the fund's investments.</p><p>
<b>A-Shares tax risk.</b> Uncertainties in the Chinese tax rules governing taxation of income and gains from investments in A-Shares could result in unexpected tax liabilities for the fund or Underlying Fund. China generally imposes withholding tax at a rate of 10% on dividends and interest derived by nonresident enterprises (including QFIIs and RQFIIs) from issuers resident in China. China also imposes withholding tax at a rate of 10% on capital gains derived by nonresident enterprises from investments in an issuer resident in China, subject to an exemption or reduction pursuant to domestic law or a double taxation agreement or arrangement.</p><p>Since the respective inception of the Shanghai – Hong Kong and Shenzhen – Hong Kong Stock Connect programs, foreign investors (including the fund) investing in A-Shares through Stock Connect would be temporarily exempt from the PRC corporate income tax and value- added tax on the gains on disposal of such A-Shares. Dividends would be subject to PRC corporate income tax on a withholding basis at 10%, unless reduced under a double tax treaty with China upon application to and obtaining approval from the competent tax authority. Since November 17, 2014, the corporate income tax for QFIIs and RQFIIs, with respect to capital gains, has been temporarily lifted. The withholding tax relating to the realized gains from shares in land-rich companies prior to November 17, 2014 has been paid by the fund, while realized gains from shares in non-land-rich companies prior to November 17, 2014 were granted by treaty relief pursuant to the PRC-US Double Taxation Agreement. During 2015, revenue authorities in the PRC made arrangements for the collection of capital gains taxes for investments realized between November 17, 2009 and November 16, 2014. The fund could be subject to tax liability for any tax payments for which reserves have not been made or that were not previously withheld. The impact of any such tax liability on the fund's return could be substantial. The fund may also be liable to the Advisor or subadvisor for any tax that is imposed on the Advisor or subadvisor by the PRC with respect to the fund's investments. If the fund's direct investments in A-Shares through the Advisor's or subadvisor's RQFII license become subject to repatriation restrictions or delays, the fund may be unable to satisfy distribution requirements applicable to RICs under the Internal Revenue Code, and be subject to tax at the fund level. The current PRC tax laws and regulations and interpretations thereof may be revised or amended in the future, potentially retroactively, including with respect to the possible liability of the fund for the taxation of income and gains from investments in A-Shares through Stock Connect or obligations of an RQFII. The withholding taxes on dividends, interest and capital gains may in principle be subject to a reduced rate under an applicable tax treaty, but the application of such treaties in the case of an RQFII acting for a foreign investor such as the fund is also uncertain. Finally, it is also unclear whether an RQFII would also be eligible for PRC Business Tax ("BT") exemption, which has been granted to QFIIs, with respect to gains derived prior to May 1, 2016. In practice, the BT has not been collected. However, the imposition of such taxes on the fund could have a material adverse effect on the fund's returns. Since May 1, 2016, RQFIIs are exempt from PRC value-added tax, which replaced the BT with respect to gains realized from the disposal of securities, including A-Shares.</p><p>The PRC rules for taxation of RQFIIs (and QFIIs) are evolving and certain tax regulations to be issued by the PRC State Administration of Taxation and/or PRC Ministry of Finance to clarify the subject matter may apply retrospectively, even if such rules are adverse to the fund and its shareholders.</p><p>If the PRC begins applying tax rules regarding the taxation of income from A-Shares investments to RQFIIs and/or begins collecting capital gains taxes on such investments (whether made through Stock Connect or an RQFII), the fund or Underlying Fund could be subject to withholding tax liability in excess of the amount reserved (if any). The impact of any such tax liability on the fund's or Underlying Fund's return could be substantial. The fund will be liable to the Advisor or subadvisor for any Chinese tax that is imposed on the Advisor or subadvisor with respect to the fund's investments.</p><p>As described below under "Taxes – Taxes on Distributions," the fund may elect, for US federal income tax purposes, to treat Chinese taxes (including withholding taxes) paid by the fund as paid by its shareholders. Even if the fund is qualified to make that election and does so, however, your ability to claim a credit for certain Chinese taxes may be limited under general US tax principles.</p><p>In addition, to the extent the fund invests in swaps and other derivative instruments, such investments may be less tax-efficient from a US tax perspective than direct investment in A-Shares and may be subject to special US federal income tax rules that could adversely affect the fund. Also the fund may be required to periodically adjust its positions in those instruments to comply with certain regulatory requirements which may further cause these investments to be less efficient than a direct investment in A-Shares.</p><p>Should the Chinese government impose restrictions on the fund's ability to repatriate funds associated with direct investment in A-Shares, the fund may be unable to satisfy distribution requirements applicable to regulated investment companies ("RICs") under the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), and the fund may therefore be subject to fund-level US federal taxes.</p><p>
<b>Depositary receipt risk.</b> Depositary receipts involve similar risks to those associated with investments in securities of non-US issuers. Depositary receipts also may be less liquid than the underlying shares in their primary trading market.</p><p>
<b>Derivatives risk. </b>Risks associated with derivatives include the risk that the derivative is not well correlated with the security, index or currency to which it relates; the risk that derivatives may result in losses or missed opportunities; the risk that the fund will be unable to sell the derivative because of an illiquid secondary market; the risk that a counterparty is unwilling or unable to meet its obligation; and the risk that the derivative transaction could expose the fund to the effects of leverage, which could increase the fund's exposure to the market and magnify potential losses. There is no guarantee that derivatives, to the extent employed, will have the intended effect, and their use could cause lower returns or even losses to the fund. The use of derivatives by the fund to hedge risk may reduce the opportunity for gain by offsetting the positive effect of favorable price movements.</p><p>
<b>Counterparty risk.</b> A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.</p><p>
<b>Currency and repatriation risk.</b> The Underlying Index is calculated in onshore RMB (CNY), whereas the fund's reference currency is the US dollar. As a result, the fund's return may be adversely affected by currency exchange rates. Further, although offshore RMB and onshore RMB are the same currency, they trade at different rates. To the extent the fund needs to exchange offshore RMB and onshore RMB, any divergence between offshore RMB and onshore RMB may adversely impact shareholders. The value of the US dollar measured against other currencies is influenced by a variety of factors. These factors include: interest rates, national debt levels and trade deficits, changes in balances of payments and trade, domestic and foreign interest and inflation rates, global or regional political, economic or financial events, monetary policies of governments, actual or potential government intervention, global energy prices, political instability and government monetary policies and the buying or selling of currencies by a country's government.</p><p>In addition, the Chinese government heavily regulates the domestic exchange of foreign currencies within China. Chinese law requires that all domestic transactions must be settled in RMB, places significant restrictions on the remittance of foreign currencies, and strictly regulates currency exchange from RMB. There is no assurance that there will always be sufficient amounts of RMB for the fund to remain fully invested. Repatriations by RQFIIs are currently permitted daily and are not subject to repatriation restrictions or prior regulatory approval. However, there is no assurance that Chinese rules and regulations will not change or that repatriation restrictions will not be imposed in the future. Further, such changes to the Chinese rules and regulations may be applied retroactively. Any restrictions on repatriation of the fund's portfolio investments may have an adverse effect on the fund's ability to meet redemption requests.</p><p>
<b>Focus risk.</b> To the extent that the fund focuses its investments in particular industries, asset classes or sectors of the economy, any market price movements, regulatory or technological changes, or economic conditions affecting companies in those industries, asset classes or sectors may have a significant impact on the fund's performance.</p><p>
<b>Financials sector risk. </b>To the extent that the fund invests significantly in the financials sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the financials sector. The financials sector is subject to extensive government regulation, can be subject to relatively rapid change due to increasingly blurred distinctions between service segments, and can be significantly affected by availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, and price competition. </p><p>
<b>Consumer staples sector risk. </b>To the extent that the fund invests significantly in the consumer staples sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the consumer staples sector. Companies in the consumer staples sector may be adversely affected by changes in the global economy, consumer spending, competition, demographics and consumer preferences, and production spending. Companies in the consumer staples sector are also affected by changes in government regulation, global economic, environmental and political events, economic conditions and the depletion of resources. In addition, companies in the consumer staples sector may be subject to risks pertaining to the supply of, demand for and prices of raw materials. The prices of raw materials fluctuate in response to a number of factors, including, without limitation, changes in government agricultural support programs, exchange rates, import and export controls, changes in international agricultural and trading policies, and seasonal and weather conditions.</p><p>
<b>Passive investing risk. </b>Unlike a fund that is actively managed, in which portfolio management buys and sells securities based on research and analysis, the fund invests in securities included in, or representative of, the Underlying Index, regardless of their investment merits. Because the fund is designed to maintain a high level of exposure to the Underlying Index at all times, portfolio management generally will not buy or sell a security unless the security is added or removed, respectively, from the Underlying Index, and will not take any steps to invest defensively or otherwise reduce the risk of loss during market downturns.</p><p>
<b>Index-related risk.</b> The fund seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index as published by the index provider. There is no assurance that the Underlying Index provider will compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. Market disruptions could cause delays in the Underlying Index's rebalancing schedule. During any such delay, it is possible that the Underlying Index and, in turn, the fund will deviate from the Underlying Index's stated methodology and therefore experience returns different than those that would have been achieved under a normal rebalancing schedule. Generally, the index provider does not provide any warranty, or accept any liability, with respect to the quality, accuracy or completeness of the Underlying Index or its related data, and does not guarantee that the Underlying Index will be in line with its stated methodology. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its stated methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. The Advisor and its affiliates do not provide any warranty or guarantee against such errors. Therefore, the gains, losses or costs associated with the index provider's errors will generally be borne by the fund and its shareholders.</p><p>
<b>Liquidity risk.</b> In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. This risk can be ongoing for any security that does not trade actively or in large volumes, for any security that trades primarily on smaller markets, and for investments that typically trade only among a limited number of large investors (such as certain types of derivatives or restricted securities). In unusual market conditions, even normally liquid securities may be affected by a degree of liquidity risk. This may affect only certain securities or an overall securities market.</p><p>If the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss.</p><p>
<b>Pricing risk. </b>If market conditions make it difficult to value some investments (including China A-Shares), the fund may value these investments using more subjective methods, such as fair value pricing. In such cases, the value determined for an investment could be different from the value realized upon such investment's sale. As a result, you could pay more than the market value when buying fund shares or receive less than the market value when selling fund shares.</p><p>
<b>Tracking error risk.</b> The performance of the fund may diverge from that of its Underlying Index for a number of reasons, including operating expenses, transaction costs, cash flows and operational inefficiencies. The fund's return also may diverge from the return of the Underlying Index because the fund bears the costs and risks associated with buying and selling securities (especially when rebalancing the fund's securities holdings to reflect changes in the Underlying Index) while such costs and risks are not factored into the return of the Underlying Index. Transaction costs, including brokerage costs, will decrease the fund's NAV to the extent not offset by the transaction fee payable by an "Authorized Participant" ("AP"). Market disruptions and regulatory restrictions could have an adverse effect on the fund's ability to adjust its exposure to the required levels in order to track the Underlying Index. In addition, to the extent that portfolio management uses a representative sampling approach (investing in a representative selection of securities included in the Underlying Index rather than all securities in the Underlying Index) it may cause the fund to not be as well correlated with the return of the Underlying Index as would be the case if the fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. In addition, the fund may not be able to invest in certain securities included in the Underlying Index, or invest in them in the exact proportions in which they are represented in the Underlying Index, due to legal restrictions or limitations imposed by the governments of certain countries, a lack of liquidity in the markets in which such securities trade, potential adverse tax consequences or other regulatory reasons. To the extent the fund calculates its NAV based on fair value prices and the value of the Underlying Index is based on securities' closing prices (i.e., the value of the Underlying Index is not based on fair value prices), the fund's ability to track the Underlying Index may be adversely affected. The performance of the fund also may diverge from that of the Underlying Index if the Advisor and/or subadvisor seek to gain exposure to A-Shares by investing in securities not included in the Underlying Index, derivative instruments, and other pooled investment vehicles because the subadvisor is unable to maintain its RQFII status, or the Stock Connect Daily Quota has been exhausted. For tax efficiency purposes, the fund may sell certain securities, and such sale may cause the fund to realize a loss and deviate from the performance of the Underlying Index. In light of the factors discussed above, the fund's return may deviate significantly from the return of the Underlying Index.</p><p>
<b>Market price risk. </b>Fund shares are listed for trading on an exchange and are bought and sold in the secondary market at market prices. The market prices of shares will fluctuate, in some cases materially, in response to changes in the NAV and supply and demand for shares. As a result, the trading prices of shares may deviate significantly from the NAV during periods of market volatility. The Advisor cannot predict whether shares will trade above, below or at their NAV. Given the fact that shares can be created and redeemed in Creation Units (defined below), the Advisor believes that large discounts or premiums to the NAV of shares should not be sustained in the long-term. If market makers exit the business or are unable to continue making markets in fund shares, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market). Further, while the creation/redemption feature is designed to make it likely that shares normally will trade close to the value of the fund's holdings, disruptions to creations and redemptions, including disruptions at market makers, APs or market participants, or during periods of significant market volatility, may result in market prices that differ significantly from the value of the fund's holdings. Although market makers will generally take advantage of differences between the NAV and the market price of fund shares through arbitrage opportunities, there is no guarantee that they will do so. In addition, the securities held by the fund may be traded in markets that close at a different time than the exchange on which the fund's shares trade. Liquidity in those securities may be reduced after the applicable closing times. Accordingly, during the time when the exchange is open but after the applicable market closing, fixing or settlement times, bid-ask spreads and the resulting premium or discount to the shares' NAV is likely to widen. The bid/ask spread of the fund may be wider in comparison to the bid/ask spread of other ETFs, due to the Fund's exposure to A-Shares. Further, secondary markets may be subject to irregular trading activity, wide bid-ask spreads and extended trade settlement periods, which could cause a material decline in the fund's NAV. The fund's investment results are measured based upon the daily NAV of the fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by those APs creating and redeeming shares directly with the fund.</p><p>
<b>Valuation risk. </b>Because non-US markets may be open on days when the fund does not price its shares, the value of the securities in the fund's portfolio may change on days when shareholders will not be able to purchase or sell the fund's shares.</p><p>
<b>Operational and technology risk.</b> Cyber-attacks, disruptions, or failures that affect the fund's service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund's or its service providers' assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund's net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund's operations.</p><p>While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund's service providers could impact the ability to conduct the fund's operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.</p><p>
<b>Authorized Participant concentration risk.</b> The fund may have a limited number of financial institutions that may act as APs. Only APs who have entered into agreements with the fund's distributor may engage in creation or redemption transactions directly with the fund (as described in the section of this Prospectus entitled "Buying and Selling Shares"). If those APs exit the business or are unable to process creation and/or redemption orders, (including in situations where APs have limited or diminished access to capital required to post collateral) and no other AP is able to step forward to create and redeem in either of these cases, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market).</p><p>
<b>Non-diversification risk.</b> The fund is classified as non-diversified under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.
</p><p>If the fund becomes classified as "diversified" over time and again becomes non-diversified as a result of a change in relative market capitalization or index weighting of one or more constituents of the index that the fund is designed to track, non-diversification risk would apply. </p><p>
<b>Cash transactions risk.</b> Unlike most other ETFs, the fund expects to effect its creations and redemptions principally for cash, rather than in-kind securities. Paying redemption proceeds in cash rather than through in-kind delivery of portfolio securities may require the fund to dispose of or sell portfolio investments to obtain the cash needed to distribute redemption proceeds at an inopportune time. This may cause the fund to recognize gains or losses that it might not have incurred if it had made a redemption in- kind. As a result, the fund may pay out higher or lower annual capital gains distributions than ETFs that redeem in kind. Only APs who have entered into an agreement with the fund's distributor may redeem shares from the fund directly; all other investors buy and sell shares at market prices on an exchange.</p><p>
<b>Country concentration risk.</b> To the extent that the fund invests significantly in a single country, it is more likely to be impacted by events or conditions affecting that country. For example, political and economic conditions and changes in regulatory, tax or economic policy in a country could significantly affect the market in that country and in surrounding or related countries and have a negative impact on the fund's performance.</p><p>
<b>Securities lending risk. </b>Securities lending involves the risk that the fund may lose money because the borrower of the loaned securities fails to return the securities in a timely manner or at all. The fund could also lose money in the event of a decline in the value of the collateral provided for the loaned securities or a decline in the value of any investments made with cash collateral. These events, and securities lending in general, could trigger adverse tax consequences for the fund and its investors. For example, if the fund loans its securities, the fund and its investors may lose the ability to treat certain fund distributions associated with those securities as qualified dividend income.</p>
Past Performance
<p>
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund's performance from year to year and by showing how the fund's average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund's past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. Updated performance information is available on the fund's website at Xtrackers.com (the website does not form a part of this prospectus).</p><p>Prior to June 4, 2018, the fund sought investment results that corresponded generally to the performance, before the fund's fees and expenses, of the prior underlying index.</p>
<table>
<tr>
<td valign="top" align="left" />
<td valign="top" align="left">Returns</td>
<td valign="top" align="left">Period ending</td>
</tr>
<tr>
<td valign="top" align="left">Best Quarter</td>
<td valign="top" align="left">29.75%</td>
<td valign="top" align="left">March 31, 2019</td>
</tr>
<tr>
<td valign="top" align="left">Worst Quarter</td>
<td valign="top" align="left">-14.03%</td>
<td valign="top" align="left">March 31, 2016</td>
</tr>
<tr>
<td valign="top" align="left">Year-to-Date</td>
<td valign="top" align="left">4.80%</td>
<td valign="top" align="left">June 30, 2020</td>
</tr>
</table><p></p>
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax.
After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts ("IRAs") or employee-sponsored retirement plans.
Investment Objective
<p>The Xtrackers Municipal Infrastructure Revenue Bond ETF (the "fund") seeks investment results that correspond generally to the performance, before fees and expenses, of the Solactive Municipal Infrastructure Revenue Bond Index (the "Underlying Index").</p>
Fees and Expenses
<p>These are the fees and expenses that you will pay when you buy, hold and sell shares. You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below. </p>
PORTFOLIO TURNOVER 
<p>The fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may mean higher taxes if you are investing in a taxable account. These costs are not reflected in annual fund operating expenses or in the expense example, and can affect the fund's performance. During the most recent fiscal year, the fund's portfolio turnover rate was 12% of the average value of its portfolio.</p>
Principal Investment Strategies
<p>The fund, using a "passive" or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index, which is designed to track the performance of the US long-term tax exempt bond market, consisting of infrastructure revenue bonds. The fund uses a representative sampling indexing strategy in seeking to track the Underlying Index, meaning that it will generally invest in a sample of securities in the index whose risk, return and other characteristics resemble the risk, return and other characteristics of the Underlying Index as a whole. The fund will invest at least 80% of its total assets (but typically far more) in instruments that comprise the Underlying Index.</p><p>The Underlying Index is comprised of tax-exempt municipal securities issued by states, cities, counties, districts, their respective agencies, and other tax-exempt issuers. The Underlying Index is intended to track bonds that have been issued with the intention of funding federal, state and local infrastructure projects, such as water and sewer systems, public sewer systems, toll roads, bridges, tunnels and many other public use projects.</p><p>As of July 31, 2020, the Underlying Index consisted of 867 securities with an average amount outstanding of approximately $104 million and a minimum amount outstanding of approximately $43 million. The Underlying Index is a total return index, which assumes that any cash distributions are reinvested back into the Underlying Index.</p><p>The Underlying Index is designed to only hold those bonds issued by state and local municipalities where the interest and principal repayments are generated from dedicated revenue streams or double-barreled entities (whose bonds are backed by both a dedicated revenue stream and a general obligation pledge).</p><p>The Underlying Index may include private activity bonds, industrial development bonds, special tax bonds and transportation bonds.</p><p>Private activity bonds are issued by municipalities and other public authorities to finance development of industrial facilities for use by a private enterprise. The private enterprise pays the principal and interest on the bond, and the issuer does not pledge its full faith, credit and taxing power for repayment.</p><p>Industrial development bonds are a specific type of revenue bond backed by the credit and security of a private user and therefore have more potential risk. The interest from industrial development bonds, when distributed by the fund as "exempt-interest dividends" to shareholders, may be subject to the alternative minimum tax ("AMT").</p><p>Special tax bonds are payable for and secured by the revenues derived by a municipality from a particular tax (e.g., tax on the rental of a hotel room, on the purchase of food and beverages, on the rental of automobiles or on the consumption of liquor). Special tax bonds are not secured by the general tax revenues of the municipality, and they do not represent general obligations of the municipality.</p><p>Transportation bonds are obligations of issuers that own and operate public transit systems, ports, highways, turnpikes, bridges and other transportation systems.</p><p>In order to be eligible for inclusion in the Underlying Index, the municipal securities must be offered publicly; meet a minimum amount outstanding and deal amount; are investment-grade; have a fixed-rate coupon payment; and are not prefunded/escrowed to maturity. Municipal bonds which are subject to the AMT and state and local taxes are eligible for inclusion in the Underlying Index. The Underlying Index does not attempt to achieve a particular duration (which is a measure of a bond's sensitivity to interest rates), but the Underlying Index limits eligibility for inclusion to municipal securities which have a stated final maturity of 10 years or longer and are not callable for at least the next 5 years. Under normal circumstances, the Underlying Index is reconstituted and rebalanced on a monthly basis. The fund reconstitutes and rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index's reconstitution and rebalance schedule will result in corresponding changes to the fund's reconstitution and rebalance schedule.</p><p>Under normal circumstances, the fund invests at least 80% of net assets, plus the amount of any borrowings for investment purposes, in securities issued by municipalities across the United States and its territories which are classified as "municipal infrastructure revenue" bonds based on the Underlying Index's criteria summarized above, whose income is free from regular federal income tax. Because municipal securities that pay interest subject to the AMT may be included in the Underlying Index without limit, the fund may invest an unlimited amount of its net assets in municipal securities whose income is subject to the AMT. In addition, the fund will invest at least 80% of its total assets (but typically far more) in instruments that comprise the Underlying Index.</p><p>As of July 31, 2020, the Underlying Index was wholly comprised of securities of issuers in the United States (and as of the fund's fiscal year end, a significant percentage of the Underlying Index was comprised of municipal securities of issuers in New York (22.38%) and California (16.49%).</p><p>
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated. To the extent that the fund tracks the Underlying Index, the fund's investment in certain sectors may change over time.</p><p>The fund is not sponsored, endorsed, sold or promoted by Solactive.</p>
Main Risks
<p>
As with any investment, you could lose all or part of your investment in the fund, and the fund's performance could trail that of other investments. The fund is subject to the main risks noted below, any of which may adversely affect the fund's net asset value ("NAV"), trading price, yield, total return and ability to meet its investment objective, as well as numerous other risks that are described in greater detail in the section of this Prospectus entitled "Additional Information About Fund Strategies, Underlying Index Information and Risks" and in the Statement of Additional Information ("SAI").</p><p>
<b>Municipal securities risk. </b>Municipal instruments may be susceptible to periods of economic stress, which could affect the market values and marketability of many or all municipal obligations of issuers in a state, U.S. territory, or possession. For example, the COVID-19 pandemic has significantly stressed the financial resources of many municipal issuers, which may impair a municipal issuer's ability to meet its financial obligations when due and could adversely impact the value of its bonds, which could negatively impact the performance of the fund. Municipal securities are subject to the risk that litigation, legislation or other political events, local business or economic conditions or the bankruptcy of the issuer could have a significant effect on an issuer's ability to make payments of principal and/or interest. Certain municipalities may have difficulty meeting their obligations due to, among other reasons, changes in underlying demographics. Municipal securities can be significantly affected by political changes as well as uncertainties in the municipal market related to taxation, legislative changes or the rights of municipal security holders. Because many municipal securities are issued to finance similar projects, especially those relating to education, health care, transportation, utilities and water and sewer, conditions in those sectors can affect the overall municipal market. In addition, changes in the financial condition of an individual municipal issuer can affect the overall municipal market. Municipal securities may include revenue bonds, which are generally backed by revenue from a specific project or tax. The issuer of a revenue bond makes interest and principal payments from revenues generated from a particular source or facility, such as a tax on particular property or revenues generated from a municipal water or sewer utility or an airport.</p><p>Revenue bonds generally are not backed by the full faith and credit and general taxing power of the issuer. The market for municipal bonds may be less liquid than for taxable bonds. The value and liquidity of many municipal securities have decreased as a result of the most recent financial crisis, which has also adversely affected many municipal securities issuers and may continue to do so. There may be less information available on the financial condition of issuers of municipal securities than for public corporations.</p><p>
<b>Fixed income markets risk.</b> The values of many types of debt securities have been reduced over a period of many years since the credit crisis started due to problems relating to subprime mortgages. These market problems have also affected debt securities that are not related to mortgage loans. In addition, broker-dealers and other market participants have been less willing to make a market in some types of debt instruments, which has impacted the liquidity of those instruments. These developments also have had a negative effect on the broader economy.</p><p>
<b>Market disruption risk.</b> Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Market disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.</p><p>Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant uncertainty, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.</p><p>
<b>Fixed income securities risk.</b> Fixed-income securities are subject to the risk of the issuer's inability to meet principal and interest payments on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity, market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk). Lower rated fixed-income securities have greater volatility because there is less certainty that principal and interest payments will be made as scheduled. There is a risk that a lack of liquidity or other adverse credit market conditions may hamper the fund's ability to sell the debt securities in which it invests or to find and purchase debt instruments included in the Underlying Index.</p><p>
<b>Private activity bonds risk.</b> The issuers of private activity bonds in which the fund may invest may be negatively impacted by conditions affecting either the general credit of the user of the private activity project or the project itself. The fund's private activity bond holdings also may pay interest subject to the AMT. See "Dividends and Distributions" for more details.</p><p>
<b>Industrial development bond risk. </b>These revenue bonds are issued by or on behalf of public authorities to obtain funds to finance various public and/or privately operated facilities, including those for business and manufacturing, housing, sports, pollution control, airport, mass transit, port and parking facilities. These bonds are normally secured only by the revenues from the project and not by state or local government tax payments. Consequently, the credit quality of these securities is dependent upon the ability of the user of the facilities financed by the bonds and any guarantor to meet its financial obligations. Payment of interest on and repayment of principal on such bonds are the responsibility of the user and/or any guarantor. These bonds are subject to a wide variety of risks, many of which relate to the nature of the specific project. Generally, the value and credit quality of these bonds are sensitive to the risks related to an economic slowdown.</p><p>
<b>Special tax bond risk. </b>Special tax bonds are usually backed and payable through a single tax, or series of special taxes such as incremental property taxes. The failure of the tax levy to generate adequate revenue to pay the debt service on the bonds may cause the value of the bonds to decline. Adverse conditions and developments affecting a particular project may result in lower revenues to the issuer of the municipal securities, which may adversely affect the value of the fund's portfolio.</p><p>
<b>Transportation bond risk.</b> Transportation bonds may be issued to finance the construction of airports, toll roads, highways or other transit facilities. Airport bonds are dependent on the general stability of the airline industry and on the stability of a specific carrier who uses the airport as a hub. Air traffic generally follows broader economic trends and is also affected by the price and availability of fuel. Toll road bonds are also affected by the cost and availability of fuel as well as toll levels, the presence of competing roads and the general economic health of an area. Fuel costs and availability also affect other transportation related securities, as do the presence of alternate forms of transportation, such as public transportation. Municipal securities that are issued to finance a particular transportation project often depend solely on revenues from that project to make principal and interest payments. Adverse conditions and developments affecting a particular project may result in lower revenues to the issuer of the municipal securities.</p><p>
<b>Water and sewer bond risk. </b>Water and sewer revenue bonds are often considered to have relatively secure credit as a result of their issuer's importance, monopoly status and generally unimpeded ability to raise rates. Despite this, lack of water supply due to insufficient rain, run off or snow pack is a concern that has led to past defaults. Further, public resistance to rate increases, costly environmental litigation and federal environmental mandates are challenges faced by issuers of water and sewer bonds.</p><p>
<b>Interest rate risk.</b> When interest rates rise, prices of debt securities generally decline. The longer the duration of the fund's debt securities, the more sensitive the fund will be to interest rate changes. (As a general rule, a 1% rise in interest rates means a 1% fall in value for every year of duration.) Recent and potential future changes in monetary policy made by central banks or governments are likely to affect the level of interest rates. Rising interest rates may prompt redemptions from the fund. Although the fund primarily seeks to redeem shares of the fund on an in-kind basis, if the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss. The fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates. Certain countries have experienced negative interest rates on certain debt securities. Negative or very low interest rates could magnify the risks associated with changes in interest rates. In general, changing interest rates, including rates that fall below zero, could have unpredictable effects on markets and may expose debt and related markets to heightened volatility. During periods when interest rates are low or there are negative interest rates, the fund's yield (and total return) also may be low or the fund may be unable to maintain positive returns. In addition, in response to the COVID-19 pandemic, as with other serious economic disruptions, governmental authorities and regulators are enacting significant fiscal and monetary policy changes, including providing direct capital infusions into companies, creating new monetary programs and lowering interest rates considerably. These actions present heightened risks to debt instruments, and such risks could be even further heightened if these actions are unexpectedly or suddenly reversed or are ineffective in achieving their desired outcomes.</p><p>
<b>Credit risk. </b>The fund's performance could be hurt if an issuer of a debt security suffers an adverse change in financial condition that results in a payment default, security downgrade or inability to meet a financial obligation. Credit risk is greater for lower-rated securities. Because the issuers of junk bonds may be in uncertain financial health, the prices of their debt securities could be more vulnerable to bad economic news, or even the expectation of bad news, than investment-grade debt securities. Credit ratings may not be an accurate assessment of credit risk.</p><p>
<b>Geographic focus risk.</b> To the extent that the Underlying Index and the fund are significantly comprised of issuers in a single state, region or sector of the municipal securities market, performance can be more volatile than that of a fund that invests more broadly. As an example, factors affecting a state, region or sector, such as severe fiscal difficulties, an economic downturn, court rulings, increased expenditures on domestic security or reduced monetary support from the federal government, could over time impair the ability of a state, region or sector to repay its obligations.</p><p>
<b>Risks related to investing in New York.</b> The fund may invest a significant portion of its assets in municipal obligations of issuers located in the State of New York and, therefore, will have greater exposure to negative political, economic, regulatory or other factors within the State of New York, including the financial condition of its public authorities and political subdivisions, than a fund that invests in a broader base of securities. Unfavorable developments in any economic sector may have a substantial impact on the overall New York municipal market. Certain issuers of New York municipal bonds have experienced serious financial difficulties in the past and reoccurrence of these difficulties may impair the ability of certain New York issuers to pay principal or interest on their obligations.</p><p>
<b>Risks related to investing in California.</b> The fund may invest a significant portion of its assets in municipal obligations of issuers located in the State of California. While California's economy is broad, it does have major concentrations in high technology, manufacturing, entertainment, agriculture, tourism, construction and services, and may be sensitive to economic problems affecting those industries. Consequently, the fund may be affected by political, economic, regulatory and other developments within California and by the financial condition of California's political subdivisions, agencies, instrumentalities and public authorities.</p><p>
<b>Focus risk.</b> To the extent that the fund focuses its investments in particular industries, asset classes or sectors of the economy, any market price movements, regulatory or technological changes, or economic conditions affecting companies in those industries, asset classes or sectors may have a significant impact on the fund's performance.</p><p>
<b>Prepayment and extension risk. </b>When interest rates fall, issuers of high interest debt obligations may pay off the debts earlier than expected (prepayment risk), and the fund may have to reinvest the proceeds at lower yields. When interest rates rise, issuers of lower interest debt obligations may pay off the debts later than expected (extension risk), thus keeping the fund's assets tied up in lower interest debt obligations. Ultimately, any unexpected behavior in interest rates could increase the volatility of the fund's share price and yield and could hurt fund performance. Prepayments could also create capital gains tax liability in some instances.</p><p>
<b>Liquidity risk.</b> In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. This risk can be ongoing for any security that does not trade actively or in large volumes, for any security that trades primarily on smaller markets, and for investments that typically trade only among a limited number of large investors (such as certain types of derivatives or restricted securities). In unusual market conditions, even normally liquid securities may be affected by a degree of liquidity risk. This may affect only certain securities or an overall securities market.</p><p>Although the fund primarily seeks to redeem shares of the fund on an in-kind basis, if the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss. This may be magnified in a rising interest rate environment or other circumstances where redemptions from the fund may be higher than normal.</p><p>
<b>Tax risk. </b>Income from municipal securities held by the fund could be declared taxable because of unfavorable changes in tax laws, adverse interpretations by the Internal Revenue Service or state tax authorities, or noncompliant conduct of a securities issuer. In addition, because municipal securities that pay interest subject to the AMT may be included in the Underlying Index without limit, the fund may invest an unlimited amount of its net assets in municipal securities whose income is subject to the AMT. Further, a portion of the fund's otherwise exempt-interest distributions may be taxable to those shareholders subject to the federal AMT. </p><p>
<b>Pricing risk. </b>If market conditions make it difficult to value some investments, the fund may value these investments using more subjective methods, such as fair value pricing. In such cases, the value determined for an investment could be different from the value realized upon such investment's sale. As a result, you could pay more than the market value when buying fund shares or receive less than the market value when selling fund shares.</p><p>
<b>Issuer-specific risk.</b> The value of an individual security or particular type of security may be more volatile than the market as a whole and may perform differently from the value of the market as a whole.</p><p>
<b>Passive investing risk. </b>Unlike a fund that is actively managed, in which portfolio management buys and sells securities based on research and analysis, the fund invests in securities included in, or representative of, the Underlying Index, regardless of their investment merits. Because the fund is designed to maintain a high level of exposure to the Underlying Index at all times, portfolio management generally will not buy or sell a security unless the security is added or removed, respectively, from the Underlying Index, and will not take any steps to invest defensively or otherwise reduce the risk of loss during market downturns.</p><p>
<b>Index-related risk.</b> The fund seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index as published by the index provider. There is no assurance that the Underlying Index provider will compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. Market disruptions could cause delays in the Underlying Index's rebalancing schedule. During any such delay, it is possible that the Underlying Index and, in turn, the fund will deviate from the Underlying Index's stated methodology and therefore experience returns different than those that would have been achieved under a normal rebalancing schedule. Generally, the index provider does not provide any warranty, or accept any liability, with respect to the quality, accuracy or completeness of the Underlying Index or its related data, and does not guarantee that the Underlying Index will be in line with its stated methodology. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its stated methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. The Advisor and its affiliates do not provide any warranty or guarantee against such errors. Therefore, the gains, losses or costs associated with the index provider's errors will generally be borne by the fund and its shareholders.</p><p>
<b>Tracking error risk.</b> The fund may be subject to tracking error, which is the divergence of the fund's performance from that of the Underlying Index. The performance of the fund may diverge from that of the Underlying Index for a number of reasons, including operating expenses, transaction costs, cash flows and operational inefficiencies. The fund's return also may diverge from the return of the Underlying Index because the fund bears the costs and risks associated with buying and selling securities (especially when rebalancing the fund's securities holdings to reflect changes in the Underlying Index) while such costs and risks are not factored into the return of the Underlying Index. Transaction costs, including brokerage costs, will decrease the fund's NAV to the extent not offset by the transaction fee payable by an "Authorized Participant" ("AP"). Market disruptions and regulatory restrictions could have an adverse effect on the fund's ability to adjust its exposure in order to track the Underlying Index. To the extent that portfolio management uses a representative sampling approach (investing in a representative selection of securities included in the Underlying Index rather than all securities in the Underlying Index), such approach may cause the fund's return to not be as well correlated with the return of the Underlying Index as would be the case if the fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index. In addition, the fund may not be able to invest in certain securities included in the Underlying Index, or invest in them in the exact proportions in which they are represented in the Underlying Index, due to government imposed legal restrictions or limitations, a lack of liquidity in the markets in which such securities trade, potential adverse tax consequences or other regulatory reasons. To the extent the fund calculates its net asset value based on fair value prices and the value of the Underlying Index is based on market prices (i.e., the value of the Underlying Index is not based on fair value prices), the fund's ability to track the Underlying Index may be adversely affected. Tracking error risk may be higher for funds that track a foreign index, or an index that includes foreign securities, because regulatory and reporting requirements may differ from those in the US, and there is a heightened risk associated with limited availability and reliability of data used to construct the index. Tracking error risk may also be heightened during times of increased market volatility or other unusual market conditions. For tax efficiency purposes, the fund may sell certain securities, and such sale may cause the fund to realize a loss and deviate from the performance of the Underlying Index. In light of the factors discussed above, the fund's return may deviate significantly from the return of the Underlying Index.</p><p>
<b>Market price risk. </b>Fund shares are listed for trading on an exchange and are bought and sold in the secondary market at market prices. The market prices of shares will fluctuate, in some cases materially, in response to changes in the NAV and supply and demand for shares. As a result, the trading prices of shares may deviate significantly from the NAV during periods of market volatility. The Advisor cannot predict whether shares will trade above, below or at their NAV. Given the fact that shares can be created and redeemed in Creation Units (defined below), the Advisor believes that large discounts or premiums to the NAV of shares should not be sustained in the long-term. If market makers exit the business or are unable to continue making markets in fund shares, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market). Further, while the creation/redemption feature is designed to make it likely that shares normally will trade close to the value of the fund's holdings, disruptions to creations and redemptions, including disruptions at market makers, APs or market participants, or during periods of significant market volatility, may result in market prices that differ significantly from the value of the fund's holdings. Although market makers will generally take advantage of differences between the NAV and the market price of fund shares through arbitrage opportunities, there is no guarantee that they will do so. In addition, the securities held by the fund may be traded in markets that close at a different time than the exchange on which the fund's shares trade. Liquidity in those securities may be reduced after the applicable closing times. Accordingly, during the time when the exchange is open but after the applicable market closing, fixing or settlement times, bid-ask spreads and the resulting premium or discount to the shares' NAV is likely to widen. Further, secondary markets may be subject to irregular trading activity, wide bid-ask spreads and extended trade settlement periods, which could cause a material decline in the fund's NAV. The fund's investment results are measured based upon the daily NAV of the fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by those APs creating and redeeming shares directly with the fund.</p><p>
<b>Operational and technology risk.</b> Cyber-attacks, disruptions, or failures that affect the fund's service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund's or its service providers' assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund's net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund's operations.</p><p>While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund's service providers could impact the ability to conduct the fund's operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.</p><p>
<b>Authorized Participant concentration risk.</b> The fund may have a limited number of financial institutions that may act as APs. Only APs who have entered into agreements with the fund's distributor may engage in creation or redemption transactions directly with the fund (as described in the section of this Prospectus entitled "Buying and Selling Shares"). If those APs exit the business or are unable to process creation and/or redemption orders, (including in situations where APs have limited or diminished access to capital required to post collateral) and no other AP is able to step forward to create and redeem in either of these cases, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market).</p><p>
<b>Counterparty risk.</b> A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.</p>
Past Performance
<p>
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund's performance from year to year and by showing how the fund's average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund's past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. Updated performance information is available on the fund's website at Xtrackers.com (the website does not form a part of this prospectus).</p>
<table>
<tr>
<td valign="top" align="left" />
<td valign="top" align="left">Returns</td>
<td valign="top" align="left">Period ending</td>
</tr>
<tr>
<td valign="top" align="left">Best Quarter</td>
<td valign="top" align="left">5.23%</td>
<td valign="top" align="left">March 31, 2014</td>
</tr>
<tr>
<td valign="top" align="left">Worst Quarter</td>
<td valign="top" align="left">-4.93%</td>
<td valign="top" align="left">December 31, 2016</td>
</tr>
<tr>
<td valign="top" align="left">Year-to-Date</td>
<td valign="top" align="left">1.52%</td>
<td valign="top" align="left">June 30, 2020</td>
</tr>
</table><p></p>
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax.
After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts ("IRAs") or employee-sponsored retirement plans.
Investment Objective
<p>The Xtrackers Harvest CSI 300 China A-Shares ETF (the "fund") seeks investment results that correspond generally to the performance, before fees and expenses, of the CSI 300 Index (the "Underlying Index").</p>
Fees and Expenses
<p>These are the fees and expenses that you will pay when you buy, hold and sell shares. You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below. </p>
PORTFOLIO TURNOVER 
<p>The fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may mean higher taxes if you are investing in a taxable account. These costs are not reflected in annual fund operating expenses or in the expense example, and can affect the fund's performance. During the most recent fiscal year, the fund's portfolio turnover rate was 115% of the average value of its portfolio.</p>
Principal Investment Strategies
<p>The fund, using a "passive" or indexing investment approach, seeks investments results that correspond generally to the performance, before fees and expense, of the Underlying Index, which is designed to reflect the price fluctuation and performance of the China A-Share market and is composed of the 300 largest and most liquid stocks in the China A-Share market. The Underlying Index includes small-cap, mid-cap, and large-cap stocks. DBX Advisors LLC (the "Advisor") expects that, over time, the correlation between the fund's performance and that of the Underlying Index, before fees and expenses, will be 95% or better. A figure of 100% would indicate perfect correlation.</p><p>A-Shares are equity securities issued by companies incorporated in mainland China and are denominated and traded in renminbi ("RMB") on the Shenzhen and Shanghai Stock Exchanges. Under current regulations in the People's Republic of China ("China" or the "PRC"), foreign investors can invest in the domestic PRC securities markets through certain market-access programs. These programs include the Qualified Foreign Institutional Investor ("QFII") or a Renminbi Qualified Foreign Institutional Investor ("RQFII") licenses obtained from the China Securities Regulatory Commission ("CSRC"). QFII and RQFII investors have also registered with China's State Administration of Foreign Exchange ("SAFE") to invest foreign freely convertible currencies (in the case of a QFII) and RMB (in the case of an RQFII) in the PRC for the purpose of investing in the PRC's domestic securities markets.</p><p>Harvest Global Investments Limited (the "Subadvisor" or "HGI") is a licensed RQFII and the fund may therefore invest in A-Shares via HGI's RQFII license. The Subadvisor, on behalf of the fund, may invest in A-Shares and other permitted China securities listed on the Shanghai and Shenzhen Stock Exchanges. The fund may also invest in A-Shares listed and traded on the Shanghai Stock Exchange and Shenzhen Stock Exchange through the Shanghai – Hong Kong and Shenzhen – Hong Kong Stock Connect programs ("Stock Connect"). Stock Connect is a securities trading and clearing program between either the Shanghai Stock Exchange or Shenzhen Stock Exchange and The Stock Exchange of Hong Kong Limited ("SEHK"), China Securities Depository and Clearing Corporation Limited and Hong Kong Securities Clearing Company Limited. Stock Connect is designed to permit mutual stock market access between mainland China and Hong Kong by allowing investors to trade and settle shares on each market via their local exchanges. Trading through Stock Connect is subject to a daily quota ("Daily Quota"), which limits the maximum daily net purchases on any particular day by Hong Kong investors (and foreign investors trading through Hong Kong) trading PRC listed securities and PRC investors trading Hong Kong listed securities trading through the relevant Stock Connect. Accordingly, the fund's direct investments in A-Shares will be limited in part by the Daily Quota that limits total purchases through Stock Connect. Investment companies are not currently within the types of entities that are eligible for an RQFII or QFII license.</p><p>The Subadvisor expects to use a full replication indexing strategy to seek to track the Underlying Index. As such, the Subadvisor expects to invest directly in the component securities (or a substantial number of the component securities) of the Underlying Index in substantially the same weightings in which they are represented in the Underlying Index. If it is not possible for the Subadvisor to acquire component securities due to limited availability or regulatory restrictions, the Sub- Advisor may use a representative sampling indexing strategy to seek to track the Underlying Index instead of a full replication indexing strategy. "Representative sampling" is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to the Underlying Index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield), and liquidity measures similar to those of the Underlying Index. The fund may or may not hold all of the securities in the Underlying Index when the Subadvisor is using a representative sampling indexing strategy.</p><p>The fund will normally invest at least 80% of its total assets in securities of issuers that comprise the Underlying Index. The fund will seek to achieve its investment objective by primarily investing directly in A-Shares. Because the fund does not satisfy the criteria to qualify as an RQFII or QFII itself, the fund intends to invest directly in A-Shares via the RQFII license granted to the Subadvisor and may also invest through Stock Connect. While the fund intends to invest primarily and directly in A-Shares, the fund also may invest in securities of issuers not included in the Underlying Index, futures contracts, stock index futures, swap contracts and other types of derivative instruments, and other pooled investment vehicles, including affiliated and/or foreign investment companies, that the Advisor and/or Subadvisor believes will help the fund to achieve its investment objective. The remainder of the fund's assets will be invested primarily in money market instruments and cash equivalents. Under normal circumstances, the fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in A-Shares of Chinese issuers or in derivative instruments and other securities that provide investment exposure to A-Shares of Chinese issuers. The fund may invest in depositary receipts. </p><p>As of July 31, 2020, the Underlying Index consisted of 300 securities with an average market capitalization of approximately $20.34 billion and a minimum market capitalization of approximately $3.05 billion. Under normal circumstances, the Underlying Index is rebalanced semi-annually every June and December. The fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index's rebalance schedule will result in corresponding changes to the fund's rebalance schedule.</p><p>
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that the Underlying Index is concentrated. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of issuers in the financials (27.5%) sector. The financials sector includes companies involved in banking, consumer finance, asset management and custody banks, as well as investment banking and brokerage and insurance. To the extent that the fund tracks the Underlying Index, the fund's investment in certain sectors may change over time.</p><p>The fund may become "non-diversified," as defined under the Investment Company Act of 1940, as amended, solely as a result of a change in relative market capitalization or index weighting of one or more constituents of the index that the fund is designed to track. Shareholder approval will not be sought when the fund crosses from diversified to non-diversified status under such circumstances.</p><p>Shares of the fund are not sponsored, endorsed, sold or promoted by CSI or any affiliate of CSI and CSI bears no liability with respect to the fund or any security.</p>
Main Risks
<p>
As with any investment, you could lose all or part of your investment in the fund, and the fund's performance could trail that of other investments. The fund is subject to the main risks noted below, any of which may adversely affect the fund's net asset value ("NAV"), trading price, yield, total return and ability to meet its investment objective, as well as numerous other risks that are described in greater detail in the section of this Prospectus entitled "Additional Information About Fund Strategies, Underlying Index Information and Risks" and in the Statement of Additional Information ("SAI").</p><p>
<b>Stock market risk.</b> When stock prices fall, you should expect the value of your investment to fall as well. Stock prices can be hurt by poor management on the part of the stock's issuer, shrinking product demand and other business risks. These may affect single companies as well as groups of companies. The market as a whole may not favor the types of investments the fund makes, which could adversely affect a stock's price, regardless of how well the company performs, or the fund's ability to sell a stock at an attractive price. There is a chance that stock prices overall will decline because stock markets tend to move in cycles, with periods of rising and falling prices. Events in the US and global financial markets, including actions taken by the US Federal Reserve or foreign central banks to stimulate or stabilize economic growth, may at times result in unusually high market volatility which could negatively affect performance. To the extent that the fund invests in a particular geographic region, capitalization or sector, the fund's performance may be affected by the general performance of that region, capitalization or sector.</p><p>
<b>Market disruption risk.</b> Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Market disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.</p><p>Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant uncertainty, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.</p><p>
<b>Special risk considerations relating to the RQFII regime and investments in A-Shares.</b> The Advisor's ability to achieve the fund's investment objective by investing in the component securities of the Underlying Index is dependent on the continuous availability of A-Shares. Because the fund will not be able to invest directly in A-Shares beyond the limits that may be imposed by Stock Connect, the size of the fund's direct investment in A-Shares may be limited. If the Subadvisor is unable to maintain its RQFII status, the Subadvisor may seek to gain exposure to the A-Share market by investing in securities not included in the Underlying Index, futures contracts, swaps and other derivative instruments, and other pooled investment vehicles, including foreign and/or affiliated funds, that provide exposure to the A-Share market until access via a RQFII license can be re-obtained. A revocation or elimination of the RQFII license may not only adversely affect the ability of the fund to invest directly in A-Shares, but also the willingness of swap counterparties to engage in swaps and the performance of pooled investment vehicles linked to the performance of A-Shares. Therefore, any such revocation or elimination may have a material adverse effect on the ability of the fund to achieve its investment objective. These risks are compounded by the fact that at present there are only a limited number of firms and counterparties that have QFII or RQFII status. In addition, the RQFII license may be revoked by Chinese regulators if, among other things, the Subadvisor fails to observe SAFE and other applicable Chinese regulations, which could also lead to other adverse consequences, including the requirement that the fund dispose of its A-Shares holdings. There can be no guarantee that the fund will be able to invest in appropriate futures contracts, swaps and other derivative instruments, and the PRC government may at times restrict the ability of firms regulated in the PRC to make such instruments available. In addition, there are custody risks associated with investing through an RQFII, where, due to requirements regarding establishing a custody account in the joint names of the fund and the Subadvisor's creditors than if the fund had an account in its name only. If the fund is unable to obtain sufficient exposure to the performance of the Underlying Index due to the unavailability of RQFII license or other investments that provide exposure to the performance of A-Shares, the fund could, among other actions, limit or suspend creations until the Subadvisor determines that the requisite exposure to the Underlying Index is obtainable. During the period that creations are limited or suspended, the fund could trade at a significant premium or discount to the NAV and could experience substantial redemptions. Alternatively, the fund could change its investment objective by, for example, seeking to track an alternative index that does not include A-Shares as its component securities, or decide to liquidate the fund.</p><p>On May 7, 2020, the People's Bank of China ("PBOC") and SAFE jointly issued the Regulations on Funds of Securities and Futures Investment by Foreign Institutional Investors (PBOC & SAFE Announcement [2020] No. 2) (the "Regulations") which came into effect on June 6, 2020. The Regulations supersede certain post-registration rules applicable to QFII and RQFII regimes. One of the key changes of the Regulations is the removal of quota restrictions on investment. However, as of the date of this prospectus, this is a relatively new development, and there is no guarantee that the quotas will continue to be relaxed.</p><p>
<b>Special risk considerations of investing in China. </b>Investing in securities of Chinese issuers involves certain risks and considerations not typically associated with investing in securities of US issuers, including, among others, (i) more frequent (and potentially widespread) trading suspensions and government interventions with respect to Chinese issuers, resulting in lack of liquidity and in price volatility, (ii) currency revaluations and other currency exchange rate fluctuations or blockage, (iii) the nature and extent of intervention by the Chinese government in the Chinese securities markets (including both direct and indirect market stabilization efforts, which may affect valuations of Chinese issuers), whether such intervention will continue and the impact of such intervention or its discontinuation, (iv) the risk of nationalization or expropriation of assets, (v) the risk that the Chinese government may decide not to continue to support economic reform programs, (vi) limitations on the use of brokers (or action by the Chinese government that discourages brokers from serving international clients), (vii) higher rates of inflation, (viii) greater political, economic and social uncertainty, (ix) higher market volatility caused by any potential regional territorial conflicts or natural disasters, (x) the risk of increased trade tariffs, embargoes and other trade or regulatory limitations, (xi) restrictions on foreign ownership, (xii) custody risks associated with investing through Stock Connect, an RQFII or other programs to access the Chinese securities markets, (xiii) both interim and permanent market regulations which may affect the ability of certain stockholders to sell Chinese securities when it would otherwise be advisable, and (xiv) different and less stringent financial reporting standards.</p><p>From time to time, and as recently as early 2020 with the coronavirus known as COVID-19, China has experienced outbreaks of infectious illnesses, and the country may be subject to other infectious illnesses, diseases or other public health emergencies in the future. Any public health emergency could reduce consumer demand or economic output, result in market closures, travel restrictions or quarantines, and generally have a significant impact on the Chinese economy, which in turn could adversely affect the fund's investments.</p><p>
<b>A-Shares tax risk.</b> Uncertainties in the Chinese tax rules governing taxation of income and gains from investments in A-Shares could result in unexpected tax liabilities for the fund or Underlying Fund. China generally imposes withholding tax at a rate of 10% on dividends and interest derived by nonresident enterprises (including QFIIs and RQFIIs) from issuers resident in China. China also imposes withholding tax at a rate of 10% on capital gains derived by nonresident enterprises from investments in an issuer resident in China, subject to an exemption or reduction pursuant to domestic law or a double taxation agreement or arrangement.</p><p>Since the respective inception of the Shanghai – Hong Kong and Shenzhen – Hong Kong Stock Connect programs, foreign investors (including the fund) investing in A-Shares through Stock Connect would be temporarily exempt from the PRC corporate income tax and value- added tax on the gains on disposal of such A-Shares. Dividends would be subject to PRC corporate income tax on a withholding basis at 10%, unless reduced under a double tax treaty with China upon application to and obtaining approval from the competent tax authority. Since November 17, 2014, the corporate income tax for QFIIs and RQFIIs, with respect to capital gains, has been temporarily lifted. The withholding tax relating to the realized gains from shares in land-rich companies prior to November 17, 2014 has been paid by the fund, while realized gains from shares in non-land-rich companies prior to November 17, 2014 were granted by treaty relief pursuant to the PRC-US Double Taxation Agreement. During 2015, revenue authorities in the PRC made arrangements for the collection of capital gains taxes for investments realized between November 17, 2009 and November 16, 2014. The fund could be subject to tax liability for any tax payments for which reserves have not been made or that were not previously withheld. The impact of any such tax liability on the fund's return could be substantial. The fund may also be liable to the Advisor or Subadvisor for any tax that is imposed on the Advisor or Subadvisor by the PRC with respect to the fund's investments. If the fund's direct investments in A-Shares through the Advisor's or Subadvisor's RQFII license become subject to repatriation restrictions or delays, the fund may be unable to satisfy distribution requirements applicable to RICs under the Internal Revenue Code, and be subject to tax at the fund level. The current PRC tax laws and regulations and interpretations thereof may be revised or amended in the future, potentially retroactively, including with respect to the possible liability of the fund for the taxation of income and gains from investments in A-Shares through Stock Connect or obligations of an RQFII. The withholding taxes on dividends, interest and capital gains may in principle be subject to a reduced rate under an applicable tax treaty, but the application of such treaties in the case of an RQFII acting for a foreign investor such as the fund is also uncertain. Finally, it is also unclear whether an RQFII would also be eligible for PRC Business Tax ("BT") exemption, which has been granted to QFIIs, with respect to gains derived prior to May 1, 2016. In practice, the BT has not been collected. However, the imposition of such taxes on the fund could have a material adverse effect on the fund's returns. Since May 1, 2016, RQFIIs are exempt from PRC value-added tax, which replaced the BT with respect to gains realized from the disposal of securities, including A-Shares.</p><p>The PRC rules for taxation of RQFIIs (and QFIIs) are evolving and certain tax regulations to be issued by the PRC State Administration of Taxation and/or PRC Ministry of Finance to clarify the subject matter may apply retrospectively, even if such rules are adverse to the fund and its shareholders.</p><p>If the PRC begins applying tax rules regarding the taxation of income from A-Shares investments to RQFIIs and/or begins collecting capital gains taxes on such investments (whether made through Stock Connect or an RQFII), the fund or Underlying Fund could be subject to withholding tax liability in excess of the amount reserved (if any). The impact of any such tax liability on the fund's or Underlying Fund's return could be substantial. The fund will be liable to the Advisor or Subadvisor for any Chinese tax that is imposed on the Advisor or Subadvisor with respect to the fund's investments.</p><p>As described below under "Taxes – Taxes on Distributions," the fund may elect, for US federal income tax purposes, to treat Chinese taxes (including withholding taxes) paid by the fund as paid by its shareholders. Even if the fund is qualified to make that election and does so, however, your ability to claim a credit for certain Chinese taxes may be limited under general US tax principles.</p><p>In addition, to the extent the fund invests in swaps and other derivative instruments, such investments may be less tax-efficient from a US tax perspective than direct investment in A-Shares and may be subject to special US federal income tax rules that could adversely affect the fund. Also the fund may be required to periodically adjust its positions in those instruments to comply with certain regulatory requirements which may further cause these investments to be less efficient than a direct investment in A-Shares.</p><p>Should the Chinese government impose restrictions on the fund's ability to repatriate funds associated with direct investment in A-Shares, the fund may be unable to satisfy distribution requirements applicable to regulated investment companies ("RICs") under the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), and the fund may therefore be subject to fund-level US federal taxes.</p><p>
<b>Risks of investing through Stock Connect.</b> Trading through Stock Connect is subject to a number of restrictions that may affect the fund's investments and returns. For example, trading through Stock Connect is subject to the Daily Quota, which may restrict or preclude the fund's ability to invest in A-Shares through Stock Connect ("Stock Connect A-Shares"). In addition, investments made through Stock Connect are subject to trading, clearance and settlement procedures that are relatively untested in the PRC, which could pose risks to the fund. Moreover, Stock Connect A-Shares generally may not be sold, purchased or otherwise transferred other than through Stock Connect in accordance with applicable rules. A primary feature of Stock Connect is the application of the home market's laws and rules applicable to investors in A-Shares. Therefore, the fund's investments in Stock Connect A-Shares are generally subject to PRC securities regulations and listing rules, among other restrictions. Finally, while foreign investors currently are exempted from paying capital gains or value-added taxes on income and gains from investments in Stock Connect A-Shares, these PRC tax rules could be changed, which could result in unexpected tax liabilities for the fund.</p><p>Stock Connect will only operate on days when both the Chinese and Hong Kong markets are open for trading and when banking services are available in both markets on the corresponding settlement days. Therefore, an investment in A-Shares through Stock Connect may subject the fund to the risk of price fluctuations on days when the Chinese markets are open, but Stock Connect is not trading.</p><p>The Stock Connect program is a relatively new program. Further developments are likely and there can be no assurance as to the program's continued existence or whether future developments regarding the program may restrict or adversely affect the fund's investments or returns. In addition, the application and interpretation of the laws and regulations of Hong Kong and the PRC, and the rules, policies or guidelines published or applied by relevant regulators and exchanges in respect of the Stock Connect program are uncertain, and they may have a detrimental effect on the fund's investments and returns.</p><p>
<b>Depositary receipt risk.</b> Depositary receipts involve similar risks to those associated with investments in securities of non-US issuers. Depositary receipts also may be less liquid than the underlying shares in their primary trading market.</p><p>
<b>Derivatives risk. </b>Risks associated with derivatives include the risk that the derivative is not well correlated with the security, index or currency to which it relates; the risk that derivatives may result in losses or missed opportunities; the risk that the fund will be unable to sell the derivative because of an illiquid secondary market; the risk that a counterparty is unwilling or unable to meet its obligation; and the risk that the derivative transaction could expose the fund to the effects of leverage, which could increase the fund's exposure to the market and magnify potential losses. There is no guarantee that derivatives, to the extent employed, will have the intended effect, and their use could cause lower returns or even losses to the fund. The use of derivatives by the fund to hedge risk may reduce the opportunity for gain by offsetting the positive effect of favorable price movements.</p><p>
<b>Counterparty risk.</b> A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.</p><p>
<b>Currency and repatriation risk.</b> The Underlying Index is calculated in onshore RMB (CNY), whereas the fund's reference currency is the US dollar. As a result, the fund's return may be adversely affected by currency exchange rates. Further, although offshore RMB and onshore RMB are the same currency, they trade at different rates. To the extent the fund needs to exchange offshore RMB and onshore RMB, any divergence between offshore RMB and onshore RMB may adversely impact shareholders. The value of the US dollar measured against other currencies is influenced by a variety of factors. These factors include: interest rates, national debt levels and trade deficits, changes in balances of payments and trade, domestic and foreign interest and inflation rates, global or regional political, economic or financial events, monetary policies of governments, actual or potential government intervention, global energy prices, political instability and government monetary policies and the buying or selling of currencies by a country's government.</p><p>In addition, the Chinese government heavily regulates the domestic exchange of foreign currencies within China. Chinese law requires that all domestic transactions must be settled in RMB, places significant restrictions on the remittance of foreign currencies, and strictly regulates currency exchange from RMB. There is no assurance that there will always be sufficient amounts of RMB for the fund to remain fully invested. Repatriations by RQFIIs are currently permitted daily and are not subject to repatriation restrictions or prior regulatory approval. However, there is no assurance that Chinese rules and regulations will not change or that repatriation restrictions will not be imposed in the future. Further, such changes to the Chinese rules and regulations may be applied retroactively. Any restrictions on repatriation of the fund's portfolio investments may have an adverse effect on the fund's ability to meet redemption requests.</p><p>
<b>Focus risk.</b> To the extent that the fund focuses its investments in particular industries, asset classes or sectors of the economy, any market price movements, regulatory or technological changes, or economic conditions affecting companies in those industries, asset classes or sectors may have a significant impact on the fund's performance.</p><p>
<b>Financials sector risk. </b>To the extent that the fund invests significantly in the financials sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the financials sector. The financials sector is subject to extensive government regulation, can be subject to relatively rapid change due to increasingly blurred distinctions between service segments, and can be significantly affected by availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, and price competition. </p><p>
<b>Passive investing risk. </b>Unlike a fund that is actively managed, in which portfolio management buys and sells securities based on research and analysis, the fund invests in securities included in, or representative of, the Underlying Index, regardless of their investment merits. Because the fund is designed to maintain a high level of exposure to the Underlying Index at all times, portfolio management generally will not buy or sell a security unless the security is added or removed, respectively, from the Underlying Index, and will not take any steps to invest defensively or otherwise reduce the risk of loss during market downturns.</p><p>
<b>Index-related risk.</b> The fund seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index as published by the index provider. There is no assurance that the Underlying Index provider will compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. Market disruptions could cause delays in the Underlying Index's rebalancing schedule. During any such delay, it is possible that the Underlying Index and, in turn, the fund will deviate from the Underlying Index's stated methodology and therefore experience returns different than those that would have been achieved under a normal rebalancing schedule. Generally, the index provider does not provide any warranty, or accept any liability, with respect to the quality, accuracy or completeness of the Underlying Index or its related data, and does not guarantee that the Underlying Index will be in line with its stated methodology. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its stated methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. The Advisor and its affiliates do not provide any warranty or guarantee against such errors. Therefore, the gains, losses or costs associated with the index provider's errors will generally be borne by the fund and its shareholders.</p><p>
<b>Liquidity risk.</b> In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. This risk can be ongoing for any security that does not trade actively or in large volumes, for any security that trades primarily on smaller markets, and for investments that typically trade only among a limited number of large investors (such as certain types of derivatives or restricted securities). In unusual market conditions, even normally liquid securities may be affected by a degree of liquidity risk. This may affect only certain securities or an overall securities market.</p><p>If the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss.</p><p>
<b>Pricing risk. </b>If market conditions make it difficult to value some investments (including China A-Shares), the fund may value these investments using more subjective methods, such as fair value pricing. In such cases, the value determined for an investment could be different from the value realized upon such investment's sale. As a result, you could pay more than the market value when buying fund shares or receive less than the market value when selling fund shares.</p><p>
<b>Tracking error risk.</b> The performance of the fund may diverge from that of its Underlying Index for a number of reasons, including operating expenses, transaction costs, cash flows and operational inefficiencies. The fund's return also may diverge from the return of the Underlying Index because the fund bears the costs and risks associated with buying and selling securities (especially when rebalancing the fund's securities holdings to reflect changes in the Underlying Index) while such costs and risks are not factored into the return of the Underlying Index. Transaction costs, including brokerage costs, will decrease the fund's NAV to the extent not offset by the transaction fee payable by an "Authorized Participant" ("AP"). Market disruptions and regulatory restrictions could have an adverse effect on the fund's ability to adjust its exposure to the required levels in order to track the Underlying Index. In addition, to the extent that portfolio management uses a representative sampling approach (investing in a representative selection of securities included in the Underlying Index rather than all securities in the Underlying Index) it may cause the fund to not be as well correlated with the return of the Underlying Index as would be the case if the fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. In addition, the fund may not be able to invest in certain securities included in the Underlying Index, or invest in them in the exact proportions in which they are represented in the Underlying Index, due to legal restrictions or limitations imposed by the governments of certain countries, a lack of liquidity in the markets in which such securities trade, potential adverse tax consequences or other regulatory reasons. To the extent the fund calculates its NAV based on fair value prices and the value of the Underlying Index is based on securities' closing prices (i.e., the value of the Underlying Index is not based on fair value prices), the fund's ability to track the Underlying Index may be adversely affected. The performance of the fund also may diverge from that of the Underlying Index if the Advisor and/or Subadvisor seek to gain exposure to A-Shares by investing in securities not included in the Underlying Index, derivative instruments, and other pooled investment vehicles because the Subadvisor is unable to maintain its RQFII status, or the Stock Connect Daily Quota has been exhausted. For tax efficiency purposes, the fund may sell certain securities, and such sale may cause the fund to realize a loss and deviate from the performance of the Underlying Index. In light of the factors discussed above, the fund's return may deviate significantly from the return of the Underlying Index.</p><p>
<b>Market price risk. </b>Fund shares are listed for trading on an exchange and are bought and sold in the secondary market at market prices. The market prices of shares will fluctuate, in some cases materially, in response to changes in the NAV and supply and demand for shares. As a result, the trading prices of shares may deviate significantly from the NAV during periods of market volatility. The Advisor cannot predict whether shares will trade above, below or at their NAV. Given the fact that shares can be created and redeemed in Creation Units (defined below), the Advisor believes that large discounts or premiums to the NAV of shares should not be sustained in the long-term. If market makers exit the business or are unable to continue making markets in fund shares, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market). Further, while the creation/redemption feature is designed to make it likely that shares normally will trade close to the value of the fund's holdings, disruptions to creations and redemptions, including disruptions at market makers, APs or market participants, or during periods of significant market volatility, may result in market prices that differ significantly from the value of the fund's holdings. Although market makers will generally take advantage of differences between the NAV and the market price of fund shares through arbitrage opportunities, there is no guarantee that they will do so. In addition, the securities held by the fund may be traded in markets that close at a different time than the exchange on which the fund's shares trade. Liquidity in those securities may be reduced after the applicable closing times. Accordingly, during the time when the exchange is open but after the applicable market closing, fixing or settlement times, bid-ask spreads and the resulting premium or discount to the shares' NAV is likely to widen. The bid/ask spread of the fund may be wider in comparison to the bid/ask spread of other ETFs, due to the Fund's exposure to A-Shares. Further, secondary markets may be subject to irregular trading activity, wide bid-ask spreads and extended trade settlement periods, which could cause a material decline in the fund's NAV. The fund's investment results are measured based upon the daily NAV of the fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by those APs creating and redeeming shares directly with the fund.</p><p>
<b>Valuation risk. </b>Because non-US markets may be open on days when the fund does not price its shares, the value of the securities in the fund's portfolio may change on days when shareholders will not be able to purchase or sell the fund's shares.</p><p>
<b>Operational and technology risk.</b> Cyber-attacks, disruptions, or failures that affect the fund's service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund's or its service providers' assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund's net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund's operations.</p><p>While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund's service providers could impact the ability to conduct the fund's operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.</p><p>
<b>Authorized Participant concentration risk.</b> The fund may have a limited number of financial institutions that may act as APs. Only APs who have entered into agreements with the fund's distributor may engage in creation or redemption transactions directly with the fund (as described in the section of this Prospectus entitled "Buying and Selling Shares"). If those APs exit the business or are unable to process creation and/or redemption orders, (including in situations where APs have limited or diminished access to capital required to post collateral) and no other AP is able to step forward to create and redeem in either of these cases, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market).</p><p>
<b>Non-diversification risk.</b> At any given time, due to the composition of the Underlying Index, the fund may be classified as "non-diversified" under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.</p><p>
<b>Cash transactions risk.</b> Unlike most other ETFs, the fund expects to effect its creations and redemptions principally for cash, rather than in-kind securities. Paying redemption proceeds in cash rather than through in-kind delivery of portfolio securities may require the fund to dispose of or sell portfolio investments to obtain the cash needed to distribute redemption proceeds at an inopportune time. This may cause the fund to recognize gains or losses that it might not have incurred if it had made a redemption in- kind. As a result, the fund may pay out higher or lower annual capital gains distributions than ETFs that redeem in kind. Only APs who have entered into an agreement with the fund's distributor may redeem shares from the fund directly; all other investors buy and sell shares at market prices on an exchange.</p><p>
<b>Country concentration risk.</b> To the extent that the fund invests significantly in a single country, it is more likely to be impacted by events or conditions affecting that country. For example, political and economic conditions and changes in regulatory, tax or economic policy in a country could significantly affect the market in that country and in surrounding or related countries and have a negative impact on the fund's performance.</p><p>
<b>Small and medium-sized company risk. </b>Small and medium-sized company stocks tend to be more volatile than large company stocks. Because stock analysts are less likely to follow medium-sized companies, less information about them is available to investors. Industry-wide reversals may have a greater impact on small and medium-sized companies, since they lack the financial resources of larger companies. Small and medium-sized company stocks are typically less liquid than large company stocks.</p><p>
<b>Portfolio turnover risk. </b>The fund may experience frequent portfolio turnover due to the reconstituting and rebalancing of the Underlying Index. A portfolio turnover rate of 200%, for example, is equivalent to the fund buying and selling all of its securities two times during the course of the year. A high portfolio turnover rate could result in high brokerage costs.</p>
Past Performance
<p>
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund's performance from year to year and by showing how the fund's average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund's past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. Updated performance information is available on the fund's website at Xtrackers.com (the website does not form a part of this prospectus).</p>
<table>
<tr>
<td valign="top" align="left" />
<td valign="top" align="left">Returns</td>
<td valign="top" align="left">Period ending</td>
</tr>
<tr>
<td valign="top" align="left">Best Quarter</td>
<td valign="top" align="left">42.10%</td>
<td valign="top" align="left">December 31, 2014</td>
</tr>
<tr>
<td valign="top" align="left">Worst Quarter</td>
<td valign="top" align="left">-30.92%</td>
<td valign="top" align="left">September 30, 2015</td>
</tr>
<tr>
<td valign="top" align="left">Year-to-Date</td>
<td valign="top" align="left">0.51%</td>
<td valign="top" align="left">June 30, 2020</td>
</tr>
</table><p></p>
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax.
After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts ("IRAs") or employee-sponsored retirement plans.
Investment Objective
<p>The Xtrackers MSCI All World ex US Hedged Equity ETF (the "fund") seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI ACWI ex USA US Dollar Hedged Index (the "Underlying Index").</p>
Fees and Expenses
<p>These are the fees and expenses that you will pay when you buy, hold and sell shares. You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below. </p>
PORTFOLIO TURNOVER 
<p>The fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may mean higher taxes if you are investing in a taxable account. These costs are not reflected in annual fund operating expenses or in the expense example, and can affect the fund's performance. During the most recent fiscal year, the fund's portfolio turnover rate was 10% of the average value of its portfolio.</p>
Principal Investment Strategies
<p>The fund, using a "passive" or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index, which is designed to track the performance of equity securities in developed and emerging stock markets (excluding the United States), while mitigating exposure to fluctuations between the value of the US dollar and the currencies of the countries included in the Underlying Index. The fund uses a full replication indexing strategy to seek to track the Underlying Index. As such, the fund invests directly in the component securities (or a substantial number of the component securities) of the Underlying Index in substantially the same weightings in which they are represented in the Underlying Index. If it is not possible for the fund to acquire component securities due to limited availability or regulatory restrictions, the fund may use a representative sampling indexing strategy to seek to track the Underlying Index instead of a full replication indexing strategy. "Representative sampling" is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to the Underlying Index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield), and liquidity measures similar to those of the Underlying Index. The fund may or may not hold all of the securities in the Underlying Index when using a representative sampling indexing strategy. The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the Underlying Index.</p><p>As of July 31, 2020, the Underlying Index consisted of 2,370 securities, with an average market capitalization of approximately $8.89 billion and a minimum market capitalization of approximately $123 million, from issuers in the following countries: Argentina, Australia, Austria, Belgium, Brazil, Canada, Chile, China, Colombia, Czech Republic, Denmark, Egypt, Finland, France, Germany, Greece, Hong Kong, Hungary, India, Indonesia, Ireland, Israel, Italy, Japan, Malaysia, Mexico, Netherlands, New Zealand, Norway, Pakistan, Peru, Philippines, Poland, Portugal, Qatar, Russia, Saudi Arabia, Singapore, South Africa, South Korea, Spain, Sweden, Switzerland, Taiwan, Thailand, Turkey, the United Arab Emirates and the United Kingdom. Under normal circumstances, the Underlying Index is rebalanced monthly. The fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index's rebalance schedule will result in corresponding changes to the fund's rebalance schedule.</p><p>The fund enters into forward currency contracts designed to offset the fund's exposure to foreign currencies. The fund hedges each foreign currency in the portfolio to US dollars by selling the applicable foreign currency forward at the one-month forward rate published by WM/Reuters.</p><p>The amount of forward contracts in the fund is based on the aggregate exposure of the fund and Underlying Index to each non-US currency based on currency weights as of the beginning of each month. While this approach is designed to minimize the impact of currency fluctuations on fund returns, this does not necessarily eliminate exposure to all currency fluctuations. The return of the forward currency contracts may not perfectly offset the actual fluctuations of non-US currencies relative to the US dollar. The fund may use non-deliverable forward ("NDF") contracts to execute its hedging transactions. An NDF is a contract where there is no physical settlement of two currencies at maturity (as opposed to deliverable forward contracts, which per their terms are settled by physical delivery of the currencies). Rather, based on the movement of the currencies and the contractually agreed upon exchange rate, a net cash settlement is made by one party to the other in US dollars.</p><p>The fund will normally invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the equity securities of issuers from countries other than the United States and in instruments designed to hedge against the fund's exposure to non-US currencies. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of securities of issuers from Japan (15.5%).</p><p>
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of issuers in the financials sector (17.6%). The financials sector includes companies involved in banking, consumer finance, asset management and custody banks, as well as investment banking and brokerage and insurance. To the extent that the fund tracks the Underlying Index, the fund's investment in certain sectors or countries may change over time.</p><p>The fund may become "non-diversified," as defined under the Investment Company Act of 1940, as amended, solely as a result of a change in relative market capitalization or index weighting of one or more constituents of the index that the fund is designed to track. Shareholder approval will not be sought when the fund crosses from diversified to non-diversified status under such circumstances.</p><p>The fund or securities referred to herein are not sponsored, endorsed, issued, sold or promoted by MSCI, and MSCI bears no liability with respect to the fund or securities or any index on which the fund or securities are based.</p><p>
<b>Securities lending.</b> The fund may lend its portfolio securities to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. In connection with such loans, the fund receives liquid collateral equal to at least 102% of the value of the portfolio securities being lent. This collateral is marked to market on a daily basis. The fund may lend its portfolio securities in an amount up to 33 1/3% of its total assets.</p>
Main Risks
<p>
As with any investment, you could lose all or part of your investment in the fund, and the fund's performance could trail that of other investments. The fund is subject to the main risks noted below, any of which may adversely affect the fund's net asset value ("NAV"), trading price, yield, total return and ability to meet its investment objective, as well as numerous other risks that are described in greater detail in the section of this Prospectus entitled "Additional Information About Fund Strategies, Underlying Index Information and Risks" and in the Statement of Additional Information ("SAI").</p><p>
<b>Stock market risk.</b> When stock prices fall, you should expect the value of your investment to fall as well. Stock prices can be hurt by poor management on the part of the stock's issuer, shrinking product demand and other business risks. These may affect single companies as well as groups of companies. The market as a whole may not favor the types of investments the fund makes, which could adversely affect a stock's price, regardless of how well the company performs, or the fund's ability to sell a stock at an attractive price. There is a chance that stock prices overall will decline because stock markets tend to move in cycles, with periods of rising and falling prices. Events in the US and global financial markets, including actions taken by the US Federal Reserve or foreign central banks to stimulate or stabilize economic growth, may at times result in unusually high market volatility which could negatively affect performance. To the extent that the fund invests in a particular geographic region, capitalization or sector, the fund's performance may be affected by the general performance of that region, capitalization or sector.</p><p>
<b>Market disruption risk.</b> Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Market disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.</p><p>Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant uncertainty, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.</p><p>
<b>Foreign investment risk.</b> The fund faces the risks inherent in foreign investing. Adverse political, economic or social developments could undermine the value of the fund's investments or prevent the fund from realizing the full value of its investments. Financial reporting standards for companies based in foreign markets differ from those in the US. Additionally, foreign securities markets generally are smaller and less liquid than US markets. To the extent that the fund invests in non-US dollar denominated foreign securities, changes in currency exchange rates may affect the US dollar value of foreign securities or the income or gain received on these securities.</p><p>Foreign governments may restrict investment by foreigners, limit withdrawal of trading profit or currency from the country, restrict currency exchange or seize foreign investments. The investments of the fund may also be subject to foreign withholding taxes. Foreign brokerage commissions and other fees are generally higher than those for US investments, and the transactions and custody of foreign assets may involve delays in payment, delivery or recovery of money or investments.</p><p>Foreign markets can have liquidity risks beyond those typical of US markets. Because foreign exchanges generally are smaller and less liquid than US exchanges, buying and selling foreign investments can be more difficult and costly. Relatively small transactions can sometimes materially affect the price and availability of securities. In certain situations, it may become virtually impossible to sell an investment at a price that approaches portfolio management's estimate of its value. For the same reason, it may at times be difficult to value the fund's foreign investments. In addition, because non-US markets may be open on days when the fund does not price its shares, the value of the securities in the fund's portfolio may change on days when shareholders will not be able to purchase or sell the fund's shares.</p><p>
<b>Depositary receipt risk.</b> Depositary receipts involve similar risks to those associated with investments in securities of non-US issuers. Depositary receipts also may be less liquid than the underlying shares in their primary trading market.</p><p>
<b>Emerging market securities risk. </b>The securities of issuers located in emerging markets tend to be more volatile and less liquid than securities of issuers located in more mature economies, and emerging markets generally have less diverse and less mature economic structures and less stable political systems than those of developed countries. The securities of issuers located or doing substantial business in emerging markets are often subject to rapid and large changes in price.</p><p>
<b>Small and medium-sized company risk. </b>Small and medium-sized company stocks tend to be more volatile than large company stocks. Because stock analysts are less likely to follow medium-sized companies, less information about them is available to investors. Industry-wide reversals may have a greater impact on small and medium-sized companies, since they lack the financial resources of larger companies. Small and medium-sized company stocks are typically less liquid than large company stocks.</p><p>
<b>Focus risk.</b> To the extent that the fund focuses its investments in particular industries, asset classes or sectors of the economy, any market price movements, regulatory or technological changes, or economic conditions affecting companies in those industries, asset classes or sectors may have a significant impact on the fund's performance.</p><p>
<b>Financials sector risk. </b>To the extent that the fund invests significantly in the financials sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the financials sector. The financials sector is subject to extensive government regulation, can be subject to relatively rapid change due to increasingly blurred distinctions between service segments, and can be significantly affected by availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, and price competition. </p><p>
<b>Forward currency contract risk.</b> The fund's forward currency contracts may not be successful in minimizing the impact of changes in the value of the non-US currencies against the US dollar. To the extent the fund's forward currency contracts are not successful, the US dollar value of your investment in the fund may go down. Furthermore, because no changes in the currency weights in the Underlying Index are made during the month to account for changes in the Underlying Index due to price movement of securities, corporate events, additions, deletions or any other changes, changes in the value of non-US currencies against the US dollar during the month may affect the value of the fund's investment. Currency exchange rates can be very volatile and can change quickly and unpredictably. Therefore, the value of an investment in the fund may also go up or down quickly and unpredictably and investors may lose money. NDFs may be less liquid than deliverable forward currency contracts. A lack of liquidity in NDFs of the hedged currency could adversely affect the fund's ability to hedge against currency fluctuations and properly track the Underlying Index.</p><p>
<b>Counterparty risk.</b> A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.</p><p>
<b>Passive investing risk. </b>Unlike a fund that is actively managed, in which portfolio management buys and sells securities based on research and analysis, the fund invests in securities included in, or representative of, the Underlying Index, regardless of their investment merits. Because the fund is designed to maintain a high level of exposure to the Underlying Index at all times, portfolio management generally will not buy or sell a security unless the security is added or removed, respectively, from the Underlying Index, and will not take any steps to invest defensively or otherwise reduce the risk of loss during market downturns.</p><p>
<b>Index-related risk.</b> The fund seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index as published by the index provider. There is no assurance that the Underlying Index provider will compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. Market disruptions could cause delays in the Underlying Index's rebalancing schedule. During any such delay, it is possible that the Underlying Index and, in turn, the fund will deviate from the Underlying Index's stated methodology and therefore experience returns different than those that would have been achieved under a normal rebalancing schedule. Generally, the index provider does not provide any warranty, or accept any liability, with respect to the quality, accuracy or completeness of the Underlying Index or its related data, and does not guarantee that the Underlying Index will be in line with its stated methodology. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its stated methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. The Advisor and its affiliates do not provide any warranty or guarantee against such errors. Therefore, the gains, losses or costs associated with the index provider's errors will generally be borne by the fund and its shareholders.</p><p>
<b>Tracking error risk.</b> The fund may be subject to tracking error, which is the divergence of the fund's performance from that of the Underlying Index. The performance of the fund may diverge from that of the Underlying Index for a number of reasons, including operating expenses, transaction costs, cash flows and operational inefficiencies. The fund's return also may diverge from the return of the Underlying Index because the fund bears the costs and risks associated with buying and selling securities (especially when rebalancing the fund's securities holdings to reflect changes in the Underlying Index) while such costs and risks are not factored into the return of the Underlying Index. Transaction costs, including brokerage costs, will decrease the fund's NAV to the extent not offset by the transaction fee payable by an "Authorized Participant" ("AP"). Market disruptions and regulatory restrictions could have an adverse effect on the fund's ability to adjust its exposure in order to track the Underlying Index. To the extent that portfolio management uses a representative sampling approach (investing in a representative selection of securities included in the Underlying Index rather than all securities in the Underlying Index), such approach may cause the fund's return to not be as well correlated with the return of the Underlying Index as would be the case if the fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index. In addition, the fund may not be able to invest in certain securities included in the Underlying Index, or invest in them in the exact proportions in which they are represented in the Underlying Index, due to government imposed legal restrictions or limitations, a lack of liquidity in the markets in which such securities trade, potential adverse tax consequences or other regulatory reasons. To the extent the fund calculates its net asset value based on fair value prices and the value of the Underlying Index is based on market prices (i.e., the value of the Underlying Index is not based on fair value prices), the fund's ability to track the Underlying Index may be adversely affected. Tracking error risk may be higher for funds that track a foreign index, or an index that includes foreign securities, because regulatory and reporting requirements may differ from those in the US, and there is a heightened risk associated with limited availability and reliability of data used to construct the index. Tracking error risk may also be heightened during times of increased market volatility or other unusual market conditions. For tax efficiency purposes, the fund may sell certain securities, and such sale may cause the fund to realize a loss and deviate from the performance of the Underlying Index. In light of the factors discussed above, the fund's return may deviate significantly from the return of the Underlying Index.</p><p>
<b>Market price risk. </b>Fund shares are listed for trading on an exchange and are bought and sold in the secondary market at market prices. The market prices of shares will fluctuate, in some cases materially, in response to changes in the NAV and supply and demand for shares. As a result, the trading prices of shares may deviate significantly from the NAV during periods of market volatility. The Advisor cannot predict whether shares will trade above, below or at their NAV. Given the fact that shares can be created and redeemed in Creation Units (defined below), the Advisor believes that large discounts or premiums to the NAV of shares should not be sustained in the long-term. If market makers exit the business or are unable to continue making markets in fund shares, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market). Further, while the creation/redemption feature is designed to make it likely that shares normally will trade close to the value of the fund's holdings, disruptions to creations and redemptions, including disruptions at market makers, APs or market participants, or during periods of significant market volatility, may result in market prices that differ significantly from the value of the fund's holdings. Although market makers will generally take advantage of differences between the NAV and the market price of fund shares through arbitrage opportunities, there is no guarantee that they will do so. In addition, the securities held by the fund may be traded in markets that close at a different time than the exchange on which the fund's shares trade. Liquidity in those securities may be reduced after the applicable closing times. Accordingly, during the time when the exchange is open but after the applicable market closing, fixing or settlement times, bid-ask spreads and the resulting premium or discount to the shares' NAV is likely to widen. The bid-ask spread of the fund may be wider in comparison to the bid-ask spread of other ETFs, given the liquidity of the fund's assets and the Underlying Index's (and thus the fund's) hedging strategy. Further, secondary markets may be subject to irregular trading activity, wide bid-ask spreads and extended trade settlement periods, which could cause a material decline in the fund's NAV. The fund's investment results are measured based upon the daily NAV of the fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by those APs creating and redeeming shares directly with the fund.</p><p>
<b>Liquidity risk.</b> In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. This risk can be ongoing for any security that does not trade actively or in large volumes, for any security that trades primarily on smaller markets, and for investments that typically trade only among a limited number of large investors (such as certain types of derivatives or restricted securities). In unusual market conditions, even normally liquid securities may be affected by a degree of liquidity risk. This may affect only certain securities or an overall securities market.</p><p>Although the fund primarily seeks to redeem shares of the fund on an in-kind basis, if the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss. This may be magnified in circumstances where redemptions from the fund may be higher than normal.</p><p>
<b>Geographic focus risk.</b> Focusing investments in a single country or few countries, or regions, involves increased political, regulatory and other risks. Market swings in such a targeted country, countries or regions are likely to have a greater effect on fund performance than they would in a more geographically diversified fund.</p><p>
<b>Operational and technology risk.</b> Cyber-attacks, disruptions, or failures that affect the fund's service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund's or its service providers' assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund's net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund's operations.</p><p>While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund's service providers could impact the ability to conduct the fund's operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.</p><p>
<b>Authorized Participant concentration risk.</b> The fund may have a limited number of financial institutions that may act as APs. Only APs who have entered into agreements with the fund's distributor may engage in creation or redemption transactions directly with the fund (as described in the section of this Prospectus entitled "Buying and Selling Shares"). If those APs exit the business or are unable to process creation and/or redemption orders, (including in situations where APs have limited or diminished access to capital required to post collateral) and no other AP is able to step forward to create and redeem in either of these cases, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market).</p><p>
<b>Non-diversification risk.</b> At any given time, due to the composition of the Underlying Index, the fund may be classified as "non-diversified" under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.</p><p>
<b>Securities lending risk. </b>Securities lending involves the risk that the fund may lose money because the borrower of the loaned securities fails to return the securities in a timely manner or at all. The fund could also lose money in the event of a decline in the value of the collateral provided for the loaned securities or a decline in the value of any investments made with cash collateral. These events, and securities lending in general, could trigger adverse tax consequences for the fund and its investors. For example, if the fund loans its securities, the fund and its investors may lose the ability to treat certain fund distributions associated with those securities as qualified dividend income.</p>
Past Performance
<p>
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund's performance from year to year and by showing how the fund's average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund's past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. Updated performance information is available on the fund's website at Xtrackers.com (the website does not form a part of this prospectus).</p>
<table>
<tr>
<td valign="top" align="left" />
<td valign="top" align="left">Returns</td>
<td valign="top" align="left">Period ending</td>
</tr>
<tr>
<td valign="top" align="left">Best Quarter</td>
<td valign="top" align="left">10.93%</td>
<td valign="top" align="left">March 31, 2019</td>
</tr>
<tr>
<td valign="top" align="left">Worst Quarter</td>
<td valign="top" align="left">-10.45%</td>
<td valign="top" align="left">December 31, 2018</td>
</tr>
<tr>
<td valign="top" align="left">Year-to-Date</td>
<td valign="top" align="left">-8.32%</td>
<td valign="top" align="left">June 30, 2020</td>
</tr>
</table><p></p>
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax.
After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts ("IRAs") or employee-sponsored retirement plans.
Investment Objective
<p>Xtrackers J.P. Morgan ESG Emerging Markets Sovereign ETF (the "fund") seeks investment results that correspond generally to the performance, before fees and expenses, of the J.P. Morgan ESG EMBI Global Diversified Sovereign Index (the "Underlying Index").</p>
Fees and Expenses
<p>These are the fees and expenses that you will pay when you buy, hold and sell shares. You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below. </p>
PORTFOLIO TURNOVER 
<p>The fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may mean higher taxes if you are investing in a taxable account. These costs are not reflected in annual fund operating expenses or in the expense example, and can affect the fund's performance. During the most recent fiscal year, the fund's portfolio turnover rate was 26% of the average value of its portfolio. Prior to May 12, 2020, the fund tracked its prior underlying index, the Solactive USD Emerging Markets Bond - Interest Rate Hedged Index. </p>
Principal Investment Strategies
<p>The fund, using a "passive" or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index, which applies environmental, social and governance ("ESG") considerations to a broader parent index. The Underlying Index generally aims to keep the broad characteristics of its parent index, the J.P. Morgan EMBI Global Diversified Sovereign Index, resulting in a broad emerging markets sovereign debt market exposure with ESG aspects. Each issuer within the parent index is given an ESG score, and assigned to a quintile based on that score. All issuers within the lowest quintile are removed from consideration for the Underlying Index, and the remainder are either weighted up or down based on which quintile they were scored in; with the best performers being weighted more heavily, and the remaining lower scoring issuers being weighted more lightly. In addition, if an instrument is categorized as "green" by the Climate Bond Initiative ("CBI") under the criteria used by the CBI to certify bonds as being closely linked with green and climate friendly assets or projects, the security will be upgraded one quintile from the quintile to which it originally was assigned.</p><p>The Index Provider obtains ESG factor valuations for each issuer in the parent index from RepRisk and Sustainalytics, which are investment research providers dedicated to responsible investing and ESG research. These ESG factor valuations are obtained from each provider and translated by the Index Provider to a range of 0 – 100, with 100 being the best possible score. The Index Provider's finalized ESG score for each issuer incorporates a 3-month rolling average of the scores from each individual provider. The Index Provider calculates ESG scores daily.</p><p>The ESG criteria used to score each issuer in the parent index reflect their application to sovereign issuers, including environmental (e.g., access to water, energy sources and pollution) governance (e.g., corruption and political liberties), and social (e.g., education access and life expectancy). Sovereign issuers involved (defined as the government receiving revenue from direct involvement in those activities) in thermal coal, tobacco, weapons or UN Global Compact principle violations are excluded from the index regardless of their ESG score.</p><p>The Underlying Index consists of fixed and floating rate securities and capitalizing/amortizing bonds, excluding convertible and inflation-linked instruments, issued by emerging markets sovereign entities that (i) are denominated in US dollars; and (ii) have more than thirteen months to maturity if already part of the Underlying Index and two and half years to maturity upon entering the Underlying Index. The eligible countries are Argentina, Armenia, Azerbaijan, Bahrain, Barbados, Belarus, Belize, Bolivia, Brazil, Chile, China, Colombia, Costa Rica, Cote D'Ivoire, Croatia, Dominican Republic, Ecuador, Egypt, El Salvador, Gabon, Ghana, Guatemala, Honduras, Hungary, Indonesia, Jamaica, Jordan, Kazakhstan, Kenya, Kuwait, Lebanon, Lithuania, Malaysia, Mexico, Mongolia, Morocco, Mozambique, Namibia, Oman, Pakistan, Panama, Papua New Guinea, Paraguay, Peru, Philippines, Poland, Qatar, Romania, Russia, Saudi Arabia, Senegal, Serbia, Slovak Republic, South Africa, Sri Lanka, Suriname, Tajikistan, Trinidad And Tobago, Turkey, Ukraine, the United Arab Emirates, Uruguay, Uzbekistan, Vietnam, and Zambia; however, this universe of countries may change in accordance with the index provider's determination of eligible emerging market countries as follows: countries whose gross national income ("GNI") per capita is below the J.P. Morgan Index Income Ceiling ("IIC") for three consecutive years or if the country's purchasing power parity ("PPP") is below the Index Provider's Index PPP Ratio ("IPR") threshold for three consecutive years, and there is no assurance that a particular country will be represented in the Underlying Index at any given time. The instruments included in the Underlying Index may be rated investment grade or below investment grade (commonly referred to as "junk bonds"). The ratings assigned in the Underlying Index use the middle of three ratings from Moody's Investors Services, Inc., Standard & Poor's Ratings Services and Fitch, Inc.; the lower of two ratings; or the single rating available. Under normal circumstances, the Underlying Index is rebalanced on a monthly basis. The fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index's rebalance schedule will result in corresponding changes to the fund's rebalance schedule.</p><p>As of July 31, 2020, the Underlying Index was comprised of 504 bonds issued by 65 different countries, with an average market capitalization of approximately $657 million. The fund uses a representative sampling indexing strategy in seeking to track the Underlying Index, meaning it generally will invest in a sample of securities in the index whose risk, return and other characteristics resemble the risk, return and other characteristics of the Underlying Index as a whole.</p><p>The fund will normally invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in emerging markets sovereign bonds. In addition, the fund will invest at least 80% of its total assets, but typically far more, in instruments that comprise the Underlying Index.</p><p>
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated. To the extent that the fund tracks the Underlying Index, the fund's investment in certain sectors or countries may change over time.</p><p>The fund is not sponsored, endorsed, or promoted by J.P. Morgan Chase & Co., and J.P. Morgan Chase & Co. bears no liability with respect to any index on which the fund is based. </p><p>
<b>Securities lending.</b> The fund may lend its portfolio securities to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. In connection with such loans, the fund receives liquid collateral equal to at least 102% of the value of the portfolio securities being lent. This collateral is marked to market on a daily basis. The fund may lend its portfolio securities in an amount up to 33 1/3% of its total assets.</p>
Main Risks
<p>
As with any investment, you could lose all or part of your investment in the fund, and the fund's performance could trail that of other investments. The fund is subject to the main risks noted below, any of which may adversely affect the fund's net asset value ("NAV"), trading price, yield, total return and ability to meet its investment objective, as well as numerous other risks that are described in greater detail in the section of this Prospectus entitled "Additional Information About Fund Strategies, Underlying Index Information and Risks" and in the Statement of Additional Information ("SAI").</p><p>
<b>Fixed income markets risk.</b> The values of many types of debt securities have been reduced over a period of many years since the credit crisis started due to problems relating to subprime mortgages. These market problems have also affected debt securities that are not related to mortgage loans. In addition, broker-dealers and other market participants have been less willing to make a market in some types of debt instruments, which has impacted the liquidity of those instruments. These developments also have had a negative effect on the broader economy.</p><p>
<b>Market disruption risk.</b> Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Market disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.</p><p>Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant uncertainty, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.</p><p>
<b>ESG investment strategy risk.</b> The Underlying Index's ESG methodology, and thus the fund's investment strategy, limits the types and number of investment opportunities available to the fund and, as a result, the fund may underperform other funds that do not have an ESG focus. The Underlying Index's ESG methodology may result in the fund investing in securities that underperform the market as a whole or underperform other funds screened for ESG standards. In addition, the index provider may be unsuccessful in creating an index composed of companies that exhibit positive ESG characteristics. Regulatory changes or interpretations regarding the definitions and/or use of ESG criteria could have a material adverse effect on the fund's ability to invest in accordance with its investment policies and/or achieve its investment objective, as well as the ability of certain classes of investors to invest in funds following an ESG strategy such as the fund.</p><p>
<b>Fixed income securities risk.</b> Fixed-income securities are subject to the risk of the issuer's inability to meet principal and interest payments on its obligations (i.e., credit risk) and are subject to price volatility resulting from, among other things, interest rate sensitivity, market perception of the creditworthiness of the issuer and general market liquidity (i.e., market risk). Lower rated fixed-income securities have greater volatility because there is less certainty that principal and interest payments will be made as scheduled. There is a risk that a lack of liquidity or other adverse credit market conditions may hamper the fund's ability to sell the debt securities in which it invests or to find and purchase debt instruments included in the Underlying Index.</p><p>
<b>Sovereign debt risk. </b>A sovereign debtor's willingness or ability to repay principal and pay interest in a timely manner may be affected by a variety of factors, including its cash flow situation, the extent of its reserves, the availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to the economy as a whole, the sovereign debtor's policy toward international lenders, and the political constraints to which a sovereign debtor may be subject.</p><p>With respect to sovereign debt of emerging market issuers, investors should be aware that certain emerging market countries are among the largest debtors to commercial banks and foreign governments. At times, certain emerging market countries have declared moratoria on the payment of principal and interest on external debt. Certain emerging market countries have experienced difficulty in servicing their sovereign debt on a timely basis and that has led to defaults and the restructuring of certain indebtedness to the detriment of debt holders. Sovereign debt risk is increased for emerging market issuers.</p><p>
<b>Foreign investment risk.</b> The fund faces the risks inherent in foreign investing. Adverse political, economic or social developments could undermine the value of the fund's investments or prevent the fund from realizing the full value of its investments. Financial reporting standards for companies based in foreign markets differ from those in the US. Additionally, foreign securities markets generally are smaller and less liquid than US markets.</p><p>Foreign governments may restrict investment by foreigners, limit withdrawal of trading profit or currency from the country, restrict currency exchange or seize foreign investments. The investments of the fund may also be subject to foreign withholding taxes. Foreign brokerage commissions and other fees are generally higher than those for US investments, and the transactions and custody of foreign assets may involve delays in payment, delivery or recovery of money or investments.</p><p>Foreign markets can have liquidity risks beyond those typical of US markets. Because foreign exchanges generally are smaller and less liquid than US exchanges, buying and selling foreign investments can be more difficult and costly. Relatively small transactions can sometimes materially affect the price and availability of securities. In certain situations, it may become virtually impossible to sell an investment at a price that approaches portfolio management's estimate of its value. For the same reason, it may at times be difficult to value the fund's foreign investments. In addition, because non-US markets may be open on days when the fund does not price its shares, the value of the securities in the fund's portfolio may change on days when shareholders will not be able to purchase or sell the fund's shares.</p><p>
<b>Emerging market securities risk. </b>The securities of issuers located in emerging markets tend to be more volatile and less liquid than securities of issuers located in more mature economies, and emerging markets generally have less diverse and less mature economic structures and less stable political systems than those of developed countries. The securities of issuers located or doing substantial business in emerging markets are often subject to rapid and large changes in price.</p><p>
<b>Geographic focus risk.</b> Focusing investments in a single country or few countries, or regions, involves increased currency, political, regulatory and other risks. Market swings in such a targeted country, countries or regions are likely to have a greater effect on fund performance than they would in a more geographically diversified fund.</p><p>
<b>Interest rate risk.</b> When interest rates rise, prices of debt securities generally decline. The longer the duration of the fund's debt securities, the more sensitive the fund will be to interest rate changes. (As a general rule, a 1% rise in interest rates means a 1% fall in value for every year of duration.) Recent and potential future changes in monetary policy made by central banks or governments are likely to affect the level of interest rates. Rising interest rates may prompt redemptions from the fund. Although the fund primarily seeks to redeem shares of the fund on an in-kind basis, if the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss. The fund may be subject to a greater risk of rising interest rates due to the current period of historically low rates. Certain countries have experienced negative interest rates on certain debt securities. Negative or very low interest rates could magnify the risks associated with changes in interest rates. In general, changing interest rates, including rates that fall below zero, could have unpredictable effects on markets and may expose debt and related markets to heightened volatility. During periods when interest rates are low or there are negative interest rates, the fund's yield (and total return) also may be low or the fund may be unable to maintain positive returns. In addition, in response to the COVID-19 pandemic, as with other serious economic disruptions, governmental authorities and regulators are enacting significant fiscal and monetary policy changes, including providing direct capital infusions into companies, creating new monetary programs and lowering interest rates considerably. These actions present heightened risks to debt instruments, and such risks could be even further heightened if these actions are unexpectedly or suddenly reversed or are ineffective in achieving their desired outcomes.</p><p>
<b>Credit risk. </b>The fund's performance could be hurt if an issuer of a debt security suffers an adverse change in financial condition that results in a payment default, security downgrade or inability to meet a financial obligation. Credit risk is greater for lower-rated securities. Because the issuers of junk bonds may be in uncertain financial health, the prices of their debt securities could be more vulnerable to bad economic news, or even the expectation of bad news, than investment-grade debt securities. Credit ratings may not be an accurate assessment of credit risk.</p><p>
<b>Prepayment and extension risk. </b>When interest rates fall, issuers of high interest debt obligations may pay off the debts earlier than expected (prepayment risk), and the fund may have to reinvest the proceeds at lower yields. When interest rates rise, issuers of lower interest debt obligations may pay off the debts later than expected (extension risk), thus keeping the fund's assets tied up in lower interest debt obligations. Ultimately, any unexpected behavior in interest rates could increase the volatility of the fund's share price and yield and could hurt fund performance. Prepayments could also create capital gains tax liability in some instances.</p><p>
<b>High yield securities risk.</b> Securities that are rated below investment-grade (commonly referred to as "junk bonds," including those bonds rated lower than "BBB-" by Standard & Poor's Ratings Services and Fitch, Inc. or "Baa3" by Moody's Investors Services, Inc.), or are unrated, may be deemed speculative and may be more volatile than higher rated securities of similar maturity with respect to the issuer's continuing ability to meet principal and interest payments. High-yield debt securities' total return and yield may generally be expected to fluctuate more than the total return and yield of investment-grade debt securities. A real or perceived economic downturn or an increase in market interest rates could cause a decline in the value of high-yield debt securities, result in increased redemptions and/or result in increased portfolio turnover, which could result in a decline in the NAV of the fund, reduce liquidity for certain investments and/or increase costs. High-yield debt securities are often thinly traded and can be more difficult to sell and value accurately than investment-grade debt securities because there may be no established secondary market. Investments in high-yield debt securities could increase liquidity risk for the fund. In addition, the market for high-yield debt securities could experience sudden and sharp volatility, which is generally associated more with investments in stocks.</p><p>
<b>Restricted securities/Rule 144A securities risk. </b>The fund may invest a significant portion of its assets in securities offered pursuant to Rule 144A under the Securities Act of 1933, as amended (the "1933 Act"), which are restricted securities. They may be less liquid and more difficult to value than other investments because such securities may not be readily marketable in broad public markets. The fund may not be able to sell a restricted security promptly or at a reasonable price. Although there is a substantial institutional market for Rule 144A securities, it is not possible to predict exactly how the market for Rule 144A securities will develop. A restricted security that was liquid at the time of purchase may subsequently become illiquid and its value may decline as a result. Restricted securities that are deemed illiquid will count towards the fund's 15% limitation on illiquid securities. In addition, transaction costs may be higher for restricted securities than for more liquid securities. The fund may have to bear the expense of registering Rule 144A securities for resale and the risk of substantial delays in effecting the registration.</p><p>
<b>Liquidity risk.</b> In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. This risk can be ongoing for any security that does not trade actively or in large volumes, for any security that trades primarily on smaller markets, and for investments that typically trade only among a limited number of large investors (such as certain types of derivatives or restricted securities). In unusual market conditions, even normally liquid securities may be affected by a degree of liquidity risk. This may affect only certain securities or an overall securities market.</p><p>Although the fund primarily seeks to redeem shares of the fund on an in-kind basis, if the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss. This may be magnified in a rising interest rate environment or other circumstances where redemptions from the fund may be higher than normal.</p><p>
<b>Pricing risk. </b>If market conditions make it difficult to value some investments, the fund may value these investments using more subjective methods, such as fair value pricing. In such cases, the value determined for an investment could be different from the value realized upon such investment's sale. As a result, you could pay more than the market value when buying fund shares or receive less than the market value when selling fund shares.</p><p>
<b>Focus risk.</b> To the extent that the fund focuses its investments in particular industries, asset classes or sectors of the economy, any market price movements, regulatory or technological changes, or economic conditions affecting companies in those industries, asset classes or sectors may have a significant impact on the fund's performance.</p><p>
<b>Issuer-specific risk.</b> The value of an individual security or particular type of security may be more volatile than the market as a whole and may perform differently from the value of the market as a whole.</p><p>
<b>Passive investing risk. </b>Unlike a fund that is actively managed, in which portfolio management buys and sells securities based on research and analysis, the fund invests in securities included in, or representative of, the Underlying Index, regardless of their investment merits. Because the fund is designed to maintain a high level of exposure to the Underlying Index at all times, portfolio management generally will not buy or sell a security unless the security is added or removed, respectively, from the Underlying Index, and will not take any steps to invest defensively or otherwise reduce the risk of loss during market downturns.</p><p>
<b>Index-related risk.</b> The fund seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index as published by the index provider. There is no assurance that the Underlying Index provider will compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. Market disruptions could cause delays in the Underlying Index's rebalancing schedule. During any such delay, it is possible that the Underlying Index and, in turn, the fund will deviate from the Underlying Index's stated methodology and therefore experience returns different than those that would have been achieved under a normal rebalancing schedule. Generally, the index provider does not provide any warranty, or accept any liability, with respect to the quality, accuracy or completeness of the Underlying Index or its related data, and does not guarantee that the Underlying Index will be in line with its stated methodology. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its stated methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. The Advisor and its affiliates do not provide any warranty or guarantee against such errors. Therefore, the gains, losses or costs associated with the index provider's errors will generally be borne by the fund and its shareholders.</p><p>
<b>Tracking error risk.</b> The fund may be subject to tracking error, which is the divergence of the fund's performance from that of the Underlying Index. The performance of the fund may diverge from that of the Underlying Index for a number of reasons, including operating expenses, transaction costs, cash flows and operational inefficiencies. The fund's return also may diverge from the return of the Underlying Index because the fund bears the costs and risks associated with buying and selling securities (especially when rebalancing the fund's securities holdings to reflect changes in the Underlying Index) while such costs and risks are not factored into the return of the Underlying Index. Transaction costs, including brokerage costs, will decrease the fund's NAV to the extent not offset by the transaction fee payable by an "Authorized Participant" ("AP"). Market disruptions and regulatory restrictions could have an adverse effect on the fund's ability to adjust its exposure in order to track the Underlying Index. To the extent that portfolio management uses a representative sampling approach (investing in a representative selection of securities included in the Underlying Index rather than all securities in the Underlying Index), such approach may cause the fund's return to not be as well correlated with the return of the Underlying Index as would be the case if the fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index. In addition, the fund may not be able to invest in certain securities included in the Underlying Index, or invest in them in the exact proportions in which they are represented in the Underlying Index, due to government imposed legal restrictions or limitations, a lack of liquidity in the markets in which such securities trade, potential adverse tax consequences or other regulatory reasons. To the extent the fund calculates its net asset value based on fair value prices and the value of the Underlying Index is based on market prices (i.e., the value of the Underlying Index is not based on fair value prices), the fund's ability to track the Underlying Index may be adversely affected. Tracking error risk may be higher for funds that track a foreign index, or an index that includes foreign securities, because regulatory and reporting requirements may differ from those in the US, and there is a heightened risk associated with limited availability and reliability of data used to construct the index. Tracking error risk may also be heightened during times of increased market volatility or other unusual market conditions. For tax efficiency purposes, the fund may sell certain securities, and such sale may cause the fund to realize a loss and deviate from the performance of the Underlying Index. In light of the factors discussed above, the fund's return may deviate significantly from the return of the Underlying Index.</p><p>
<b>Market price risk. </b>Fund shares are listed for trading on an exchange and are bought and sold in the secondary market at market prices. The market prices of shares will fluctuate, in some cases materially, in response to changes in the NAV and supply and demand for shares. As a result, the trading prices of shares may deviate significantly from the NAV during periods of market volatility. The Advisor cannot predict whether shares will trade above, below or at their NAV. Given the fact that shares can be created and redeemed in Creation Units (defined below), the Advisor believes that large discounts or premiums to the NAV of shares should not be sustained in the long-term. If market makers exit the business or are unable to continue making markets in fund shares, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market). Further, while the creation/redemption feature is designed to make it likely that shares normally will trade close to the value of the fund's holdings, disruptions to creations and redemptions, including disruptions at market makers, APs or market participants, or during periods of significant market volatility, may result in market prices that differ significantly from the value of the fund's holdings. Although market makers will generally take advantage of differences between the NAV and the market price of fund shares through arbitrage opportunities, there is no guarantee that they will do so. In addition, the securities held by the fund may be traded in markets that close at a different time than the exchange on which the fund's shares trade. Liquidity in those securities may be reduced after the applicable closing times. Accordingly, during the time when the exchange is open but after the applicable market closing, fixing or settlement times, bid-ask spreads and the resulting premium or discount to the shares' NAV is likely to widen. Further, secondary markets may be subject to irregular trading activity, wide bid-ask spreads and extended trade settlement periods, which could cause a material decline in the fund's NAV. The fund's investment results are measured based upon the daily NAV of the fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by those APs creating and redeeming shares directly with the fund.</p><p>
<b>Non-diversification risk.</b> The fund is classified as non-diversified under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.
</p><p>
<b>Operational and technology risk.</b> Cyber-attacks, disruptions, or failures that affect the fund's service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund's or its service providers' assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund's net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund's operations.</p><p>While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund's service providers could impact the ability to conduct the fund's operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.</p><p>
<b>Authorized Participant concentration risk.</b> The fund may have a limited number of financial institutions that may act as APs. Only APs who have entered into agreements with the fund's distributor may engage in creation or redemption transactions directly with the fund (as described in the section of this Prospectus entitled "Buying and Selling Shares"). If those APs exit the business or are unable to process creation and/or redemption orders, (including in situations where APs have limited or diminished access to capital required to post collateral) and no other AP is able to step forward to create and redeem in either of these cases, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market).</p><p>
<b>Counterparty risk.</b> A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.</p><p>
<b>Securities lending risk. </b>Securities lending involves the risk that the fund may lose money because the borrower of the loaned securities fails to return the securities in a timely manner or at all. The fund could also lose money in the event of a decline in the value of the collateral provided for the loaned securities or a decline in the value of any investments made with cash collateral. These events, and securities lending in general, could trigger adverse tax consequences for the fund and its investors. For example, if the fund loans its securities, the fund and its investors may lose the ability to treat certain fund distributions associated with those securities as qualified dividend income.</p>
Past Performance
<p>
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund's performance from year to year and by showing how the fund's average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund's past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. Updated performance information is available on the fund's website at Xtrackers.com (the website does not form a part of this prospectus).</p><p>Prior to May 12, 2020, the fund operated with a different investment strategy. Performance would have been different if the fund's current investment strategy had been in effect. Returns prior to May 12, 2020 reflect those of the fund when it was tracking the prior underlying index. </p>
<table>
<tr>
<td valign="top" align="left" />
<td valign="top" align="left">Returns</td>
<td valign="top" align="left">Period ending</td>
</tr>
<tr>
<td valign="top" align="left">Best Quarter</td>
<td valign="top" align="left">4.52%</td>
<td valign="top" align="left">March 31, 2019</td>
</tr>
<tr>
<td valign="top" align="left">Worst Quarter</td>
<td valign="top" align="left">-3.17%</td>
<td valign="top" align="left">December 31, 2018</td>
</tr>
<tr>
<td valign="top" align="left">Year-to-Date</td>
<td valign="top" align="left">-10.42%</td>
<td valign="top" align="left">June 30, 2020</td>
</tr>
</table><p></p>
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax.
After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts ("IRAs") or employee-sponsored retirement plans.
<p>
Effective May 12, 2020, the fund changed its underlying index to the J.P. Morgan ESG EMBI Global Diversified Sovereign Index from the Solactive USD Emerging Markets Bond - Interest Rate Hedged Index. Returns prior to May 12, 2020 reflect performance for the fund when it was seeking investment results of the prior underlying index.
</p><p>
J.P. Morgan EMBI Global Diversified Sovereign Index replaced Solactive Emerging Markets Bond Index (Long only component) as the fund's broad market benchmark index because the Advisor believes the J.P. Morgan EMBI Global Diversified Sovereign Index more accurately reflects the fund's current investment strategies.
</p>
Investment Objective
<p>Xtrackers Eurozone Equity ETF (the "fund") seeks investment results that correspond generally to the performance, before fees and expenses, of the NASDAQ Eurozone Large Mid Cap Index (the "Underlying Index").</p>
Fees and Expenses
<p>These are the fees and expenses that you will pay when you buy, hold and sell shares. You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below. </p>
PORTFOLIO TURNOVER 
<p>The fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may mean higher taxes if you are investing in a taxable account. These costs are not reflected in annual fund operating expenses or in the expense example, and can affect the fund's performance. During the most recent fiscal year, the fund's portfolio turnover rate was 9% of the average value of its portfolio.</p>
Principal Investment Strategies
<p>The fund, using a "passive" or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index, which is designed to track the performance of equity securities of large- and mid-capitalization companies based in the countries in the Economic and Monetary Union (the "EMU" or "Eurozone") of the European Union ("EU"). The Underlying Index is composed of equity securities of companies that are based in countries in the Eurozone that have adopted the euro as their common currency and sole legal tender. When constructing the Underlying Index, Nasdaq Global Indexes ("Nasdaq" or the "Index Provider") assigns each eligible index security to a country which will govern its inclusion in the Underlying Index based on three categories: (i) the index security's country of incorporation; (ii) the index security's country of domicile; and (iii) the index security's country of primary exchange listing. Generally, if two or more of the categories match, the index security will be assigned to that country. The Underlying Index is market capitalization weighted and, under normal circumstances, is rebalanced semi-annually in March and September. The fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index's rebalance schedule will result in corresponding changes to the fund's rebalance schedule.</p><p>The fund uses a full replication indexing strategy to seek to track the Underlying Index. As such, the fund invests directly in the component securities (or a substantial number of the component securities) of the Underlying Index in substantially the same weightings in which they are represented in the Underlying Index. If it is not possible for the fund to acquire component securities due to limited availability or regulatory restrictions, the fund may use a representative sampling indexing strategy to seek to track the Underlying Index instead of a full replication indexing strategy. "Representative sampling" is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to the Underlying Index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield), and liquidity measures similar to those of the Underlying Index. The fund may or may not hold all of the securities in the Underlying Index when using a representative sampling indexing strategy. The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the Underlying Index.</p><p>As of July 31, 2020, the Underlying Index consisted of 287 securities with an average market capitalization of approximately $21.6 billion and a minimum market capitalization of approximately $1.82 billion from issuers in the following countries: Austria, Belgium, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal, Spain and Switzerland. The Underlying Index is market capitalization weighted and, under normal circumstances, is rebalanced semi-annually in March and September. The fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index's rebalance schedule will result in corresponding changes to the fund's rebalance schedule.</p><p>The fund will normally invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities from issuers in the Eurozone and in instruments designed to hedge the fund's exposure to non-US currencies. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of securities of issuers from France (31.4%) and Germany (28.6%). The fund will not enter into transactions to hedge against declines in the value of the fund's assets that are denominated in foreign currency.</p><p>
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of issuers in the industrials (24.1%) and consumer discretionary (18.1%) sectors. The industrials sector includes companies engaged in the manufacture and distribution of capital goods, such as those used in defense, construction and engineering, companies that manufacture and distribute electrical equipment and industrial machinery and those that provide commercial and transportation services and supplies. The consumer discretionary goods sector includes durable goods, apparel, entertainment and leisure, and automobiles. To the extent that the fund tracks the Underlying Index, the fund's investment in certain sectors or countries may change over time.</p><p>While the fund is currently classified as "non-diversified" under the Investment Company Act of 1940, it may operate as or become classified as "diversified" over time. The fund could again become non-diversified solely as a result of a change in relative market capitalization or index weighting of one or more constituents of the index that the fund is designed to track. Shareholder approval will not be sought when the fund crosses from diversified to non-diversified status under such circumstances.</p><p>The fund is not issued, endorsed, sold, or promoted by Nasdaq, Inc. or its affiliates.</p><p>
<b>Securities lending.</b> The fund may lend its portfolio securities to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. In connection with such loans, the fund receives liquid collateral equal to at least 102% of the value of the portfolio securities being lent. This collateral is marked to market on a daily basis. The fund may lend its portfolio securities in an amount up to 33 1/3% of its total assets.</p>
Main Risks
<p>
As with any investment, you could lose all or part of your investment in the fund, and the fund's performance could trail that of other investments. The fund is subject to the main risks noted below, any of which may adversely affect the fund's net asset value ("NAV"), trading price, yield, total return and ability to meet its investment objective, as well as numerous other risks that are described in greater detail in the section of this Prospectus entitled "Additional Information About Fund Strategies, Underlying Index Information and Risks" and in the Statement of Additional Information ("SAI").</p><p>
<b>Stock market risk.</b> When stock prices fall, you should expect the value of your investment to fall as well. Stock prices can be hurt by poor management on the part of the stock's issuer, shrinking product demand and other business risks. These may affect single companies as well as groups of companies. The market as a whole may not favor the types of investments the fund makes, which could adversely affect a stock's price, regardless of how well the company performs, or the fund's ability to sell a stock at an attractive price. There is a chance that stock prices overall will decline because stock markets tend to move in cycles, with periods of rising and falling prices. Events in the US and global financial markets, including actions taken by the US Federal Reserve or foreign central banks to stimulate or stabilize economic growth, may at times result in unusually high market volatility which could negatively affect performance. To the extent that the fund invests in a particular geographic region, capitalization or sector, the fund's performance may be affected by the general performance of that region, capitalization or sector.</p><p>
<b>Market disruption risk.</b> Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Market disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.</p><p>Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant uncertainty, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.</p><p>
<b>Foreign investment risk.</b> The fund faces the risks inherent in foreign investing. Adverse political, economic or social developments could undermine the value of the fund's investments or prevent the fund from realizing the full value of its investments. Financial reporting standards for companies based in foreign markets differ from those in the US. Additionally, foreign securities markets generally are smaller and less liquid than US markets. To the extent that the fund invests in non-US dollar denominated foreign securities, changes in currency exchange rates may affect the US dollar value of foreign securities or the income or gain received on these securities.</p><p>Foreign governments may restrict investment by foreigners, limit withdrawal of trading profit or currency from the country, restrict currency exchange or seize foreign investments. The investments of the fund may also be subject to foreign withholding taxes. Foreign brokerage commissions and other fees are generally higher than those for US investments, and the transactions and custody of foreign assets may involve delays in payment, delivery or recovery of money or investments.</p><p>Foreign markets can have liquidity risks beyond those typical of US markets. Because foreign exchanges generally are smaller and less liquid than US exchanges, buying and selling foreign investments can be more difficult and costly. Relatively small transactions can sometimes materially affect the price and availability of securities. In certain situations, it may become virtually impossible to sell an investment at a price that approaches portfolio management's estimate of its value. For the same reason, it may at times be difficult to value the fund's foreign investments. In addition, because non-US markets may be open on days when the fund does not price its shares, the value of the securities in the fund's portfolio may change on days when shareholders will not be able to purchase or sell the fund's shares.</p><p>
<b>Depositary receipt risk.</b> Depositary receipts involve similar risks to those associated with investments in securities of non-US issuers. Depositary receipts also may be less liquid than the underlying shares in their primary trading market.</p><p>
<b>European investment risk.</b> European financial markets have experienced volatility in recent years and have been adversely affected by concerns about economic downturns, credit rating downgrades, rising government debt level and possible default on or restructuring of government debt in several European countries. A default or debt restructuring by any European country would adversely impact holders of that country's debt, and sellers of credit default swaps linked to that country's creditworthiness. Most countries in Western Europe are members of the European Union (EU), which faces major issues involving its membership, structure, procedures and policies. In June 2016, citizens of the United Kingdom approved a referendum to leave the EU. On January 31, 2020, the United Kingdom officially withdrew from the EU pursuant to a withdrawal agreement, providing for a transition period in which the United Kingdom will seek to negotiate and finalize a trade deal with the EU. The transition period will end on December 31, 2020 and can no longer be extended under the terms of the withdrawal agreement. Significant uncertainty exists regarding any adverse economic and political effects the United Kingdom's withdrawal may have on the United Kingdom, other EU countries and the global economy, which could be significant, potentially resulting in increased volatility and illiquidity and lower economic growth.</p><p>European countries are also significantly affected by fiscal and monetary controls implemented by the European Economic and Monetary Union (EMU), and it is possible that the timing and substance of these controls may not address the needs of all EMU member countries. Investing in euro-denominated securities also risks exposure to a currency that may not fully reflect the strengths and weaknesses of the disparate economies that comprise Europe. There is continued concern over member state-level support for the euro, which could lead to certain countries leaving the EMU, the implementation of currency controls, or potentially the dissolution of the euro. The dissolution of the euro could have significant negative effects on European financial markets.</p><p>
<b>Medium-sized company risk.</b> Medium-sized company stocks tend to be more volatile than large company stocks. Because stock analysts are less likely to follow medium-sized companies, less information about them is available to investors. Industry-wide reversals may have a greater impact on medium-sized companies, since they lack the financial resources of larger companies. Medium-sized company stocks are typically less liquid than large company stocks.</p><p>
<b>Focus risk.</b> To the extent that the fund focuses its investments in particular industries, asset classes or sectors of the economy, any market price movements, regulatory or technological changes, or economic conditions affecting companies in those industries, asset classes or sectors may have a significant impact on the fund's performance.</p><p>
<b>Industrials sector risk.</b> To the extent that the fund invests significantly in the industrials sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the industrials sector. Companies in the industrials sector may be adversely affected by changes in government regulation, world events and economic conditions. In addition, companies in the industrials sector may be adversely affected by environmental damages, product liability claims and exchange rates.</p><p>
<b>Consumer discretionary sector risk. </b>To the extent that the fund invests significantly in the consumer discretionary sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the consumer discretionary sector. Companies engaged in the consumer discretionary sector are subject to fluctuations in supply and demand. These companies may also be adversely affected by changes in consumer spending as a result of world events, political and economic conditions, commodity price volatility, changes in exchange rates, imposition of import controls, increased competition, depletion of resources and labor relations.</p><p>
<b>Currency risk.</b> Changes in currency exchange rates and the relative value of non-US currencies may affect the value of the fund's investment and the value of your fund shares. Because the fund's NAV is determined on the basis of the US dollar and the fund does not attempt to hedge against changes in the value of non-US currencies, investors may lose money if the foreign currency depreciates against the US dollar, even if the foreign currency value of the fund's holdings in that market increases. Conversely, the dollar value of your investment in the fund may go up if the value of the foreign currency appreciates against the US dollar. The value of the US dollar measured against other currencies is influenced by a variety of factors. These factors include: interest rates, national debt levels and trade deficits, changes in balances of payments and trade, domestic and foreign interest and inflation rates, global or regional political, economic or financial events, monetary policies of governments, actual or potential government intervention, and global energy prices. Political instability, the possibility of government intervention and restrictive or opaque business and investment policies may also reduce the value of a country's currency. Government monetary policies and the buying or selling of currency by a country's government may also influence exchange rates. Currency exchange rates can be very volatile and can change quickly and unpredictably. Therefore, the value of an investment in the fund may also go up or down quickly and unpredictably and investors may lose money.</p><p>
<b>Passive investing risk. </b>Unlike a fund that is actively managed, in which portfolio management buys and sells securities based on research and analysis, the fund invests in securities included in, or representative of, the Underlying Index, regardless of their investment merits. Because the fund is designed to maintain a high level of exposure to the Underlying Index at all times, portfolio management generally will not buy or sell a security unless the security is added or removed, respectively, from the Underlying Index, and will not take any steps to invest defensively or otherwise reduce the risk of loss during market downturns.</p><p>
<b>Index-related risk.</b> The fund seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index as published by the index provider. There is no assurance that the Underlying Index provider will compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. Market disruptions could cause delays in the Underlying Index's rebalancing schedule. During any such delay, it is possible that the Underlying Index and, in turn, the fund will deviate from the Underlying Index's stated methodology and therefore experience returns different than those that would have been achieved under a normal rebalancing schedule. Generally, the index provider does not provide any warranty, or accept any liability, with respect to the quality, accuracy or completeness of the Underlying Index or its related data, and does not guarantee that the Underlying Index will be in line with its stated methodology. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its stated methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. The Advisor and its affiliates do not provide any warranty or guarantee against such errors. Therefore, the gains, losses or costs associated with the index provider's errors will generally be borne by the fund and its shareholders.</p><p>
<b>Tracking error risk.</b> The fund may be subject to tracking error, which is the divergence of the fund's performance from that of the Underlying Index. The performance of the fund may diverge from that of the Underlying Index for a number of reasons, including operating expenses, transaction costs, cash flows and operational inefficiencies. The fund's return also may diverge from the return of the Underlying Index because the fund bears the costs and risks associated with buying and selling securities (especially when rebalancing the fund's securities holdings to reflect changes in the Underlying Index) while such costs and risks are not factored into the return of the Underlying Index. Transaction costs, including brokerage costs, will decrease the fund's NAV to the extent not offset by the transaction fee payable by an "Authorized Participant" ("AP"). Market disruptions and regulatory restrictions could have an adverse effect on the fund's ability to adjust its exposure in order to track the Underlying Index. To the extent that portfolio management uses a representative sampling approach (investing in a representative selection of securities included in the Underlying Index rather than all securities in the Underlying Index), such approach may cause the fund's return to not be as well correlated with the return of the Underlying Index as would be the case if the fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index. In addition, the fund may not be able to invest in certain securities included in the Underlying Index, or invest in them in the exact proportions in which they are represented in the Underlying Index, due to government imposed legal restrictions or limitations, a lack of liquidity in the markets in which such securities trade, potential adverse tax consequences or other regulatory reasons. To the extent the fund calculates its net asset value based on fair value prices and the value of the Underlying Index is based on market prices (i.e., the value of the Underlying Index is not based on fair value prices), the fund's ability to track the Underlying Index may be adversely affected. Tracking error risk may be higher for funds that track a foreign index, or an index that includes foreign securities, because regulatory and reporting requirements may differ from those in the US, and there is a heightened risk associated with limited availability and reliability of data used to construct the index. Tracking error risk may also be heightened during times of increased market volatility or other unusual market conditions. For tax efficiency purposes, the fund may sell certain securities, and such sale may cause the fund to realize a loss and deviate from the performance of the Underlying Index. In light of the factors discussed above, the fund's return may deviate significantly from the return of the Underlying Index.</p><p>
<b>Market price risk. </b>Fund shares are listed for trading on an exchange and are bought and sold in the secondary market at market prices. The market prices of shares will fluctuate, in some cases materially, in response to changes in the NAV and supply and demand for shares. As a result, the trading prices of shares may deviate significantly from the NAV during periods of market volatility. The Advisor cannot predict whether shares will trade above, below or at their NAV. Given the fact that shares can be created and redeemed in Creation Units (defined below), the Advisor believes that large discounts or premiums to the NAV of shares should not be sustained in the long-term. If market makers exit the business or are unable to continue making markets in fund shares, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market). Further, while the creation/redemption feature is designed to make it likely that shares normally will trade close to the value of the fund's holdings, disruptions to creations and redemptions, including disruptions at market makers, APs or market participants, or during periods of significant market volatility, may result in market prices that differ significantly from the value of the fund's holdings. Although market makers will generally take advantage of differences between the NAV and the market price of fund shares through arbitrage opportunities, there is no guarantee that they will do so. In addition, the securities held by the fund may be traded in markets that close at a different time than the exchange on which the fund's shares trade. Liquidity in those securities may be reduced after the applicable closing times. Accordingly, during the time when the exchange is open but after the applicable market closing, fixing or settlement times, bid-ask spreads and the resulting premium or discount to the shares' NAV is likely to widen. Further, secondary markets may be subject to irregular trading activity, wide bid-ask spreads and extended trade settlement periods, which could cause a material decline in the fund's NAV. The fund's investment results are measured based upon the daily NAV of the fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by those APs creating and redeeming shares directly with the fund.</p><p>
<b>Liquidity risk.</b> In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. This risk can be ongoing for any security that does not trade actively or in large volumes, for any security that trades primarily on smaller markets, and for investments that typically trade only among a limited number of large investors (such as certain types of derivatives or restricted securities). In unusual market conditions, even normally liquid securities may be affected by a degree of liquidity risk. This may affect only certain securities or an overall securities market.</p><p>Although the fund primarily seeks to redeem shares of the fund on an in-kind basis, if the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss. This may be magnified in circumstances where redemptions from the fund may be higher than normal.</p><p>
<b>Geographic focus risk.</b> Focusing investments in a single country or few countries, or regions, involves increased political, regulatory and other risks. Market swings in such a targeted country, countries or regions are likely to have a greater effect on fund performance than they would in a more geographically diversified fund.</p><p>
<b>Operational and technology risk.</b> Cyber-attacks, disruptions, or failures that affect the fund's service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund's or its service providers' assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund's net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund's operations.</p><p>While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund's service providers could impact the ability to conduct the fund's operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.</p><p>
<b>Authorized Participant concentration risk.</b> The fund may have a limited number of financial institutions that may act as APs. Only APs who have entered into agreements with the fund's distributor may engage in creation or redemption transactions directly with the fund (as described in the section of this Prospectus entitled "Buying and Selling Shares"). If those APs exit the business or are unable to process creation and/or redemption orders, (including in situations where APs have limited or diminished access to capital required to post collateral) and no other AP is able to step forward to create and redeem in either of these cases, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market).</p><p>
<b>Non-diversification risk.</b> The fund is classified as non-diversified under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.
</p><p>If the fund becomes classified as "diversified" over time and again becomes non-diversified as a result of a change in relative market capitalization or index weighting of one or more constituents of the index that the fund is designed to track, non-diversification risk would apply. </p><p>
<b>Counterparty risk.</b> A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.</p><p>
<b>Securities lending risk. </b>Securities lending involves the risk that the fund may lose money because the borrower of the loaned securities fails to return the securities in a timely manner or at all. The fund could also lose money in the event of a decline in the value of the collateral provided for the loaned securities or a decline in the value of any investments made with cash collateral. These events, and securities lending in general, could trigger adverse tax consequences for the fund and its investors. For example, if the fund loans its securities, the fund and its investors may lose the ability to treat certain fund distributions associated with those securities as qualified dividend income.</p>
Past Performance
<p>
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund's performance from year to year and by showing how the fund's average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund's past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. Updated performance information is available on the fund's website at Xtrackers.com (the website does not form a part of this prospectus).</p><p>Prior to October 27, 2017, the fund sought investment results that corresponded generally to the performance, before the fund's fees and expenses, of the MSCI Southern Europe US Dollar Hedged Index.</p>
<table>
<tr>
<td valign="top" align="left" />
<td valign="top" align="left">Returns</td>
<td valign="top" align="left">Period ending</td>
</tr>
<tr>
<td valign="top" align="left">Best Quarter</td>
<td valign="top" align="left">12.29%</td>
<td valign="top" align="left">December 31, 2016</td>
</tr>
<tr>
<td valign="top" align="left">Worst Quarter</td>
<td valign="top" align="left">-14.29%</td>
<td valign="top" align="left">December 31, 2018</td>
</tr>
<tr>
<td valign="top" align="left">Year-to-Date</td>
<td valign="top" align="left">-12.24%</td>
<td valign="top" align="left">June 30, 2020</td>
</tr>
</table><p></p>
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax.
After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts ("IRAs") or employee-sponsored retirement plans.
Investment Objective
<p>Xtrackers MSCI Eurozone Hedged Equity ETF (the "fund") seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI EMU IMI US Dollar Hedged Index (the "Underlying Index").</p>
Fees and Expenses
<p>These are the fees and expenses that you will pay when you buy, hold and sell shares. You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below. </p>
PORTFOLIO TURNOVER 
<p>The fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may mean higher taxes if you are investing in a taxable account. These costs are not reflected in annual fund operating expenses or in the expense example, and can affect the fund's performance. During the most recent fiscal year, the fund's portfolio turnover rate was 11% of the average value of its portfolio.</p>
Principal Investment Strategies
<p>The fund, using a "passive" or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index, which is designed to track the performance of equity securities based in the countries in the European Monetary Union (the "EMU"), while seeking to mitigate exposure to fluctuations between the value of the US dollar and the euro. The fund uses a full replication indexing strategy to seek to track the Underlying Index. As such, the fund invests directly in the component securities (or a substantial number of the component securities) of the Underlying Index in substantially the same weightings in which they are represented in the Underlying Index. If it is not possible for the fund to acquire component securities due to limited availability or regulatory restrictions, the fund may use a representative sampling indexing strategy to seek to track the Underlying Index instead of a full replication indexing strategy. "Representative sampling" is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to the Underlying Index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield), and liquidity measures similar to those of the Underlying Index. The fund may or may not hold all of the securities in the Underlying Index when using a representative sampling indexing strategy. The Underlying Index is composed of equities from countries in the EMU, or the "Eurozone," that have adopted the euro as their common currency and sole legal tender. The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the Underlying Index.</p><p>As of July 31, 2020, the Underlying Index consisted of 674 securities with an average market capitalization of approximately $7.16 billion and a minimum market capitalization of approximately $77 million from issuers in the following countries: Austria, Belgium, Finland, France, Germany, Ireland, Italy, Netherlands, Portugal and Spain. Under normal circumstances, the Underlying Index is rebalanced monthly. The fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index's rebalance schedule will result in corresponding changes to the fund's rebalance schedule.</p><p>The fund enters into forward currency contracts designed to offset the fund's exposure to the euro. A forward currency contract involves an obligation to purchase or sell a specific currency at a future date, which may be any fixed number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. The fund (and the Underlying Index) hedges the euro in the portfolio to US dollars by selling the euro forward at the one-month forward rate published by WM/Reuters. </p><p>The amount of forward contracts in the fund is based on the aggregate exposure of the fund and Underlying Index to the euro based on currency weights as of the beginning of each month. While this approach is designed to minimize the impact of currency fluctuations on fund returns, this does not necessarily eliminate exposure to all currency fluctuations. The return of the forward currency contracts may not perfectly offset the actual fluctuations of the euro relative to the US dollar. The fund may use non-deliverable forward ("NDF") contracts to execute its hedging transactions. An NDF is a contract where there is no physical settlement of two currencies at maturity (as opposed to deliverable forward contracts, which per their terms are settled by physical delivery of the currencies). Rather, based on the movement of the currencies and the contractually agreed upon exchange rate, a net cash settlement is made by one party to the other in US dollars.</p><p>The fund will normally invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities from issuers in the Eurozone. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of securities of issuers from France (31.7%) and Germany (28.9%).</p><p>
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated. To the extent that the fund tracks the Underlying Index, the fund's investment in certain sectors or countries may change over time.</p><p>The fund may become "non-diversified," as defined under the Investment Company Act of 1940, as amended, solely as a result of a change in relative market capitalization or index weighting of one or more constituents of the index that the fund is designed to track. Shareholder approval will not be sought when the fund crosses from diversified to non-diversified status under such circumstances.</p><p>The fund or securities referred to herein are not sponsored, endorsed, issued, sold or promoted by MSCI, and MSCI bears no liability with respect to the fund or securities or any index on which the fund or securities are based.</p><p>
<b>Securities lending.</b> The fund may lend its portfolio securities to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. In connection with such loans, the fund receives liquid collateral equal to at least 102% of the value of the portfolio securities being lent. This collateral is marked to market on a daily basis. The fund may lend its portfolio securities in an amount up to 33 1/3% of its total assets.</p>
Main Risks
<p>
As with any investment, you could lose all or part of your investment in the fund, and the fund's performance could trail that of other investments. The fund is subject to the main risks noted below, any of which may adversely affect the fund's net asset value ("NAV"), trading price, yield, total return and ability to meet its investment objective, as well as numerous other risks that are described in greater detail in the section of this Prospectus entitled "Additional Information About Fund Strategies, Underlying Index Information and Risks" and in the Statement of Additional Information ("SAI").</p><p>
<b>Stock market risk.</b> When stock prices fall, you should expect the value of your investment to fall as well. Stock prices can be hurt by poor management on the part of the stock's issuer, shrinking product demand and other business risks. These may affect single companies as well as groups of companies. The market as a whole may not favor the types of investments the fund makes, which could adversely affect a stock's price, regardless of how well the company performs, or the fund's ability to sell a stock at an attractive price. There is a chance that stock prices overall will decline because stock markets tend to move in cycles, with periods of rising and falling prices. Events in the US and global financial markets, including actions taken by the US Federal Reserve or foreign central banks to stimulate or stabilize economic growth, may at times result in unusually high market volatility which could negatively affect performance. To the extent that the fund invests in a particular geographic region, capitalization or sector, the fund's performance may be affected by the general performance of that region, capitalization or sector.</p><p>
<b>Market disruption risk.</b> Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Market disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.</p><p>Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant uncertainty, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.</p><p>
<b>Foreign investment risk.</b> The fund faces the risks inherent in foreign investing. Adverse political, economic or social developments could undermine the value of the fund's investments or prevent the fund from realizing the full value of its investments. Financial reporting standards for companies based in foreign markets differ from those in the US. Additionally, foreign securities markets generally are smaller and less liquid than US markets. To the extent that the fund invests in non-US dollar denominated foreign securities, changes in currency exchange rates may affect the US dollar value of foreign securities or the income or gain received on these securities.</p><p>Foreign governments may restrict investment by foreigners, limit withdrawal of trading profit or currency from the country, restrict currency exchange or seize foreign investments. The investments of the fund may also be subject to foreign withholding taxes. Foreign brokerage commissions and other fees are generally higher than those for US investments, and the transactions and custody of foreign assets may involve delays in payment, delivery or recovery of money or investments.</p><p>Foreign markets can have liquidity risks beyond those typical of US markets. Because foreign exchanges generally are smaller and less liquid than US exchanges, buying and selling foreign investments can be more difficult and costly. Relatively small transactions can sometimes materially affect the price and availability of securities. In certain situations, it may become virtually impossible to sell an investment at a price that approaches portfolio management's estimate of its value. For the same reason, it may at times be difficult to value the fund's foreign investments. In addition, because non-US markets may be open on days when the fund does not price its shares, the value of the securities in the fund's portfolio may change on days when shareholders will not be able to purchase or sell the fund's shares.</p><p>
<b>Depositary receipt risk.</b> Depositary receipts involve similar risks to those associated with investments in securities of non-US issuers. Depositary receipts also may be less liquid than the underlying shares in their primary trading market.</p><p>
<b>European investment risk.</b> European financial markets have experienced volatility in recent years and have been adversely affected by concerns about economic downturns, credit rating downgrades, rising government debt level and possible default on or restructuring of government debt in several European countries. A default or debt restructuring by any European country would adversely impact holders of that country's debt, and sellers of credit default swaps linked to that country's creditworthiness. Most countries in Western Europe are members of the European Union (EU), which faces major issues involving its membership, structure, procedures and policies. In June 2016, citizens of the United Kingdom approved a referendum to leave the EU. On January 31, 2020, the United Kingdom officially withdrew from the EU pursuant to a withdrawal agreement, providing for a transition period in which the United Kingdom will seek to negotiate and finalize a trade deal with the EU. The transition period will end on December 31, 2020 and can no longer be extended under the terms of the withdrawal agreement. Significant uncertainty exists regarding any adverse economic and political effects the United Kingdom's withdrawal may have on the United Kingdom, other EU countries and the global economy, which could be significant, potentially resulting in increased volatility and illiquidity and lower economic growth.</p><p>European countries are also significantly affected by fiscal and monetary controls implemented by the European Economic and Monetary Union (EMU), and it is possible that the timing and substance of these controls may not address the needs of all EMU member countries. Investing in euro-denominated securities also risks exposure to a currency that may not fully reflect the strengths and weaknesses of the disparate economies that comprise Europe. There is continued concern over member state-level support for the euro, which could lead to certain countries leaving the EMU, the implementation of currency controls, or potentially the dissolution of the euro. The dissolution of the euro could have significant negative effects on European financial markets.</p><p>
<b>Small and medium-sized company risk. </b>Small and medium-sized company stocks tend to be more volatile than large company stocks. Because stock analysts are less likely to follow medium-sized companies, less information about them is available to investors. Industry-wide reversals may have a greater impact on small and medium-sized companies, since they lack the financial resources of larger companies. Small and medium-sized company stocks are typically less liquid than large company stocks.</p><p>
<b>Focus risk.</b> To the extent that the fund focuses its investments in particular industries, asset classes or sectors of the economy, any market price movements, regulatory or technological changes, or economic conditions affecting companies in those industries, asset classes or sectors may have a significant impact on the fund's performance.</p><p>
<b>Forward currency contract risk.</b> The fund's forward currency contracts may not be successful in minimizing the impact of changes in the value of the non-US currencies against the US dollar. To the extent the fund's forward currency contracts are not successful, the US dollar value of your investment in the fund may go down. Furthermore, because no changes in the currency weights in the Underlying Index are made during the month to account for changes in the Underlying Index due to price movement of securities, corporate events, additions, deletions or any other changes, changes in the value of non-US currencies against the US dollar during the month may affect the value of the fund's investment. Currency exchange rates can be very volatile and can change quickly and unpredictably. Therefore, the value of an investment in the fund may also go up or down quickly and unpredictably and investors may lose money. NDFs may be less liquid than deliverable forward currency contracts. A lack of liquidity in NDFs of the hedged currency could adversely affect the fund's ability to hedge against currency fluctuations and properly track the Underlying Index.</p><p>
<b>Counterparty risk.</b> A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.</p><p>
<b>Passive investing risk. </b>Unlike a fund that is actively managed, in which portfolio management buys and sells securities based on research and analysis, the fund invests in securities included in, or representative of, the Underlying Index, regardless of their investment merits. Because the fund is designed to maintain a high level of exposure to the Underlying Index at all times, portfolio management generally will not buy or sell a security unless the security is added or removed, respectively, from the Underlying Index, and will not take any steps to invest defensively or otherwise reduce the risk of loss during market downturns.</p><p>
<b>Index-related risk.</b> The fund seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index as published by the index provider. There is no assurance that the Underlying Index provider will compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. Market disruptions could cause delays in the Underlying Index's rebalancing schedule. During any such delay, it is possible that the Underlying Index and, in turn, the fund will deviate from the Underlying Index's stated methodology and therefore experience returns different than those that would have been achieved under a normal rebalancing schedule. Generally, the index provider does not provide any warranty, or accept any liability, with respect to the quality, accuracy or completeness of the Underlying Index or its related data, and does not guarantee that the Underlying Index will be in line with its stated methodology. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its stated methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. The Advisor and its affiliates do not provide any warranty or guarantee against such errors. Therefore, the gains, losses or costs associated with the index provider's errors will generally be borne by the fund and its shareholders.</p><p>
<b>Tracking error risk.</b> The fund may be subject to tracking error, which is the divergence of the fund's performance from that of the Underlying Index. The performance of the fund may diverge from that of the Underlying Index for a number of reasons, including operating expenses, transaction costs, cash flows and operational inefficiencies. The fund's return also may diverge from the return of the Underlying Index because the fund bears the costs and risks associated with buying and selling securities (especially when rebalancing the fund's securities holdings to reflect changes in the Underlying Index) while such costs and risks are not factored into the return of the Underlying Index. Transaction costs, including brokerage costs, will decrease the fund's NAV to the extent not offset by the transaction fee payable by an "Authorized Participant" ("AP"). Market disruptions and regulatory restrictions could have an adverse effect on the fund's ability to adjust its exposure in order to track the Underlying Index. To the extent that portfolio management uses a representative sampling approach (investing in a representative selection of securities included in the Underlying Index rather than all securities in the Underlying Index), such approach may cause the fund's return to not be as well correlated with the return of the Underlying Index as would be the case if the fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index. In addition, the fund may not be able to invest in certain securities included in the Underlying Index, or invest in them in the exact proportions in which they are represented in the Underlying Index, due to government imposed legal restrictions or limitations, a lack of liquidity in the markets in which such securities trade, potential adverse tax consequences or other regulatory reasons. To the extent the fund calculates its net asset value based on fair value prices and the value of the Underlying Index is based on market prices (i.e., the value of the Underlying Index is not based on fair value prices), the fund's ability to track the Underlying Index may be adversely affected. Tracking error risk may be higher for funds that track a foreign index, or an index that includes foreign securities, because regulatory and reporting requirements may differ from those in the US, and there is a heightened risk associated with limited availability and reliability of data used to construct the index. Tracking error risk may also be heightened during times of increased market volatility or other unusual market conditions. For tax efficiency purposes, the fund may sell certain securities, and such sale may cause the fund to realize a loss and deviate from the performance of the Underlying Index. In light of the factors discussed above, the fund's return may deviate significantly from the return of the Underlying Index.</p><p>
<b>Market price risk. </b>Fund shares are listed for trading on an exchange and are bought and sold in the secondary market at market prices. The market prices of shares will fluctuate, in some cases materially, in response to changes in the NAV and supply and demand for shares. As a result, the trading prices of shares may deviate significantly from the NAV during periods of market volatility. The Advisor cannot predict whether shares will trade above, below or at their NAV. Given the fact that shares can be created and redeemed in Creation Units (defined below), the Advisor believes that large discounts or premiums to the NAV of shares should not be sustained in the long-term. If market makers exit the business or are unable to continue making markets in fund shares, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market). Further, while the creation/redemption feature is designed to make it likely that shares normally will trade close to the value of the fund's holdings, disruptions to creations and redemptions, including disruptions at market makers, APs or market participants, or during periods of significant market volatility, may result in market prices that differ significantly from the value of the fund's holdings. Although market makers will generally take advantage of differences between the NAV and the market price of fund shares through arbitrage opportunities, there is no guarantee that they will do so. In addition, the securities held by the fund may be traded in markets that close at a different time than the exchange on which the fund's shares trade. Liquidity in those securities may be reduced after the applicable closing times. Accordingly, during the time when the exchange is open but after the applicable market closing, fixing or settlement times, bid-ask spreads and the resulting premium or discount to the shares' NAV is likely to widen. The bid-ask spread of the fund may be wider in comparison to the bid-ask spread of other ETFs, given the liquidity of the fund's assets and the Underlying Index's (and thus the fund's) hedging strategy. Further, secondary markets may be subject to irregular trading activity, wide bid-ask spreads and extended trade settlement periods, which could cause a material decline in the fund's NAV. The fund's investment results are measured based upon the daily NAV of the fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by those APs creating and redeeming shares directly with the fund.</p><p>
<b>Liquidity risk.</b> In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. This risk can be ongoing for any security that does not trade actively or in large volumes, for any security that trades primarily on smaller markets, and for investments that typically trade only among a limited number of large investors (such as certain types of derivatives or restricted securities). In unusual market conditions, even normally liquid securities may be affected by a degree of liquidity risk. This may affect only certain securities or an overall securities market.</p><p>Although the fund primarily seeks to redeem shares of the fund on an in-kind basis, if the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss. This may be magnified in circumstances where redemptions from the fund may be higher than normal.</p><p>
<b>Geographic focus risk.</b> Focusing investments in a single country or few countries, or regions, involves increased political, regulatory and other risks. Market swings in such a targeted country, countries or regions are likely to have a greater effect on fund performance than they would in a more geographically diversified fund.</p><p>
<b>Operational and technology risk.</b> Cyber-attacks, disruptions, or failures that affect the fund's service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund's or its service providers' assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund's net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund's operations.</p><p>While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund's service providers could impact the ability to conduct the fund's operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.</p><p>
<b>Authorized Participant concentration risk.</b> The fund may have a limited number of financial institutions that may act as APs. Only APs who have entered into agreements with the fund's distributor may engage in creation or redemption transactions directly with the fund (as described in the section of this Prospectus entitled "Buying and Selling Shares"). If those APs exit the business or are unable to process creation and/or redemption orders, (including in situations where APs have limited or diminished access to capital required to post collateral) and no other AP is able to step forward to create and redeem in either of these cases, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market).</p><p>
<b>Non-diversification risk.</b> At any given time, due to the composition of the Underlying Index, the fund may be classified as "non-diversified" under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.</p><p>
<b>Securities lending risk. </b>Securities lending involves the risk that the fund may lose money because the borrower of the loaned securities fails to return the securities in a timely manner or at all. The fund could also lose money in the event of a decline in the value of the collateral provided for the loaned securities or a decline in the value of any investments made with cash collateral. These events, and securities lending in general, could trigger adverse tax consequences for the fund and its investors. For example, if the fund loans its securities, the fund and its investors may lose the ability to treat certain fund distributions associated with those securities as qualified dividend income.</p>
Past Performance
<p>
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund's performance from year to year and by showing how the fund's average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund's past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. Updated performance information is available on the fund's website at Xtrackers.com (the website does not form a part of this prospectus).</p>
<table>
<tr>
<td valign="top" align="left" />
<td valign="top" align="left">Returns</td>
<td valign="top" align="left">Period ending</td>
</tr>
<tr>
<td valign="top" align="left">Best Quarter</td>
<td valign="top" align="left">17.99%</td>
<td valign="top" align="left">March 31, 2015</td>
</tr>
<tr>
<td valign="top" align="left">Worst Quarter</td>
<td valign="top" align="left">-12.30%</td>
<td valign="top" align="left">December 31, 2018</td>
</tr>
<tr>
<td valign="top" align="left">Year-to-Date</td>
<td valign="top" align="left">-11.55%</td>
<td valign="top" align="left">June 30, 2020</td>
</tr>
</table><p></p>
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax.
After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts ("IRAs") or employee-sponsored retirement plans.
Investment Objective
<p>The Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF (the "fund") seeks investment results that correspond generally to the performance, before fees and expenses, of the CSI 500 Index (the "Underlying Index").</p>
Fees and Expenses
<p>These are the fees and expenses that you will pay when you buy, hold and sell shares. You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below. </p>
PORTFOLIO TURNOVER 
<p>The fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may mean higher taxes if you are investing in a taxable account. These costs are not reflected in annual fund operating expenses or in the expense example, and can affect the fund's performance. During the most recent fiscal year, the fund's portfolio turnover rate was 48% of the average value of its portfolio.</p>
Principal Investment Strategies
<p>The fund, using a "passive" or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index, which is designed to reflect the price fluctuation and performance of small-cap companies in the China A-Share market and is composed of the 500 smallest and most liquid stocks in the China A-Share market. DBX Advisors LLC (the "Advisor") expects that, over time, the correlation between the fund's performance and that of the Underlying Index, before fees and expenses, will be 95% or better. A figure of 100% would indicate perfect correlation.</p><p>A-Shares are equity securities issued by companies incorporated in mainland China and are denominated and traded in renminbi ("RMB") on the Shenzhen and Shanghai Stock Exchanges. Under current regulations in the People's Republic of China ("China" or the "PRC"), foreign investors can invest in the domestic PRC securities markets through certain market-access programs. These programs include the Qualified Foreign Institutional Investor ("QFII") or a Renminbi Qualified Foreign Institutional Investor ("RQFII") licenses obtained from the China Securities Regulatory Commission ("CSRC"). QFII and RQFII investors have registered with China's State Administration of Foreign Exchange ("SAFE") to invest foreign freely convertible currencies (in the case of a QFII) and RMB (in the case of an RQFII) in the PRC for the purpose of investing in the PRC's domestic securities markets.</p><p>Harvest Global Investments Limited ("HGI" or the "Subadvisor") is a licensed RQFII and the fund may therefore invest in A-Shares via HGI's RQFII license. The Subadvisor, on behalf of the fund, may invest in A-Shares and other permitted China securities listed on the Shanghai and Shenzhen Stock Exchanges. The fund may also invest in A-Shares listed and traded on the Shanghai Stock Exchange and Shenzhen Stock Exchange through the Shanghai – Hong Kong and Shenzhen – Hong Kong Stock Connect programs ("Stock Connect"). Stock Connect is a securities trading and clearing program between either the Shanghai Stock Exchange or Shenzhen Stock Exchange, and The Stock Exchange of Hong Kong Limited ("SEHK"), China Securities Depository and Clearing Corporation Limited and Hong Kong Securities Clearing Company Limited. Stock Connect is designed to permit mutual stock market access between mainland China and Hong Kong by allowing investors to trade and settle shares on each market via their local exchanges. Trading through Stock Connect is subject to a daily quota ("Daily Quota"), which limits the maximum daily net purchases on any particular day by Hong Kong investors (and foreign investors trading through Hong Kong) trading PRC listed securities and PRC investors trading Hong Kong listed securities trading through the relevant Stock Connect. Accordingly, the fund's direct investments in A-Shares will be limited in part by the Daily Quota that limits total purchases through Stock Connect. Investment companies are not currently within the types of entities that are eligible for an RQFII or QFII license.</p><p>The Subadvisor expects to use a full replication indexing strategy to seek to track the Underlying Index. As such, the Subadvisor expects to invest directly in the component securities (or a substantial number of the component securities) of the Underlying Index in substantially the same weightings in which they are represented in the Underlying Index. If it is not possible for the Subadvisor to acquire component securities due to limited availability or regulatory restrictions, the Subadvisor may use a representative sampling indexing strategy to seek to track the Underlying Index instead of a full replication indexing strategy. "Representative sampling" is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to the Underlying Index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield), and liquidity measures similar to those of the Underlying Index. The fund may or may not hold all of the securities in the Underlying Index when the Subadvisor is using a representative sampling indexing strategy.</p><p>The fund will normally invest at least 80% of its total assets in securities of issuers that comprise the Underlying Index. The fund will seek to achieve its investment objective by primarily investing directly in A-Shares. Because the fund does not satisfy the criteria to qualify as an RQFII or QFII itself, the fund intends to invest directly in A-Shares via the license granted to the Subadvisor and may also invest through Stock Connect. While the fund intends to invest primarily and directly in A-Shares, the fund also may invest in securities of issuers not included in the Underlying Index, futures contracts, stock index futures, swap contracts and other types of derivative instruments, and other pooled investment vehicles, including affiliated and/or foreign investment companies, that the Advisor and/or Subadvisor believes will help the fund to achieve its investment objective. The remainder of the fund's assets will be invested primarily in money market instruments and cash equivalents. Under normal circumstances, the fund invests at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in A-Shares of Chinese small-cap issuers or in derivative instruments and other securities that provide investment exposure to A-Shares of Chinese small-cap issuers. The fund may invest in depositary receipts. </p><p>As of July 31, 2020, the Underlying Index consisted of 500 securities with an average market capitalization of approximately $3.09 billion and a minimum market capitalization of approximately $735 million. Under normal circumstances, the Underlying Index is rebalanced semi-annually every January and July. The fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index's rebalance schedule will result in corresponding changes to the fund's rebalance schedule.</p><p>
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that the Underlying Index is concentrated. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of issuers in the basic materials (16.8%), information technology (16.8%) and industrials (16.0%) sectors. The basic materials sector includes companies that manufacture chemicals, construction materials, glass and paper products, as well as metals, minerals and mining companies. The information technology sector includes companies engaged in developing software and providing data processing and outsourced services, along with manufacturing and distributing communications equipment, computers and other electronic equipment and instruments. The industrials sector includes companies engaged in the manufacture and distribution of capital goods, such as those used in defense, construction and engineering, companies that manufacture and distribute electrical equipment and industrial machinery and those that provide commercial and transportation services and supplies. To the extent that the fund tracks the Underlying Index, the fund's investment in certain sectors may change over time.</p><p>The fund may become "non-diversified," as defined under the Investment Company Act of 1940, as amended, solely as a result of a change in relative market capitalization or index weighting of one or more constituents of the index that the fund is designed to track. Shareholder approval will not be sought when the fund crosses from diversified to non-diversified status under such circumstances.</p><p>Shares of the fund are not sponsored, endorsed, sold or promoted by CSI or any affiliate of CSI and CSI bears no liability with respect to the fund or any security.</p>
Main Risks
<p>
As with any investment, you could lose all or part of your investment in the fund, and the fund's performance could trail that of other investments. The fund is subject to the main risks noted below, any of which may adversely affect the fund's net asset value ("NAV"), trading price, yield, total return and ability to meet its investment objective, as well as numerous other risks that are described in greater detail in the section of this Prospectus entitled "Additional Information About Fund Strategies, Underlying Index Information and Risks" and in the Statement of Additional Information ("SAI").</p><p>
<b>Stock market risk.</b> When stock prices fall, you should expect the value of your investment to fall as well. Stock prices can be hurt by poor management on the part of the stock's issuer, shrinking product demand and other business risks. These may affect single companies as well as groups of companies. The market as a whole may not favor the types of investments the fund makes, which could adversely affect a stock's price, regardless of how well the company performs, or the fund's ability to sell a stock at an attractive price. There is a chance that stock prices overall will decline because stock markets tend to move in cycles, with periods of rising and falling prices. Events in the US and global financial markets, including actions taken by the US Federal Reserve or foreign central banks to stimulate or stabilize economic growth, may at times result in unusually high market volatility which could negatively affect performance. To the extent that the fund invests in a particular geographic region, capitalization or sector, the fund's performance may be affected by the general performance of that region, capitalization or sector.</p><p>
<b>Market disruption risk.</b> Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Market disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.</p><p>Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant uncertainty, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.</p><p>
<b>Special risk considerations relating to the RQFII regime and investments in A-Shares.</b> The Advisor's ability to achieve the fund's investment objective by investing in the component securities of the Underlying Index is dependent on the continuous availability of A-Shares. Because the fund will not be able to invest directly in A-Shares beyond the limits that may be imposed by Stock Connect, the size of the fund's direct investment in A-Shares may be limited. If the Subadvisor is unable to maintain its RQFII status, the Subadvisor may seek to gain exposure to the A-Share market by investing in securities not included in the Underlying Index, futures contracts, swaps and other derivative instruments, and other pooled investment vehicles, including foreign and/or affiliated funds, that provide exposure to the A-Share market until access via a RQFII license can be re-obtained. A revocation or elimination of the RQFII license may not only adversely affect the ability of the fund to invest directly in A-Shares, but also the willingness of swap counterparties to engage in swaps and the performance of pooled investment vehicles linked to the performance of A-Shares. Therefore, any such revocation or elimination may have a material adverse effect on the ability of the fund to achieve its investment objective. These risks are compounded by the fact that at present there are only a limited number of firms and counterparties that have QFII or RQFII status. In addition, the RQFII license may be revoked by Chinese regulators if, among other things, the Subadvisor fails to observe SAFE and other applicable Chinese regulations, which could also lead to other adverse consequences, including the requirement that the fund dispose of its A-Shares holdings. There can be no guarantee that the fund will be able to invest in appropriate futures contracts, swaps and other derivative instruments, and the PRC government may at times restrict the ability of firms regulated in the PRC to make such instruments available. In addition, there are custody risks associated with investing through an RQFII, where, due to requirements regarding establishing a custody account in the joint names of the fund and the Subadvisor's creditors than if the fund had an account in its name only. If the fund is unable to obtain sufficient exposure to the performance of the Underlying Index due to the unavailability of RQFII license or other investments that provide exposure to the performance of A-Shares, the fund could, among other actions, limit or suspend creations until the Subadvisor determines that the requisite exposure to the Underlying Index is obtainable. During the period that creations are limited or suspended, the fund could trade at a significant premium or discount to the NAV and could experience substantial redemptions. Alternatively, the fund could change its investment objective by, for example, seeking to track an alternative index that does not include A-Shares as its component securities, or decide to liquidate the fund.</p><p>On May 7, 2020, the People's Bank of China ("PBOC") and SAFE jointly issued the Regulations on Funds of Securities and Futures Investment by Foreign Institutional Investors (PBOC & SAFE Announcement [2020] No. 2) (the "Regulations") which came into effect on June 6, 2020. The Regulations supersede certain post-registration rules applicable to QFII and RQFII regimes. One of the key changes of the Regulations is the removal of quota restrictions on investment. However, as of the date of this prospectus, this is a relatively new development, and there is no guarantee that the quotas will continue to be relaxed.</p><p>
<b>Special risk considerations of investing in China. </b>Investing in securities of Chinese issuers involves certain risks and considerations not typically associated with investing in securities of US issuers, including, among others, (i) more frequent (and potentially widespread) trading suspensions and government interventions with respect to Chinese issuers, resulting in lack of liquidity and in price volatility, (ii) currency revaluations and other currency exchange rate fluctuations or blockage, (iii) the nature and extent of intervention by the Chinese government in the Chinese securities markets (including both direct and indirect market stabilization efforts, which may affect valuations of Chinese issuers), whether such intervention will continue and the impact of such intervention or its discontinuation, (iv) the risk of nationalization or expropriation of assets, (v) the risk that the Chinese government may decide not to continue to support economic reform programs, (vi) limitations on the use of brokers (or action by the Chinese government that discourages brokers from serving international clients), (vii) higher rates of inflation, (viii) greater political, economic and social uncertainty, (ix) higher market volatility caused by any potential regional territorial conflicts or natural disasters, (x) the risk of increased trade tariffs, embargoes and other trade or regulatory limitations, (xi) restrictions on foreign ownership, (xii) custody risks associated with investing through Stock Connect, an RQFII or other programs to access the Chinese securities markets, (xiii) both interim and permanent market regulations which may affect the ability of certain stockholders to sell Chinese securities when it would otherwise be advisable, and (xiv) different and less stringent financial reporting standards.</p><p>From time to time, and as recently as early 2020 with the coronavirus known as COVID-19, China has experienced outbreaks of infectious illnesses, and the country may be subject to other infectious illnesses, diseases or other public health emergencies in the future. Any public health emergency could reduce consumer demand or economic output, result in market closures, travel restrictions or quarantines, and generally have a significant impact on the Chinese economy, which in turn could adversely affect the fund's investments.</p><p>
<b>A-Shares tax risk.</b> Uncertainties in the Chinese tax rules governing taxation of income and gains from investments in A-Shares could result in unexpected tax liabilities for the fund or Underlying Fund. China generally imposes withholding tax at a rate of 10% on dividends and interest derived by nonresident enterprises (including QFIIs and RQFIIs) from issuers resident in China. China also imposes withholding tax at a rate of 10% on capital gains derived by nonresident enterprises from investments in an issuer resident in China, subject to an exemption or reduction pursuant to domestic law or a double taxation agreement or arrangement.</p><p>Since the respective inception of the Shanghai – Hong Kong and Shenzhen – Hong Kong Stock Connect programs, foreign investors (including the fund) investing in A-Shares through Stock Connect would be temporarily exempt from the PRC corporate income tax and value- added tax on the gains on disposal of such A-Shares. Dividends would be subject to PRC corporate income tax on a withholding basis at 10%, unless reduced under a double tax treaty with China upon application to and obtaining approval from the competent tax authority. Since November 17, 2014, the corporate income tax for QFIIs and RQFIIs, with respect to capital gains, has been temporarily lifted. The withholding tax relating to the realized gains from shares in land-rich companies prior to November 17, 2014 has been paid by the fund, while realized gains from shares in non-land-rich companies prior to November 17, 2014 were granted by treaty relief pursuant to the PRC-US Double Taxation Agreement. During 2015, revenue authorities in the PRC made arrangements for the collection of capital gains taxes for investments realized between November 17, 2009 and November 16, 2014. The fund could be subject to tax liability for any tax payments for which reserves have not been made or that were not previously withheld. The impact of any such tax liability on the fund's return could be substantial. The fund may also be liable to the Advisor or Subadvisor for any tax that is imposed on the Advisor or Subadvisor by the PRC with respect to the fund's investments. If the fund's direct investments in A-Shares through the Advisor's or Subadvisor's RQFII license become subject to repatriation restrictions or delays, the fund may be unable to satisfy distribution requirements applicable to RICs under the Internal Revenue Code, and be subject to tax at the fund level. The current PRC tax laws and regulations and interpretations thereof may be revised or amended in the future, potentially retroactively, including with respect to the possible liability of the fund for the taxation of income and gains from investments in A-Shares through Stock Connect or obligations of an RQFII. The withholding taxes on dividends, interest and capital gains may in principle be subject to a reduced rate under an applicable tax treaty, but the application of such treaties in the case of an RQFII acting for a foreign investor such as the fund is also uncertain. Finally, it is also unclear whether an RQFII would also be eligible for PRC Business Tax ("BT") exemption, which has been granted to QFIIs, with respect to gains derived prior to May 1, 2016. In practice, the BT has not been collected. However, the imposition of such taxes on the fund could have a material adverse effect on the fund's returns. Since May 1, 2016, RQFIIs are exempt from PRC value-added tax, which replaced the BT with respect to gains realized from the disposal of securities, including A-Shares.</p><p>The PRC rules for taxation of RQFIIs (and QFIIs) are evolving and certain tax regulations to be issued by the PRC State Administration of Taxation and/or PRC Ministry of Finance to clarify the subject matter may apply retrospectively, even if such rules are adverse to the fund and its shareholders.</p><p>If the PRC begins applying tax rules regarding the taxation of income from A-Shares investments to RQFIIs and/or begins collecting capital gains taxes on such investments (whether made through Stock Connect or an RQFII), the fund or Underlying Fund could be subject to withholding tax liability in excess of the amount reserved (if any). The impact of any such tax liability on the fund's or Underlying Fund's return could be substantial. The fund will be liable to the Advisor or Subadvisor for any Chinese tax that is imposed on the Advisor or Subadvisor with respect to the fund's investments.</p><p>As described below under "Taxes – Taxes on Distributions," the fund may elect, for US federal income tax purposes, to treat Chinese taxes (including withholding taxes) paid by the fund as paid by its shareholders. Even if the fund is qualified to make that election and does so, however, your ability to claim a credit for certain Chinese taxes may be limited under general US tax principles.</p><p>In addition, to the extent the fund invests in swaps and other derivative instruments, such investments may be less tax-efficient from a US tax perspective than direct investment in A-Shares and may be subject to special US federal income tax rules that could adversely affect the fund. Also the fund may be required to periodically adjust its positions in those instruments to comply with certain regulatory requirements which may further cause these investments to be less efficient than a direct investment in A-Shares.</p><p>Should the Chinese government impose restrictions on the fund's ability to repatriate funds associated with direct investment in A-Shares, the fund may be unable to satisfy distribution requirements applicable to regulated investment companies ("RICs") under the Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), and the fund may therefore be subject to fund-level US federal taxes.</p><p>
<b>Risks of investing through Stock Connect.</b> Trading through Stock Connect is subject to a number of restrictions that may affect the fund's investments and returns. For example, trading through Stock Connect is subject to the Daily Quota, which may restrict or preclude the fund's ability to invest in A-Shares through Stock Connect ("Stock Connect A-Shares"). In addition, investments made through Stock Connect are subject to trading, clearance and settlement procedures that are relatively untested in the PRC, which could pose risks to the fund. Moreover, Stock Connect A-Shares generally may not be sold, purchased or otherwise transferred other than through Stock Connect in accordance with applicable rules. A primary feature of Stock Connect is the application of the home market's laws and rules applicable to investors in A-Shares. Therefore, the fund's investments in Stock Connect A-Shares are generally subject to PRC securities regulations and listing rules, among other restrictions. Finally, while foreign investors currently are exempted from paying capital gains or value-added taxes on income and gains from investments in Stock Connect A-Shares, these PRC tax rules could be changed, which could result in unexpected tax liabilities for the fund.</p><p>Stock Connect will only operate on days when both the Chinese and Hong Kong markets are open for trading and when banking services are available in both markets on the corresponding settlement days. Therefore, an investment in A-Shares through Stock Connect may subject the fund to the risk of price fluctuations on days when the Chinese markets are open, but Stock Connect is not trading.</p><p>The Stock Connect program is a relatively new program. Further developments are likely and there can be no assurance as to the program's continued existence or whether future developments regarding the program may restrict or adversely affect the fund's investments or returns. In addition, the application and interpretation of the laws and regulations of Hong Kong and the PRC, and the rules, policies or guidelines published or applied by relevant regulators and exchanges in respect of the Stock Connect program are uncertain, and they may have a detrimental effect on the fund's investments and returns.</p><p>
<b>Depositary receipt risk.</b> Depositary receipts involve similar risks to those associated with investments in securities of non-US issuers. Depositary receipts also may be less liquid than the underlying shares in their primary trading market.</p><p>
<b>Derivatives risk. </b>Risks associated with derivatives include the risk that the derivative is not well correlated with the security, index or currency to which it relates; the risk that derivatives may result in losses or missed opportunities; the risk that the fund will be unable to sell the derivative because of an illiquid secondary market; the risk that a counterparty is unwilling or unable to meet its obligation; and the risk that the derivative transaction could expose the fund to the effects of leverage, which could increase the fund's exposure to the market and magnify potential losses. There is no guarantee that derivatives, to the extent employed, will have the intended effect, and their use could cause lower returns or even losses to the fund. The use of derivatives by the fund to hedge risk may reduce the opportunity for gain by offsetting the positive effect of favorable price movements.</p><p>
<b>Counterparty risk.</b> A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.</p><p>
<b>Currency and repatriation risk.</b> The Underlying Index is calculated in onshore RMB (CNY), whereas the fund's reference currency is the US dollar. As a result, the fund's return may be adversely affected by currency exchange rates. Further, although offshore RMB and onshore RMB are the same currency, they trade at different rates. To the extent the fund needs to exchange offshore RMB and onshore RMB, any divergence between offshore RMB and onshore RMB may adversely impact shareholders. The value of the US dollar measured against other currencies is influenced by a variety of factors. These factors include: interest rates, national debt levels and trade deficits, changes in balances of payments and trade, domestic and foreign interest and inflation rates, global or regional political, economic or financial events, monetary policies of governments, actual or potential government intervention, global energy prices, political instability and government monetary policies and the buying or selling of currencies by a country's government.</p><p>In addition, the Chinese government heavily regulates the domestic exchange of foreign currencies within China. Chinese law requires that all domestic transactions must be settled in RMB, places significant restrictions on the remittance of foreign currencies, and strictly regulates currency exchange from RMB. There is no assurance that there will always be sufficient amounts of RMB for the fund to remain fully invested. Repatriations by RQFIIs are currently permitted daily and are not subject to repatriation restrictions or prior regulatory approval. However, there is no assurance that Chinese rules and regulations will not change or that repatriation restrictions will not be imposed in the future. Further, such changes to the Chinese rules and regulations may be applied retroactively. Any restrictions on repatriation of the fund's portfolio investments may have an adverse effect on the fund's ability to meet redemption requests.</p><p>
<b>Focus risk.</b> To the extent that the fund focuses its investments in particular industries, asset classes or sectors of the economy, any market price movements, regulatory or technological changes, or economic conditions affecting companies in those industries, asset classes or sectors may have a significant impact on the fund's performance.</p><p>
<b>Basic materials sector risk.</b> To the extent that the fund invests significantly in the basic materials sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the basic materials sector. Companies engaged in the production and distribution of basic materials may be adversely affected by changes in world events, political and economic conditions, energy conservation, environmental policies, commodity price volatility, changes in exchange rates, imposition of import controls, increased competition, depletion of resources and labor relations.</p><p>
<b>Information technology sector risk.</b> To the extent that the fund invests significantly in the information technology sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the information technology sector. Information technology companies are particularly vulnerable to government regulation and competition, both domestically and internationally, including competition from foreign competitors with lower production costs. Information technology companies also face competition for services of qualified personnel. Additionally, the products of information technology companies may face obsolescence due to rapid technological development and frequent new product introduction by competitors. Finally, information technology companies are heavily dependent on patent and intellectual property rights, the loss or impairment of which may adversely affect profitability.</p><p>
<b>Industrials sector risk.</b> To the extent that the fund invests significantly in the industrials sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the industrials sector. Companies in the industrials sector may be adversely affected by changes in government regulation, world events and economic conditions. In addition, companies in the industrials sector may be adversely affected by environmental damages, product liability claims and exchange rates.</p><p>
<b>Passive investing risk. </b>Unlike a fund that is actively managed, in which portfolio management buys and sells securities based on research and analysis, the fund invests in securities included in, or representative of, the Underlying Index, regardless of their investment merits. Because the fund is designed to maintain a high level of exposure to the Underlying Index at all times, portfolio management generally will not buy or sell a security unless the security is added or removed, respectively, from the Underlying Index, and will not take any steps to invest defensively or otherwise reduce the risk of loss during market downturns.</p><p>
<b>Index-related risk.</b> The fund seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index as published by the index provider. There is no assurance that the Underlying Index provider will compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. Market disruptions could cause delays in the Underlying Index's rebalancing schedule. During any such delay, it is possible that the Underlying Index and, in turn, the fund will deviate from the Underlying Index's stated methodology and therefore experience returns different than those that would have been achieved under a normal rebalancing schedule. Generally, the index provider does not provide any warranty, or accept any liability, with respect to the quality, accuracy or completeness of the Underlying Index or its related data, and does not guarantee that the Underlying Index will be in line with its stated methodology. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its stated methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. The Advisor and its affiliates do not provide any warranty or guarantee against such errors. Therefore, the gains, losses or costs associated with the index provider's errors will generally be borne by the fund and its shareholders.</p><p>
<b>Liquidity risk.</b> In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. This risk can be ongoing for any security that does not trade actively or in large volumes, for any security that trades primarily on smaller markets, and for investments that typically trade only among a limited number of large investors (such as certain types of derivatives or restricted securities). In unusual market conditions, even normally liquid securities may be affected by a degree of liquidity risk. This may affect only certain securities or an overall securities market.</p><p>If the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss.</p><p>
<b>Pricing risk. </b>If market conditions make it difficult to value some investments (including China A-Shares), the fund may value these investments using more subjective methods, such as fair value pricing. In such cases, the value determined for an investment could be different from the value realized upon such investment's sale. As a result, you could pay more than the market value when buying fund shares or receive less than the market value when selling fund shares.</p><p>
<b>Tracking error risk.</b> The performance of the fund may diverge from that of its Underlying Index for a number of reasons, including operating expenses, transaction costs, cash flows and operational inefficiencies. The fund's return also may diverge from the return of the Underlying Index because the fund bears the costs and risks associated with buying and selling securities (especially when rebalancing the fund's securities holdings to reflect changes in the Underlying Index) while such costs and risks are not factored into the return of the Underlying Index. Transaction costs, including brokerage costs, will decrease the fund's NAV to the extent not offset by the transaction fee payable by an "Authorized Participant" ("AP"). Market disruptions and regulatory restrictions could have an adverse effect on the fund's ability to adjust its exposure to the required levels in order to track the Underlying Index. In addition, to the extent that portfolio management uses a representative sampling approach (investing in a representative selection of securities included in the Underlying Index rather than all securities in the Underlying Index) it may cause the fund to not be as well correlated with the return of the Underlying Index as would be the case if the fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. In addition, the fund may not be able to invest in certain securities included in the Underlying Index, or invest in them in the exact proportions in which they are represented in the Underlying Index, due to legal restrictions or limitations imposed by the governments of certain countries, a lack of liquidity in the markets in which such securities trade, potential adverse tax consequences or other regulatory reasons. To the extent the fund calculates its NAV based on fair value prices and the value of the Underlying Index is based on securities' closing prices (i.e., the value of the Underlying Index is not based on fair value prices), the fund's ability to track the Underlying Index may be adversely affected. The performance of the fund also may diverge from that of the Underlying Index if the Advisor and/or Subadvisor seek to gain exposure to A-Shares by investing in securities not included in the Underlying Index, derivative instruments, and other pooled investment vehicles because the Subadvisor is unable to maintain its RQFII status, or the Stock Connect Daily Quota has been exhausted. For tax efficiency purposes, the fund may sell certain securities, and such sale may cause the fund to realize a loss and deviate from the performance of the Underlying Index. In light of the factors discussed above, the fund's return may deviate significantly from the return of the Underlying Index.</p><p>
<b>Market price risk. </b>Fund shares are listed for trading on an exchange and are bought and sold in the secondary market at market prices. The market prices of shares will fluctuate, in some cases materially, in response to changes in the NAV and supply and demand for shares. As a result, the trading prices of shares may deviate significantly from the NAV during periods of market volatility. The Advisor cannot predict whether shares will trade above, below or at their NAV. Given the fact that shares can be created and redeemed in Creation Units (defined below), the Advisor believes that large discounts or premiums to the NAV of shares should not be sustained in the long-term. If market makers exit the business or are unable to continue making markets in fund shares, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market). Further, while the creation/redemption feature is designed to make it likely that shares normally will trade close to the value of the fund's holdings, disruptions to creations and redemptions, including disruptions at market makers, APs or market participants, or during periods of significant market volatility, may result in market prices that differ significantly from the value of the fund's holdings. Although market makers will generally take advantage of differences between the NAV and the market price of fund shares through arbitrage opportunities, there is no guarantee that they will do so. In addition, the securities held by the fund may be traded in markets that close at a different time than the exchange on which the fund's shares trade. Liquidity in those securities may be reduced after the applicable closing times. Accordingly, during the time when the exchange is open but after the applicable market closing, fixing or settlement times, bid-ask spreads and the resulting premium or discount to the shares' NAV is likely to widen. The bid/ask spread of the fund may be wider in comparison to the bid/ask spread of other ETFs, due to the Fund's exposure to A-Shares. Further, secondary markets may be subject to irregular trading activity, wide bid-ask spreads and extended trade settlement periods, which could cause a material decline in the fund's NAV. The fund's investment results are measured based upon the daily NAV of the fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by those APs creating and redeeming shares directly with the fund.</p><p>
<b>Valuation risk. </b>Because non-US markets may be open on days when the fund does not price its shares, the value of the securities in the fund's portfolio may change on days when shareholders will not be able to purchase or sell the fund's shares.</p><p>
<b>Operational and technology risk.</b> Cyber-attacks, disruptions, or failures that affect the fund's service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund's or its service providers' assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund's net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund's operations.</p><p>While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund's service providers could impact the ability to conduct the fund's operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.</p><p>
<b>Authorized Participant concentration risk.</b> The fund may have a limited number of financial institutions that may act as APs. Only APs who have entered into agreements with the fund's distributor may engage in creation or redemption transactions directly with the fund (as described in the section of this Prospectus entitled "Buying and Selling Shares"). If those APs exit the business or are unable to process creation and/or redemption orders, (including in situations where APs have limited or diminished access to capital required to post collateral) and no other AP is able to step forward to create and redeem in either of these cases, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market).</p><p>
<b>Non-diversification risk.</b> At any given time, due to the composition of the Underlying Index, the fund may be classified as "non-diversified" under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.</p><p>
<b>Cash transactions risk.</b> Unlike most other ETFs, the fund expects to effect its creations and redemptions principally for cash, rather than in-kind securities. Paying redemption proceeds in cash rather than through in-kind delivery of portfolio securities may require the fund to dispose of or sell portfolio investments to obtain the cash needed to distribute redemption proceeds at an inopportune time. This may cause the fund to recognize gains or losses that it might not have incurred if it had made a redemption in- kind. As a result, the fund may pay out higher or lower annual capital gains distributions than ETFs that redeem in kind. Only APs who have entered into an agreement with the fund's distributor may redeem shares from the fund directly; all other investors buy and sell shares at market prices on an exchange.</p><p>
<b>Country concentration risk.</b> To the extent that the fund invests significantly in a single country, it is more likely to be impacted by events or conditions affecting that country. For example, political and economic conditions and changes in regulatory, tax or economic policy in a country could significantly affect the market in that country and in surrounding or related countries and have a negative impact on the fund's performance.</p><p>
<b>Small company risk.</b> Small company stocks tend to be more volatile than medium-sized or large company stocks. Because stock analysts are less likely to follow small companies, less information about them is available to investors. Industry-wide reversals may have a greater impact on small companies, since they may lack the financial resources of larger companies. Small company stocks are typically less liquid than large company stocks.</p>
Past Performance
<p>
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund's performance from year to year and by showing how the fund's average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund's past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. Updated performance information is available on the fund's website at Xtrackers.com (the website does not form a part of this prospectus).</p>
<table>
<tr>
<td valign="top" align="left" />
<td valign="top" align="left">Returns</td>
<td valign="top" align="left">Period ending</td>
</tr>
<tr>
<td valign="top" align="left">Best Quarter</td>
<td valign="top" align="left">36.43%</td>
<td valign="top" align="left">March 31, 2015</td>
</tr>
<tr>
<td valign="top" align="left">Worst Quarter</td>
<td valign="top" align="left">-38.15%</td>
<td valign="top" align="left">September 30, 2015</td>
</tr>
<tr>
<td valign="top" align="left">Year-to-Date</td>
<td valign="top" align="left">9.94%</td>
<td valign="top" align="left">June 30, 2020</td>
</tr>
</table><p></p>
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax.
After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts ("IRAs") or employee-sponsored retirement plans.
Investment Objective
<p>Xtrackers MSCI Europe Hedged Equity ETF (the "fund") seeks investment results that correspond generally to the performance, before fees and expenses, of the MSCI Europe US Dollar Hedged Index (the "Underlying Index").</p>
Fees and Expenses
<p>These are the fees and expenses that you will pay when you buy, hold and sell shares. You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below. </p>
PORTFOLIO TURNOVER 
<p>The fund pays transaction costs, such as commissions, when it buys and sells securities (or "turns over" its portfolio). A higher portfolio turnover may indicate higher transaction costs and may mean higher taxes if you are investing in a taxable account. These costs are not reflected in annual fund operating expenses or in the expense example, and can affect the fund's performance. During the most recent fiscal year, the fund's portfolio turnover rate was 13% of the average value of its portfolio.</p>
Principal Investment Strategies
<p>The fund, using a "passive" or indexing investment approach, seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index, which is designed to track the performance of the developed markets in Europe, while mitigating exposure to fluctuations between the value of the US dollar and the currencies of the countries included in the Underlying Index. The fund uses a full replication indexing strategy to seek to track the Underlying Index. As such, the fund invests directly in the component securities (or a substantial number of the component securities) of the Underlying Index in substantially the same weightings in which they are represented in the Underlying Index. If it is not possible for the fund to acquire component securities due to limited availability or regulatory restrictions, the fund may use a representative sampling indexing strategy to seek to track the Underlying Index instead of a full replication indexing strategy. "Representative sampling" is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to the Underlying Index. The securities selected are expected to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield), and liquidity measures similar to those of the Underlying Index. The fund may or may not hold all of the securities in the Underlying Index when using a representative sampling indexing strategy. The fund will invest at least 80% of its total assets (but typically far more) in component securities (including depositary receipts in respect of such securities) of the Underlying Index.</p><p>As of July 31, 2020, the Underlying Index consisted of 435 securities, with an average market capitalization of approximately $19.49 billion and a minimum market capitalization of approximately $1.21 billion, from issuers in the following countries: Austria, Belgium, Denmark, Finland, France, Germany, Ireland, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland and the United Kingdom. Under normal circumstances, the Underlying Index is rebalanced monthly. The fund rebalances its portfolio in accordance with the Underlying Index, and, therefore, any changes to the Underlying Index's rebalance schedule will result in corresponding changes to the fund's rebalance schedule.</p><p>The fund enters into forward currency contracts designed to offset the fund's exposure to foreign currencies. The fund hedges each foreign currency in the portfolio to US dollars by selling the applicable foreign currency forward at the one-month forward rate published by WM/Reuters.</p><p>The amount of forward contracts in the fund is based on the aggregate exposure of the fund and Underlying Index to each non-US currency based on currency weights as of the beginning of each month. While this approach is designed to minimize the impact of currency fluctuations on fund returns, this does not necessarily eliminate exposure to all currency fluctuations. The return of the forward currency contracts may not perfectly offset the actual fluctuations of non-US currencies relative to the US dollar. The fund may use non-deliverable forward ("NDF") contracts to execute its hedging transactions. An NDF is a contract where there is no physical settlement of two currencies at maturity (as opposed to deliverable forward contracts, which per their terms are settled by physical delivery of the currencies). Rather, based on the movement of the currencies and the contractually agreed upon exchange rate, a net cash settlement is made by one party to the other in US dollars.</p><p>The fund will normally invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in the equity securities of issuers from Europe and in instruments designed to hedge against the fund's exposure to non-US currencies. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of securities of issuers from the United Kingdom (22%), Switzerland (16.6%) and Germany (15.0%).</p><p>
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated. As of July 31, 2020, a significant percentage of the Underlying Index was comprised of issuers in the health care sector (16.3%) and consumer staples sector (15.0%). Industries in the health care sector include pharmaceuticals, biotechnology, medical products and supplies, and health care services. The consumer staples sector includes companies whose businesses are less sensitive to economic cycles, such as manufacturers and distributors of food, beverages and producers of non-durable household goods and personal products. To the extent that the fund tracks the Underlying Index, the fund's investment in certain sectors or countries may change over time.</p><p>The fund may become "non-diversified," as defined under the Investment Company Act of 1940, as amended, solely as a result of a change in relative market capitalization or index weighting of one or more constituents of the index that the fund is designed to track. Shareholder approval will not be sought when the fund crosses from diversified to non-diversified status under such circumstances.</p><p>The fund or securities referred to herein are not sponsored, endorsed, issued, sold or promoted by MSCI, and MSCI bears no liability with respect to the fund or securities or any index on which the fund or securities are based.</p><p>
<b>Securities lending.</b> The fund may lend its portfolio securities to brokers, dealers and other financial institutions desiring to borrow securities to complete transactions and for other purposes. In connection with such loans, the fund receives liquid collateral equal to at least 102% of the value of the portfolio securities being lent. This collateral is marked to market on a daily basis. The fund may lend its portfolio securities in an amount up to 33 1/3% of its total assets.</p>
Main Risks
<p>
As with any investment, you could lose all or part of your investment in the fund, and the fund's performance could trail that of other investments. The fund is subject to the main risks noted below, any of which may adversely affect the fund's net asset value ("NAV"), trading price, yield, total return and ability to meet its investment objective, as well as numerous other risks that are described in greater detail in the section of this Prospectus entitled "Additional Information About Fund Strategies, Underlying Index Information and Risks" and in the Statement of Additional Information ("SAI").</p><p>
<b>Stock market risk.</b> When stock prices fall, you should expect the value of your investment to fall as well. Stock prices can be hurt by poor management on the part of the stock's issuer, shrinking product demand and other business risks. These may affect single companies as well as groups of companies. The market as a whole may not favor the types of investments the fund makes, which could adversely affect a stock's price, regardless of how well the company performs, or the fund's ability to sell a stock at an attractive price. There is a chance that stock prices overall will decline because stock markets tend to move in cycles, with periods of rising and falling prices. Events in the US and global financial markets, including actions taken by the US Federal Reserve or foreign central banks to stimulate or stabilize economic growth, may at times result in unusually high market volatility which could negatively affect performance. To the extent that the fund invests in a particular geographic region, capitalization or sector, the fund's performance may be affected by the general performance of that region, capitalization or sector.</p><p>
<b>Market disruption risk.</b> Geopolitical and other events, including war, terrorism, economic uncertainty, trade disputes, public health crises and related geopolitical events have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Market disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by a market disruption, the duration and effects may not be the same for all types of assets.</p><p>Recent market disruption events include the pandemic spread of the novel coronavirus known as COVID-19, and the significant uncertainty, market volatility, decreased economic and other activity and increased government activity that it has caused. Specifically, COVID-19 has led to significant death and morbidity, and concerns about its further spread have resulted in the closing of schools and non-essential businesses, cancellations, shelter-in-place orders, lower consumer spending in certain sectors, social distancing, bans on large social gatherings and travel, quarantines, government economic stimulus measures, reduced productivity, rapid increases in unemployment, increased demand for and strain on government and medical resources, border closings and global trade and supply chain interruptions, among others. The full effects, duration and costs of the COVID-19 pandemic are impossible to predict, and the circumstances surrounding the COVID-19 pandemic will continue to evolve. The pandemic may affect certain countries, industries, economic sectors, companies and investment products more than others, may exacerbate existing economic, political, or social tensions and may increase the probability of an economic recession or depression. The fund and its investments may be adversely affected by the effects of the COVID-19 pandemic, and a prolonged pandemic may result in the fund and its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.</p><p>
<b>Foreign investment risk.</b> The fund faces the risks inherent in foreign investing. Adverse political, economic or social developments could undermine the value of the fund's investments or prevent the fund from realizing the full value of its investments. Financial reporting standards for companies based in foreign markets differ from those in the US. Additionally, foreign securities markets generally are smaller and less liquid than US markets. To the extent that the fund invests in non-US dollar denominated foreign securities, changes in currency exchange rates may affect the US dollar value of foreign securities or the income or gain received on these securities.</p><p>Foreign governments may restrict investment by foreigners, limit withdrawal of trading profit or currency from the country, restrict currency exchange or seize foreign investments. The investments of the fund may also be subject to foreign withholding taxes. Foreign brokerage commissions and other fees are generally higher than those for US investments, and the transactions and custody of foreign assets may involve delays in payment, delivery or recovery of money or investments.</p><p>Foreign markets can have liquidity risks beyond those typical of US markets. Because foreign exchanges generally are smaller and less liquid than US exchanges, buying and selling foreign investments can be more difficult and costly. Relatively small transactions can sometimes materially affect the price and availability of securities. In certain situations, it may become virtually impossible to sell an investment at a price that approaches portfolio management's estimate of its value. For the same reason, it may at times be difficult to value the fund's foreign investments. In addition, because non-US markets may be open on days when the fund does not price its shares, the value of the securities in the fund's portfolio may change on days when shareholders will not be able to purchase or sell the fund's shares.</p><p>
<b>Depositary receipt risk.</b> Depositary receipts involve similar risks to those associated with investments in securities of non-US issuers. Depositary receipts also may be less liquid than the underlying shares in their primary trading market.</p><p>
<b>European investment risk.</b> European financial markets have experienced volatility in recent years and have been adversely affected by concerns about economic downturns, credit rating downgrades, rising government debt level and possible default on or restructuring of government debt in several European countries. A default or debt restructuring by any European country would adversely impact holders of that country's debt, and sellers of credit default swaps linked to that country's creditworthiness. Most countries in Western Europe are members of the European Union (EU), which faces major issues involving its membership, structure, procedures and policies. In June 2016, citizens of the United Kingdom approved a referendum to leave the EU. On January 31, 2020, the United Kingdom officially withdrew from the EU pursuant to a withdrawal agreement, providing for a transition period in which the United Kingdom will seek to negotiate and finalize a trade deal with the EU. The transition period will end on December 31, 2020 and can no longer be extended under the terms of the withdrawal agreement. Significant uncertainty exists regarding any adverse economic and political effects the United Kingdom's withdrawal may have on the United Kingdom, other EU countries and the global economy, which could be significant, potentially resulting in increased volatility and illiquidity and lower economic growth.</p><p>European countries are also significantly affected by fiscal and monetary controls implemented by the European Economic and Monetary Union (EMU), and it is possible that the timing and substance of these controls may not address the needs of all EMU member countries. Investing in euro-denominated securities also risks exposure to a currency that may not fully reflect the strengths and weaknesses of the disparate economies that comprise Europe. There is continued concern over member state-level support for the euro, which could lead to certain countries leaving the EMU, the implementation of currency controls, or potentially the dissolution of the euro. The dissolution of the euro could have significant negative effects on European financial markets.</p><p>
<b>Small and medium-sized company risk. </b>Small and medium-sized company stocks tend to be more volatile than large company stocks. Because stock analysts are less likely to follow medium-sized companies, less information about them is available to investors. Industry-wide reversals may have a greater impact on small and medium-sized companies, since they lack the financial resources of larger companies. Small and medium-sized company stocks are typically less liquid than large company stocks.</p><p>
<b>Focus risk.</b> To the extent that the fund focuses its investments in particular industries, asset classes or sectors of the economy, any market price movements, regulatory or technological changes, or economic conditions affecting companies in those industries, asset classes or sectors may have a significant impact on the fund's performance.</p><p>
<b>Health care sector risk. </b>To the extent that the fund invests significantly in the health care sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the health care sector. The health care sector may be affected by government regulations and government health care programs, increases or decreases in the cost of medical products and services and product liability claims, among other factors. Many health care companies are heavily dependent on patent protection, and the expiration of a company's patent may adversely affect that company's profitability. Health care companies are subject to competitive forces that may result in price discounting, and may be thinly capitalized and susceptible to product obsolescence.</p><p>
<b>Consumer staples sector risk. </b>To the extent that the fund invests significantly in the consumer staples sector, the fund will be sensitive to changes in, and the fund's performance may depend to a greater extent on, the overall condition of the consumer staples sector. Companies in the consumer staples sector may be adversely affected by changes in the global economy, consumer spending, competition, demographics and consumer preferences, and production spending. Companies in the consumer staples sector are also affected by changes in government regulation, global economic, environmental and political events, economic conditions and the depletion of resources. In addition, companies in the consumer staples sector may be subject to risks pertaining to the supply of, demand for and prices of raw materials. The prices of raw materials fluctuate in response to a number of factors, including, without limitation, changes in government agricultural support programs, exchange rates, import and export controls, changes in international agricultural and trading policies, and seasonal and weather conditions.</p><p>
<b>Forward currency contract risk.</b> The fund's forward currency contracts may not be successful in minimizing the impact of changes in the value of the non-US currencies against the US dollar. To the extent the fund's forward currency contracts are not successful, the US dollar value of your investment in the fund may go down. Furthermore, because no changes in the currency weights in the Underlying Index are made during the month to account for changes in the Underlying Index due to price movement of securities, corporate events, additions, deletions or any other changes, changes in the value of non-US currencies against the US dollar during the month may affect the value of the fund's investment. Currency exchange rates can be very volatile and can change quickly and unpredictably. Therefore, the value of an investment in the fund may also go up or down quickly and unpredictably and investors may lose money. NDFs may be less liquid than deliverable forward currency contracts. A lack of liquidity in NDFs of the hedged currency could adversely affect the fund's ability to hedge against currency fluctuations and properly track the Underlying Index.</p><p>
<b>Counterparty risk.</b> A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.</p><p>
<b>Passive investing risk. </b>Unlike a fund that is actively managed, in which portfolio management buys and sells securities based on research and analysis, the fund invests in securities included in, or representative of, the Underlying Index, regardless of their investment merits. Because the fund is designed to maintain a high level of exposure to the Underlying Index at all times, portfolio management generally will not buy or sell a security unless the security is added or removed, respectively, from the Underlying Index, and will not take any steps to invest defensively or otherwise reduce the risk of loss during market downturns.</p><p>
<b>Index-related risk.</b> The fund seeks investment results that correspond generally to the performance, before fees and expenses, of the Underlying Index as published by the index provider. There is no assurance that the Underlying Index provider will compile the Underlying Index accurately, or that the Underlying Index will be determined, composed or calculated accurately. Market disruptions could cause delays in the Underlying Index's rebalancing schedule. During any such delay, it is possible that the Underlying Index and, in turn, the fund will deviate from the Underlying Index's stated methodology and therefore experience returns different than those that would have been achieved under a normal rebalancing schedule. Generally, the index provider does not provide any warranty, or accept any liability, with respect to the quality, accuracy or completeness of the Underlying Index or its related data, and does not guarantee that the Underlying Index will be in line with its stated methodology. Errors in the Underlying Index data, the Underlying Index computations and/or the construction of the Underlying Index in accordance with its stated methodology may occur from time to time and may not be identified and corrected by the index provider for a period of time or at all, which may have an adverse impact on the fund and its shareholders. The Advisor and its affiliates do not provide any warranty or guarantee against such errors. Therefore, the gains, losses or costs associated with the index provider's errors will generally be borne by the fund and its shareholders.</p><p>
<b>Tracking error risk.</b> The fund may be subject to tracking error, which is the divergence of the fund's performance from that of the Underlying Index. The performance of the fund may diverge from that of the Underlying Index for a number of reasons, including operating expenses, transaction costs, cash flows and operational inefficiencies. The fund's return also may diverge from the return of the Underlying Index because the fund bears the costs and risks associated with buying and selling securities (especially when rebalancing the fund's securities holdings to reflect changes in the Underlying Index) while such costs and risks are not factored into the return of the Underlying Index. Transaction costs, including brokerage costs, will decrease the fund's NAV to the extent not offset by the transaction fee payable by an "Authorized Participant" ("AP"). Market disruptions and regulatory restrictions could have an adverse effect on the fund's ability to adjust its exposure in order to track the Underlying Index. To the extent that portfolio management uses a representative sampling approach (investing in a representative selection of securities included in the Underlying Index rather than all securities in the Underlying Index), such approach may cause the fund's return to not be as well correlated with the return of the Underlying Index as would be the case if the fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index. In addition, the fund may not be able to invest in certain securities included in the Underlying Index, or invest in them in the exact proportions in which they are represented in the Underlying Index, due to government imposed legal restrictions or limitations, a lack of liquidity in the markets in which such securities trade, potential adverse tax consequences or other regulatory reasons. To the extent the fund calculates its net asset value based on fair value prices and the value of the Underlying Index is based on market prices (i.e., the value of the Underlying Index is not based on fair value prices), the fund's ability to track the Underlying Index may be adversely affected. Tracking error risk may be higher for funds that track a foreign index, or an index that includes foreign securities, because regulatory and reporting requirements may differ from those in the US, and there is a heightened risk associated with limited availability and reliability of data used to construct the index. Tracking error risk may also be heightened during times of increased market volatility or other unusual market conditions. For tax efficiency purposes, the fund may sell certain securities, and such sale may cause the fund to realize a loss and deviate from the performance of the Underlying Index. In light of the factors discussed above, the fund's return may deviate significantly from the return of the Underlying Index.</p><p>
<b>Market price risk. </b>Fund shares are listed for trading on an exchange and are bought and sold in the secondary market at market prices. The market prices of shares will fluctuate, in some cases materially, in response to changes in the NAV and supply and demand for shares. As a result, the trading prices of shares may deviate significantly from the NAV during periods of market volatility. The Advisor cannot predict whether shares will trade above, below or at their NAV. Given the fact that shares can be created and redeemed in Creation Units (defined below), the Advisor believes that large discounts or premiums to the NAV of shares should not be sustained in the long-term. If market makers exit the business or are unable to continue making markets in fund shares, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market). Further, while the creation/redemption feature is designed to make it likely that shares normally will trade close to the value of the fund's holdings, disruptions to creations and redemptions, including disruptions at market makers, APs or market participants, or during periods of significant market volatility, may result in market prices that differ significantly from the value of the fund's holdings. Although market makers will generally take advantage of differences between the NAV and the market price of fund shares through arbitrage opportunities, there is no guarantee that they will do so. In addition, the securities held by the fund may be traded in markets that close at a different time than the exchange on which the fund's shares trade. Liquidity in those securities may be reduced after the applicable closing times. Accordingly, during the time when the exchange is open but after the applicable market closing, fixing or settlement times, bid-ask spreads and the resulting premium or discount to the shares' NAV is likely to widen. The bid-ask spread of the fund may be wider in comparison to the bid-ask spread of other ETFs, given the liquidity of the fund's assets and the Underlying Index's (and thus the fund's) hedging strategy. Further, secondary markets may be subject to irregular trading activity, wide bid-ask spreads and extended trade settlement periods, which could cause a material decline in the fund's NAV. The fund's investment results are measured based upon the daily NAV of the fund. Investors purchasing and selling shares in the secondary market may not experience investment results consistent with those experienced by those APs creating and redeeming shares directly with the fund.</p><p>
<b>Liquidity risk.</b> In certain situations, it may be difficult or impossible to sell an investment at an acceptable price. This risk can be ongoing for any security that does not trade actively or in large volumes, for any security that trades primarily on smaller markets, and for investments that typically trade only among a limited number of large investors (such as certain types of derivatives or restricted securities). In unusual market conditions, even normally liquid securities may be affected by a degree of liquidity risk. This may affect only certain securities or an overall securities market.</p><p>Although the fund primarily seeks to redeem shares of the fund on an in-kind basis, if the fund is forced to sell underlying investments at reduced prices or under unfavorable conditions to meet redemption requests or other cash needs, the fund may suffer a loss. This may be magnified in circumstances where redemptions from the fund may be higher than normal.</p><p>
<b>Geographic focus risk.</b> Focusing investments in a single country or few countries, or regions, involves increased political, regulatory and other risks. Market swings in such a targeted country, countries or regions are likely to have a greater effect on fund performance than they would in a more geographically diversified fund.</p><p>
<b>Operational and technology risk.</b> Cyber-attacks, disruptions, or failures that affect the fund's service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund's or its service providers' assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund's net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund's operations.</p><p>While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund's service providers could impact the ability to conduct the fund's operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.</p><p>
<b>Authorized Participant concentration risk.</b> The fund may have a limited number of financial institutions that may act as APs. Only APs who have entered into agreements with the fund's distributor may engage in creation or redemption transactions directly with the fund (as described in the section of this Prospectus entitled "Buying and Selling Shares"). If those APs exit the business or are unable to process creation and/or redemption orders, (including in situations where APs have limited or diminished access to capital required to post collateral) and no other AP is able to step forward to create and redeem in either of these cases, shares may trade at a discount to NAV like closed-end fund shares and may even face delisting (that is, investors would no longer be able to trade shares in the secondary market).</p><p>
<b>Non-diversification risk.</b> At any given time, due to the composition of the Underlying Index, the fund may be classified as "non-diversified" under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.</p><p>
<b>Securities lending risk. </b>Securities lending involves the risk that the fund may lose money because the borrower of the loaned securities fails to return the securities in a timely manner or at all. The fund could also lose money in the event of a decline in the value of the collateral provided for the loaned securities or a decline in the value of any investments made with cash collateral. These events, and securities lending in general, could trigger adverse tax consequences for the fund and its investors. For example, if the fund loans its securities, the fund and its investors may lose the ability to treat certain fund distributions associated with those securities as qualified dividend income.</p>
Past Performance
<p>
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund's performance from year to year and by showing how the fund's average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund's past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future. Updated performance information is available on the fund's website at Xtrackers.com (the website does not form a part of this prospectus).</p>
<table>
<tr>
<td valign="top" align="left" />
<td valign="top" align="left">Returns</td>
<td valign="top" align="left">Period ending</td>
</tr>
<tr>
<td valign="top" align="left">Best Quarter</td>
<td valign="top" align="left">12.20%</td>
<td valign="top" align="left">March 31, 2019</td>
</tr>
<tr>
<td valign="top" align="left">Worst Quarter</td>
<td valign="top" align="left">-10.61%</td>
<td valign="top" align="left">December 31, 2018</td>
</tr>
<tr>
<td valign="top" align="left">Year-to-Date</td>
<td valign="top" align="left">-10.56%</td>
<td valign="top" align="left">June 30, 2020</td>
</tr>
</table><p></p>
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax.
After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts ("IRAs") or employee-sponsored retirement plans.
2020-09-28
DBX ETF Trust
2020-10-01
0001503123
false
2020-09-28
2020-10-01
N-1A
485BPOS
Best Quarter
2019-03-31
Worst Quarter
2018-12-31
Year-to-Date
2020-06-30
2011-06-09
Best Quarter
2017-12-31
Worst Quarter
2018-12-31
Year-to-Date
2020-06-30
2015-06-24
Best Quarter
2019-03-31
Worst Quarter
2018-12-31
Year-to-Date
2020-06-30
2015-03-03
Best Quarter
2019-03-31
Worst Quarter
2015-09-30
Year-to-Date
2020-06-30
2011-06-09
Best Quarter
2019-03-31
Worst Quarter
2018-12-31
Year-to-Date
2020-06-30
2015-08-11
Best Quarter
2019-03-31
Worst Quarter
2015-09-30
Year-to-Date
2020-06-30
2013-10-01
Best Quarter
2019-03-31
Worst Quarter
2018-12-31
Year-to-Date
2020-06-30
2015-03-03
Best Quarter
2015-03-31
Worst Quarter
2018-12-31
Year-to-Date
2020-06-30
2011-06-09
Best Quarter
2019-03-31
Worst Quarter
2015-09-30
Year-to-Date
2020-06-30
2014-04-30
Best Quarter
2019-03-31
Worst Quarter
2018-12-31
Year-to-Date
2020-06-30
2015-08-12
Best Quarter
2013-03-31
Worst Quarter
2018-12-31
Year-to-Date
2020-06-30
2011-06-09
Best Quarter
2019-03-31
Worst Quarter
2016-03-31
Year-to-Date
2020-06-30
2015-10-20
Best Quarter
2014-03-31
Worst Quarter
2016-12-31
Year-to-Date
2020-06-30
2013-06-04
Best Quarter
2014-12-31
Worst Quarter
2015-09-30
Year-to-Date
2020-06-30
2013-11-06
Best Quarter
2019-03-31
Worst Quarter
2018-12-31
Year-to-Date
2020-06-30
2014-01-23
Best Quarter
2019-03-31
Worst Quarter
2018-12-31
Year-to-Date
2020-06-30
2015-03-03
Best Quarter
2016-12-31
Worst Quarter
2018-12-31
Year-to-Date
2020-06-30
2015-08-19
Best Quarter
2015-03-31
Worst Quarter
2018-12-31
Year-to-Date
2020-06-30
2014-12-10
Best Quarter
2015-03-31
Worst Quarter
2015-09-30
Year-to-Date
2020-06-30
2014-05-21
Best Quarter
2019-03-31
Worst Quarter
2018-12-31
Year-to-Date
2020-06-30
2013-10-01
0.0002
0.1200
0.2000
0.0900
0.1400
0.1200
0.1300
0.1000
0.4000
0.5700
0.0900
0.1100
0.1200
1.1300
0.5700
0.2600
0.1200
1.1500
0.2700
0.4800
0.0024
0.1400
0.1815
0.2590
0.0526
0.0450
0.0575
0.1660
0.0927
0.2443
0.0226
0.2415
0.1419
0.1980
0.1382
0.0462
0.0122
0.1107
0.1103
0.0404
0.0168
0.1073
0.0610
0.2729
0.1112
0.1649
0.1158
0.0983
0.1328
0.2459
0.0417
0.0530
0.0602
0.2859
0.1080
0.2113
0.0586
0.0427
0.0271
0.1035
0.0597
0.1776
0.0220
0.0768
0.0728
0.1358
0.1604
0.2662
0.0210
0.0584
0.4370
0.2229
0.2648
0.1224
0.1116
0.1192
0.2224
0.1957
0.5169
0.0780
0.0908
0.0200
0.2083
0.1403
0.2078
0.1182
0.2122
0.2781
0.3539
0.1501
0.0495
0.0119
0.0729
0.0043
0.1014
0.4970
0.0007
0.1506
0.3181
0.2805
0.3557
0.0033
0.0644
0.1849
0.0948
0.2224
0.0909
0.0812
0.0238
0.1125
0.0078
0.1734
0.1710
0.2351
0.0989
0.0595
0.1572
0.1075
0.2942
0.2871
0.2229
0.0683
0.3632
0.2486
0.0445
0.0421
0.0815
0.1461
0.0850
0.2675
Other Expenses include interest expense of 0.01%.
Effective May 12, 2020, the fund's management fee was reduced from 0.35% to 0.20% of the fund's average daily net assets.
Effective May 12, 2020, the fund's management fee was reduced from 0.25% to 0.15% of the fund's average daily net assets.
"Acquired Fund Fees and Expenses" reflect the fund's pro rata share of the fees and expenses incurred by investing primarily in Xtrackers MSCI China A Inclusion Equity ETF (the "Underlying Fund") and any other exchange-traded funds ("ETFs") advised by DBX Advisors LLC (the "Advisor"). The impact of Acquired Fund Fees and Expenses is included in the total returns of the fund. Acquired Fund Fees and Expenses are not used to calculate the fund's net asset value ("NAV") per share.
Other Expenses include interest expense of 0.02%.
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xbrli:pure
iso4217:USD
Filed electronically
with the Securities and Exchange Commission on September 28, 2020
Securities
Act File No. 333-170122
Investment
Company File No. 811-22487
UNITED
STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
N-1A
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
☒
Pre-Effective
Amendment No. ___
□
Post-Effective
Amendment No. 467
☒
and/or
REGISTRATION
STATEMENT UNDER THE INVESTMENT COMPANY ACT OF 1940
☒
DBX
ETF Trust
(Exact Name
of Registrant as Specified in Charter)
875
Third Avenue, New York, NY 10022-6225
(Address
of Principal Executive Offices) (Zip Code)
Registrant’s
Telephone Number, including Area Code: (212) 454-4500
Freddi
Klassen
DBX ETF Trust
875 Third Avenue
New
York, New York 10022-6225
(Name
and Address of Agent for Service)
Copy
to:
Jeremy
Senderowicz, Esq.
Dechert
LLP
1095
Avenue of the Americas
New
York, New York 10036-6797 |
It
is proposed that this filing will become effective (check appropriate box):
☐
Immediately
upon filing pursuant to paragraph (b)
☒
On
October 1, 2020 pursuant to paragraph (b)
☐
60
days after filing pursuant to paragraph (a)
☐
On
__________ pursuant to paragraph (a)
☐
75
days after filing pursuant to paragraph (a)(2)
☐
On
_________ pursuant to paragraph (a)(2) of Rule 485
If
appropriate, check the following box:
☐
This
post-effective amendment designates a new effective date for a previously filed post-effective amendment.
EXPLANATORY NOTE
This
Post-Effective Amendment contains the Prospectuses and Statements of Additional Information relating to the following series and
classes of the Registrant:
■
Xtrackers
International Real Estate ETF
■
Xtrackers
MSCI Emerging Markets Hedged Equity ETF
■
Xtrackers
MSCI EAFE Hedged Equity ETF
■
Xtrackers
MSCI Germany Hedged Equity ETF
■
Xtrackers
MSCI Japan Hedged Equity ETF
■
Xtrackers
MSCI Europe Hedged Equity ETF
■
Xtrackers
MSCI All World ex US Hedged Equity ETF
■
Xtrackers
MSCI All World ex US High Dividend Yield Equity ETF
■
Xtrackers
MSCI EAFE High Dividend Yield Equity ETF
■
Xtrackers
Eurozone Equity ETF
■
Xtrackers
MSCI Eurozone Hedged Equity ETF
■
Xtrackers
Japan JPX-Nikkei 400 Equity ETF
■
Xtrackers
J.P. Morgan ESG USD High Yield Corporate Bond ETF (formerly Xtrackers High Yield Corporate Bond - Interest Rate
Hedged ETF)
■
Xtrackers
Bloomberg Barclays US Investment Grade Corporate ESG ETF (formerly Xtrackers Investment Grade Bond - Interest Rate
Hedged ETF)
■
Xtrackers
J.P. Morgan ESG Emerging Markets Sovereign ETF (formerly Xtrackers Emerging Markets Bond - Interest Rate Hedged
ETF)
■
Xtrackers
Municipal Infrastructure Revenue Bond ETF
■
Xtrackers
Harvest CSI 300 China A-Shares ETF
■
Xtrackers
MSCI China A Inclusion Equity ETF
■
Xtrackers
Harvest CSI 500 China A-Shares Small Cap ETF
■
Xtrackers
MSCI All China Equity ETF
This
Post-Effective Amendment is not intended to update or amend any other Prospectuses or Statements of Additional Information
of the Registrant’s other series or classes.
Prospectus
October 1, 2020
Xtrackers International Real Estate ETF
|
|
The Securities and Exchange Commission (
“
SEC
”
) has not approved or disapproved these securities or passed
upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
Your investment in the fund is not a bank deposit and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency, entity or person.
Xtrackers International Real Estate ETF
|
Stock Exchange: NYSE Arca, Inc.
|
Investment Objective
Xtrackers International Real Estate ETF (the
“
fund
”
) seeks
investment results that correspond generally to the performance,
before fees and expenses, of the iSTOXX
Developed and Emerging Markets ex USA PK VN Real
Estate Index (the
“
Underlying Index
”
).
Fees and Expenses
These are the fees and expenses that you will pay when
you buy, hold and sell shares.
You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below.
ANNUAL FUND OPERATING EXPENSES(expenses that you pay each year as a % of the value of your investment)
|
|
|
|
|
|
Total annual fund operating expenses
|
|
Fee waiver/expense reimbursement
|
|
Total annual fund operating expenses after fee waiver
|
|
The Advisor has contractually agreed through
September 30, 2021
to waive its fees and/or reimburse fund expenses
to the extent necessary to prevent the operating expenses
of the fund (excluding interest expense, taxes, brokerage
expenses, distribution fees or expenses, litigation
expenses and other extraordinary expenses) from
exceeding 0.10% of the fund’s average daily net assets.
This agreement may only be terminated by the fund’s
Board (and may not be terminated by the Advisor) prior to
that time.
EXAMPLE
This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then sell 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 operating expenses (including one year of capped expenses in each period) remain the same. The Example does not take into account brokerage commissions that you may pay on your purchases and sales of shares of the fund. It also does not include the transaction fees on purchases and redemptions of Creation Units (defined herein), because those fees will not be imposed on retail investors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
PORTFOLIO TURNOVER
The fund pays transaction costs, such as commissions,
when it buys and sells securities (or
“
turns over
”
its portfolio).
A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are
investing in a taxable account. These costs are not
reflected in annual fund operating expenses or in the
expense example, and can affect the fund's performance.
During the most recent fiscal year, the fund’s portfolio turnover
rate was
12
% of the average value of its portfolio.
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is a free-float capitalization
weighted index that provides exposure to publicly traded
real estate securities in countries outside the United
States, excluding Pakistan and Vietnam.
Portfolio management uses a representative sampling
indexing strategy in seeking to track the Underlying Index,
meaning it generally will invest in a sample of securities
in the index whose risk, return and other characteristics
resemble the risk, return and other characteristics of the
Underlying Index as a whole. The fund will invest at least
Prospectus
October 1, 2020
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1
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Xtrackers International Real Estate ETF
|
80% of its total assets (but typically far more) in component
securities (including depositary receipts in respect of
such securities) of the Underlying Index. Investments in
such depositary receipts will count towards the fund’s
80% investment policy discussed above with respect to
the instruments that comprise the fund’s Underlying Index.
The Underlying Index is composed of real estate securities
including equity real estate investment trusts
(
“
REITs
”
) from companies incorporated outside the United
States, excluding Pakistan and Vietnam.
Under normal circumstances, the Underlying Index is
reconstituted and rebalanced quarterly. The fund reconstitutes
and rebalances its portfolio in accordance with the
Underlying Index, and therefore, any changes to the Underlying
Index’s reconstitution and rebalance schedule will
result in corresponding changes in the fund’s reconstitution
and rebalance schedule.
As of July 31, 2020, the Underlying Index consisted of 545
securities, with an average market capitalization of approximately
$1.646 billion and a minimum market capitalization
of approximately $28 million, from issuers in the following
countries: Australia, Austria, Belgium, Brazil, Canada, Chile,
China, Denmark, Egypt, Finland, France, Germany, Greece,
Hong Kong, India, Indonesia, Ireland, Israel, Italy, Japan,
Malaysia, Mexico, New Zealand, Norway, Philippines,
Poland, Russia, Singapore, South Africa, South Korea,
Spain, Switzerland, Taiwan, Thailand, Turkey and the United
Kingdom. The fund will normally invest at least 80% of
its net assets, plus the amount of any borrowings for investment
purposes, in real estate securities of issuers from
countries outside the United States. As of July 31, 2020,
the Underlying Index was substantially comprised of securities
of issuers from Japan (20.4%). The fund will not
enter into transactions to hedge against declines in the
value of the fund’s assets that are denominated in foreign
currency.
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated.
As of July 31, 2020, the Underlying Index
was wholly comprised of issuers in the real estate sector.
To the extent that the fund tracks the Underlying Index,
the fund’s investment in certain sectors or countries may
change over time.
Xtrackers International Real Estate ETF is neither sponsored
nor promoted, distributed or in any other manner
supported by STOXX Limited, Zug, Switzerland, Deutsche
Börse Group or their licensors, research partners or data
providers.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral is
marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Main Risks
As with any investment, you could lose all or part of your investment in the fund, and the fund’s performance could trail that of other investments.
The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective, as
well as numerous other risks that are described in greater
detail in the section of this Prospectus entitled
“
Additional
Information About Fund Strategies, Underlying Index Information
and Risks
”
and in the Statement of Additional
Information (
“
SAI
”
).
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
Prospectus
October 1, 2020
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|
Xtrackers International Real Estate ETF
|
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Real estate sector risk.
The fund’s assets will be concentrated
in the real estate sector, which means the fund will
be more affected by the performance of the real estate
sector than a fund that was not concentrated.
Adverse economic, business or political developments
affecting real estate could have a major effect on the value
of the fund’s investments. Investing in real estate securities
(which include REITs) may subject the fund to risks
associated with the direct ownership of real estate.
Changes in interest rates may also affect the value of the
fund’s investment in real estate securities. Real estate
securities are dependent upon specialized management
skills, have limited diversification and are, therefore,
subject to risks inherent in operating and financing a
limited number of projects. Real estate securities are also
subject to heavy cash flow dependency and defaults by
borrowers. Real estate companies may be adversely
affected by the recent pandemic spread of the novel
coronavirus known as COVID-19, which has led to
decreased economic activity, widespread business and
other closures and rapid increases in unemployment that
may cause increased defaults on rent, loans or other obligations
and increase the probability of an economic
recession or depression. Highly leveraged real estate
companies are particularly vulnerable to the effects of an
economic downturn (including an economic downturn
caused by the COVID-19 pandemic). In addition, if applicable,
a REIT could fail to qualify for favorable tax
treatment under applicable tax law and could fail to maintain
its exemption from the registration requirements of
the Investment Company Act of 1940, as amended.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Depositary receipts involve
similar risks to those associated with investments in securities
of non-US issuers. Depositary receipts also may be
less liquid than the underlying shares in their primary
trading market.
Emerging market securities risk.
The securities of
issuers located in emerging markets tend to be more volatile
and less liquid than securities of issuers located in
more mature economies, and emerging markets generally
have less diverse and less mature economic structures
and less stable political systems than those of developed
countries. The securities of issuers located or doing
substantial business in emerging markets are often subject
to rapid and large changes in price.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Prospectus
October 1, 2020
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3
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Xtrackers International Real Estate ETF
|
Risks related to investing in Asia.
Investment in securities
of issuers in Asia involves risks and special
considerations not typically associated with investment in
the US securities markets. Certain Asian economies have
experienced high inflation, high unemployment, currency
devaluations and restrictions, and over-extension of credit.
Many Asian economies have experienced rapid growth
and industrialization, and there is no assurance that this
growth rate will be maintained. During the recent global
recession, many of the export-driven Asian economies
experienced the effects of the economic slowdown in the
United States and Europe, and certain Asian governments
implemented stimulus plans, low-rate monetary policies
and currency devaluations. Economic events in any one
Asian country may have a significant economic effect on
the entire Asian region, as well as on major trading partners
outside Asia. Any adverse event in the Asian markets
may have a significant adverse effect on some or all of
the economies of Asian countries in which the fund
invests. Many Asian countries are subject to political risk,
including corruption and regional conflict with neighboring
countries. In addition, many Asian countries are subject to
social and labor risks associated with demands for
improved political, economic and social conditions.
Currency risk.
Changes in currency exchange rates and
the relative value of non-US currencies may affect the
value of the fund’s investment and the value of your fund
shares. Because the fund’s NAV is determined on the
basis of the US dollar and the fund does not attempt to
hedge against changes in the value of non-US currencies,
investors may lose money if the foreign currency depreciates
against the US dollar, even if the foreign currency
value of the fund’s holdings in that market increases.
Conversely, the dollar value of your investment in the fund
may go up if the value of the foreign currency appreciates
against the US dollar. The value of the US dollar
measured against other currencies is influenced by a
variety of factors. These factors include: interest rates,
national debt levels and trade deficits, changes in balances
of payments and trade, domestic and foreign interest and
inflation rates, global or regional political, economic or
financial events, monetary policies of governments, actual
or potential government intervention, and global energy
prices. Political instability, the possibility of government
intervention and restrictive or opaque business and investment
policies may also reduce the value of a country’s
currency. Government monetary policies and the buying or
selling of currency by a country’s government may also
influence exchange rates. Currency exchange rates can be
very volatile and can change quickly and unpredictably.
Therefore, the value of an investment in the fund may also
go up or down quickly and unpredictably and investors
may lose money.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
Prospectus
October 1, 2020
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4
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Xtrackers International Real Estate ETF
|
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
the NAV during periods of market volatility. The Advisor
cannot predict whether shares will trade above, below or
at their NAV. Given the fact that shares can be created and
redeemed in Creation Units (defined below), the Advisor
believes that large discounts or premiums to the NAV of
shares should not be sustained in the long-term. If market
makers exit the business or are unable to continue making
markets in fund shares, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market). Further, while the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in market prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. In addition, the securities held by the fund
may be traded in markets that close at a different time
than the exchange on which the fund’s shares trade.
Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time
when the exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. Further, secondary markets may be subject
to irregular trading activity, wide bid-ask spreads and
extended trade settlement periods, which could cause a
material decline in the fund’s NAV. The fund’s investment
results are measured based upon the daily NAV of the
fund. Investors purchasing and selling shares in the
secondary market may not experience investment results
consistent with those experienced by those APs creating
and redeeming shares directly with the fund.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Pricing risk.
If market conditions make it difficult to value
some investments, the fund may value these investments
using more subjective methods, such as fair value pricing.
In such cases, the value determined for an investment
could be different from the value realized upon such investment’s
sale. As a result, you could pay more than the
market value when buying fund shares or receive less than
the market value when selling fund shares.
Prospectus
October 1, 2020
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5
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Xtrackers International Real Estate ETF
|
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Derivatives risk.
Risks associated with derivatives include
the risk that the derivative is not well correlated with the
security, index or currency to which it relates; the risk that
derivatives may result in losses or missed opportunities;
the risk that the fund will be unable to sell the derivative
because of an illiquid secondary market; the risk that a
counterparty is unwilling or unable to meet its obligation;
and the risk that the derivative transaction could expose
the fund to the effects of leverage, which could increase
the fund’s exposure to the market and magnify potential
losses. There is no guarantee that derivatives, to the extent
employed, will have the intended effect, and their use
could cause lower returns or even losses to the fund. The
use of derivatives by the fund to hedge risk may reduce
the opportunity for gain by offsetting the positive effect of
favorable price movements.
Futures risk.
The value of a futures contract tends to
increase and decrease in tandem with the value of the
underlying instrument. A decision as to whether, when and
how to use futures involves the exercise of skill and judgment
and even a well-conceived futures transaction may
be unsuccessful because of market behavior or unexpected
events. In addition to the derivatives risks
discussed above, the prices of futures can be highly volatile,
using futures can lower total return and the potential
loss from futures can exceed the fund’s initial investment
in such contracts.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Past Performance
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund’s performance from year to year and by showing how the fund’s average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund’s past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future.
Updated performance information
is available on the fund’s website at
Xtrackers.com
(the website does not form a part of this prospectus).
Prospectus
October 1, 2020
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Xtrackers International Real Estate ETF
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Prior to February 22, 2019, the fund operated with a
different investment strategy. Performance would have
been different if the fund’s current investment strategy had
been in effect. Returns for prior periods reflect those of
the prior Underlying Index.
CALENDAR YEAR TOTAL RETURNS(%)
Average Annual Total Returns(For periods ended 12/31/2019 expressed as a %)
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax. Your own actual after-tax returns will depend on your tax situation and may differ from what is shown here. After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts (“IRAs”) or employee-sponsored retirement plans.
|
|
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|
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|
|
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After tax on distribu-
tions
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After tax on distribu-
tions and sale of fund
shares
|
|
|
|
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iSTOXX Developed and
Emerging Markets ex
USA PK VN Real Estate
Index
(reflects no deduc-
tions for fees, expenses
or taxes)
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MSCI ACWI ex USA
Index
(reflects no deduc-
tions for fees, expenses
or taxes)
|
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|
Management
Investment Advisor
DBX Advisors LLC
Portfolio Managers
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
Purchase and Sale of Fund Shares
The fund is an exchange-traded fund (commonly referred
to as an
“
ETF
”
). Individual fund shares may only be
purchased and sold through a brokerage firm. The price of
fund shares is based on market price, and because ETF
shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than
NAV (a discount). The fund will only issue or redeem
shares that have been aggregated into blocks of 50,000
shares or multiples thereof (
“
Creation Units
”
) to APs who
have entered into agreements with ALPS Distributors,
Inc., the fund’s distributor. You may incur costs attributable
to the difference between the highest price a buyer is
willing to pay to purchase shares of the fund (bid) and the
lowest price a seller is willing to accept for shares of the
fund (ask) when buying or selling shares (the
“
bid-ask
spread
”
). Information on the fund’s net asset value, market
price, premiums and discounts and bid-ask spreads may
be found at Xtrackers.com.
Tax Information
The fund's distributions are generally taxable to you as
ordinary income or capital gains, except when your investment
is in an IRA, 401(k), or other tax-deferred investment
plan. Any withdrawals you make from such tax- advantaged
investment plans, however, may be taxable to you.
Payments to Broker-Dealers and
Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer
or other financial intermediary (such as a bank), the
Advisor or other related companies may pay the intermediary
for marketing activities and presentations,
educational training programs, the support of technology
platforms and/or reporting systems or other services
related to the sale or promotion of the fund. These
payments may create a conflict of interest by influencing
the broker-dealer or other intermediary and your salesperson
to recommend the fund over another investment.
Ask your salesperson or visit your financial intermediary’s
website for more information.
Prospectus
October 1, 2020
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7
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Xtrackers International Real Estate ETF
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Additional Information About Fund
Strategies, Underlying Index
Information and Risks
Investment Objective
Xtrackers International Real Estate ETF (the
“
fund
”
) seeks
investment results that correspond generally to the performance,
before fees and expenses, of the iSTOXX
Developed and Emerging Markets ex USA PK VN Real
Estate Index (the
“
Underlying Index
”
).
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is a free-float capitalization
weighted index that provides exposure to publicly traded
real estate securities in countries outside the United
States, excluding Pakistan and Vietnam.
Portfolio management uses a representative sampling
indexing strategy in seeking to track the Underlying Index,
meaning it generally will invest in a sample of securities
in the index whose risk, return and other characteristics
resemble the risk, return and other characteristics of the
Underlying Index as a whole. The fund will invest at least
80% of its total assets (but typically far more) in component
securities (including depositary receipts in respect of
such securities) of the Underlying Index. Investments in
such depositary receipts will count towards the fund’s
80% investment policy discussed above with respect to
the instruments that comprise the fund’s Underlying Index.
The fund's investments in depositary receipts may include
American Depositary Receipts (
“
ADRs
”
). ADRs are US
dollar-denominated receipts representing shares of foreign
based corporations. ADRs are issued by US banks or trust
companies, and entitle the holder to all dividends and
capital gains that are paid out on the underlying foreign
shares. The fund will not invest in any unlisted depositary
receipt or any depositary receipt that the Advisor deems
illiquid at the time of purchase or for which pricing information
is not readily available. The Underlying Index is
composed of real estate securities including equity real
estate investment trusts (
“
REITs
”
) from companies incorporated
outside the United States, excluding Pakistan and
Vietnam.
Under normal circumstances, the Underlying Index is
reconstituted and rebalanced quarterly. The fund reconstitutes
and rebalances its portfolio in accordance with the
Underlying Index, and therefore, any changes to the Underlying
Index’s reconstitution and rebalance schedule will
result in corresponding changes in the fund’s reconstitution
and rebalance schedule.
As of July 31, 2020, the Underlying Index consisted of 545
securities, with an average market capitalization of approximately
$1.646 billion and a minimum market capitalization
of approximately $28 million, from issuers in the following
countries: Australia, Austria, Belgium, Brazil, Canada, Chile,
China, Denmark, Egypt, Finland, France, Germany, Greece,
Hong Kong, India, Indonesia, Ireland, Israel, Italy, Japan,
Malaysia, Mexico, New Zealand, Norway, Philippines,
Poland, Russia, Singapore, South Africa, South Korea,
Spain, Switzerland, Taiwan, Thailand, Turkey and the United
Kingdom. The fund will normally invest at least 80% of
its net assets, plus the amount of any borrowings for investment
purposes, in real estate securities of issuers from
countries outside the United States. As of July 31, 2020,
the Underlying Index was substantially comprised of securities
of issuers from Japan (20.4%). The fund will not
enter into transactions to hedge against declines in the
value of the fund’s assets that are denominated in foreign
currency.
The fund will concentrate its investments (i.e., hold 25%
or more of its total assets) in a particular industry or group
of industries to the extent that its Underlying Index is
concentrated.
As of July 31, 2020, the Underlying Index
was wholly comprised of issuers in the real estate sector.
To the extent that the fund tracks the Underlying Index,
the fund’s investment in certain sectors or countries may
change over time.
The fund may invest its remaining assets in other securities,
including securities not in the Underlying Index, cash
and cash equivalents, money market instruments, such
as repurchase agreements or money market funds
(including money market funds advised by the Advisor or
its affiliates (subject to applicable limitations under the
Prospectus
October 1, 2020
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8
|
Fund Details
|
Investment Company Act of 1940, as amended (the
“
1940
Act
”
), or exemptions therefrom), convertible securities,
structured notes (notes on which the amount of principal
repayment and interest payments are based on the movement
of one or more specified factors, such as the
movement of a particular stock or stock index) and in
futures contracts (including stock index futures), options
on futures contracts, other types of options and swaps
related to its Underlying Index. The fund will not use
futures or options for speculative purposes.
Xtrackers International Real Estate ETF is neither sponsored
nor promoted, distributed or in any other manner
supported by STOXX Limited, Zug, Switzerland, Deutsche
Börse Group or their licensors, research partners or data
providers.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Underlying Index Information
The iSTOXX Developed and Emerging Markets ex USA PK
VN Real Estate Index is calculated and maintained by
STOXX, Ltd. (
“
Index Provider
”
or
“
STOXX
”
). The Underlying
Index is a free-float market capitalization- weighted
Index designed to measure the performance of international
real estate securities of issuers incorporated outside
the United States, Pakistan and Vietnam. The Underlying
Index’s composition is reviewed and reconstituted on a
quarterly basis. The Underlying Index is composed of real
estate securities (including equity real estate investment
trusts) (
“
REITs
”
)) from companies incorporated outside
the United States, excluding Pakistan and Vietnam.
Defining the Equity Universe.
The Underlying Index is
constructed by aggregation of certain STOXX Total Market
indices, each representing a broad market of equity securities
in a particular country that covers at least 95% of the
free-float market capitalization of its respective country.
To be eligible for inclusion in a STOXX Country Total Market
Index, securities must meet the following criteria:
■
Common stocks and equities with similar characteristics
from financial markets that provide reliable real-time,
historical component and currency pricing, and reference
and corporate actions data
■
Listed companies on a regulated market on an exchange
defined in the STOXX Investable Universe
■
Certain equity instruments, such as investment companies
and certain specified investment vehicles, are not
eligible for inclusion. Companies that were recently
removed from a STOXX Total Market Index due to
mergers and other corporate actions are not eligible for
inclusion.
Each STOXX Country Total Market Index targets coverage
of at least 95% of the free-float market capitalization of the
investable stock universe at the cut-off date in the
regarding country. All stocks in the investable stock
universe of the country in question are ranked in terms of
their free-float market capitalization at the cut-off date to
produce the review list. A 93-99% buffer is applied as
follows:
■
The largest companies in the investible universe with a
cumulative free-float market capitalization up to and
including 93% of the investible universe, qualify for
selection.
■
The stocks covering the next two percent of cumulative
free-float market capitalization are selected among the
largest remaining current TMI components representing
the portion of capitalization above 93% and up to and
including 99%.
■
If the country coverage is still below the defined
threshold, then the largest remaining stocks are
selected until the country coverage is reached.
The STOXX Regional Total Market indices are aggregates
of the STOXX Total Market country indices. They aim to
provide a broad representation of the respective region.
The indices are weighted according to free-float market
capitalization.
The index universe of the Underlying Index is defined by
the STOXX Developed and Emerging Markets Total Market
Index.
Stocks classified as being within the real estate sector
according to the Industry Classification Benchmark (ICB)
code are eligible for inclusion in the Underlying Index.
Companies from the United States, Pakistan and Vietnam
are excluded. Sector changes are implemented immediately
subsequent to corporate actions.
Weighting.
The Underlying Index’s components are not
subject to component weight restrictions or capping.
Maintaining the Index.
The Underlying Index is reviewed
and rebalanced on a quarterly basis. The review cut-off
date is the last trading day of the month following the last
quarterly index review.
During extraordinary market conditions, the Index Provider
may delay any scheduled reconstitution and rebalancing
of the Underlying Index. During any such delay it is
possible that the Underlying Index will deviate from the
Underlying Index’s stated methodology.
iSTOXX Developed and Emerging Markets ex USA PK VN
Real Estate Index
Number of Components: approximately 545
Prospectus
October 1, 2020
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9
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Fund Details
|
The Underlying Index is composed of real estate securities
including equity real estate investment trusts (
“
REITs
”
)
from companies incorporated outside the United States,
excluding Pakistan and Vietnam. The country pool consists
of the following set of countries: Australia, Austria,
Belgium, Brazil, Canada, Chile, China, Denmark, Egypt,
Finland, France, Germany, Greece, Hong Kong, India, Indonesia,
Ireland, Israel, Italy, Japan, Malaysia, Mexico, New
Zealand, Norway, Philippines, Poland, Russia, Singapore,
South Africa, South Korea, Spain, Switzerland, Taiwan, Thailand,
Turkey and the United Kingdom.
Main Risks
As with any investment, you could lose all or part of your
investment in the fund, and the fund’s performance could
trail that of other investments. The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective.
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about its
further spread have resulted in the closing of schools and
non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors, social
distancing, bans on large social gatherings and travel, quarantines,
government economic stimulus measures,
reduced productivity, rapid increases in unemployment,
increased demand for and strain on government and
medical resources, border closings and global trade and
supply chain interruptions, among others. The full effects,
duration and costs of the COVID-19 pandemic are impossible
to predict, and the circumstances surrounding the
COVID-19 pandemic will continue to evolve. The pandemic
may affect certain countries, industries, economic sectors,
companies and investment products more than others,
may exacerbate existing economic, political, or social
tensions and may increase the probability of an economic
recession or depression. The fund and its investments may
be adversely affected by the effects of the COVID-19
pandemic, and a prolonged pandemic may result in the
fund and its service providers experiencing operational
difficulties in coordinating a remote workforce and implementing
their business continuity plans, among others.
Real estate sector risk.
The fund’s assets will be concentrated
in the real estate sector, which means the fund will
be more affected by the performance of the real estate
sector than a fund that was not concentrated. Adverse
economic, business or political developments affecting real
estate could have a major effect on the value of the fund’s
investments.
Adverse economic, business or political developments
affecting real estate could have a major effect on the value
of the fund’s investments. Investing in real estate securities
(which include REITs) may subject the fund to risks
associated with the direct ownership of real estate, such
as decreases in real estate values, overbuilding, increased
competition and other risks related to local or general
economic conditions, increases in operating costs and
property taxes, changes in zoning laws, casualty or
condemnation losses, possible environmental liabilities,
regulatory limitations on rent and fluctuations in rental
income. Changes in interest rates may also affect the value
of the fund’s investment in real estate securities. Certain
real estate securities have a relatively small market capitalization,
which may tend to increase the volatility of the
market price of these securities. Real estate securities are
dependent upon specialized management skills, have
limited diversification and are, therefore, subject to risks
inherent in operating and financing a limited number of
projects. Real estate securities are also subject to heavy
cash flow dependency and defaults by borrowers. Real
estate companies may be adversely affected by the recent
pandemic spread of the novel coronavirus known as
COVID-19, which has led to decreased economic activity,
widespread business and other closures and rapid
increases in unemployment that may cause increased
defaults on rent, loans or other obligations and increase
Prospectus
October 1, 2020
|
10
|
Fund Details
|
the probability of an economic recession or depression.
Highly leveraged real estate companies are particularly
vulnerable to the effects of an economic downturn
(including an economic downturn caused by the COVID-19
pandemic).
REITs pool investors’ funds for investment primarily in
income producing real estate or real estate loans or interests.
A US REIT is not taxed on income distributed to
shareholders if it complies with several requirements
relating to its organization, ownership, assets, and income
and a requirement that it distribute to its shareholders at
least 90% of its taxable income (other than net capital
gains) for each taxable year. Non-US REITs may be subject
to a similar tax regime under the tax laws of the jurisdictions
in which such non-US REITs are organized. These
distribution requirements may result in a REIT having insufficient
capital for future expenditures. REITs can generally
be classified as Equity REITs, Mortgage REITs and Hybrid
REITs; only Equity REITs are eligible for inclusion in the
Underlying Index.
Equity REITs, which invest the majority of their assets
directly in real property, derive their income primarily from
rents. Equity REITs can also realize capital gains by selling
properties that have appreciated in value. The fund will not
invest in real estate directly, but only in securities issued
by real estate companies. However, the fund may be
subject to risks similar to those associated with the direct
ownership of real estate (in addition to securities markets
risks) because of its policy of concentration in the securities
of companies in the real estate industry. These
include declines in the value of real estate, risks related to
general and local economic conditions, dependency on
management skill, heavy cash flow dependency, possible
lack of availability of mortgage funds, overbuilding,
extended vacancies of properties, increased competition,
increases in property taxes and operating expenses,
changes in zoning laws, losses due to costs resulting from
the clean-up of environmental problems, liability to third
parties for damages resulting from environmental problems,
casualty or condemnation losses, limitations on
rents, changes in neighborhood values, the appeal of properties
to tenants and changes in interest rates.
Investments in REITs may subject fund shareholders to
duplicate management and administrative fees.
In addition to these risks, Equity REITs may be affected by
changes in the value of the underlying property owned
by the trusts. Further, Equity REITs are dependent upon
management skills and generally may not be diversified.
Equity REITs are also subject to heavy cash flow dependency,
defaults by borrowers and self-liquidation. In
addition, if applicable, Equity REITs could possibly fail to
qualify for the beneficial tax treatment available to REITs
under applicable tax law, or to maintain their exemptions
from registration under the 1940 Act. The above factors
may also adversely affect a borrower’s or a lessee’s ability
to meet its obligations to the REIT. In the event of a default
by a borrower or lessee, the REIT may experience delays
in enforcing its rights as a mortgagee or lessor and may
incur substantial costs associated with protecting
investments.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Foreign investments in American
Depositary Receipts and other depositary receipts may
be less liquid than the underlying shares in their primary
trading market. Certain of the depositary receipts in which
the fund invests may be unsponsored depositary receipts.
Unsponsored depositary receipts may not provide as
much information about the underlying issuer and may not
carry the same voting privileges as sponsored depositary
receipts. Unsponsored depositary receipts are issued by
one or more depositaries in response to market demand,
but without a formal agreement with the company that
issues the underlying securities.
Emerging market securities risk.
Investment in emerging
markets subjects the fund to a greater risk of loss than
investments in a developed market. This is due to, among
other things, (i) greater market volatility, (ii) lower trading
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volume, (iii) political and economic instability, (iv) high
levels of inflation, deflation or currency devaluation, (v)
greater risk of market shut down, (vi) more governmental
limitations on foreign investments and limitations on repatriation
of invested capital than those typically found in a
developed market, and (vii) the risk that companies may be
held to lower disclosure, corporate governance, auditing
and financial reporting standards than companies in more
developed markets.
The financial stability of issuers (including governments) in
emerging market countries may be more precarious than
in other countries. As a result, there will tend to be an
increased risk of price volatility in the fund’s investments
in emerging market countries, which may be magnified by
currency fluctuations relative to the US dollar.
Settlement practices for transactions in foreign markets
may differ from those in US markets. Such differences
include delays beyond periods customary in the US and
practices, such as delivery of securities prior to receipt of
payment, which increase the likelihood of a
“
failed settlement.
”
Failed settlements can result in losses to the fund.
Low trading volumes and volatile prices in less developed
markets make trades harder to complete and settle, and
governments or trade groups may compel local agents to
hold securities in designated depositories that are not
subject to independent evaluation. Local agents are held
only to the standards of care of their local markets.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Risks related to investing in Asia.
Investment in securities
of issuers in Asia involves risks and special
considerations not typically associated with investment in
the US securities markets. Certain Asian economies have
experienced over-extension of credit, currency devaluations
and restrictions, high unemployment, high inflation,
decreased exports and economic recessions. Economic
events in any one Asian country can have a significant
effect on the entire Asian region as well as on major
trading partners outside Asia, and any adverse effect on
some or all of the Asian countries and regions in which the
fund invests. The securities markets in some Asian economies
are relatively underdeveloped and may subject the
fund to higher action costs or greater uncertainty than
investments in more developed securities markets. Such
risks may adversely affect the value of the fund’s
investments.
Governments of many Asian countries have implemented
significant economic reforms in order to liberalize trade
policy, promote foreign investment in their economies,
reduce government control of the economy and develop
market mechanisms. There can be no assurance these
reforms will continue or that they will be effective. Despite
recent reform and privatizations, significant regulation of
investment and industry is still pervasive in many Asian
countries and may restrict foreign ownership of domestic
corporations and repatriation of assets, which may
adversely affect fund investments. Governments in some
Asian countries are authoritarian in nature, have been
installed or removed as a result of military coups or have
periodically used force to suppress civil dissent. Disparities
of wealth, the pace and success of democratization, and
ethnic, religious and racial disaffection have led to social
turmoil, violence and labor unrest in some countries.
Unanticipated or sudden political or social developments
may result in sudden and significant investment losses.
Investing in certain Asian countries involves risk of loss
due to expropriation, nationalization, or confiscation of
assets and property or the imposition of restrictions on
foreign investments and on repatriation of capital invested.
Some countries and regions in which the fund invests
have experienced acts of terrorism or strained international
relations due to territorial disputes, historical animosities
or other defense concerns. For example, North and South
Korea each have substantial military capabilities, and
historical local tensions between the two countries
present the risk of war. Any outbreak of hostilities between
the two countries could have a severe adverse effect on
the South Korean economy and securities markets. These
and other security situations may cause uncertainty in the
markets of these geographic areas and may adversely
affect the performance of local economies.
Risks related to investing in Japan.
The growth of
Japan’s economy has historically lagged behind that of its
Asian neighbors and other major developed economies.
The Japanese economy is heavily dependent on international
trade and has been adversely affected by trade
tariffs, other protectionist measures, competition from
emerging economies and the economic conditions of its
trading partners. Japan’s relations with its neighbors,
particularly China, North Korea, South Korea and Russia,
have at times been strained due to territorial disputes,
historical animosities and defense concerns. Most
recently, the Japanese government has shown concern
over the increased nuclear and military activity by North
Korea. Strained relations may cause uncertainty in the
Japanese markets and adversely affect the overall Japanese
economy in times of crisis. China has become an
important trading partner with Japan, yet the countries’
political relationship has become strained. Should political
tension increase, it could adversely affect the economy,
especially the export sector, and destabilize the region as a
whole. Japan is located in a part of the world that has
historically been prone to natural disasters such as earthquakes,
volcanoes and tsunamis and is economically
sensitive to environmental events. Any such event, such
as the major earthquake and tsunami which struck Japan in
March 2011, could result in a significant adverse impact
on the Japanese economy. Japan also remains heavily
dependent on oil imports, and higher commodity prices
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could therefore have a negative impact on the economy.
Furthermore, Japanese corporations often engage in high
levels of corporate leveraging, extensive cross-purchases
of the securities of other corporations and are subject to a
changing corporate governance structure. Japan may be
subject to risks relating to political, economic and labor
risks. Any of these risks, individually or in the aggregate,
could adversely affect investments in the fund.
Historically, Japan has been subject to unpredictable
national politics and may experience frequent political turnover.
Future political developments may lead to changes
in policy that might adversely affect the fund’s investments.
In addition, the Japanese economy faces several
concerns, including a financial system with large levels of
nonperforming loans, over-leveraged corporate balance
sheets, extensive cross- ownership by major corporations,
a changing corporate governance structure, and large
government deficits. The Japanese yen has fluctuated
widely at times and any increase in its value may cause a
decline in exports that could weaken the economy. Furthermore,
Japan has an aging workforce. It is a labor market
undergoing fundamental structural changes, as traditional
lifetime employment clashes with the need for increased
labor mobility, which may adversely affect Japan’s
economic competitiveness.
Currency risk.
Changes in currency exchange rates and
the relative value of non-US currencies may affect the
value of the fund’s investment and the value of your fund
shares. Because the fund’s NAV is determined on the
basis of the US dollar and the fund does not attempt to
hedge against changes in the value of non-US currencies,
investors may lose money if the foreign currency depreciates
against the US dollar, even if the foreign currency
value of the fund’s holdings in that market increases.
Conversely, the dollar value of your investment in the fund
may go up if the value of the foreign currency appreciates
against the US dollar. The value of the US dollar
measured against other currencies is influenced by a
variety of factors. These factors include: interest rates,
national debt levels and trade deficits, changes in balances
of payments and trade, domestic and foreign interest and
inflation rates, global or regional political, economic or
financial events, monetary policies of governments, actual
or potential government intervention, and global energy
prices. Political instability, the possibility of government
intervention and restrictive or opaque business and investment
policies may also reduce the value of a country’s
currency. Government monetary policies and the buying or
selling of currency by a country’s government may also
influence exchange rates. Currency exchange rates can be
very volatile and can change quickly and unpredictably.
Therefore, the value of an investment in the fund may also
go up or down quickly and unpredictably and investors
may lose money.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
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fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
The need to comply with the tax diversification and other
requirements of the Internal Revenue Code of 1986, as
amended, may also impact the fund’s ability to replicate
the performance of the Underlying Index. In addition, if the
fund utilizes derivative instruments or holds other instruments
that are not included in the Underlying Index, the
fund’s return may not correlate as well with the returns of
the Underlying Index as would be the case if the fund
purchased all the securities in the Underlying Index
directly. Actions taken in response to proposed corporate
actions could result in increased tracking error.
For purposes of calculating the fund’s net asset value, the
value of assets denominated in non-US currencies is
converted into US dollars using prevailing market rates on
the date of valuation as quoted by one or more data
service providers. This conversion may result in a difference
between the prices used to calculate the fund’s net
asset value and the prices used by the Underlying Index,
which, in turn, could result in a difference between the
fund’s performance and the performance of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
NAV during periods of market volatility. Differences
between secondary market prices and the value of the
fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the
same forces as those influencing prices for securities held
by the fund at a particular time. The Advisor cannot predict
whether shares will trade above, below or at their NAV.
Given the fact that shares can be created and redeemed in
Creation Units, the Advisor believes that large discounts
or premiums to the NAV of shares should not be sustained
in the long-term. In addition, there may be times when
the market price and the value of the fund’s holdings vary
significantly and you may pay more than the value of the
fund’s holdings when buying shares on the secondary
market, and you may receive less than the value of the
fund’s holdings when you sell those shares. While the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in trading prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. If market makers exit the business or are
unable to continue making markets in fund’s shares,
shares may trade at a discount to NAV like closed-end fund
shares and may even face delisting (that is, investors
would no longer be able to trade shares in the secondary
market). The market price of shares, like the price of any
exchange-traded security, includes a
“
bid-ask spread
”
charged by the exchange specialist, market makers or
other participants that trade the particular security. In times
of severe market disruption, the bid-ask spread often
increases significantly. This means that shares may trade
at a discount to the fund’s NAV, and the discount is likely to
be greatest when the price of shares is falling fastest,
which may be the time that you most want to sell your
shares. There are various methods by which investors can
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purchase and sell shares of the funds and various orders
that may be placed. Investors should consult their financial
intermediary before purchasing or selling shares of the
fund.
In addition, the securities held by the fund may be traded
in markets that close at a different time than an exchange.
Liquidity in those securities may be reduced after the applicable
closing times. Accordingly, during the time when an
exchange is open but after the applicable market closing,
fixing or settlement times, bid-ask spreads and the
resulting premium or discount to the shares’ NAV is likely
to widen. More generally, secondary markets may be
subject to irregular trading activity, wide bid-ask spreads
and extended trade settlement periods, which could cause
a material decline in the fund’s NAV. The bid-ask spread
varies over time for shares of the fund based on the fund’s
trading volume and market liquidity, and is generally lower
if the fund has substantial trading volume and market
liquidity, and higher if the fund has little trading volume and
market liquidity (which is often the case for funds that are
newly launched or small in size). The fund’s bid-ask spread
may also be impacted by the liquidity of the underlying
securities held by the fund, particularly for newly launched
or smaller funds or in instances of significant volatility of
the underlying securities. The fund’s investment results are
measured based upon the daily NAV of the fund. Investors
purchasing and selling shares in the secondary market
may not experience investment results consistent with
those experienced by those APs creating and redeeming
shares directly with the fund. In addition, transactions by
large shareholders may account for a large percentage of
the trading volume on an exchange and may, therefore,
have a material effect on the market price of the fund’s
shares.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Pricing risk.
If market conditions make it difficult to value
some investments, the fund may value these investments
using more subjective methods, such as fair value pricing.
In such cases, the value determined for an investment
could be different from the value realized upon such investment’s
sale. As a result, you could pay more than the
market value when buying fund shares or receive less than
the market value when selling fund shares.
Secondary markets may be subject to irregular trading
activity, wide bid/ask spreads and extended trade settlement
periods, which may prevent the fund from being able
to realize full value and thus sell a security for its full valuation.
This could cause a material decline in the fund’s net
asset value.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Derivatives risk.
Derivatives are financial instruments,
such as futures and swaps, whose values are based on the
value of one or more indicators, such as a security, asset,
currency, interest rate, or index. Derivatives involve risks
different from, and possibly greater than, the risks associated
with investing directly in securities and other more
traditional investments. For example, derivatives involve
the risk of mispricing or improper valuation and the risk
that changes in the value of a derivative may not correlate
perfectly with the underlying indicator. Derivative transactions
can create investment leverage, may be highly
volatile and the fund could lose more than the amount it
invests. Many derivative transactions are entered into
“
over-the-counter
”
(i.e., not on an exchange or contract market);
as a result, the value of such a derivative transaction will
depend on the ability and the willingness of the fund’s
counterparty to perform its obligations under the transaction.
If a counterparty were to default on its obligations,
the fund’s contractual remedies against such counterparty
may be subject to bankruptcy and insolvency laws, which
could affect the fund’s rights as a creditor (e.g., the fund
may not receive the net amount of payments that it is
contractually entitled to receive). A liquid secondary market
may not always exist for the fund’s derivative positions at
any time.
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Futures risk.
The value of a futures contract tends to
increase and decrease in tandem with the value of the
underlying instrument. Depending on the terms of the
particular contract, futures contracts are settled through
either physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether,
when and how to use futures involves the exercise of skill
and judgment and even a well-conceived futures transaction
may be unsuccessful because of market behavior or
unexpected events. In addition to the derivatives risks
discussed above, the prices of futures can be highly volatile,
using futures can lower total return and the potential
loss from futures can exceed the fund’s initial investment
in such contracts.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Cyber-attacks may include unauthorized attempts by third
parties to improperly access, modify, disrupt the operations
of, or prevent access to the systems of the fund’s
service providers or counterparties, issuers of securities
held by the fund or other market participants or data within
them. In addition, power or communications outages, acts
of god, information technology equipment malfunctions,
operational errors, and inaccuracies within software or data
processing systems may also disrupt business operations
or impact critical data.
Cyber-attacks, disruptions, or failures may adversely affect
the fund and its shareholders or cause reputational
damage and subject the fund to regulatory fines, litigation
costs, penalties or financial losses, reimbursement or
other compensation costs, and/or additional compliance
costs. In addition, cyber-attacks, disruptions, or failures
involving a fund counterparty could affect such
counterparty’s ability to meet its obligations to the fund,
which may result in losses to the fund and its shareholders.
Similar types of operational and technology risks
are also present for issuers of securities held by the fund,
which could have material adverse consequences for such
issuers, and may cause the fund’s investments to lose
value. Furthermore, as a result of cyber-attacks, disruptions,
or failures, an exchange or market may close or issue
trading halts on specific securities or the entire market,
which may result in the fund being, among other things,
unable to buy or sell certain securities or financial instruments
or unable to accurately price its investments.
For example, the fund relies on various sources to calculate
its NAV. Therefore, the fund is subject to certain
operational risks associated with reliance on third party
service providers and data sources. NAV calculation may
be impacted by operational risks arising from factors such
as failures in systems and technology. Such failures may
result in delays in the calculation of the fund’s NAV and/or
the inability to calculate NAV over extended time periods.
The fund may be unable to recover any losses associated
with such failures.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Other Policies and Risks
While the previous pages describe the main points of the
fund’s strategy and risks, there are a few other matters
to know about:
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■
Each of the policies described herein, including the
investment objective and 80% investment policies of
the fund, constitutes a non-fundamental policy that may
be changed by the Board without shareholder approval.
The fund’s 80% investment policies require 60 days’
prior written notice to shareholders before they can be
changed. Certain fundamental policies of the fund are
set forth in the SAI.
■
Because the fund seeks to track its Underlying Index,
the fund does not invest defensively and the fund will
not invest in money market instruments or other short-
term investments as part of a temporary defensive
strategy to protect against potential market declines.
■
The fund may borrow money from a bank up to a limit of
10% of the value of its assets, but only for temporary
or emergency purposes.
■
The fund may borrow money under a credit facility to
the extent necessary for temporary or emergency
purposes, including the funding of shareholder redemption
requests, trade settlements, and as necessary to
distribute to shareholders any income necessary to maintain
the fund’s status as a regulated investment
company (
“
RIC
”
).
■
Secondary market trading in fund shares may be halted
by a stock exchange because of market conditions or
other reasons. In addition, trading in fund shares on a
stock exchange or in any market may be subject to
trading halts caused by extraordinary market volatility
pursuant to
“
circuit breaker
”
rules on the exchange or
market. If a trading halt or unanticipated early closing of
a stock exchange occurs, a shareholder may be unable
to purchase or sell shares of the fund. There can be no
assurance that the requirements necessary to maintain
the listing or trading of fund shares will continue to be
met or will remain unchanged or that shares will trade
with any volume, or at all, in any secondary market. As
with all other exchange traded securities, shares may be
sold short and may experience increased volatility and
price decreases associated with such trading activity.
■
From time to time a third party, the Advisor and/or its
affiliates may invest in the fund and hold its investment
for a specific period of time in order for the fund to
achieve size or scale. There can be no assurance that
any such entity would not redeem its investment or that
the size of the fund would be maintained at such levels.
In order to comply with applicable law, it is possible that
the Advisor or its affiliates, to the extent they are
invested in the fund, may be required to redeem some
or all of their ownership interests in the fund prematurely
or at an inopportune time.
■
From time to time, the fund may have a concentration of
shareholder accounts holding a significant percentage
of shares outstanding. Investment activities of these
shareholders could have a material impact on the fund.
For example, the fund may be used as an underlying
investment for other registered investment companies.
Portfolio Holdings Information
A description of DBX ETF Trust’s (
“
Trust
”
) policies and
procedures with respect to the disclosure of the fund’s
portfolio securities is available in the fund’s SAI. The top
holdings of the fund can be found at Xtrackers.com. Fund
fact sheets provide information regarding the fund’s top
holdings and may be requested by calling 1-855-329-3837
(1-855-DBX-ETFS).
Who Manages and Oversees the Fund
The Investment Advisor
DBX Advisors LLC (
“
Advisor
”
), with headquarters at 875
Third Avenue, New York, NY 10022, is the investment
advisor for the fund. Under the oversight of the Board, the
Advisor makes the investment decisions, buys and sells
securities for the fund and conducts research that leads to
these purchase and sale decisions.
The Advisor is an indirect, wholly-owned subsidiary of
DWS Group GmbH & Co. KGaA (
“
DWS Group
”
), a separate,
publicly-listed financial services firm that is an
indirect, majority-owned subsidiary of Deutsche Bank AG.
Founded in 2010, the Advisor managed approximately
$17.3 billion in 33 operational exchange-traded funds, as of
August 31, 2020.
DWS represents the asset management activities
conducted by DWS Group or any of its subsidiaries,
including the Advisor and other affiliated investment
advisors.
DWS is a global organization that offers a wide range of
investing expertise and resources, including hundreds of
portfolio managers and analysts and an office network that
reaches the world’s major investment centers. This well-
resourced global investment platform brings together a
wide variety of experience and investment insight across
industries, regions, asset classes and investing styles.
The Advisor may utilize the resources of its global investment
platform to provide investment management
services through branch offices or affiliates located outside
the US. In some cases, the Advisor may also utilize its
branch offices or affiliates located in the US or outside the
US to perform certain services, such as trade execution,
trade matching and settlement, or various administrative,
back-office or other services. To the extent services are
performed outside the US, such activity may be subject to
both US and foreign regulation. It is possible that the jurisdiction
in which the Advisor or its affiliate performs such
services may impose restrictions or limitations on portfolio
transactions that are different from, and in addition to,
those in the US.
Management Fee.
Under the Investment Advisory Agreement,
the Advisor is responsible for substantially all
expenses of the fund, including the cost of transfer
agency, custody, fund administration, compensation paid
to the Independent Board Members, legal, audit and other
services, except for the fee payments to the Advisor under
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the Investment Advisory Agreement (also known as a
“
unitary advisory fee
”
), interest expense, acquired fund
fees and expenses, taxes, brokerage expenses, distribution
fees or expenses (if any), litigation expenses and other
extraordinary expenses.
For its services to the fund, during the most recent fiscal
year, the Advisor received aggregate unitary advisory fees
at the following annual rates as a percentage of the fund’s
average daily net assets.
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Estate ETF
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*
Reflecting the effect of expense limitations and/or fee waivers then in
effect.
The Advisor has contractually agreed, until September 30,
2021, to waive its fees and/or reimburse fund expenses
to the extent necessary to prevent the operating expenses
of the fund (excluding interest expense, taxes, brokerage
expenses, distribution fees or expenses, litigation
expenses and other extraordinary expenses) from
exceeding 0.10% of the fund’s average daily net assets.
This agreement may only be terminated by the fund’s
Board (and may not be terminated by the Advisor) prior to
that time.
A discussion regarding the basis for the Board's approval
of the fund’s Investment Advisory Agreement is contained
in the most recent annual report for the annual period
ended May 31. For information on how to obtain shareholder
reports, see the back cover.
Multi-Manager Structure.
The Advisor and the Trust may
rely on an exemptive order (the
“
Order
”
) from the SEC that
permits the Advisor to enter into investment sub-advisory
agreements with unaffiliated and affiliated subadvisors
without obtaining shareholder approval. The Advisor,
subject to the review and approval of the Board, selects
subadvisors for the fund and supervises, monitors and
evaluates the performance of the subadvisor.
The Order also permits the Advisor, subject to the approval
of the Board, to replace subadvisors and amend investment
subadvisory agreements, including fees, without
shareholder approval whenever the Advisor and the Board
believe such action will benefit the fund and its shareholders.
The Advisor thus has the ultimate responsibility
(subject to the ultimate oversight of the Board) to recommend
the hiring and replacement of subadvisors as well as
the discretion to terminate any subadvisor and reallocate
the fund’s assets for management among any other
subadvisor(s) and itself. This means that the Advisor is able
to reduce the subadvisory fees and retain a larger portion
of the management fee, or increase the subadvisory fees
and retain a smaller portion of the management fee.
Pursuant to the Order, the Advisor is not required to
disclose its contractual fee arrangements with any
subadvisor. The Advisor compensates the subadvisor out
of its management fee.
Management
The following Portfolio Managers are primarily responsible
for the day-to-day management of the fund. Each Portfolio
Manager functions as a member of a portfolio
management team.
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
■
Joined DWS in 2011 with 11 years of industry experience.
Prior to joining DWS, he worked in ETF
management at XShares Advisors, an ETF issuer based
in New York, and before that he served as an equity
analyst for Fairhaven Capital LLC, a long/short equity
fund.
■
Head of Passive Portfolio Management, Americas: New
York.
■
BS in Finance, Boston College.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
■
Joined DWS in 2016 with 16 years of industry experience.
Prior to joining DWS, he was the head of Northern
Trust’s Equity Index, ETF, and Overlay portfolio management
team in Chicago, managing portfolios for North
American based clients. His time at Northern Trust
included working in New York, Chicago, and in Hong
Kong building a portfolio management desk. Prior to
joining Northern Trust in 2003, he participated in the
Deutsche Asset Management graduate training
program. He rotated through the domestic fixed income
and US structured equity fund management groups.
■
Lead Equity Portfolio Manager, US Passive Equities:
New York.
■
BS in Finance, Rutgers University.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
■
Joined DWS in 2017 with 13 years of industry experience.
Prior to joining DWS, Mr. Bassous worked at
Northern Trust where he filled a variety of operational
functions supporting portfolio management. In 2010 he
began managing equity portfolios on behalf of institutional
clients across a variety of global benchmarks.
Before joining Northern Trust in 2007, he worked at The
Bank of New York Mellon and Morgan Stanley in a
variety of roles supporting equity trading and portfolio
management.
■
Equity Portfolio Manager, US Passive Equities: New York.
■
BS in Finance, Yeshiva University.
The fund’s Statement of Additional Information provides
additional information about a portfolio manager’s investments
in the fund, a description of the portfolio
management compensation structure and information
regarding other accounts managed.
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Additional shareholder information, including how to buy
and sell shares of the fund, is available free of charge by
calling toll-free: 1-855-329-3837 (1-855-DBX-ETFS) or
visiting our website at Xtrackers.com.
Buying and Selling Shares
Shares of the fund are listed for trading on a national securities
exchange during the trading day. Shares can be
bought and sold throughout the trading day at market
prices like shares of other publicly-traded companies. The
Trust does not impose any minimum investment for shares
of the fund purchased on an exchange. Buying or selling
fund shares involves two types of costs that may apply to
all securities transactions. When buying or selling shares
of the fund through a broker, you will likely incur a
brokerage commission or other charges determined by
your broker. In addition, you may incur the cost of the
“
spread
”
– that is, any difference between the bid price
and the ask price. The commission is frequently a fixed
amount and may be a significant proportional cost for
investors seeking to buy or sell small amounts of shares.
The spread varies over time for shares of the fund based
on its trading volume and market liquidity, and is generally
lower if the fund has a lot of trading volume and market
liquidity and higher if the fund has little trading volume and
market liquidity.
Shares of the fund may be acquired or redeemed directly
from the fund only in Creation Units or multiples thereof,
as discussed in the section of this Prospectus entitled
“
Creations and Redemptions.
”
Only an AP may engage in
creation or redemption transactions directly with the fund.
Once created, shares of the fund generally trade in the
secondary market in amounts less than a Creation Unit.
The Board has evaluated the risks of market timing activities
by the fund’s shareholders. The Board noted that
shares of the fund can only be purchased and redeemed
directly from the fund in Creation Units by APs and that the
vast majority of trading in the fund’s shares occurs on the
secondary market. Because the secondary market trades
do not involve the fund directly, it is unlikely those trades
would cause many of the harmful effects of market timing,
including dilution, disruption of portfolio management,
increases in the fund’s trading costs and the realization of
capital gains. With regard to the purchase or redemption of
Creation Units directly with the fund, to the extent effected
in-kind (i.e., for securities), such trades do not cause any
of the harmful effects (as previously noted) that may result
from frequent cash trades. To the extent trades are
effected in whole or in part in cash, the Board noted that
such trades could result in dilution to the fund and
increased transaction costs, which could negatively impact
the fund’s ability to achieve its investment objective.
However, the Board noted that direct trading by APs is
critical to ensuring that the fund’s shares trade at or close
to NAV. In addition, the fund imposes both fixed and variable
transaction fees on purchases and redemptions of
fund shares to cover the custodial and other costs incurred
by the fund in effecting trades. These fees increase if an
investor substitutes cash in part or in whole for securities,
reflecting the fact that the fund’s trading costs increase
in those circumstances. Given this structure, the Board
determined that with respect to the fund it is not necessary
to adopt policies and procedures to detect and deter
market timing of the fund’s shares.
The 1940 Act imposes certain restrictions on investments
by registered investment companies in the securities of
other investment companies, such as the fund. Registered
investment companies are permitted to invest in the fund
beyond applicable 1940 Act limitations, subject to certain
terms and conditions set forth in an SEC exemptive order
issued to the Trust, including that such investment companies
enter into an agreement with the Trust.
Shares of the fund trade on the exchange and under the
ticker symbol as shown in the table below.
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Book Entry
Shares of the fund are held in book-entry form, which
means that no stock certificates are issued. The Depository
Trust Company (
“
DTC
”
) or its nominee is the record
owner of all outstanding shares of the fund and is recognized
as the owner of all shares for all purposes.
Investors owning shares of the fund are beneficial owners
as shown on the records of DTC or its participants. DTC
serves as the securities depository for shares of the fund.
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DTC participants include securities brokers and dealers,
banks, trust companies, clearing corporations and other
institutions that directly or indirectly maintain a custodial
relationship with DTC. As a beneficial owner of shares, you
are not entitled to receive physical delivery of stock certificates
or to have shares registered in your name, and you
are not considered a registered owner of shares. Therefore,
to exercise any right as an owner of shares, you must
rely upon the procedures of DTC and its participants.
These procedures are the same as those that apply to any
other securities that you hold in book-entry or
“
street
name
”
form.
Share Prices
The trading prices of the fund’s shares in the secondary
market generally differ from the fund’s daily NAV per share
and are affected by market forces such as supply and
demand, economic conditions and other factors. Information
regarding the intraday value of shares of the fund, also
known as the
“
indicative optimized portfolio value
”
(
“
IOPV
”
), is disseminated every 15 seconds throughout
the trading day by the national securities exchange on
which the fund’s shares are listed or by market data
vendors or other information providers. The IOPV is based
on the current market value of the securities and/or cash
required to be deposited in exchange for a Creation Unit.
The IOPV does not necessarily reflect the precise composition
of the current portfolio of securities held by the fund
at a particular point in time nor the best possible valuation
of the current portfolio. Therefore, the IOPV should not
be viewed as a
“
real-time
”
update of the NAV, which is
computed only once a day. The IOPV is generally determined
by using both current market quotations and/or
price quotations obtained from broker-dealers that may
trade in the portfolio securities held by the fund. The
quotations of certain fund holdings may not be updated
during US trading hours if such holdings do not trade in the
US. The fund is not involved in, or responsible for, the calculation
or dissemination of the IOPV and makes no
representation or warranty as to its accuracy.
Determination of Net Asset Value
The NAV of the fund is generally determined once daily
Monday through Friday as of the regularly scheduled close
of business of the New York Stock Exchange (
“
NYSE
”
)
(normally 4:00 p.m., Eastern Time) on each day that the
NYSE is open for trading, provided that (a) any fund assets
or liabilities denominated in currencies other than the US
dollar are translated into US dollars at the prevailing market
rates on the date of valuation as quoted by one or more
data service providers (as detailed below) and (b) US fixed-income
assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular
market or exchange. NAV is calculated by deducting all
of the fund’s liabilities from the total value of its assets and
dividing the result by the number of shares outstanding,
rounding to the nearest cent. All valuations are subject to
review by the Trust’s Board or its delegate.
In determining NAV, expenses are accrued and applied
daily and securities and other assets for which market
quotations are available are valued at market value. Equity
investments are valued at market value, which is generally
determined using the last reported official closing or
last trading price on the exchange or market on which the
security is primarily traded at the time of valuation. Debt
securities’ values are based on price quotations or other
equivalent indications of value provided by a third-party
pricing service. Any such third-party pricing service may
use a variety of methodologies to value some or all of the
fund’s debt securities to determine the market price. For
example, the prices of securities with characteristics
similar to those held by the fund may be used to assist
with the pricing process. In addition, the pricing service
may use proprietary pricing models. In certain cases, some
of the fund’s debt securities may be valued at the mean
between the last available bid and ask prices for such securities
or, if such prices are not available, at prices for
securities of comparable maturity, quality, and type. Short-
term securities for which market quotations are not readily
available are valued at amortized cost, which approximates
market value. Money market securities maturing in 60
days or less will be valued at amortized cost. The approximate
value of shares of the applicable fund, an amount
representing on a per share basis the sum of the current
value of the deposit securities based on their then current
market price and the estimated cash component will be
disseminated every 15 seconds throughout the trading day
through the facilities of the Consolidated Tape Association.
Foreign currency exchange rates with respect to the
fund’s non-US securities are generally determined as of
4:00 p.m., London time. Generally, trading in non-US securities,
US government securities, money market
instruments and certain fixed-income securities is
substantially completed each day at various times prior to
the close of business on the NYSE. The values of such
securities used in computing the NAV of the fund are determined
as of such earlier times. The value of the Underlying
Index will not be calculated and disseminated intra-day.
The value and return of the fund’s Underlying Index is calculated
once each trading day by the Index Provider based on
prices received from the international local markets. In
addition the value of assets or liabilities denominated in
non-US currencies will be converted into US dollars using
prevailing market rates on the date of valuation as quoted
by one or more data service providers. Use of a rate
different from the rate used by the Index Provider may
adversely affect the fund’s ability to track its Underlying
Index.
If a security’s market price is not readily available or does
not otherwise accurately reflect the fair value of the security,
the security will be valued by another method that
the Adviser believes will better reflect fair value in accordance
with the Trust’s valuation policies and procedures
approved by the Board. The fund may use fair value pricing
in a variety of circumstances, including but not limited to,
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situations when the value of a security in the fund’s portfolio
has been materially affected by events occurring after
the close of the market on which the security is principally
traded (such as a corporate action or other news that
may materially affect the price of a security) or trading in
a security has been suspended or halted. Fair value pricing
involves subjective judgments and it is possible that a fair
value determination for a security is materially different
than the value that could be realized upon the sale of the
security. In addition, fair value pricing could result in a difference
between the prices used to calculate the fund’s NAV
and the prices used by the fund’s Underlying Index. This
may adversely affect the fund’s ability to track its Underlying
Index. With respect to securities that are primarily
listed on foreign exchanges, the value of the fund’s portfolio
securities may change on days when you will not be
able to purchase or sell your shares.
Creations and Redemptions
Prior to trading in the secondary market, shares of the fund
are
“
created
”
at NAV by market makers, large investors
and institutions only in block-size Creation Units of 50,000
shares or multiples thereof (
“
Creation Units
”
). The size
of a Creation Unit will be subject to change. Each
“
creator
”
or AP (which must be a DTC participant) enters into an
authorized participant agreement (
“
Authorized Participant
Agreement
”
) with the fund’s distributor, ALPS Distributors,
Inc. (the
“
Distributor
”
), subject to acceptance by the
Transfer Agent. Only an AP may create or redeem Creation
Units. Creation Units generally are issued and redeemed
in exchange for a specific basket of securities approximating
the holdings of the fund and a designated amount
of cash. The fund may pay out a portion of its redemption
proceeds in cash rather than through the in-kind
delivery of portfolio securities. Except when aggregated in
Creation Units, shares are not redeemable by the fund.
The prices at which creations and redemptions occur are
based on the next calculation of NAV after an order is
received in a form described in the Authorized Participant
Agreement.
Additional information about the procedures regarding
creation and redemption of Creation Units (including the
cut-off times for receipt of creation and redemption orders)
is included in the SAI.
The fund intends to comply with the US federal securities
laws in accepting securities for deposits and satisfying
redemptions with redemption securities, including that the
securities accepted for deposits and the securities used
to satisfy redemption requests will be sold in transactions
that would be exempt from registration under the Securities
Act of 1933, as amended (
“
1933 Act
”
). Further, an AP
that is not a
“
qualified institutional buyer,
”
as such term is
defined under Rule 144A under the 1933 Act, will not be
able to receive fund securities that are restricted securities
eligible for resale under Rule 144A.
Dividends and Distributions
General Policies.
Dividends from net investment income, if
any, are generally declared and paid semi-annually by the
fund. Distributions of net realized capital gains, if any, generally
are declared and paid once a year, but the Trust may
make distributions on a more frequent basis for the fund.
The Trust reserves the right to declare special distributions
if, in its reasonable discretion, such action is necessary or
advisable to preserve its status as a regulated investment
company or to avoid imposition of income or excise taxes
on undistributed income or realized gains.
Dividends and other distributions on shares of the fund are
distributed on a pro rata basis to beneficial owners of such
shares. Dividend payments are made through DTC participants
and indirect participants to beneficial owners as of
the record date with proceeds received from the fund.
Dividend Reinvestment Service.
No dividend reinvestment
service is provided by the Trust. Broker-dealers may make
available the DTC book-entry Dividend Reinvestment
Service for use by beneficial owners of the fund for reinvestment
of their dividend distributions. Beneficial owners
should contact their broker to determine the availability
and costs of the service and the details of participation
therein. Brokers may require beneficial owners to adhere
to specific procedures and timetables. If this service is
available and used, dividend distributions of both income
and realized gains will be automatically reinvested in additional
whole shares of the fund purchased in the
secondary market.
Taxes
As with any investment, you should consider how your
investment in shares of the fund will be taxed. The tax information
in this Prospectus is provided as general
information. You should consult your own tax professional
about the tax consequences of an investment in shares
of the fund.
Unless your investment in fund shares is made through a
tax-exempt entity or tax-deferred retirement account, such
as an IRA, you need to be aware of the possible tax consequences
when the fund makes distributions or you sell
fund shares.
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Taxes on Distributions
Distributions from the fund’s net investment income (other
than qualified dividend income), including distributions of
income from securities lending and distributions out of the
fund’s net short-term capital gains, if any, are taxable to
you as ordinary income. Distributions by the fund of net
long-term capital gains in excess of net short-term capital
losses (capital gain dividends) are taxable to you as long-term
capital gains, regardless of how long you have held
such fund’s shares. Distributions by the fund that qualify as
qualified dividend income are taxable to you at long-term
capital gain rates. The maximum individual rate applicable
to
“
qualified dividend income
”
and long-term capital gains
is generally either 15% or 20%, depending on whether the
individual’s income exceeds certain threshold amounts.
Dividends are eligible to be qualified dividend income to
you, if you meet certain holding period requirements
discussed below, if they are attributable to qualified dividend
income received by the fund. Generally, qualified
dividend income includes dividend income from taxable
US corporations and qualified non-US corporations,
provided that the fund satisfies certain holding period
requirements in respect of the stock of such corporations
and has not hedged its position in the stock in certain
ways. For this purpose, a qualified non-US corporation
means any non-US corporation that is eligible for benefits
under a comprehensive income tax treaty with the United
States which includes an exchange of information program
or if the stock with respect to which the dividend was paid
is readily tradable on an established United States security
market. The term excludes a corporation that is a passive
foreign investment company.
Dividends received by a fund from a real estate investment
trust (
“
REIT
”
) generally are qualified dividend income
only to the extent the dividend distributions are made out
of qualified dividend income received by such REIT. It is
expected that dividends received by a fund from a REIT
and distributed to a shareholder generally will be taxable to
the shareholder as ordinary income and eligible for a
special 20% deduction by shareholders if so reported by
the fund .
For a dividend to be treated as qualified dividend income,
the dividend must be received with respect to a share
of stock held without being hedged by the fund, and to a
share of the fund held without being hedged by you, for 61
days during the 121-day period beginning at the date
which is 60 days before the date on which such share
becomes ex-dividend with respect to such dividend or in
the case of certain preferred stock 91 days during the
181-day period beginning 90 days before such date.
In general, your distributions are subject to US federal
income tax for the year when they are paid. Certain distributions
paid in January, however, may be treated as paid
on December 31 of the prior year.
If the fund’s distributions exceed current and accumulated
earnings and profits, all or a portion of the distributions
made in the taxable year may be re-characterized as a
return of capital to shareholders. A return of capital distribution
generally will not be taxable but will reduce the
shareholder’s cost basis and result in a higher capital gain
or lower capital loss when those shares on which the distribution
was received are sold.
If you are neither a resident nor a citizen of the United
States or if you are a non-US entity, the fund’s ordinary
income dividends (which include distributions of net short-
term capital gains) will generally be subject to a 30% US
withholding tax, unless a lower treaty rate applies,
provided that withholding tax will generally not apply to
any gain or income realized by a non-US shareholder in
respect of any distributions of long-term capital gains or
short term capital gains reported as such by the fund or
upon the sale or other disposition of shares of the fund.
Dividends and interest received by the fund with respect
to non-US securities may give rise to withholding and other
taxes imposed by non-US countries. Tax conventions
between certain countries and the United States may
reduce or eliminate such taxes. If more than 50% of the
total assets of the fund at the close of a year consist of
non-US stocks or securities, the fund may
“
pass through
”
to you certain non-US income taxes (including withholding
taxes) paid by the fund. This means that you would be
considered to have received as additional gross income
your share of such non-US taxes, but you may, in such
case, be entitled to either a corresponding tax deduction in
calculating your taxable income, or, subject to certain limitations,
a credit in calculating your US federal income tax.
If you are a resident or a citizen of the United States, by
law, back-up withholding (currently at a rate of 24%) will
apply to your distributions and proceeds if you have not
provided a taxpayer identification number or social security
number and made other required certifications.
Taxes when Shares are Sold
Currently, any capital gain or loss realized upon a sale of
fund shares is generally treated as a long-term gain or loss
if the shares have been held for more than one year. Any
capital gain or loss realized upon a sale of fund shares held
for one year or less is generally treated as short-term gain
or loss, except that any capital loss on the sale of shares
held for six months or less is treated as long-term capital
loss to the extent that capital gain dividends were paid
with respect to such shares.
Medicare Tax
An additional 3.8% Medicare tax is imposed on certain net
investment income (including ordinary dividends and
capital gain distributions received from the fund and net
gains from redemptions or other taxable dispositions of
fund shares) of US individuals, estates and trusts to the
extent that such person’s
“
modified adjusted gross
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income
”
(in the case of an individual) or
“
adjusted gross
income
”
(in the case of an estate or trust) exceeds certain
threshold amounts.
The foregoing discussion summarizes some of the consequences
under current US federal tax law of an
investment in the fund. It is not a substitute for personal
tax advice. You may also be subject to state and local taxation
on fund distributions and sales of shares. Consult your
personal tax advisor about the potential tax consequences
of an investment in shares of the fund under all applicable
tax laws.
Authorized Participants and the Continuous Offering of
Shares
Because new shares may be created and issued on an
ongoing basis, at any point during the life of the fund a
“
distribution,
”
as such term is used in the 1933 Act, may
be occurring. Broker-dealers and other persons are
cautioned that some activities on their part may,
depending on the circumstances, result in their being
deemed participants in a distribution in a manner that
could render them statutory underwriters and subject to
the prospectus delivery and liability provisions of the 1933
Act. Any determination of whether one is an underwriter
must take into account all the relevant facts and circumstances
of each particular case.
Broker-dealers should also note that dealers who are not
“
underwriters
”
but are participating in a distribution (as
contrasted to ordinary secondary transactions), and thus
dealing with shares that are part of an
“
unsold allotment
”
within the meaning of Section 4(3)(C) of the 1933 Act,
would be unable to take advantage of the prospectus
delivery exemption provided by Section 4(3) of the 1933
Act. For delivery of prospectuses to exchange members,
the prospectus delivery mechanism of Rule 153 under the
1933 Act is available only with respect to transactions on
a national securities exchange.
Certain affiliates of the fund and the Advisor may purchase
and resell fund shares pursuant to this Prospectus.
Transaction Fees
APs are charged standard creation and redemption transaction
fees to offset transfer and other transaction costs
associated with the issuance and redemption of Creation
Units. Purchasers and redeemers of Creation Units for
cash are required to pay an additional variable charge (up
to a maximum of 2% for redemptions, including the standard
redemption fee) to compensate for brokerage and
market impact expenses. The standard creation and
redemption transaction fee for the fund is set forth in the
table below. The maximum redemption fee, as a
percentage of the amount redeemed, is 2%.
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Xtrackers International Real
Estate ETF
(1)
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(1)
Currently, the standard and maximum transaction fees for the creation
or redemption of a Creation Unit of the fund are paid by the fund’s
Advisor. As such, the standard and maximum transaction fees for the
creation or redemption of a Creation Unit of the fund will be reduced from
$5,400 to $0; however, the Advisor reserves the right to amend or discontinue
this subsidy upon supplement to the fund’s prospectus.
Distribution
The Distributor distributes Creation Units for the fund on
an agency basis. The Distributor does not maintain a
secondary market in shares of the fund. The Distributor
has no role in determining the policies of the fund or the
securities that are purchased or sold by the fund. The
Distributor’s principal address is 1290 Broadway, Suite
1000, Denver, Colorado 80203.
The Advisor and/or its affiliates may pay additional compensation,
out of their own assets and not as an additional
charge to the fund, to selected affiliated and unaffiliated
brokers, dealers, participating insurance companies or
other financial intermediaries (
“
financial representatives
”
)
in connection with the sale and/or distribution of fund
shares or the retention and/or servicing of fund investors
and fund shares (
“
revenue sharing
”
). For example, the
Advisor and/or its affiliates may compensate financial representatives
for providing the fund with
“
shelf space
”
or
access to a third party platform or fund offering list or other
marketing programs, including, without limitation, inclusion
of the fund on preferred or recommended sales lists,
fund
“
supermarket
”
platforms and other formal sales
programs; granting the Advisor and/ or its affiliates access
to the financial representative’s sales force; granting the
Advisor and/or its affiliates access to the financial representative’s
conferences and meetings; assistance in training
and educating the financial representative’s personnel; and
obtaining other forms of marketing support.
The level of revenue sharing payments made to financial
representatives may be a fixed fee or based upon one
or more of the following factors: gross sales, current
assets and/or number of accounts of the fund attributable
to the financial representative, the particular fund or fund
type or other measures as agreed to by the Advisor and/or
its affiliates and the financial representatives or any combination
thereof. The amount of these revenue sharing
payments is determined at the discretion of the Advisor
and/or its affiliates from time to time, may be substantial,
and may be different for different financial representatives
based on, for example, the nature of the services provided
by the financial representative.
Receipt of, or the prospect of receiving, additional compensation
may influence your financial representative’s
recommendation of the fund. You should review your
financial representative’s compensation disclosure and/or
Prospectus
October 1, 2020
|
23
|
Investing in the Fund
|
talk to your financial representative to obtain more information
on how this compensation may have influenced your
financial representative’s recommendation of the fund.
Additional information regarding these revenue sharing
payments is included in the fund’s Statement of Additional
Information, which is available to you on request at no
charge (see the back cover of this Prospectus for more
information on how to request a copy of the Statement of
Additional Information).
It is possible that broker-dealers that execute portfolio transactions
for the fund will also sell shares of the fund to their
customers. However, the Advisor will not consider the
sale of fund shares as a factor in the selection of broker-dealers
to execute portfolio transactions for the fund.
Accordingly, the Advisor has implemented policies and
procedures reasonably designed to prevent its traders
from considering sales of fund shares as a factor in the
selection of broker-dealers to execute portfolio transactions
for the fund. In addition, the Advisor and/or its
affiliates will not use fund brokerage to pay for their obligation
to provide additional compensation to financial
representatives as described above.
Premium/Discount Information
Information regarding how often shares of the fund traded
on NYSE Arca at a price above (i.e., at a premium) or
below (i.e., at a discount) the NAV of the fund during the
past calendar year can be found at Xtrackers.com.
Prospectus
October 1, 2020
|
24
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Investing in the Fund
|
The financial highlights are designed to help you understand recent financial performance. The figures in the first part of
the table are for a single share. The total return figures represent the percentage that an investor in the fund would have
earned (or lost), assuming all dividends and distributions were reinvested. This information has been audited by Ernst &
Young LLP, independent registered public accounting firm, whose report, along with the fund’s financial statements, is
included in the fund’s Annual Report (see
“
For More Information
”
on the back cover).
Xtrackers International Real Estate ETF
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Net Asset Value, beginning of year
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Income (loss) from investment operations:
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Net investment income (loss)
a
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Net realized and unrealized gain (loss)
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Total from investment operations
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Net Asset Value, end of year
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Ratios to Average Net Assets and Supplemental Data
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Net Assets, end of year ($ millions)
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Ratio of expenses before fee waiver (%)
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Ratio of expenses after fee waiver (%)
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Ratio of net investment income (loss) (%)
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Portfolio turnover rate (%)
c
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a
Based on average shares outstanding during the period.
b
Total Return would have been lower if certain expenses had not been reimbursed by the Advisor.
c
Portfolio turnover rate does not include securities received or delivered from processing creations or redemptions.
Prospectus
October 1, 2020
|
25
|
Financial Highlights
|
Index Providers and Licenses
STOXX Ltd. (
“
STOXX
”
) is a provider of indexes and services to investors worldwide. STOXX is not affiliated with the Trust,
the Advisor, Bank of New York Mellon, the Distributor or any of their respective affiliates.
The Advisor has entered into a license agreement with the Index Provider to use the Underlying Index. All license fees are
paid by the Advisor out of its own resources and not the assets of the fund.
Disclaimers
The iSTOXX Developed and Emerging Markets ex USA PK VN Real Estate Index is the intellectual property (including
registered trademarks) of STOXX Limited, Zug, Switzerland (
“
STOXX
”
), Deutsche Börse Group or their licensors, which is
used under license. Xtrackers International Real Estate ETF is neither sponsored nor promoted, distributed or in any other
manner supported by STOXX, Deutsche Börse Group or their licensors, research partners or data providers and STOXX,
Deutsche Börse Group and their licensors, research partners or data providers do not give any warranty, and exclude any
liability (whether in negligence or otherwise) with respect thereto generally or specifically in relation to any errors, omissions
or interruptions in the Index or its data.
Shares of the fund are not sponsored, endorsed or promoted by NYSE Arca. NYSE Arca makes no representation or
warranty, express or implied, to the owners of the shares of the fund or any member of the public regarding the ability of
the fund to track the total return performance of its Underlying Index or the ability of the Underlying Index to track stock
market performance. NYSE Arca is not responsible for, nor has it participated in, the determination of the compilation
or the calculation of the Underlying Index nor in the determination of the timing of, prices of, or quantities of shares of the
fund to be issued, nor in the determination or calculation of the equation by which the shares are redeemable. NYSE
Arca has no obligation or liability to owners of the shares of the fund in connection with the administration, marketing or
trading of the shares of the fund.
NYSE Arca does not guarantee the accuracy and/or the completeness of the Underlying Index or any data included
therein. NYSE Arca makes no warranty, express or implied, as to results to be obtained by the Trust on behalf of the fund
as licensee, licensee’s customers and counterparties, owners of the shares of the fund, or any other person or entity from
the use of the subject index or any data included therein in connection with the rights licensed as described herein or for
any other use. NYSE Arca makes no express or implied warranties and hereby expressly disclaims all warranties of
merchantability or fitness for a particular purpose with respect to the Underlying Index or any data included therein.
Without limiting any of the foregoing, in no event shall NYSE Arca have any liability for any direct, indirect, special, punitive,
consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
The Advisor does not guarantee the accuracy or the completeness of the Underlying Index or any data included therein
and the Advisor shall have no liability for any errors, omissions or interruptions therein.
The Advisor makes no warranty, express or implied, to the owners of shares of the fund or to any other person or entity,
as to results to be obtained by the fund from the use of the Underlying Index or any data included therein. The Advisor
makes no express or implied warranties and expressly disclaims all warranties of merchantability or fitness for a particular
purpose or use with respect to the Underlying Index or any data included therein. Without limiting any of the foregoing,
in no event shall the Advisor have any liability for any special, punitive, direct, indirect or consequential damages (including
lost profits), even if notified of the possibility of such damages.
Prospectus
October 1, 2020
|
26
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Appendix
|
FOR MORE INFORMATION:
XTRACKERS.COM
1-855-329-3837 (1-855-DBX-ETFS)
Copies of the prospectus, SAI and recent shareholder
reports, when available, can be found on our website at
Xtrackers.com. For more information about the fund, you
may request a copy of the SAI. The SAI provides detailed
information about the fund and is incorporated by reference
into this prospectus. This means that the SAI, for
legal purposes, is a part of this prospectus.
If you have any questions about the Trust or shares of the
fund or you wish to obtain the SAI or shareholder report
free of charge, please:
|
1-855-329-3837 or 1-855-DBX-ETFS
(toll free) Monday through Friday
8:30 a.m. to 6:30 p.m. (Eastern time)
E-mail: dbxquestions@list.db.com
|
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DBX ETF Trust
c/o ALPS Distributors, Inc.
1290 Broadway, Suite 1000
Denver, Colorado 80203
|
Information about the fund (including the SAI), reports and
other information about the fund are available on the
EDGAR Database on the SEC’s website at sec.gov, and
copies of this information may be obtained, after paying a
duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov.
Householding is an option available to certain fund investors.
Householding is a method of delivery, based on the
preference of the individual investor, in which a single copy
of certain shareholder documents can be delivered to investors
who share the same address, even if their accounts
are registered under different names. Please contact your
broker-dealer if you are interested in enrolling in
householding and receiving a single copy of prospectuses
and other shareholder documents, or if you are currently
enrolled in householding and wish to change your
householding status.
No person is authorized to give any information or to make
any representations about the fund and their shares not
contained in this prospectus and you should not rely on
any other information. Read and keep the prospectus for
future reference.
Investment Company Act File No.: 811-22487
Prospectus
October 1, 2020
Xtrackers MSCI Emerging Markets Hedged Equity ETF
|
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Xtrackers MSCI EAFE Hedged Equity ETF
|
|
Xtrackers MSCI Germany Hedged Equity ETF
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Xtrackers MSCI Japan Hedged Equity ETF
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Xtrackers MSCI Europe Hedged Equity ETF
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Xtrackers MSCI All World ex US Hedged Equity ETF
|
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Xtrackers MSCI All World ex US High Dividend Yield Equity ETF
|
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Xtrackers MSCI EAFE High Dividend Yield Equity ETF
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Xtrackers Eurozone Equity ETF
|
Cboe BZX Exchange, Inc.: EURZ
|
Xtrackers MSCI Eurozone Hedged Equity ETF
|
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Xtrackers Japan JPX-Nikkei 400 Equity ETF
|
|
The Securities and Exchange Commission (
“
SEC
”
) has not approved or disapproved these securities or passed
upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
Your investment in a fund is not a bank deposit and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency, entity or person.
Xtrackers MSCI Emerging Markets Hedged Equity ETF
|
Stock Exchange: NYSE Arca, Inc.
|
Investment Objective
Xtrackers MSCI Emerging Markets Hedged Equity ETF
(the
“
fund
”
) seeks investment results that correspond
generally to the performance, before fees and expenses,
of the MSCI EM US Dollar Hedged Index (the
“
Underlying
Index
”
).
Fees and Expenses
These are the fees and expenses that you will pay when
you buy, hold and sell shares.
You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below.
ANNUAL FUND OPERATING EXPENSES(expenses that you pay each year as a % of the value of your investment)
|
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Total annual fund operating expenses
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1
Other Expenses include interest expense of 0.01%.
EXAMPLE
This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then sell 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 operating expenses remain the same. The Example does not take into account brokerage commissions that you may pay on your purchases and sales of shares of the fund. It also does not include the transaction fees on purchases and redemptions of Creation Units (defined herein), because those fees will not be imposed on retail investors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
PORTFOLIO TURNOVER
The fund pays transaction costs, such as commissions,
when it buys and sells securities (or
“
turns over
”
its portfolio).
A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are
investing in a taxable account. These costs are not
reflected in annual fund operating expenses or in the
expense example, and can affect the fund's performance.
During the most recent fiscal year, the fund’s portfolio turnover
rate was
20
% of the average value of its portfolio.
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track emerging
market performance while mitigating exposure to fluctuations
between the value of the US dollar and the
currencies of the countries included in the Underlying
Index. The fund uses a full replication indexing strategy to
seek to track the Underlying Index. As such, the fund
invests directly in the component securities (or a substantial
number of the component securities) of the Underlying
Index in substantially the same weightings in which they
are represented in the Underlying Index. If it is not possible
for the fund to acquire component securities due to
limited availability or regulatory restrictions, the fund may
use a representative sampling indexing strategy to seek to
track the Underlying Index instead of a full replication
indexing strategy.
“
Representative sampling
”
is an
indexing strategy that involves investing in a representative
sample of securities that collectively has an
investment profile similar to the Underlying Index. The
securities selected are expected to have, in the aggregate,
investment characteristics (based on factors such as
Prospectus
October 1, 2020
|
1
|
Xtrackers MSCI Emerging Markets Hedged Equity ETF
|
market capitalization and industry weightings), fundamental
characteristics (such as return variability and yield),
and liquidity measures similar to those of the Underlying
Index. The fund may or may not hold all of the securities in
the Underlying Index when using a representative
sampling indexing strategy. The fund will invest at least
80% of its total assets (but typically far more) in component
securities (including depositary receipts in respect of
such securities) of the Underlying Index.
As of July 31, 2020, the Underlying Index consisted of
1,385 securities, with an average market capitalization of
approximately $4.53 billion and a minimum market capitalization
of approximately $123 million, from issuers in the
following countries: Argentina, Brazil, Chile, China,
Colombia, Czech Republic, Egypt, Greece, Hungary, India,
Indonesia, Malaysia, Mexico, Pakistan, Peru, Philippines,
Poland, Qatar, Russia, Saudi Arabia, South Africa, South
Korea, Taiwan, Thailand, Turkey and the United Arab Emirates.
Under normal circumstances, the Underlying Index is
rebalanced monthly. The fund rebalances its portfolio in
accordance with the Underlying Index, and, therefore, any
changes to the Underlying Index’s rebalance schedule will
result in corresponding changes to the fund’s rebalance
schedule.
The fund enters into forward currency contracts designed
to offset the fund’s exposure to foreign currencies. The
fund hedges each foreign currency in the portfolio to US
dollars by selling the applicable foreign currency forward at
the one-month forward rate published by WM/Reuters.
The amount of forward contracts in the fund is based on
the aggregate exposure of the fund and Underlying Index
to each non-US currency based on currency weights as of
the beginning of each month. While this approach is
designed to minimize the impact of currency fluctuations
on fund returns, this does not necessarily eliminate exposure
to all currency fluctuations. The return of the forward
currency contracts may not perfectly offset the actual fluctuations
of non-US currencies relative to the US dollar.
The fund may use non-deliverable forward (
“
NDF
”
)
contracts to execute its hedging transactions. An NDF is a
contract where there is no physical settlement of two
currencies at maturity (as opposed to deliverable forward
contracts, which per their terms are settled by physical
delivery of the currencies). Rather, based on the movement
of the currencies and the contractually agreed upon
exchange rate, a net cash settlement is made by one party
to the other in US dollars.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in the equity securities of issuers from
emerging markets countries and in instruments designed
to hedge against the fund’s exposure to non-US
currencies.
Emerging market countries are countries that major international
financial institutions, such as the World Bank,
generally consider to be less economically mature than
developed nations. Emerging market countries can include
every nation in the world except the United States,
Canada, Japan, Australia, New Zealand and most countries
located in Western Europe. As of July 31, 2020, a significant
percentage of the Underlying Index was comprised of
securities of issuers from China (41.1%).
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
information technology (18.4%), financials (18.1%) and
consumer discretionary (18.0%) sectors. The information
technology sector includes companies engaged in developing
software and providing data processing and
outsourced services, along with manufacturing and distributing
communications equipment, computers and other
electronic equipment and instruments. The financials
sector includes companies involved in banking, consumer
finance, asset management and custody banks, as well
as investment banking and brokerage and insurance. The
consumer discretionary goods sector includes durable
goods, apparel, entertainment and leisure, and automobiles.
To the extent that the fund tracks the Underlying
Index, the fund’s investment in certain sectors or countries
may change over time.
The fund may become
“
non-diversified,
”
as defined under
the Investment Company Act of 1940, as amended, solely
as a result of a change in relative market capitalization or
index weighting of one or more constituents of the index
that the fund is designed to track. Shareholder approval will
not be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Main Risks
As with any investment, you could lose all or part of your investment in the fund, and the fund’s performance could trail that of other investments.
The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective, as
well as numerous other risks that are described in greater
detail in the section of this Prospectus entitled
“
Additional
Prospectus
October 1, 2020
|
2
|
Xtrackers MSCI Emerging Markets Hedged Equity ETF
|
Information About Fund Strategies, Underlying Index Information
and Risks
”
and in the Statement of Additional
Information (
“
SAI
”
).
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund
and its investments may be adversely affected by the
effects of the COVID-19 pandemic, and a prolonged
pandemic may result in the fund and its service providers
experiencing operational difficulties in coordinating a
remote workforce and implementing their business continuity
plans, among others.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Depositary receipts involve
similar risks to those associated with investments in securities
of non-US issuers. Depositary receipts also may be
less liquid than the underlying shares in their primary
trading market.
Emerging market securities risk.
The securities of
issuers located in emerging markets tend to be more volatile
and less liquid than securities of issuers located in
more mature economies, and emerging markets generally
have less diverse and less mature economic structures
and less stable political systems than those of developed
Prospectus
October 1, 2020
|
3
|
Xtrackers MSCI Emerging Markets Hedged Equity ETF
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countries. The securities of issuers located or doing
substantial business in emerging markets are often subject
to rapid and large changes in price.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors of
the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Information technology sector risk.
To the extent that the
fund invests significantly in the information technology
sector, the fund will be sensitive to changes in, and the
fund’s performance may depend to a greater extent on, the
overall condition of the information technology sector. Information
technology companies are particularly vulnerable to
government regulation and competition, both domestically
and internationally, including competition from foreign
competitors with lower production costs. Information technology
companies also face competition for services of
qualified personnel. Additionally, the products of information
technology companies may face obsolescence due to
rapid technological development and frequent new
product introduction by competitors. Finally, information
technology companies are heavily dependent on patent
and intellectual property rights, the loss or impairment of
which may adversely affect profitability.
Financials sector risk.
To the extent that the fund invests
significantly in the financials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
financials sector. The financials sector is subject to extensive
government regulation, can be subject to relatively
rapid change due to increasingly blurred distinctions
between service segments, and can be significantly
affected by availability and cost of capital funds, changes in
interest rates, the rate of corporate and consumer debt
defaults, and price competition.
Consumer discretionary sector risk.
To the extent that
the fund invests significantly in the consumer discretionary
sector, the fund will be sensitive to changes in, and the
fund’s performance may depend to a greater extent on, the
overall condition of the consumer discretionary sector.
Companies engaged in the consumer discretionary sector
are subject to fluctuations in supply and demand. These
companies may also be adversely affected by changes in
consumer spending as a result of world events, political
and economic conditions, commodity price volatility,
changes in exchange rates, imposition of import controls,
increased competition, depletion of resources and labor
relations.
Forward currency contract risk.
The fund’s forward
currency contracts may not be successful in minimizing
the impact of changes in the value of the non-US currencies
against the US dollar. To the extent the fund’s forward
currency contracts are not successful, the US dollar value
of your investment in the fund may go down. Furthermore,
because no changes in the currency weights in the Underlying
Index are made during the month to account for
changes in the Underlying Index due to price movement of
securities, corporate events, additions, deletions or any
other changes, changes in the value of non-US currencies
against the US dollar during the month may affect the
value of the fund’s investment. Currency exchange rates
can be very volatile and can change quickly and unpredictably.
Therefore, the value of an investment in the fund may
also go up or down quickly and unpredictably and investors
may lose money. NDFs may be less liquid than deliverable
forward currency contracts. A lack of liquidity in NDFs
of the hedged currency could adversely affect the fund’s
ability to hedge against currency fluctuations and properly
track the Underlying Index.
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
Prospectus
October 1, 2020
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Xtrackers MSCI Emerging Markets Hedged Equity ETF
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experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
the NAV during periods of market volatility. The Advisor
cannot predict whether shares will trade above, below or
at their NAV. Given the fact that shares can be created and
redeemed in Creation Units (defined below), the Advisor
believes that large discounts or premiums to the NAV of
shares should not be sustained in the long-term. If market
makers exit the business or are unable to continue making
markets in fund shares, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market). Further, while the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in market prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. In addition, the securities held by the fund
may be traded in markets that close at a different time
than the exchange on which the fund’s shares trade.
Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time
when the exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. Further, secondary markets may be subject
to irregular trading activity, wide bid-ask spreads and
extended trade settlement periods, which could cause a
material decline in the fund’s NAV. The fund’s investment
results are measured based upon the daily NAV of the
fund. Investors purchasing and selling shares in the
secondary market may not experience investment results
consistent with those experienced by those APs creating
and redeeming shares directly with the fund.
Prospectus
October 1, 2020
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Xtrackers MSCI Emerging Markets Hedged Equity ETF
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Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
At any given time, due to the
composition of the Underlying Index, the fund may be classified
as
“
non-diversified
”
under the Investment Company
Act of 1940, as amended. This means that the fund may
invest in securities of relatively few issuers. Thus, the
performance of one or a small number of portfolio holdings
can affect overall performance.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Past Performance
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund’s performance from year to year and by showing how the fund’s average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund’s past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future.
Updated performance information
is available on the fund’s website at
Xtrackers.com
(the website does not form a part of this prospectus).
Prospectus
October 1, 2020
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Xtrackers MSCI Emerging Markets Hedged Equity ETF
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CALENDAR YEAR TOTAL RETURNS(%)
Average Annual Total Returns(For periods ended 12/31/2019 expressed as a %)
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax. Your own actual after-tax returns will depend on your tax situation and may differ from what is shown here. After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts (“IRAs”) or employee-sponsored retirement plans.
|
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After tax on distribu-
tions
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After tax on distribu-
tions and sale of fund
shares
|
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MSCI EM US Dollar
Hedged Index
(reflects
no deductions for fees,
expenses or taxes)
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MSCI EM Index
(reflects
no deductions for fees,
expenses or taxes)
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Management
Investment Advisor
DBX Advisors LLC
Portfolio Managers
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
Purchase and Sale of Fund Shares
The fund is an exchange-traded fund (commonly referred
to as an
“
ETF
”
). Individual fund shares may only be
purchased and sold through a brokerage firm. The price of
fund shares is based on market price, and because ETF
shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than
NAV (a discount). The fund will only issue or redeem
shares that have been aggregated into blocks of 50,000
shares or multiples thereof (
“
Creation Units
”
) to APs who
have entered into agreements with ALPS Distributors,
Inc., the fund’s distributor. You may incur costs attributable
to the difference between the highest price a buyer is
willing to pay to purchase shares of the fund (bid) and the
lowest price a seller is willing to accept for shares of the
fund (ask) when buying or selling shares (the
“
bid-ask
spread
”
). Information on the fund’s net asset value, market
price, premiums and discounts and bid-ask spreads may
be found at Xtrackers.com.
Tax Information
The fund's distributions are generally taxable to you as
ordinary income or capital gains, except when your investment
is in an IRA, 401(k), or other tax-deferred investment
plan. Any withdrawals you make from such tax- advantaged
investment plans, however, may be taxable to you.
Payments to Broker-Dealers and
Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer
or other financial intermediary (such as a bank), the
Advisor or other related companies may pay the intermediary
for marketing activities and presentations,
educational training programs, the support of technology
platforms and/or reporting systems or other services
related to the sale or promotion of the fund. These
payments may create a conflict of interest by influencing
the broker-dealer or other intermediary and your salesperson
to recommend the fund over another investment.
Ask your salesperson or visit your financial intermediary’s
website for more information.
Prospectus
October 1, 2020
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Xtrackers MSCI Emerging Markets Hedged Equity ETF
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Xtrackers MSCI EAFE Hedged Equity ETF
|
Stock Exchange: NYSE Arca, Inc.
|
Investment Objective
Xtrackers MSCI EAFE Hedged Equity ETF (the
“
fund
”
)
seeks investment results that correspond generally to the
performance, before fees and expenses, of the MSCI
EAFE US Dollar Hedged Index (the
“
Underlying Index
”
).
Fees and Expenses
These are the fees and expenses that you will pay when
you buy, hold and sell shares.
You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below.
ANNUAL FUND OPERATING EXPENSES(expenses that you pay each year as a % of the value of your investment)
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Total annual fund operating expenses
|
|
1
Other Expenses include interest expense of 0.01%.
EXAMPLE
This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then sell 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 operating expenses remain the same. The Example does not take into account brokerage commissions that you may pay on your purchases and sales of shares of the fund. It also does not include the transaction fees on purchases and redemptions of Creation Units (defined herein), because those fees will not be imposed on retail investors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
PORTFOLIO TURNOVER
The fund pays transaction costs, such as commissions,
when it buys and sells securities (or
“
turns over
”
its portfolio).
A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are
investing in a taxable account. These costs are not
reflected in annual fund operating expenses or in the
expense example, and can affect the fund's performance.
During the most recent fiscal year, the fund’s portfolio turnover
rate was
9
% of the average value of its portfolio.
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track developed
market performance while mitigating exposure to fluctuations
between the value of the US dollar and the
currencies of the countries included in the Underlying
Index. The fund uses a full replication indexing strategy to
seek to track the Underlying Index. As such, the fund
invests directly in the component securities (or a substantial
number of the component securities) of the Underlying
Index in substantially the same weightings in which they
are represented in the Underlying Index. If it is not possible
for the fund to acquire component securities due to
limited availability or regulatory restrictions, the fund may
use a representative sampling indexing strategy to seek to
track the Underlying Index instead of a full replication
indexing strategy.
“
Representative sampling
”
is an
indexing strategy that involves investing in a representative
sample of securities that collectively has an
investment profile similar to the Underlying Index. The
securities selected are expected to have, in the aggregate,
investment characteristics (based on factors such as
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October 1, 2020
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Xtrackers MSCI EAFE Hedged Equity ETF
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market capitalization and industry weightings), fundamental
characteristics (such as return variability and yield),
and liquidity measures similar to those of the Underlying
Index. The fund may or may not hold all of the securities in
the Underlying Index when using a representative
sampling indexing strategy. The fund will invest at least
80% of its total assets (but typically far more) in component
securities (including depositary receipts in respect of
such securities) of the Underlying Index.
As of July 31, 2020, the Underlying Index consisted of 900
securities, with an average market capitalization of approximately
$14.88 billion and a minimum market capitalization
of approximately $1.21 billion, from issuers in the
following countries: Australia, Austria, Belgium, Denmark,
Finland, France, Germany, Hong Kong, Ireland, Israel, Italy,
Japan, Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland and the United
Kingdom. Under normal circumstances, the Underlying
Index is rebalanced monthly. The fund rebalances its portfolio
in accordance with the Underlying Index, and,
therefore, any changes to the Underlying Index’s rebalance
schedule will result in corresponding changes to the fund’s
rebalance schedule.
The fund enters into forward currency contracts designed
to offset the fund’s exposure to foreign currencies. The
fund hedges each foreign currency in the portfolio to US
dollars by selling the applicable foreign currency forward at
the one-month forward rate published by WM/Reuters.
The amount of forward contracts in the fund is based on
the aggregate exposure of the fund and Underlying Index
to each non-US currency based on currency weights as of
the beginning of each month. While this approach is
designed to minimize the impact of currency fluctuations
on fund returns, this does not necessarily eliminate exposure
to all currency fluctuations. The return of the forward
currency contracts may not perfectly offset the actual fluctuations
of non-US currencies relative to the US dollar.
The fund may use non-deliverable forward (
“
NDF
”
)
contracts to execute its hedging transactions. An NDF is a
contract where there is no physical settlement of two
currencies at maturity (as opposed to deliverable forward
contracts, which per their terms are settled by physical
delivery of the currencies). Rather, based on the movement
of the currencies and the contractually agreed upon
exchange rate, a net cash settlement is made by one party
to the other in US dollars.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in the equity securities of issuers from Europe,
Australia and the Far East and in instruments designed
to hedge against the fund’s exposure to non-US currencies.
As of July 31, 2020, a significant percentage of the
Underlying Index was comprised of securities of issuers
from Japan (24.4%).
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
financials sector (15.8%). The financials sector includes
companies involved in banking, consumer finance, asset
management and custody banks, as well as investment
banking and brokerage and insurance. To the extent that
the fund tracks the Underlying Index, the fund’s investment
in certain sectors or countries may change over time.
The fund may become
“
non-diversified,
”
as defined under
the Investment Company Act of 1940, as amended, solely
as a result of a change in relative market capitalization or
index weighting of one or more constituents of the index
that the fund is designed to track. Shareholder approval will
not be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Main Risks
As with any investment, you could lose all or part of your investment in the fund, and the fund’s performance could trail that of other investments.
The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective, as
well as numerous other risks that are described in greater
detail in the section of this Prospectus entitled
“
Additional
Information About Fund Strategies, Underlying Index Information
and Risks
”
and in the Statement of Additional
Information (
“
SAI
”
).
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
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October 1, 2020
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Xtrackers MSCI EAFE Hedged Equity ETF
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the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Depositary receipts involve
similar risks to those associated with investments in securities
of non-US issuers. Depositary receipts also may be
less liquid than the underlying shares in their primary
trading market.
European investment risk.
European financial markets
have experienced volatility in recent years and have been
adversely affected by concerns about economic downturns,
credit rating downgrades, rising government debt
level and possible default on or restructuring of government
debt in several European countries. A default or debt
restructuring by any European country would adversely
impact holders of that country’s debt, and sellers of credit
default swaps linked to that country’s creditworthiness.
Most countries in Western Europe are members of the
European Union (EU), which faces major issues involving
its membership, structure, procedures and policies. In
June 2016, citizens of the United Kingdom approved a
referendum to leave the EU. On January 31, 2020, the
United Kingdom officially withdrew from the EU pursuant
to a withdrawal agreement, providing for a transition period
in which the United Kingdom will seek to negotiate and
finalize a trade deal with the EU. The transition period will
end on December 31, 2020 and can no longer be extended
under the terms of the withdrawal agreement. Significant
uncertainty exists regarding any adverse economic and
political effects the United Kingdom’s withdrawal may have
Prospectus
October 1, 2020
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Xtrackers MSCI EAFE Hedged Equity ETF
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on the United Kingdom, other EU countries and the global
economy, which could be significant, potentially resulting
in increased volatility and illiquidity and lower economic
growth.
European countries are also significantly affected by fiscal
and monetary controls implemented by the European
Economic and Monetary Union (EMU), and it is possible
that the timing and substance of these controls may not
address the needs of all EMU member countries. Investing
in euro-denominated securities also risks exposure to a
currency that may not fully reflect the strengths and weaknesses
of the disparate economies that comprise Europe.
There is continued concern over member state-level
support for the euro, which could lead to certain countries
leaving the EMU, the implementation of currency controls,
or potentially the dissolution of the euro. The dissolution of
the euro could have significant negative effects on European
financial markets.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors of
the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Financials sector risk.
To the extent that the fund invests
significantly in the financials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
financials sector. The financials sector is subject to extensive
government regulation, can be subject to relatively
rapid change due to increasingly blurred distinctions
between service segments, and can be significantly
affected by availability and cost of capital funds, changes in
interest rates, the rate of corporate and consumer debt
defaults, and price competition.
Forward currency contract risk.
The fund’s forward
currency contracts may not be successful in minimizing
the impact of changes in the value of the non-US currencies
against the US dollar. To the extent the fund’s forward
currency contracts are not successful, the US dollar value
of your investment in the fund may go down. Furthermore,
because no changes in the currency weights in the Underlying
Index are made during the month to account for
changes in the Underlying Index due to price movement of
securities, corporate events, additions, deletions or any
other changes, changes in the value of non-US currencies
against the US dollar during the month may affect the
value of the fund’s investment. Currency exchange rates
can be very volatile and can change quickly and unpredictably.
Therefore, the value of an investment in the fund may
also go up or down quickly and unpredictably and investors
may lose money. NDFs may be less liquid than deliverable
forward currency contracts. A lack of liquidity in NDFs
of the hedged currency could adversely affect the fund’s
ability to hedge against currency fluctuations and properly
track the Underlying Index.
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
Prospectus
October 1, 2020
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Xtrackers MSCI EAFE Hedged Equity ETF
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such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
the NAV during periods of market volatility. The Advisor
cannot predict whether shares will trade above, below or
at their NAV. Given the fact that shares can be created and
redeemed in Creation Units (defined below), the Advisor
believes that large discounts or premiums to the NAV of
shares should not be sustained in the long-term. If market
makers exit the business or are unable to continue making
markets in fund shares, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market). Further, while the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in market prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. In addition, the securities held by the fund
may be traded in markets that close at a different time
than the exchange on which the fund’s shares trade.
Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time
when the exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. The bid-ask spread of the fund may be
wider in comparison to the bid-ask spread of other ETFs,
given the liquidity of the fund’s assets and the Underlying
Index’s (and thus the fund’s) hedging strategy. Further,
secondary markets may be subject to irregular trading
activity, wide bid-ask spreads and extended trade settlement
periods, which could cause a material decline in the
fund’s NAV. The fund’s investment results are measured
based upon the daily NAV of the fund. Investors purchasing
and selling shares in the secondary market may not experience
investment results consistent with those
experienced by those APs creating and redeeming shares
directly with the fund.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
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Xtrackers MSCI EAFE Hedged Equity ETF
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Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
At any given time, due to the
composition of the Underlying Index, the fund may be classified
as
“
non-diversified
”
under the Investment Company
Act of 1940, as amended. This means that the fund may
invest in securities of relatively few issuers. Thus, the
performance of one or a small number of portfolio holdings
can affect overall performance.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Past Performance
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund’s performance from year to year and by showing how the fund’s average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund’s past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future.
Updated performance information
is available on the fund’s website at
Xtrackers.com
(the website does not form a part of this prospectus).
CALENDAR YEAR TOTAL RETURNS(%)
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October 1, 2020
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Xtrackers MSCI EAFE Hedged Equity ETF
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Average Annual Total Returns(For periods ended 12/31/2019 expressed as a %)
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax. Your own actual after-tax returns will depend on your tax situation and may differ from what is shown here. After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts (“IRAs”) or employee-sponsored retirement plans.
|
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After tax on distribu-
tions
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After tax on distribu-
tions and sale of fund
shares
|
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MSCI EAFE US Dollar
Hedged Index
(reflects
no deductions for fees,
expenses or taxes)
|
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MSCI EAFE Index
(reflects no deductions
for fees, expenses or
taxes)
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Management
Investment Advisor
DBX Advisors LLC
Portfolio Managers
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
Purchase and Sale of Fund Shares
The fund is an exchange-traded fund (commonly referred
to as an
“
ETF
”
). Individual fund shares may only be
purchased and sold through a brokerage firm. The price of
fund shares is based on market price, and because ETF
shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than
NAV (a discount). The fund will only issue or redeem
shares that have been aggregated into blocks of 200,000
shares or multiples thereof (
“
Creation Units
”
) to APs who
have entered into agreements with ALPS Distributors,
Inc., the fund’s distributor. You may incur costs attributable
to the difference between the highest price a buyer is
willing to pay to purchase shares of the fund (bid) and the
lowest price a seller is willing to accept for shares of the
fund (ask) when buying or selling shares (the
“
bid-ask
spread
”
). Information on the fund’s net asset value, market
price, premiums and discounts and bid-ask spreads may
be found at Xtrackers.com.
Tax Information
The fund's distributions are generally taxable to you as
ordinary income or capital gains, except when your investment
is in an IRA, 401(k), or other tax-deferred investment
plan. Any withdrawals you make from such tax- advantaged
investment plans, however, may be taxable to you.
Payments to Broker-Dealers and
Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer
or other financial intermediary (such as a bank), the
Advisor or other related companies may pay the intermediary
for marketing activities and presentations,
educational training programs, the support of technology
platforms and/or reporting systems or other services
related to the sale or promotion of the fund. These
payments may create a conflict of interest by influencing
the broker-dealer or other intermediary and your salesperson
to recommend the fund over another investment.
Ask your salesperson or visit your financial intermediary’s
website for more information.
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October 1, 2020
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Xtrackers MSCI EAFE Hedged Equity ETF
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Xtrackers MSCI Germany Hedged Equity ETF
|
Stock Exchange: NYSE Arca, Inc.
|
Investment Objective
The Xtrackers MSCI Germany Hedged Equity ETF (the
“
fund
”
) seeks investment results that correspond generally
to the performance, before fees and expenses, of the
MSCI Germany US Dollar Hedged Index (the
“
Underlying
Index
”
).
Fees and Expenses
These are the fees and expenses that you will pay when
you buy, hold and sell shares.
You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below.
ANNUAL FUND OPERATING EXPENSES(expenses that you pay each year as a % of the value of your investment)
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Total annual fund operating expenses
|
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EXAMPLE
This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then sell 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 operating expenses remain the same. The Example does not take into account brokerage commissions that you may pay on your purchases and sales of shares of the fund. It also does not include the transaction fees on purchases and redemptions of Creation Units (defined herein), because those fees will not be imposed on retail investors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
PORTFOLIO TURNOVER
The fund pays transaction costs, such as commissions,
when it buys and sells securities (or
“
turns over
”
its portfolio).
A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are
investing in a taxable account. These costs are not
reflected in annual fund operating expenses or in the
expense example, and can affect the fund's performance.
During the most recent fiscal year, the fund’s portfolio turnover
rate was
14
% of the average value of its portfolio.
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track the performance
of the German equity market while mitigating
exposure to fluctuations between the value of the US
dollar and the euro. The fund uses a full replication indexing
strategy to seek to track the Underlying Index. As such,
the fund invests directly in the component securities (or a
substantial number of the component securities) of the
Underlying Index in substantially the same weightings in
which they are represented in the Underlying Index. If it is
not possible for the fund to acquire component securities
due to limited availability or regulatory restrictions, the
fund may use a representative sampling indexing strategy
to seek to track the Underlying Index instead of a full replication
indexing strategy.
“
Representative sampling
”
is an
indexing strategy that involves investing in a representative
sample of securities that collectively has an investment
profile similar to the Underlying Index. The securities
selected are expected to have, in the aggregate, investment
characteristics (based on factors such as market
capitalization and industry weightings), fundamental characteristics
(such as return variability and yield), and liquidity
Prospectus
October 1, 2020
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Xtrackers MSCI Germany Hedged Equity ETF
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measures similar to those of the Underlying Index. The
fund may or may not hold all of the securities in the Underlying
Index when using a representative sampling indexing
strategy. The fund will invest at least 80% of its total
assets (but typically far more) in component securities
(including depositary receipts in respect of such securities)
of the Underlying Index.
As of July 31, 2020, the Underlying Index consisted of 62
securities, with an average market capitalization of approximately
$20.51 billion and a minimum market capitalization
of approximately $1.63 billion. Under normal circumstances,
the Underlying Index is rebalanced monthly. The
fund rebalances its portfolio in accordance with the Underlying
Index, and, therefore, any changes to the Underlying
Index’s rebalance schedule will result in corresponding
changes to the fund’s rebalance schedule.
The fund enters into forward currency contracts designed
to offset the fund’s exposure to the euro. The fund hedges
the euro to the US dollar by selling euro currency forwards
at the one-month forward rate published by WM/Reuters.
The amount of forward contracts in the fund is based on
the aggregate exposure of the fund and Underlying Index
to the euro based on currency weights as of the beginning
of each month. While this approach is designed to minimize
the impact of currency fluctuations on fund returns,
this does not necessarily eliminate exposure to all currency
fluctuations. The return of the forward currency contracts
may not perfectly offset the actual fluctuations of the euro
relative to the US dollar.
The fund may use non-deliverable forward (
“
NDF
”
)
contracts to execute its hedging transactions. An NDF is a
contract where there is no physical settlement of two
currencies at maturity (as opposed to deliverable forward
contracts, which per their terms are settled by physical
delivery of the currencies). Rather, based on the movement
of the currencies and the contractually agreed upon
exchange rate, a net cash settlement is made by one party
to the other in US dollars.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in the equity securities of German issuers and
in instruments designed to hedge against the fund’s exposure
to the euro. As of July 31, 2020, the Underlying Index
was solely comprised of securities of issuers from
Germany.
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
information technology (16.3%), consumer discretionary
(15.7%) and in the financials (15.2%) sectors. The information
technology sector includes companies engaged in
developing software and providing data processing and
outsourced services, along with manufacturing and distributing
communications equipment, computers and other
electronic equipment and instruments. The consumer
discretionary goods sector includes durable goods,
apparel, entertainment and leisure, and automobiles. The
financials sector includes companies involved in banking,
consumer finance, asset management and custody banks,
as well as investment banking and brokerage and insurance.
To the extent that the fund tracks the Underlying
Index, the fund’s investment in certain sectors may change
over time.
While the fund is currently classified as
“
non-diversified
”
under the Investment Company Act of 1940, it may
operate as or become classified as
“
diversified
”
over time.
The fund could again become non-diversified solely as a
result of a change in relative market capitalization or index
weighting of one or more constituents of the index that
the fund is designed to track. Shareholder approval will not
be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Main Risks
As with any investment, you could lose all or part of your investment in the fund, and the fund’s performance could trail that of other investments.
The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective, as
well as numerous other risks that are described in greater
detail in the section of this Prospectus entitled
“
Additional
Information About Fund Strategies, Underlying Index Information
and Risks
”
and in the Statement of Additional
Information (
“
SAI
”
).
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
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October 1, 2020
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|
Xtrackers MSCI Germany Hedged Equity ETF
|
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Depositary receipts involve
similar risks to those associated with investments in securities
of non-US issuers. Depositary receipts also may be
less liquid than the underlying shares in their primary
trading market.
Risks related to investing in Germany.
The German
economy is dependent on the other countries in Europe as
key trade partners. Exports account for more than
one-third of Germany’s output and are a key element in
German economic expansion. Reduction in spending by
European countries on German products and services or
negative changes in any of these countries may cause an
adverse impact on the German economy. In addition, the
US is a large trade and investment partner of Germany.
Decreasing US imports, new trade regulations, changes in
the US dollar exchange rates or a recession in the US may
also have an adverse impact on the German economy.
Investing in German issuers involves political, social and
regulatory risks. Certain sectors and regions of Germany
have experienced high unemployment and social unrest.
These issues may have an adverse effect on the German
economy or the German industries or sectors in which the
fund invests. Heavy regulation of labor and product
markets is pervasive in Germany. These regulations may
stifle economic growth or result in extended recessionary
periods.
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Xtrackers MSCI Germany Hedged Equity ETF
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European investment risk.
European financial markets
have experienced volatility in recent years and have been
adversely affected by concerns about economic downturns,
credit rating downgrades, rising government debt
level and possible default on or restructuring of government
debt in several European countries. A default or debt
restructuring by any European country would adversely
impact holders of that country’s debt, and sellers of credit
default swaps linked to that country’s creditworthiness.
Most countries in Western Europe are members of the
European Union (EU), which faces major issues involving
its membership, structure, procedures and policies. In
June 2016, citizens of the United Kingdom approved a
referendum to leave the EU. On January 31, 2020, the
United Kingdom officially withdrew from the EU pursuant
to a withdrawal agreement, providing for a transition period
in which the United Kingdom will seek to negotiate and
finalize a trade deal with the EU. The transition period will
end on December 31, 2020 and can no longer be extended
under the terms of the withdrawal agreement. Significant
uncertainty exists regarding any adverse economic and
political effects the United Kingdom’s withdrawal may have
on the United Kingdom, other EU countries and the global
economy, which could be significant, potentially resulting
in increased volatility and illiquidity and lower economic
growth.
European countries are also significantly affected by fiscal
and monetary controls implemented by the European
Economic and Monetary Union (EMU), and it is possible
that the timing and substance of these controls may not
address the needs of all EMU member countries. Investing
in euro-denominated securities also risks exposure to a
currency that may not fully reflect the strengths and weaknesses
of the disparate economies that comprise Europe.
There is continued concern over member state-level
support for the euro, which could lead to certain countries
leaving the EMU, the implementation of currency controls,
or potentially the dissolution of the euro. The dissolution of
the euro could have significant negative effects on European
financial markets.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors of
the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Information technology sector risk.
To the extent that
the fund invests significantly in the information technology
sector, the fund will be sensitive to changes in, and the
fund’s performance may depend to a greater extent on, the
overall condition of the information technology sector. Information
technology companies are particularly vulnerable to
government regulation and competition, both domestically
and internationally, including competition from foreign
competitors with lower production costs. Information technology
companies also face competition for services of
qualified personnel. Additionally, the products of information
technology companies may face obsolescence due to
rapid technological development and frequent new
product introduction by competitors. Finally, information
technology companies are heavily dependent on patent
and intellectual property rights, the loss or impairment of
which may adversely affect profitability.
Consumer discretionary sector risk.
To the extent that
the fund invests significantly in the consumer discretionary
sector, the fund will be sensitive to changes in, and the
fund’s performance may depend to a greater extent on, the
overall condition of the consumer discretionary sector.
Companies engaged in the consumer discretionary sector
are subject to fluctuations in supply and demand. These
companies may also be adversely affected by changes in
consumer spending as a result of world events, political
and economic conditions, commodity price volatility,
changes in exchange rates, imposition of import controls,
increased competition, depletion of resources and labor
relations.
Financials sector risk.
To the extent that the fund invests
significantly in the financials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
financials sector. The financials sector is subject to extensive
government regulation, can be subject to relatively
rapid change due to increasingly blurred distinctions
between service segments, and can be significantly
affected by availability and cost of capital funds, changes in
interest rates, the rate of corporate and consumer debt
defaults, and price competition.
Forward currency contract risk.
The fund’s forward
currency contracts may not be successful in minimizing
the impact of changes in the value of the non-US currencies
against the US dollar. To the extent the fund’s forward
currency contracts are not successful, the US dollar value
of your investment in the fund may go down. Furthermore,
because no changes in the currency weights in the Underlying
Index are made during the month to account for
changes in the Underlying Index due to price movement of
securities, corporate events, additions, deletions or any
other changes, changes in the value of non-US currencies
against the US dollar during the month may affect the
value of the fund’s investment. Currency exchange rates
can be very volatile and can change quickly and unpredictably.
Therefore, the value of an investment in the fund may
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Xtrackers MSCI Germany Hedged Equity ETF
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also go up or down quickly and unpredictably and investors
may lose money. NDFs may be less liquid than deliverable
forward currency contracts. A lack of liquidity in NDFs
of the hedged currency could adversely affect the fund’s
ability to hedge against currency fluctuations and properly
track the Underlying Index.
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
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Xtrackers MSCI Germany Hedged Equity ETF
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the NAV during periods of market volatility. The Advisor
cannot predict whether shares will trade above, below or
at their NAV. Given the fact that shares can be created and
redeemed in Creation Units (defined below), the Advisor
believes that large discounts or premiums to the NAV of
shares should not be sustained in the long-term. If market
makers exit the business or are unable to continue making
markets in fund shares, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market). Further, while the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in market prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. In addition, the securities held by the fund
may be traded in markets that close at a different time
than the exchange on which the fund’s shares trade.
Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time
when the exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. The bid-ask spread of the fund may be
wider in comparison to the bid-ask spread of other ETFs,
given the liquidity of the fund’s assets and the Underlying
Index’s (and thus the fund’s) hedging strategy. Further,
secondary markets may be subject to irregular trading
activity, wide bid-ask spreads and extended trade settlement
periods, which could cause a material decline in the
fund’s NAV. The fund’s investment results are measured
based upon the daily NAV of the fund. Investors purchasing
and selling shares in the secondary market may not experience
investment results consistent with those
experienced by those APs creating and redeeming shares
directly with the fund.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Country concentration risk.
To the extent that the fund
invests significantly in a single country, it is more likely to
be impacted by events or conditions affecting that country.
For example, political and economic conditions and
changes in regulatory, tax or economic policy in a country
could significantly affect the market in that country and
in surrounding or related countries and have a negative
impact on the fund’s performance.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
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orders, (including in situations where APs have limited or
diminished access to capital required to post collateral) and
no other AP is able to step forward to create and redeem
in either of these cases, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market).
Non-diversification risk. The fund is classified as non-diversified under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.
If the fund becomes classified as
“
diversified
”
over time
and again becomes non-diversified as a result of a change
in relative market capitalization or index weighting of one
or more constituents of the index that the fund is designed
to track, non-diversification risk would apply.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Past Performance
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund’s performance from year to year and by showing how the fund’s average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund’s past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future.
Updated performance information
is available on the fund’s website at
Xtrackers.com
(the website does not form a part of this prospectus).
Effective May 31, 2013, changes were made to the fund’s
investment objective. Prior to May 31, 2013, the fund was
known as dbx-trackers MSCI Canada Hedged Equity Fund
(DBCN). Returns reflect performance for DBCN and its
underlying hedged and unhedged indices through May 31,
2013.
CALENDAR YEAR TOTAL RETURNS(%)
Average Annual Total Returns(For periods ended 12/31/2019 expressed as a %)
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax. Your own actual after-tax returns will depend on your tax situation and may differ from what is shown here. After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts (“IRAs”) or employee-sponsored retirement plans.
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After tax on distribu-
tions
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After tax on distribu-
tions and sale of fund
shares
|
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MSCI Germany US
Dollar Hedged Index
(reflects no deductions
for fees, expenses or
taxes)
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MSCI Germany Index
(reflects no deductions
for fees, expenses or
taxes)
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Management
Investment Advisor
DBX Advisors LLC
Portfolio Managers
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
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Xtrackers MSCI Germany Hedged Equity ETF
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Purchase and Sale of Fund Shares
The fund is an exchange-traded fund (commonly referred
to as an
“
ETF
”
). Individual fund shares may only be
purchased and sold through a brokerage firm. The price of
fund shares is based on market price, and because ETF
shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than
NAV (a discount). The fund will only issue or redeem
shares that have been aggregated into blocks of 50,000
shares or multiples thereof (
“
Creation Units
”
) to APs who
have entered into agreements with ALPS Distributors,
Inc., the fund’s distributor. You may incur costs attributable
to the difference between the highest price a buyer is
willing to pay to purchase shares of the fund (bid) and the
lowest price a seller is willing to accept for shares of the
fund (ask) when buying or selling shares (the
“
bid-ask
spread
”
). Information on the fund’s net asset value, market
price, premiums and discounts and bid-ask spreads may
be found at Xtrackers.com.
Tax Information
The fund's distributions are generally taxable to you as
ordinary income or capital gains, except when your investment
is in an IRA, 401(k), or other tax-deferred investment
plan. Any withdrawals you make from such tax- advantaged
investment plans, however, may be taxable to you.
Payments to Broker-Dealers and
Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer
or other financial intermediary (such as a bank), the
Advisor or other related companies may pay the intermediary
for marketing activities and presentations,
educational training programs, the support of technology
platforms and/or reporting systems or other services
related to the sale or promotion of the fund. These
payments may create a conflict of interest by influencing
the broker-dealer or other intermediary and your salesperson
to recommend the fund over another investment.
Ask your salesperson or visit your financial intermediary’s
website for more information.
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Xtrackers MSCI Germany Hedged Equity ETF
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Xtrackers MSCI Japan Hedged Equity ETF
|
Stock Exchange: NYSE Arca, Inc.
|
Investment Objective
The Xtrackers MSCI Japan Hedged Equity ETF (the
“
fund
”
)
seeks investment results that correspond generally to the
performance, before fees and expenses, of the MSCI
Japan US Dollar Hedged Index (the
“
Underlying Index
”
).
Fees and Expenses
These are the fees and expenses that you will pay when
you buy, hold and sell shares.
You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below.
ANNUAL FUND OPERATING EXPENSES(expenses that you pay each year as a % of the value of your investment)
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Total annual fund operating expenses
|
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1
Other Expenses include interest expense of 0.01%.
EXAMPLE
This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then sell 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 operating expenses remain the same. The Example does not take into account brokerage commissions that you may pay on your purchases and sales of shares of the fund. It also does not include the transaction fees on purchases and redemptions of Creation Units (defined herein), because those fees will not be imposed on retail investors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
PORTFOLIO TURNOVER
The fund pays transaction costs, such as commissions,
when it buys and sells securities (or
“
turns over
”
its portfolio).
A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are
investing in a taxable account. These costs are not
reflected in annual fund operating expenses or in the
expense example, and can affect the fund's performance.
During the most recent fiscal year, the fund’s portfolio turnover
rate was
12
% of the average value of its portfolio.
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track the performance
of the Japanese equity market while mitigating
exposure to fluctuations between the value of the US
dollar and the Japanese yen. The fund uses a full replication
indexing strategy to seek to track the Underlying
Index. As such, the fund invests directly in the component
securities (or a substantial number of the component securities)
of the Underlying Index in substantially the same
weightings in which they are represented in the Underlying
Index. If it is not possible for the fund to acquire component
securities due to limited availability or regulatory
restrictions, the fund may use a representative sampling
indexing strategy to seek to track the Underlying Index
instead of a full replication indexing strategy.
“
Representative
sampling
”
is an indexing strategy that involves
investing in a representative sample of securities that
collectively has an investment profile similar to the Underlying
Index. The securities selected are expected to have,
in the aggregate, investment characteristics (based on
factors such as market capitalization and industry
weightings), fundamental characteristics (such as return
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October 1, 2020
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Xtrackers MSCI Japan Hedged Equity ETF
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variability and yield), and liquidity measures similar to
those of the Underlying Index. The fund may or may not
hold all of the securities in the Underlying Index when
using a representative sampling indexing strategy. The
fund will invest at least 80% of its total assets (but typically
far more) in component securities (including
depositary receipts in respect of such securities) of the
Underlying Index.
As of July 31, 2020, the Underlying Index consisted of 320
securities, with an average market capitalization of approximately
$10.22 billion and a minimum market capitalization
of approximately $1.22 billion. Under normal circumstances,
the Underlying Index is rebalanced monthly. The
fund rebalances its portfolio in accordance with the Underlying
Index, and, therefore, any changes to the Underlying
Index’s rebalance schedule will result in corresponding
changes to the fund’s rebalance schedule.
The fund enters into forward currency contracts designed
to offset the fund’s exposure to the Japanese yen. The
fund hedges the Japanese yen to the US dollar by selling
Japanese yen currency forwards at the one-month forward
rate published by WM/Reuters.
The amount of forward contracts in the fund is based on
the aggregate exposure of the fund and Underlying Index
to the Japanese yen based on currency weights as of the
beginning of each month. While this approach is designed
to minimize the impact of currency fluctuations on fund
returns, this does not necessarily eliminate exposure to all
currency fluctuations. The return of the forward currency
contracts may not perfectly offset the actual fluctuations of
the Japanese yen relative to the US dollar. The fund may
use non-deliverable forward (
“
NDF
”
) contracts to execute
its hedging transactions. An NDF is a contract where there
is no physical settlement of two currencies at maturity (as
opposed to deliverable forward contracts, which per their
terms are settled by physical delivery of the currencies).
Rather, based on the movement of the currencies and the
contractually agreed upon exchange rate, a net cash settlement
is made by one party to the other in US dollars.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in the equity securities of Japanese issuers and
in instruments designed to hedge against the fund’s exposure
to the Japanese yen. As of July 31, 2020, the
Underlying Index was solely comprised of securities of
issuers from Japan.
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
industrials (19.7%) and consumer discretionary (17.6%)
sectors. The industrials sector includes companies
engaged in the manufacture and distribution of capital
goods, such as those used in defense, construction and
engineering, companies that manufacture and distribute
electrical equipment and industrial machinery and those
that provide commercial and transportation services and
supplies. The consumer discretionary goods sector
includes durable goods, apparel, entertainment and
leisure, and automobiles. To the extent that the fund tracks
the Underlying Index, the fund’s investment in certain
sectors may change over time.
The fund may become
“
non-diversified,
”
as defined under
the Investment Company Act of 1940, as amended, solely
as a result of a change in relative market capitalization or
index weighting of one or more constituents of the index
that the fund is designed to track. Shareholder approval will
not be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Main Risks
As with any investment, you could lose all or part of your investment in the fund, and the fund’s performance could trail that of other investments.
The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective, as
well as numerous other risks that are described in greater
detail in the section of this Prospectus entitled
“
Additional
Information About Fund Strategies, Underlying Index Information
and Risks
”
and in the Statement of Additional
Information (
“
SAI
”
).
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
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Xtrackers MSCI Japan Hedged Equity ETF
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result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Depositary receipts involve
similar risks to those associated with investments in securities
of non-US issuers. Depositary receipts also may be
less liquid than the underlying shares in their primary
trading market.
Risks related to investing in Japan.
The growth of
Japan’s economy has historically lagged behind that of its
Asian neighbors and other major developed economies.
The Japanese economy is heavily dependent on international
trade and has been adversely affected by trade
tariffs, other protectionist measures, competition from
emerging economies and the economic conditions of its
trading partners. Japan’s relations with its neighbors,
particularly China, North Korea, South Korea and Russia,
have at times been strained due to territorial disputes,
historical animosities and defense concerns. Most
recently, the Japanese government has shown concern
over the increased nuclear and military activity by North
Korea. Strained relations may cause uncertainty in the
Japanese markets and adversely affect the overall Japanese
economy in times of crisis. China has become an
important trading partner with Japan, yet the countries’
political relationship has become strained. Should political
tension increase, it could adversely affect the economy,
especially the export sector, and destabilize the region as a
whole. Japan is located in a part of the world that has
historically been prone to natural disasters such as earthquakes,
volcanoes and tsunamis and is economically
sensitive to environmental events. Any such event, such
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Xtrackers MSCI Japan Hedged Equity ETF
|
as the major earthquake and tsunami which struck Japan
in March 2011, could result in a significant adverse impact
on the Japanese economy. Japan also remains heavily
dependent on oil imports, and higher commodity prices
could therefore have a negative impact on the economy.
Furthermore, Japanese corporations often engage in high
levels of corporate leveraging, extensive cross-purchases
of the securities of other corporations and are subject to a
changing corporate governance structure. Japan may be
subject to risks relating to political, economic and labor
risks. Any of these risks, individually or in the aggregate,
could adversely affect investments in the fund.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors of
the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Consumer discretionary sector risk.
To the extent that
the fund invests significantly in the consumer discretionary
sector, the fund will be sensitive to changes in, and the
fund’s performance may depend to a greater extent on, the
overall condition of the consumer discretionary sector.
Companies engaged in the consumer discretionary sector
are subject to fluctuations in supply and demand. These
companies may also be adversely affected by changes in
consumer spending as a result of world events, political
and economic conditions, commodity price volatility,
changes in exchange rates, imposition of import controls,
increased competition, depletion of resources and labor
relations.
Industrials sector risk.
To the extent that the fund invests
significantly in the industrials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
industrials sector. Companies in the industrials sector may
be adversely affected by changes in government regulation,
world events and economic conditions. In addition,
companies in the industrials sector may be adversely
affected by environmental damages, product liability claims
and exchange rates.
Forward currency contract risk.
The fund’s forward
currency contracts may not be successful in minimizing
the impact of changes in the value of the non-US currencies
against the US dollar. To the extent the fund’s forward
currency contracts are not successful, the US dollar value
of your investment in the fund may go down. Furthermore,
because no changes in the currency weights in the Underlying
Index are made during the month to account for
changes in the Underlying Index due to price movement of
securities, corporate events, additions, deletions or any
other changes, changes in the value of non-US currencies
against the US dollar during the month may affect the
value of the fund’s investment. Currency exchange rates
can be very volatile and can change quickly and unpredictably.
Therefore, the value of an investment in the fund may
also go up or down quickly and unpredictably and investors
may lose money. NDFs may be less liquid than deliverable
forward currency contracts. A lack of liquidity in NDFs
of the hedged currency could adversely affect the fund’s
ability to hedge against currency fluctuations and properly
track the Underlying Index.
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
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Xtrackers MSCI Japan Hedged Equity ETF
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not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
the NAV during periods of market volatility. The Advisor
cannot predict whether shares will trade above, below or
at their NAV. Given the fact that shares can be created and
redeemed in Creation Units (defined below), the Advisor
believes that large discounts or premiums to the NAV of
shares should not be sustained in the long-term. If market
makers exit the business or are unable to continue making
markets in fund shares, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market). Further, while the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in market prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. In addition, the securities held by the fund
may be traded in markets that close at a different time
than the exchange on which the fund’s shares trade.
Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time
when the exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. The bid-ask spread of the fund may be
wider in comparison to the bid-ask spread of other ETFs,
given the liquidity of the fund’s assets and the Underlying
Index’s (and thus the fund’s) hedging strategy. Further,
secondary markets may be subject to irregular trading
activity, wide bid-ask spreads and extended trade settlement
periods, which could cause a material decline in the
fund’s NAV. The fund’s investment results are measured
based upon the daily NAV of the fund. Investors purchasing
and selling shares in the secondary market may not experience
investment results consistent with those
experienced by those APs creating and redeeming shares
directly with the fund.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
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Xtrackers MSCI Japan Hedged Equity ETF
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investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Country concentration risk.
To the extent that the fund
invests significantly in a single country, it is more likely to
be impacted by events or conditions affecting that country.
For example, political and economic conditions and
changes in regulatory, tax or economic policy in a country
could significantly affect the market in that country and
in surrounding or related countries and have a negative
impact on the fund’s performance.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
At any given time, due to the
composition of the Underlying Index, the fund may be classified
as
“
non-diversified
”
under the Investment Company
Act of 1940, as amended. This means that the fund may
invest in securities of relatively few issuers. Thus, the
performance of one or a small number of portfolio holdings
can affect overall performance.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Past Performance
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund’s performance from year to year and by showing how the fund’s average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund’s past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future.
Updated performance information
is available on the fund’s website at
Xtrackers.com
(the website does not form a part of this prospectus).
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Xtrackers MSCI Japan Hedged Equity ETF
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CALENDAR YEAR TOTAL RETURNS(%)
Average Annual Total Returns(For periods ended 12/31/2019 expressed as a %)
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax. Your own actual after-tax returns will depend on your tax situation and may differ from what is shown here. After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts (“IRAs”) or employee-sponsored retirement plans.
|
|
|
|
|
|
|
|
|
|
After tax on distribu-
tions
|
|
|
|
|
After tax on distribu-
tions and sale of fund
shares
|
|
|
|
|
MSCI Japan US Dollar
Hedged Index
(reflects
no deductions for fees,
expenses or taxes)
|
|
|
|
|
MSCI Japan Index
(reflects no deductions
for fees, expenses or
taxes)
|
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|
Management
Investment Advisor
DBX Advisors LLC
Portfolio Managers
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
Purchase and Sale of Fund Shares
The fund is an exchange-traded fund (commonly referred
to as an
“
ETF
”
). Individual fund shares may only be
purchased and sold through a brokerage firm. The price of
fund shares is based on market price, and because ETF
shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than
NAV (a discount). The fund will only issue or redeem
shares that have been aggregated into blocks of 50,000
shares or multiples thereof (
“
Creation Units
”
) to APs who
have entered into agreements with ALPS Distributors,
Inc., the fund’s distributor. You may incur costs attributable
to the difference between the highest price a buyer is
willing to pay to purchase shares of the fund (bid) and the
lowest price a seller is willing to accept for shares of the
fund (ask) when buying or selling shares (the
“
bid-ask
spread
”
). Information on the fund’s net asset value, market
price, premiums and discounts and bid-ask spreads may
be found at Xtrackers.com.
Tax Information
The fund's distributions are generally taxable to you as
ordinary income or capital gains, except when your investment
is in an IRA, 401(k), or other tax-deferred investment
plan. Any withdrawals you make from such tax- advantaged
investment plans, however, may be taxable to you.
Payments to Broker-Dealers and
Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer
or other financial intermediary (such as a bank), the
Advisor or other related companies may pay the intermediary
for marketing activities and presentations,
educational training programs, the support of technology
platforms and/or reporting systems or other services
related to the sale or promotion of the fund. These
payments may create a conflict of interest by influencing
the broker-dealer or other intermediary and your salesperson
to recommend the fund over another investment.
Ask your salesperson or visit your financial intermediary’s
website for more information.
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Xtrackers MSCI Europe Hedged Equity ETF
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Stock Exchange: NYSE Arca, Inc.
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Investment Objective
Xtrackers MSCI Europe Hedged Equity ETF (the
“
fund
”
)
seeks investment results that correspond generally to the
performance, before fees and expenses, of the MSCI
Europe US Dollar Hedged Index (the
“
Underlying Index
”
).
Fees and Expenses
These are the fees and expenses that you will pay when
you buy, hold and sell shares.
You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below.
ANNUAL FUND OPERATING EXPENSES(expenses that you pay each year as a % of the value of your investment)
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Total annual fund operating expenses
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1
Other Expenses include interest expense of 0.01%.
EXAMPLE
This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then sell 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 operating expenses remain the same. The Example does not take into account brokerage commissions that you may pay on your purchases and sales of shares of the fund. It also does not include the transaction fees on purchases and redemptions of Creation Units (defined herein), because those fees will not be imposed on retail investors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
PORTFOLIO TURNOVER
The fund pays transaction costs, such as commissions,
when it buys and sells securities (or
“
turns over
”
its portfolio).
A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are
investing in a taxable account. These costs are not
reflected in annual fund operating expenses or in the
expense example, and can affect the fund's performance.
During the most recent fiscal year, the fund’s portfolio turnover
rate was
13
% of the average value of its portfolio.
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track the performance
of the developed markets in Europe, while
mitigating exposure to fluctuations between the value of
the US dollar and the currencies of the countries included
in the Underlying Index. The fund uses a full replication
indexing strategy to seek to track the Underlying Index. As
such, the fund invests directly in the component securities
(or a substantial number of the component securities)
of the Underlying Index in substantially the same
weightings in which they are represented in the Underlying
Index. If it is not possible for the fund to acquire
component securities due to limited availability or regulatory
restrictions, the fund may use a representative
sampling indexing strategy to seek to track the Underlying
Index instead of a full replication indexing strategy.
“
Representative
sampling
”
is an indexing strategy that involves
investing in a representative sample of securities that
collectively has an investment profile similar to the Underlying
Index. The securities selected are expected to have,
in the aggregate, investment characteristics (based on
factors such as market capitalization and industry
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weightings), fundamental characteristics (such as return
variability and yield), and liquidity measures similar to
those of the Underlying Index. The fund may or may not
hold all of the securities in the Underlying Index when
using a representative sampling indexing strategy. The
fund will invest at least 80% of its total assets (but typically
far more) in component securities (including
depositary receipts in respect of such securities) of the
Underlying Index.
As of July 31, 2020, the Underlying Index consisted of 435
securities, with an average market capitalization of approximately
$19.49 billion and a minimum market capitalization
of approximately $1.21 billion, from issuers in the
following countries: Austria, Belgium, Denmark, Finland,
France, Germany, Ireland, Italy, Netherlands, Norway,
Portugal, Spain, Sweden, Switzerland and the United
Kingdom. Under normal circumstances, the Underlying
Index is rebalanced monthly. The fund rebalances its portfolio
in accordance with the Underlying Index, and,
therefore, any changes to the Underlying Index’s rebalance
schedule will result in corresponding changes to the fund’s
rebalance schedule.
The fund enters into forward currency contracts designed
to offset the fund’s exposure to foreign currencies. The
fund hedges each foreign currency in the portfolio to US
dollars by selling the applicable foreign currency forward at
the one-month forward rate published by WM/Reuters.
The amount of forward contracts in the fund is based on
the aggregate exposure of the fund and Underlying Index
to each non-US currency based on currency weights as of
the beginning of each month. While this approach is
designed to minimize the impact of currency fluctuations
on fund returns, this does not necessarily eliminate exposure
to all currency fluctuations. The return of the forward
currency contracts may not perfectly offset the actual fluctuations
of non-US currencies relative to the US dollar.
The fund may use non-deliverable forward (
“
NDF
”
)
contracts to execute its hedging transactions. An NDF is a
contract where there is no physical settlement of two
currencies at maturity (as opposed to deliverable forward
contracts, which per their terms are settled by physical
delivery of the currencies). Rather, based on the movement
of the currencies and the contractually agreed upon
exchange rate, a net cash settlement is made by one party
to the other in US dollars.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in the equity securities of issuers from Europe
and in instruments designed to hedge against the fund’s
exposure to non-US currencies. As of July 31, 2020, a
significant percentage of the Underlying Index was
comprised of securities of issuers from the United
Kingdom (22%), Switzerland (16.6%) and Germany
(15.0%).
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
health care sector (16.3%) and consumer staples sector
(15.0%). Industries in the health care sector include pharmaceuticals,
biotechnology, medical products and
supplies, and health care services. The consumer staples
sector includes companies whose businesses are less
sensitive to economic cycles, such as manufacturers and
distributors of food, beverages and producers of
non-durable household goods and personal products. To
the extent that the fund tracks the Underlying Index, the
fund’s investment in certain sectors or countries may
change over time.
The fund may become
“
non-diversified,
”
as defined under
the Investment Company Act of 1940, as amended, solely
as a result of a change in relative market capitalization or
index weighting of one or more constituents of the index
that the fund is designed to track. Shareholder approval will
not be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Main Risks
As with any investment, you could lose all or part of your investment in the fund, and the fund’s performance could trail that of other investments.
The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective, as
well as numerous other risks that are described in greater
detail in the section of this Prospectus entitled
“
Additional
Information About Fund Strategies, Underlying Index Information
and Risks
”
and in the Statement of Additional
Information (
“
SAI
”
).
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
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adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Depositary receipts involve
similar risks to those associated with investments in securities
of non-US issuers. Depositary receipts also may be
less liquid than the underlying shares in their primary
trading market.
European investment risk.
European financial markets
have experienced volatility in recent years and have been
adversely affected by concerns about economic downturns,
credit rating downgrades, rising government debt
level and possible default on or restructuring of government
debt in several European countries. A default or debt
restructuring by any European country would adversely
impact holders of that country’s debt, and sellers of credit
default swaps linked to that country’s creditworthiness.
Most countries in Western Europe are members of the
European Union (EU), which faces major issues involving
its membership, structure, procedures and policies. In
June 2016, citizens of the United Kingdom approved a
referendum to leave the EU. On January 31, 2020, the
United Kingdom officially withdrew from the EU pursuant
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to a withdrawal agreement, providing for a transition period
in which the United Kingdom will seek to negotiate and
finalize a trade deal with the EU. The transition period will
end on December 31, 2020 and can no longer be extended
under the terms of the withdrawal agreement. Significant
uncertainty exists regarding any adverse economic and
political effects the United Kingdom’s withdrawal may have
on the United Kingdom, other EU countries and the global
economy, which could be significant, potentially resulting
in increased volatility and illiquidity and lower economic
growth.
European countries are also significantly affected by fiscal
and monetary controls implemented by the European
Economic and Monetary Union (EMU), and it is possible
that the timing and substance of these controls may not
address the needs of all EMU member countries. Investing
in euro-denominated securities also risks exposure to a
currency that may not fully reflect the strengths and weaknesses
of the disparate economies that comprise Europe.
There is continued concern over member state-level
support for the euro, which could lead to certain countries
leaving the EMU, the implementation of currency controls,
or potentially the dissolution of the euro. The dissolution of
the euro could have significant negative effects on European
financial markets.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors of
the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Health care sector risk.
To the extent that the fund invests
significantly in the health care sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
health care sector. The health care sector may be affected
by government regulations and government health care
programs, increases or decreases in the cost of medical
products and services and product liability claims, among
other factors. Many health care companies are heavily
dependent on patent protection, and the expiration of a
company’s patent may adversely affect that company’s
profitability. Health care companies are subject to competitive
forces that may result in price discounting, and may
be thinly capitalized and susceptible to product
obsolescence.
Consumer staples sector risk.
To the extent that the fund
invests significantly in the consumer staples sector, the
fund will be sensitive to changes in, and the fund’s performance
may depend to a greater extent on, the overall
condition of the consumer staples sector. Companies in
the consumer staples sector may be adversely affected by
changes in the global economy, consumer spending,
competition, demographics and consumer preferences,
and production spending. Companies in the consumer
staples sector are also affected by changes in government
regulation, global economic, environmental and political
events, economic conditions and the depletion of
resources. In addition, companies in the consumer staples
sector may be subject to risks pertaining to the supply of,
demand for and prices of raw materials. The prices of raw
materials fluctuate in response to a number of factors,
including, without limitation, changes in government agricultural
support programs, exchange rates, import and
export controls, changes in international agricultural and
trading policies, and seasonal and weather conditions.
Forward currency contract risk.
The fund’s forward
currency contracts may not be successful in minimizing
the impact of changes in the value of the non-US currencies
against the US dollar. To the extent the fund’s forward
currency contracts are not successful, the US dollar value
of your investment in the fund may go down. Furthermore,
because no changes in the currency weights in the Underlying
Index are made during the month to account for
changes in the Underlying Index due to price movement of
securities, corporate events, additions, deletions or any
other changes, changes in the value of non-US currencies
against the US dollar during the month may affect the
value of the fund’s investment. Currency exchange rates
can be very volatile and can change quickly and unpredictably.
Therefore, the value of an investment in the fund may
also go up or down quickly and unpredictably and investors
may lose money. NDFs may be less liquid than deliverable
forward currency contracts. A lack of liquidity in NDFs
of the hedged currency could adversely affect the fund’s
ability to hedge against currency fluctuations and properly
track the Underlying Index.
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
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generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
the NAV during periods of market volatility. The Advisor
cannot predict whether shares will trade above, below or
at their NAV. Given the fact that shares can be created and
redeemed in Creation Units (defined below), the Advisor
believes that large discounts or premiums to the NAV of
shares should not be sustained in the long-term. If market
makers exit the business or are unable to continue making
markets in fund shares, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market). Further, while the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in market prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. In addition, the securities held by the fund
may be traded in markets that close at a different time
than the exchange on which the fund’s shares trade.
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Liquidity in those securities may be reduced after the applicable
closing times. Accordingly, during the time when
the exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. The bid-ask spread of the fund may be
wider in comparison to the bid-ask spread of other ETFs,
given the liquidity of the fund’s assets and the Underlying
Index’s (and thus the fund’s) hedging strategy. Further,
secondary markets may be subject to irregular trading
activity, wide bid-ask spreads and extended trade settlement
periods, which could cause a material decline in the
fund’s NAV. The fund’s investment results are measured
based upon the daily NAV of the fund. Investors purchasing
and selling shares in the secondary market may not experience
investment results consistent with those
experienced by those APs creating and redeeming shares
directly with the fund.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
At any given time, due to the
composition of the Underlying Index, the fund may be classified
as
“
non-diversified
”
under the Investment Company
Act of 1940, as amended. This means that the fund may
invest in securities of relatively few issuers. Thus, the
performance of one or a small number of portfolio holdings
can affect overall performance.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
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if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Past Performance
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund’s performance from year to year and by showing how the fund’s average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund’s past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future.
Updated performance information
is available on the fund’s website at
Xtrackers.com
(the website does not form a part of this prospectus).
CALENDAR YEAR TOTAL RETURNS(%)
Average Annual Total Returns(For periods ended 12/31/2019 expressed as a %)
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax. Your own actual after-tax returns will depend on your tax situation and may differ from what is shown here. After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts (“IRAs”) or employee-sponsored retirement plans.
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After tax on distribu-
tions
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After tax on distribu-
tions and sale of fund
shares
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MSCI Europe US Dollar
Hedged Index
(reflects
no deductions for fees,
expenses or taxes)
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MSCI Europe Index
(reflects no deductions
for fees, expenses or
taxes)
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Management
Investment Advisor
DBX Advisors LLC
Portfolio Managers
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
Purchase and Sale of Fund Shares
The fund is an exchange-traded fund (commonly referred
to as an
“
ETF
”
). Individual fund shares may only be
purchased and sold through a brokerage firm. The price of
fund shares is based on market price, and because ETF
shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than
NAV (a discount). The fund will only issue or redeem
shares that have been aggregated into blocks of 50,000
shares or multiples thereof (
“
Creation Units
”
) to APs who
have entered into agreements with ALPS Distributors,
Inc., the fund’s distributor. You may incur costs attributable
to the difference between the highest price a buyer is
willing to pay to purchase shares of the fund (bid) and the
lowest price a seller is willing to accept for shares of the
fund (ask) when buying or selling shares (the
“
bid-ask
spread
”
). Information on the fund’s net asset value, market
price, premiums and discounts and bid-ask spreads may
be found at Xtrackers.com.
Tax Information
The fund's distributions are generally taxable to you as
ordinary income or capital gains, except when your investment
is in an IRA, 401(k), or other tax-deferred investment
plan. Any withdrawals you make from such tax- advantaged
investment plans, however, may be taxable to you.
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Xtrackers MSCI Europe Hedged Equity ETF
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Payments to Broker-Dealers and
Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer
or other financial intermediary (such as a bank), the
Advisor or other related companies may pay the intermediary
for marketing activities and presentations,
educational training programs, the support of technology
platforms and/or reporting systems or other services
related to the sale or promotion of the fund. These
payments may create a conflict of interest by influencing
the broker-dealer or other intermediary and your salesperson
to recommend the fund over another investment.
Ask your salesperson or visit your financial intermediary’s
website for more information.
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Xtrackers MSCI Europe Hedged Equity ETF
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Xtrackers MSCI All World ex US Hedged Equity ETF
|
Stock Exchange: NYSE Arca, Inc.
|
Investment Objective
The Xtrackers MSCI All World ex US Hedged Equity ETF
(the
“
fund
”
) seeks investment results that correspond
generally to the performance, before fees and expenses,
of the MSCI ACWI ex USA US Dollar Hedged Index (the
“
Underlying Index
”
).
Fees and Expenses
These are the fees and expenses that you will pay when
you buy, hold and sell shares.
You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below.
ANNUAL FUND OPERATING EXPENSES(expenses that you pay each year as a % of the value of your investment)
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Total annual fund operating expenses
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1
Other Expenses include interest expense of 0.01%.
EXAMPLE
This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then sell 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 operating expenses remain the same. The Example does not take into account brokerage commissions that you may pay on your purchases and sales of shares of the fund. It also does not include the transaction fees on purchases and redemptions of Creation Units (defined herein), because those fees will not be imposed on retail investors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
PORTFOLIO TURNOVER
The fund pays transaction costs, such as commissions,
when it buys and sells securities (or
“
turns over
”
its portfolio).
A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are
investing in a taxable account. These costs are not
reflected in annual fund operating expenses or in the
expense example, and can affect the fund's performance.
During the most recent fiscal year, the fund’s portfolio turnover
rate was
10
% of the average value of its portfolio.
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track the performance
of equity securities in developed and emerging
stock markets (excluding the United States), while mitigating
exposure to fluctuations between the value of the
US dollar and the currencies of the countries included in
the Underlying Index. The fund uses a full replication
indexing strategy to seek to track the Underlying Index. As
such, the fund invests directly in the component securities
(or a substantial number of the component securities)
of the Underlying Index in substantially the same
weightings in which they are represented in the Underlying
Index. If it is not possible for the fund to acquire
component securities due to limited availability or regulatory
restrictions, the fund may use a representative
sampling indexing strategy to seek to track the Underlying
Index instead of a full replication indexing strategy.
“
Representative
sampling
”
is an indexing strategy that involves
investing in a representative sample of securities that
collectively has an investment profile similar to the Underlying
Index. The securities selected are expected to have,
in the aggregate, investment characteristics (based on
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Xtrackers MSCI All World ex US Hedged Equity ETF
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factors such as market capitalization and industry
weightings), fundamental characteristics (such as return
variability and yield), and liquidity measures similar to
those of the Underlying Index. The fund may or may not
hold all of the securities in the Underlying Index when
using a representative sampling indexing strategy. The
fund will invest at least 80% of its total assets (but typically
far more) in component securities (including
depositary receipts in respect of such securities) of the
Underlying Index.
As of July 31, 2020, the Underlying Index consisted of
2,370 securities, with an average market capitalization of
approximately $8.89 billion and a minimum market capitalization
of approximately $123 million, from issuers in the
following countries: Argentina, Australia, Austria, Belgium,
Brazil, Canada, Chile, China, Colombia, Czech Republic,
Denmark, Egypt, Finland, France, Germany, Greece, Hong
Kong, Hungary, India, Indonesia, Ireland, Israel, Italy,
Japan, Malaysia, Mexico, Netherlands, New Zealand,
Norway, Pakistan, Peru, Philippines, Poland, Portugal,
Qatar, Russia, Saudi Arabia, Singapore, South Africa, South
Korea, Spain, Sweden, Switzerland, Taiwan, Thailand,
Turkey, the United Arab Emirates and the United Kingdom.
Under normal circumstances, the Underlying Index is rebalanced
monthly. The fund rebalances its portfolio in
accordance with the Underlying Index, and, therefore, any
changes to the Underlying Index’s rebalance schedule will
result in corresponding changes to the fund’s rebalance
schedule.
The fund enters into forward currency contracts designed
to offset the fund’s exposure to foreign currencies. The
fund hedges each foreign currency in the portfolio to US
dollars by selling the applicable foreign currency forward at
the one-month forward rate published by WM/Reuters.
The amount of forward contracts in the fund is based on
the aggregate exposure of the fund and Underlying Index
to each non-US currency based on currency weights as of
the beginning of each month. While this approach is
designed to minimize the impact of currency fluctuations
on fund returns, this does not necessarily eliminate exposure
to all currency fluctuations. The return of the forward
currency contracts may not perfectly offset the actual fluctuations
of non-US currencies relative to the US dollar.
The fund may use non-deliverable forward (
“
NDF
”
)
contracts to execute its hedging transactions. An NDF is a
contract where there is no physical settlement of two
currencies at maturity (as opposed to deliverable forward
contracts, which per their terms are settled by physical
delivery of the currencies). Rather, based on the movement
of the currencies and the contractually agreed upon
exchange rate, a net cash settlement is made by one party
to the other in US dollars.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in the equity securities of issuers from countries
other than the United States and in instruments
designed to hedge against the fund’s exposure to non-US
currencies. As of July 31, 2020, a significant percentage of
the Underlying Index was comprised of securities of
issuers from Japan (15.5%).
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
financials sector (17.6%). The financials sector includes
companies involved in banking, consumer finance, asset
management and custody banks, as well as investment
banking and brokerage and insurance. To the extent that
the fund tracks the Underlying Index, the fund’s investment
in certain sectors or countries may change over time.
The fund may become
“
non-diversified,
”
as defined under
the Investment Company Act of 1940, as amended, solely
as a result of a change in relative market capitalization or
index weighting of one or more constituents of the index
that the fund is designed to track. Shareholder approval will
not be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Main Risks
As with any investment, you could lose all or part of your investment in the fund, and the fund’s performance could trail that of other investments.
The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective, as
well as numerous other risks that are described in greater
detail in the section of this Prospectus entitled
“
Additional
Information About Fund Strategies, Underlying Index Information
and Risks
”
and in the Statement of Additional
Information (
“
SAI
”
).
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
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Xtrackers MSCI All World ex US Hedged Equity ETF
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adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Depositary receipts involve
similar risks to those associated with investments in securities
of non-US issuers. Depositary receipts also may be
less liquid than the underlying shares in their primary
trading market.
Emerging market securities risk.
The securities of
issuers located in emerging markets tend to be more volatile
and less liquid than securities of issuers located in
more mature economies, and emerging markets generally
have less diverse and less mature economic structures
and less stable political systems than those of developed
countries. The securities of issuers located or doing
substantial business in emerging markets are often subject
to rapid and large changes in price.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
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Xtrackers MSCI All World ex US Hedged Equity ETF
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reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources
of larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors of
the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Financials sector risk.
To the extent that the fund invests
significantly in the financials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
financials sector. The financials sector is subject to extensive
government regulation, can be subject to relatively
rapid change due to increasingly blurred distinctions
between service segments, and can be significantly
affected by availability and cost of capital funds, changes in
interest rates, the rate of corporate and consumer debt
defaults, and price competition.
Forward currency contract risk.
The fund’s forward
currency contracts may not be successful in minimizing
the impact of changes in the value of the non-US currencies
against the US dollar. To the extent the fund’s forward
currency contracts are not successful, the US dollar value
of your investment in the fund may go down. Furthermore,
because no changes in the currency weights in the Underlying
Index are made during the month to account for
changes in the Underlying Index due to price movement of
securities, corporate events, additions, deletions or any
other changes, changes in the value of non-US currencies
against the US dollar during the month may affect the
value of the fund’s investment. Currency exchange rates
can be very volatile and can change quickly and unpredictably.
Therefore, the value of an investment in the fund may
also go up or down quickly and unpredictably and investors
may lose money. NDFs may be less liquid than deliverable
forward currency contracts. A lack of liquidity in NDFs
of the hedged currency could adversely affect the fund’s
ability to hedge against currency fluctuations and properly
track the Underlying Index.
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
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Xtrackers MSCI All World ex US Hedged Equity ETF
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the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
the NAV during periods of market volatility. The Advisor
cannot predict whether shares will trade above, below or
at their NAV. Given the fact that shares can be created and
redeemed in Creation Units (defined below), the Advisor
believes that large discounts or premiums to the NAV of
shares should not be sustained in the long-term. If market
makers exit the business or are unable to continue making
markets in fund shares, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market). Further, while the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in market prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. In addition, the securities held by the fund
may be traded in markets that close at a different time
than the exchange on which the fund’s shares trade.
Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time
when the exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. The bid-ask spread of the fund may be
wider in comparison to the bid-ask spread of other ETFs,
given the liquidity of the fund’s assets and the Underlying
Index’s (and thus the fund’s) hedging strategy. Further,
secondary markets may be subject to irregular trading
activity, wide bid-ask spreads and extended trade settlement
periods, which could cause a material decline in the
fund’s NAV. The fund’s investment results are measured
based upon the daily NAV of the fund. Investors purchasing
and selling shares in the secondary market may not experience
investment results consistent with those
experienced by those APs creating and redeeming shares
directly with the fund.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
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of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
At any given time, due to the
composition of the Underlying Index, the fund may be classified
as
“
non-diversified
”
under the Investment Company
Act of 1940, as amended. This means that the fund may
invest in securities of relatively few issuers. Thus, the
performance of one or a small number of portfolio holdings
can affect overall performance.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Past Performance
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund’s performance from year to year and by showing how the fund’s average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund’s past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future.
Updated performance information
is available on the fund’s website at
Xtrackers.com
(the website does not form a part of this prospectus).
CALENDAR YEAR TOTAL RETURNS(%)
Average Annual Total Returns(For periods ended 12/31/2019 expressed as a %)
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax. Your own actual after-tax returns will depend on your tax situation and may differ from what is shown here. After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts (“IRAs”) or employee-sponsored retirement plans.
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Xtrackers MSCI All World ex US Hedged Equity ETF
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After tax on distribu-
tions
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After tax on distribu-
tions and sale of fund
shares
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MSCI ACWI ex USA US
Dollar Hedged Index
(reflects no deductions
for fees, expenses or
taxes)
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MSCI ACWI ex USA
Index
(reflects no deduc-
tions for fees, expenses
or taxes)
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Management
Investment Advisor
DBX Advisors LLC
Portfolio Managers
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
Purchase and Sale of Fund Shares
The fund is an exchange-traded fund (commonly referred
to as an
“
ETF
”
). Individual fund shares may only be
purchased and sold through a brokerage firm. The price of
fund shares is based on market price, and because ETF
shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than
NAV (a discount). The fund will only issue or redeem
shares that have been aggregated into blocks of 50,000
shares or multiples thereof (
“
Creation Units
”
) to APs who
have entered into agreements with ALPS Distributors,
Inc., the fund’s distributor. You may incur costs attributable
to the difference between the highest price a buyer is
willing to pay to purchase shares of the fund (bid) and the
lowest price a seller is willing to accept for shares of the
fund (ask) when buying or selling shares (the
“
bid-ask
spread
”
). Information on the fund’s net asset value, market
price, premiums and discounts and bid-ask spreads may
be found at Xtrackers.com.
Tax Information
The fund's distributions are generally taxable to you as
ordinary income or capital gains, except when your investment
is in an IRA, 401(k), or other tax-deferred investment
plan. Any withdrawals you make from such tax- advantaged
investment plans, however, may be taxable to you.
Payments to Broker-Dealers and
Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer
or other financial intermediary (such as a bank), the
Advisor or other related companies may pay the intermediary
for marketing activities and presentations,
educational training programs, the support of technology
platforms and/or reporting systems or other services
related to the sale or promotion of the fund. These
payments may create a conflict of interest by influencing
the broker-dealer or other intermediary and your salesperson
to recommend the fund over another investment.
Ask your salesperson or visit your financial intermediary’s
website for more information.
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Xtrackers MSCI All World ex US Hedged Equity ETF
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Xtrackers MSCI All World ex US High Dividend Yield Equity ETF
|
Stock Exchange: NYSE Arca, Inc.
|
Investment Objective
The Xtrackers MSCI All World ex US High Dividend Yield
Equity ETF (the
“
fund
”
) seeks investment results that
correspond generally to the performance, before fees and
expenses, of the MSCI ACWI ex USA High Dividend Yield
Index (the
“
Underlying Index
”
).
Fees and Expenses
These are the fees and expenses that you will pay when
you buy, hold and sell shares.
You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below.
ANNUAL FUND OPERATING EXPENSES(expenses that you pay each year as a % of the value of your investment)
|
|
|
|
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Total annual fund operating expenses
|
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EXAMPLE
This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then sell 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 operating expenses remain the same. The Example does not take into account brokerage commissions that you may pay on your purchases and sales of shares of the fund. It also does not include the transaction fees on purchases and redemptions of Creation Units (defined herein), because those fees will not be imposed on retail investors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
PORTFOLIO TURNOVER
The fund pays transaction costs, such as commissions,
when it buys and sells securities (or
“
turns over
”
its portfolio).
A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are
investing in a taxable account. These costs are not
reflected in annual fund operating expenses or in the
expense example, and can affect the fund's performance.
During the most recent fiscal year, the fund’s portfolio turnover
rate was
40
% of the average value of its portfolio.
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track the performance
of equity securities in developed and emerging
stock markets (excluding the United States).
The fund uses a full replication indexing strategy to seek
to track the Underlying Index. As such, the fund invests
directly in the component securities (or a substantial
number of the component securities) of the Underlying
Index in substantially the same weightings in which they
are represented in the Underlying Index. If it is not possible
for the fund to acquire component securities due to
limited availability or regulatory restrictions, the fund may
use a representative sampling indexing strategy to seek to
track the Underlying Index instead of a full replication
indexing strategy.
“
Representative sampling
”
is an
indexing strategy that involves investing in a representative
sample of securities that collectively has an
investment profile similar to the Underlying Index. The
securities selected are expected to have, in the aggregate,
investment characteristics (based on factors such as
market capitalization and industry weightings), fundamental
characteristics (such as return variability and yield),
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Xtrackers MSCI All World ex US High Dividend Yield Equity ETF
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and liquidity measures similar to those of the Underlying
Index. The fund may or may not hold all of the securities in
the Underlying Index when using a representative
sampling indexing strategy. The Underlying Index is
designed to reflect the performance of equities (excluding
real estate investment trusts (
“
REITs
”
)) in its parent index,
the MSCI ACWI ex USA Index, with higher dividend
income and quality characteristics than average dividend
yields of equities in the parent index, where such higher
dividend income and quality characteristics are both
sustainable and persistent. The fund will invest at least
80% of its total assets (but typically far more) in component
securities (including depositary receipts in respect of
such securities) of the Underlying Index.
The Underlying Index is a free float adjusted market capitalization
weighted index. As of July 31, 2020, the
Underlying Index consisted of 351 securities, with an
average market capitalization of approximately $9.38 billion
and a minimum market capitalization of approximately
$128 million, from issuers in the following countries:
Australia, Belgium, Brazil, Canada, Chile, China, Colombia,
Denmark, Egypt, Finland, France, Germany, Greece, Hong
Kong, India, Indonesia, Israel, Italy, Japan, Malaysia,
Mexico, Netherlands, New Zealand, Norway, Pakistan,
Peru, Philippines, Poland, Portugal, Qatar, Russia, Saudi
Arabia, Singapore, South Africa, South Korea, Spain,
Sweden, Switzerland, Taiwan, Thailand, Turkey, the United
Arab Emirates and the United Kingdom. Under normal
circumstances, the Underlying Index is rebalanced semi-annually
in May and November. The fund rebalances its
portfolio in accordance with the Underlying Index, and,
therefore, any changes to the Underlying Index’s rebalance
schedule will result in corresponding changes to the fund’s
rebalance schedule.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in equity securities of issuers located in countries
other than the United States. The fund will not enter
into transactions to hedge against declines in the value
of the fund’s assets that are denominated in foreign
currency.
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
financials (27.6%) sector. The financials sector includes
companies involved in banking, consumer finance, asset
management and custody banks, as well as investment
banking and brokerage and insurance. To the extent that
the fund tracks the Underlying Index, the fund’s investment
in certain sectors or countries may change over time.
The fund may become
“
non-diversified,
”
as defined under
the Investment Company Act of 1940, as amended, solely
as a result of a change in relative market capitalization or
index weighting of one or more constituents of the index
that the fund is designed to track. Shareholder approval
will not be sought when the fund crosses from diversified
to non-diversified status under such circumstances.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Main Risks
As with any investment, you could lose all or part of your investment in the fund, and the fund’s performance could trail that of other investments.
The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective, as
well as numerous other risks that are described in greater
detail in the section of this Prospectus entitled
“
Additional
Information About Fund Strategies, Underlying Index Information
and Risks
”
and in the Statement of Additional
Information (
“
SAI
”
).
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
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adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Dividend-paying stock risk.
As a category, dividend-paying
stocks may underperform non-dividend paying
stocks (and the stock market as a whole) over any period
of time. In addition, issuers of dividend-paying stocks may
have discretion to defer or stop paying dividends for a
stated period of time, or the anticipated acceleration of
dividends may not occur as a result of, among other things,
a sharp rise in interest rates or an economic downturn. If
the dividend-paying stocks held by the fund reduce or stop
paying dividends, the fund’s ability to generate income
may be adversely affected.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Depositary receipts involve
similar risks to those associated with investments in securities
of non-US issuers. Depositary receipts also may be
less liquid than the underlying shares in their primary
trading market.
European investment risk.
European financial markets
have experienced volatility in recent years and have been
adversely affected by concerns about economic downturns,
credit rating downgrades, rising government debt
level and possible default on or restructuring of government
debt in several European countries. A default or debt
restructuring by any European country would adversely
impact holders of that country’s debt, and sellers of credit
default swaps linked to that country’s creditworthiness.
Most countries in Western Europe are members of the
European Union (EU), which faces major issues involving
its membership, structure, procedures and policies. In
June 2016, citizens of the United Kingdom approved a
referendum to leave the EU. On January 31, 2020, the
United Kingdom officially withdrew from the EU pursuant
to a withdrawal agreement, providing for a transition period
in which the United Kingdom will seek to negotiate and
finalize a trade deal with the EU. The transition period will
end on December 31, 2020 and can no longer be extended
under the terms of the withdrawal agreement. Significant
uncertainty exists regarding any adverse economic and
political effects the United Kingdom’s withdrawal may have
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on the United Kingdom, other EU countries and the global
economy, which could be significant, potentially resulting
in increased volatility and illiquidity and lower economic
growth.
European countries are also significantly affected by fiscal
and monetary controls implemented by the European
Economic and Monetary Union (EMU), and it is possible
that the timing and substance of these controls may not
address the needs of all EMU member countries. Investing
in euro-denominated securities also risks exposure to a
currency that may not fully reflect the strengths and weaknesses
of the disparate economies that comprise Europe.
There is continued concern over member state-level
support for the euro, which could lead to certain countries
leaving the EMU, the implementation of currency controls,
or potentially the dissolution of the euro. The dissolution of
the euro could have significant negative effects on European
financial markets.
Emerging market securities risk.
The securities of
issuers located in emerging markets tend to be more volatile
and less liquid than securities of issuers located in
more mature economies, and emerging markets generally
have less diverse and less mature economic structures
and less stable political systems than those of developed
countries. The securities of issuers located or doing
substantial business in emerging markets are often subject
to rapid and large changes in price.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors of
the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Financials sector risk.
To the extent that the fund invests
significantly in the financials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
financials sector. The financials sector is subject to extensive
government regulation, can be subject to relatively
rapid change due to increasingly blurred distinctions
between service segments, and can be significantly
affected by availability and cost of capital funds, changes in
interest rates, the rate of corporate and consumer debt
defaults, and price competition.
Currency risk.
Changes in currency exchange rates and
the relative value of non-US currencies may affect the
value of the fund’s investment and the value of your fund
shares. Because the fund’s NAV is determined on the
basis of the US dollar and the fund does not attempt to
hedge against changes in the value of non-US currencies,
investors may lose money if the foreign currency depreciates
against the US dollar, even if the foreign currency
value of the fund’s holdings in that market increases.
Conversely, the dollar value of your investment in the fund
may go up if the value of the foreign currency appreciates
against the US dollar. The value of the US dollar
measured against other currencies is influenced by a
variety of factors. These factors include: interest rates,
national debt levels and trade deficits, changes in balances
of payments and trade, domestic and foreign interest and
inflation rates, global or regional political, economic or
financial events, monetary policies of governments, actual
or potential government intervention, and global energy
prices. Political instability, the possibility of government
intervention and restrictive or opaque business and investment
policies may also reduce the value of a country’s
currency. Government monetary policies and the buying or
selling of currency by a country’s government may also
influence exchange rates. Currency exchange rates can be
very volatile and can change quickly and unpredictably.
Therefore, the value of an investment in the fund may also
go up or down quickly and unpredictably and investors
may lose money.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
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and does not guarantee that the Underlying Index will be
in line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or
the construction of the Underlying Index in accordance
with its stated methodology may occur from time to time
and may not be identified and corrected by the index
provider for a period of time or at all, which may have an
adverse impact on the fund and its shareholders. The
Advisor and its affiliates do not provide any warranty or
guarantee against such errors. Therefore, the gains, losses
or costs associated with the index provider’s errors will
generally be borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes,
the fund may sell certain securities, and such sale may
cause the fund to realize a loss and deviate from the
performance of the Underlying Index. In light of the factors
discussed above, the fund’s return may deviate significantly
from the return of the Underlying Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
the NAV during periods of market volatility. The Advisor
cannot predict whether shares will trade above, below or
at their NAV. Given the fact that shares can be created and
redeemed in Creation Units (defined below), the Advisor
believes that large discounts or premiums to the NAV of
shares should not be sustained in the long-term. If market
makers exit the business or are unable to continue making
markets in fund shares, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market). Further, while the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in market prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. In addition, the securities held by the fund
may be traded in markets that close at a different time
than the exchange on which the fund’s shares trade.
Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time
when the exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. Further, secondary markets may be subject
to irregular trading activity, wide bid-ask spreads and
extended trade settlement periods, which could cause a
material decline in the fund’s NAV. The fund’s investment
results are measured based upon the daily NAV of the
fund. Investors purchasing and selling shares in the
secondary market may not experience investment results
consistent with those experienced by those APs creating
and redeeming shares directly with the fund.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
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securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
At any given time, due to the
composition of the Underlying Index, the fund may be classified
as
“
non-diversified
”
under the Investment Company
Act of 1940, as amended. This means that the fund may
invest in securities of relatively few issuers. Thus, the
performance of one or a small number of portfolio holdings
can affect overall performance.
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Past Performance
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund’s performance from year to year and by showing how the fund’s average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund’s past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future.
Updated performance information
is available on the fund’s website at
Xtrackers.com
(the website does not form a part of this prospectus).
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Prior to February 13, 2018, the fund sought investment
results that corresponded generally to the performance,
before the fund’s fees and expenses, of the MSCI ACWI ex
USA High Dividend Yield US Dollar Hedged Index.
CALENDAR YEAR TOTAL RETURNS(%)
Average Annual Total Returns(For periods ended 12/31/2019 expressed as a %)
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax. Your own actual after-tax returns will depend on your tax situation and may differ from what is shown here. After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts (“IRAs”) or employee-sponsored retirement plans.
|
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After tax on distribu-
tions
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After tax on distribu-
tions and sale of fund
shares
|
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MSCI ACWI ex USA
High Dividend Yield
Index
(reflects no deduc-
tions for fees, expenses
or taxes)
|
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MSCI ACWI ex USA
Index
(reflects no deduc-
tions for fees, expenses
or taxes)
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Management
Investment Advisor
DBX Advisors LLC
Portfolio Managers
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
Purchase and Sale of Fund Shares
The fund is an exchange-traded fund (commonly referred
to as an
“
ETF
”
). Individual fund shares may only be
purchased and sold through a brokerage firm. The price of
fund shares is based on market price, and because ETF
shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than
NAV (a discount). The fund will only issue or redeem
shares that have been aggregated into blocks of 50,000
shares or multiples thereof (
“
Creation Units
”
) to APs who
have entered into agreements with ALPS Distributors,
Inc., the fund’s distributor. You may incur costs attributable
to the difference between the highest price a buyer is
willing to pay to purchase shares of the fund (bid) and the
lowest price a seller is willing to accept for shares of the
fund (ask) when buying or selling shares (the
“
bid-ask
spread
”
). Information on the fund’s net asset value, market
price, premiums and discounts and bid-ask spreads may
be found at Xtrackers.com.
Tax Information
The fund's distributions are generally taxable to you as
ordinary income or capital gains, except when your investment
is in an IRA, 401(k), or other tax-deferred investment
plan. Any withdrawals you make from such tax- advantaged
investment plans, however, may be taxable to you.
Payments to Broker-Dealers and
Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer
or other financial intermediary (such as a bank), the
Advisor or other related companies may pay the intermediary
for marketing activities and presentations,
educational training programs, the support of technology
platforms and/or reporting systems or other services
related to the sale or promotion of the fund. These
payments may create a conflict of interest by influencing
the broker-dealer or other intermediary and your salesperson
to recommend the fund over another investment.
Ask your salesperson or visit your financial intermediary’s
website for more information.
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Xtrackers MSCI EAFE High Dividend Yield Equity ETF
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Stock Exchange: NYSE Arca, Inc.
|
Investment Objective
Xtrackers MSCI EAFE High Dividend Yield Equity ETF (the
“
fund
”
) seeks investment results that correspond generally
to the performance, before fees and expenses, of the
MSCI EAFE High Dividend Yield Index (the
“
Underlying
Index
”
).
Fees and Expenses
These are the fees and expenses that you will pay when
you buy, hold and sell shares.
You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below.
ANNUAL FUND OPERATING EXPENSES(expenses that you pay each year as a % of the value of your investment)
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Total annual fund operating expenses
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EXAMPLE
This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then sell 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 operating expenses remain the same. The Example does not take into account brokerage commissions that you may pay on your purchases and sales of shares of the fund. It also does not include the transaction fees on purchases and redemptions of Creation Units (defined herein), because those fees will not be imposed on retail investors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
PORTFOLIO TURNOVER
The fund pays transaction costs, such as commissions,
when it buys and sells securities (or
“
turns over
”
its portfolio).
A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are
investing in a taxable account. These costs are not
reflected in annual fund operating expenses or in the
expense example, and can affect the fund's performance.
During the most recent fiscal year, the fund’s portfolio turnover
rate was
57
% of the average value of its portfolio.
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track developed
market performance.
The fund uses a full replication indexing strategy to seek
to track the Underlying Index. As such, the fund invests
directly in the component securities (or a substantial
number of the component securities) of the Underlying
Index in substantially the same weightings in which they
are represented in the Underlying Index. If it is not possible
for the fund to acquire component securities due to
limited availability or regulatory restrictions, the fund may
use a representative sampling indexing strategy to seek to
track the Underlying Index instead of a full replication
indexing strategy.
“
Representative sampling
”
is an
indexing strategy that involves investing in a representative
sample of securities that collectively has an
investment profile similar to the Underlying Index. The
securities selected are expected to have, in the aggregate,
investment characteristics (based on factors such as
market capitalization and industry weightings), fundamental
characteristics (such as return variability and yield),
and liquidity measures similar to those of the Underlying
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Index. The fund may or may not hold all of the securities in
the Underlying Index when using a representative
sampling indexing strategy. The Underlying Index is
designed to reflect the performance of equities (excluding
REITs) in its parent index, the MSCI EAFE Index, with
higher dividend income and quality characteristics than
average dividend yields of equities in the parent index,
where such higher dividend income and quality characteristics
are both sustainable and persistent. The fund will
invest at least 80% of its total assets (but typically far
more) in component securities (including depositary
receipts in respect of such securities) of the Underlying
Index.
The Underlying Index is a free float adjusted market capitalization
weighted index. As of July 31, 2020, the
Underlying Index consisted of 117 securities, with an
average market capitalization of approximately $16.11
billion and a minimum market capitalization of approximately
$1.55 billion from issuers in the following countries:
Australia, Belgium, Denmark, Finland, France, Germany,
Hong Kong, Israel, Italy, Japan, Netherlands, New Zealand,
Norway, Portugal, Singapore, Spain, Sweden, Switzerland
and the United Kingdom. Under normal circumstances. the
Underlying Index is rebalanced semi-annually in May and
November. The fund rebalances its portfolio in accordance
with the Underlying Index, and, therefore, any changes to
the Underlying Index’s rebalance schedule will result in
corresponding changes to the fund’s rebalance schedule.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in equity securities located in developed countries
in Europe, Australasia and the Far East. As of July 31,
2020, a significant percentage of the Underlying Index
was comprised of securities of issuers from the United
Kingdom (22.1%) and Japan (19.1%). The fund will not
enter into transactions to hedge against declines in the
value of the fund’s assets that are denominated in foreign
currency.
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
financials sector (21%). The financials sector includes
companies involved in banking, consumer finance, asset
management and custody banks, as well as investment
banking and brokerage and insurance. To the extent that
the fund tracks the Underlying Index, the fund’s investment
in certain sectors or countries may change over time.
While the fund is currently classified as
“
non-diversified
”
under the Investment Company Act of 1940, it may
operate as or become classified as
“
diversified
”
over time.
The fund could again become non-diversified solely as a
result of a change in relative market capitalization or index
weighting of one or more constituents of the index that
the fund is designed to track. Shareholder approval will not
be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Main Risks
As with any investment, you could lose all or part of your investment in the fund, and the fund’s performance could trail that of other investments.
The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective, as
well as numerous other risks that are described in greater
detail in the section of this Prospectus entitled
“
Additional
Information About Fund Strategies, Underlying Index Information
and Risks
”
and in the Statement of Additional
Information (
“
SAI
”
).
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
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adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Dividend-paying stock risk.
As a category, dividend-paying
stocks may underperform non-dividend paying
stocks (and the stock market as a whole) over any period
of time. In addition, issuers of dividend-paying stocks may
have discretion to defer or stop paying dividends for a
stated period of time, or the anticipated acceleration of
dividends may not occur as a result of, among other things,
a sharp rise in interest rates or an economic downturn. If
the dividend-paying stocks held by the fund reduce or stop
paying dividends, the fund’s ability to generate income
may be adversely affected.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Depositary receipts involve
similar risks to those associated with investments in securities
of non-US issuers. Depositary receipts also may be
less liquid than the underlying shares in their primary
trading market.
European investment risk.
European financial markets
have experienced volatility in recent years and have been
adversely affected by concerns about economic downturns,
credit rating downgrades, rising government debt
level and possible default on or restructuring of government
debt in several European countries. A default or debt
restructuring by any European country would adversely
impact holders of that country’s debt, and sellers of credit
default swaps linked to that country’s creditworthiness.
Most countries in Western Europe are members of the
European Union (EU), which faces major issues involving
its membership, structure, procedures and policies. In
June 2016, citizens of the United Kingdom approved a
referendum to leave the EU. On January 31, 2020, the
United Kingdom officially withdrew from the EU pursuant
to a withdrawal agreement, providing for a transition period
in which the United Kingdom will seek to negotiate and
finalize a trade deal with the EU. The transition period will
end on December 31, 2020 and can no longer be extended
under the terms of the withdrawal agreement. Significant
uncertainty exists regarding any adverse economic and
political effects the United Kingdom’s withdrawal may have
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on the United Kingdom, other EU countries and the global
economy, which could be significant, potentially resulting
in increased volatility and illiquidity and lower economic
growth.
European countries are also significantly affected by fiscal
and monetary controls implemented by the European
Economic and Monetary Union (EMU), and it is possible
that the timing and substance of these controls may not
address the needs of all EMU member countries. Investing
in euro-denominated securities also risks exposure to a
currency that may not fully reflect the strengths and weaknesses
of the disparate economies that comprise Europe.
There is continued concern over member state-level
support for the euro, which could lead to certain countries
leaving the EMU, the implementation of currency controls,
or potentially the dissolution of the euro. The dissolution of
the euro could have significant negative effects on European
financial markets.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors of
the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Financials sector risk.
To the extent that the fund invests
significantly in the financials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
financials sector. The financials sector is subject to extensive
government regulation, can be subject to relatively
rapid change due to increasingly blurred distinctions
between service segments, and can be significantly
affected by availability and cost of capital funds, changes in
interest rates, the rate of corporate and consumer debt
defaults, and price competition.
Currency risk.
Changes in currency exchange rates and
the relative value of non-US currencies may affect the
value of the fund’s investment and the value of your fund
shares. Because the fund’s NAV is determined on the
basis of the US dollar and the fund does not attempt to
hedge against changes in the value of non-US currencies,
investors may lose money if the foreign currency depreciates
against the US dollar, even if the foreign currency
value of the fund’s holdings in that market increases.
Conversely, the dollar value of your investment in the fund
may go up if the value of the foreign currency appreciates
against the US dollar. The value of the US dollar
measured against other currencies is influenced by a
variety of factors. These factors include: interest rates,
national debt levels and trade deficits, changes in balances
of payments and trade, domestic and foreign interest and
inflation rates, global or regional political, economic or
financial events, monetary policies of governments, actual
or potential government intervention, and global energy
prices. Political instability, the possibility of government
intervention and restrictive or opaque business and investment
policies may also reduce the value of a country’s
currency. Government monetary policies and the buying or
selling of currency by a country’s government may also
influence exchange rates. Currency exchange rates can be
very volatile and can change quickly and unpredictably.
Therefore, the value of an investment in the fund may also
go up or down quickly and unpredictably and investors
may lose money.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
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Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
the NAV during periods of market volatility. The Advisor
cannot predict whether shares will trade above, below or
at their NAV. Given the fact that shares can be created and
redeemed in Creation Units (defined below), the Advisor
believes that large discounts or premiums to the NAV of
shares should not be sustained in the long-term. If market
makers exit the business or are unable to continue making
markets in fund shares, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market). Further, while the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in market prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. In addition, the securities held by the fund
may be traded in markets that close at a different time
than the exchange on which the fund’s shares trade.
Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time
when the exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. Further, secondary markets may be subject
to irregular trading activity, wide bid-ask spreads and
extended trade settlement periods, which could cause a
material decline in the fund’s NAV. The fund’s investment
results are measured based upon the daily NAV of the
fund. Investors purchasing and selling shares in the
secondary market may not experience investment results
consistent with those experienced by those APs creating
and redeeming shares directly with the fund.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
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Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk. The fund is classified as non-diversified under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.
If the fund becomes classified as
“
diversified
”
over time
and again becomes non-diversified as a result of a change
in relative market capitalization or index weighting of one
or more constituents of the index that the fund is designed
to track, non-diversification risk would apply.
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Past Performance
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund’s performance from year to year and by showing how the fund’s average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund’s past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future.
Updated performance information
is available on the fund’s website at
Xtrackers.com
(the website does not form a part of this prospectus).
Prior to February 13, 2018, the fund sought investment
results that corresponded generally to the performance,
before the fund’s fees and expenses, of the MSCI EAFE
High Dividend Yield US Dollar Hedged Index.
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CALENDAR YEAR TOTAL RETURNS(%)
Average Annual Total Returns(For periods ended 12/31/2019 expressed as a %)
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax. Your own actual after-tax returns will depend on your tax situation and may differ from what is shown here. After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts (“IRAs”) or employee-sponsored retirement plans.
|
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After tax on distribu-
tions
|
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After tax on distribu-
tions and sale of fund
shares
|
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MSCI EAFE High Divi-
dend Yield Index
(reflects no deductions
for fees, expenses or
taxes)
|
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|
MSCI EAFE Index
(reflects no deductions
for fees, expenses or
taxes)
|
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Management
Investment Advisor
DBX Advisors LLC
Portfolio Managers
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
Purchase and Sale of Fund Shares
The fund is an exchange-traded fund (commonly referred
to as an
“
ETF
”
). Individual fund shares may only be
purchased and sold through a brokerage firm. The price of
fund shares is based on market price, and because ETF
shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than
NAV (a discount). The fund will only issue or redeem
shares that have been aggregated into blocks of 50,000
shares or multiples thereof (
“
Creation Units
”
) to APs who
have entered into agreements with ALPS Distributors,
Inc., the fund’s distributor. You may incur costs attributable
to the difference between the highest price a buyer is
willing to pay to purchase shares of the fund (bid) and the
lowest price a seller is willing to accept for shares of the
fund (ask) when buying or selling shares (the
“
bid-ask
spread
”
). Information on the fund’s net asset value, market
price, premiums and discounts and bid-ask spreads may
be found at Xtrackers.com.
Tax Information
The fund's distributions are generally taxable to you as
ordinary income or capital gains, except when your investment
is in an IRA, 401(k), or other tax-deferred investment
plan. Any withdrawals you make from such tax- advantaged
investment plans, however, may be taxable to you.
Payments to Broker-Dealers and
Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer
or other financial intermediary (such as a bank), the
Advisor or other related companies may pay the intermediary
for marketing activities and presentations,
educational training programs, the support of technology
platforms and/or reporting systems or other services
related to the sale or promotion of the fund. These
payments may create a conflict of interest by influencing
the broker-dealer or other intermediary and your salesperson
to recommend the fund over another investment.
Ask your salesperson or visit your financial intermediary’s
website for more information.
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Xtrackers Eurozone Equity ETF
|
Stock Exchange: Cboe BZX Exchange Inc.
|
Investment Objective
Xtrackers Eurozone Equity ETF (the
“
fund
”
) seeks investment
results that correspond generally to the
performance, before fees and expenses, of the NASDAQ
Eurozone Large Mid Cap Index (the
“
Underlying Index
”
).
Fees and Expenses
These are the fees and expenses that you will pay when
you buy, hold and sell shares.
You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below.
ANNUAL FUND OPERATING EXPENSES(expenses that you pay each year as a % of the value of your investment)
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Total annual fund operating expenses
|
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EXAMPLE
This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then sell 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 operating expenses remain the same. The Example does not take into account brokerage commissions that you may pay on your purchases and sales of shares of the fund. It also does not include the transaction fees on purchases and redemptions of Creation Units (defined herein), because those fees will not be imposed on retail investors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
PORTFOLIO TURNOVER
The fund pays transaction costs, such as commissions,
when it buys and sells securities (or
“
turns over
”
its portfolio).
A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are
investing in a taxable account. These costs are not
reflected in annual fund operating expenses or in the
expense example, and can affect the fund's performance.
During the most recent fiscal year, the fund’s portfolio turnover
rate was
9
% of the average value of its portfolio.
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track the performance
of equity securities of large- and mid-capitalization
companies based in the countries in the Economic and
Monetary Union (the
“
EMU
”
or
“
Eurozone
”
) of the European
Union (
“
EU
”
). The Underlying Index is composed
of equity securities of companies that are based in countries
in the Eurozone that have adopted the euro as their
common currency and sole legal tender. When
constructing the Underlying Index, Nasdaq Global Indexes
(
“
Nasdaq
”
or the
“
Index Provider
”
) assigns each eligible
index security to a country which will govern its inclusion
in the Underlying Index based on three categories: (i) the
index security’s country of incorporation; (ii) the index security’s
country of domicile; and (iii) the index security’s
country of primary exchange listing. Generally, if two or
more of the categories match, the index security will be
assigned to that country. The Underlying Index is market
capitalization weighted and, under normal circumstances,
is rebalanced semi-annually in March and September. The
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fund rebalances its portfolio in accordance with the Underlying
Index, and, therefore, any changes to the Underlying
Index’s rebalance schedule will result in corresponding
changes to the fund’s rebalance schedule.
The fund uses a full replication indexing strategy to seek
to track the Underlying Index. As such, the fund invests
directly in the component securities (or a substantial
number of the component securities) of the Underlying
Index in substantially the same weightings in which they
are represented in the Underlying Index. If it is not possible
for the fund to acquire component securities due to
limited availability or regulatory restrictions, the fund may
use a representative sampling indexing strategy to seek to
track the Underlying Index instead of a full replication
indexing strategy.
“
Representative sampling
”
is an
indexing strategy that involves investing in a representative
sample of securities that collectively has an
investment profile similar to the Underlying Index. The
securities selected are expected to have, in the aggregate,
investment characteristics (based on factors such as
market capitalization and industry weightings), fundamental
characteristics (such as return variability and yield),
and liquidity measures similar to those of the Underlying
Index. The fund may or may not hold all of the securities in
the Underlying Index when using a representative
sampling indexing strategy. The fund will invest at least
80% of its total assets (but typically far more) in component
securities (including depositary receipts in respect of
such securities) of the Underlying Index.
As of July 31, 2020, the Underlying Index consisted of 287
securities with an average market capitalization of approximately
$21.6 billion and a minimum market capitalization
of approximately $1.82 billion from issuers in the following
countries: Austria, Belgium, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal,
Spain and Switzerland. The Underlying Index is market
capitalization weighted and, under normal circumstances,
is rebalanced semi-annually in March and September. The
fund rebalances its portfolio in accordance with the Underlying
Index, and, therefore, any changes to the Underlying
Index’s rebalance schedule will result in corresponding
changes to the fund’s rebalance schedule.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in equity securities from issuers in the Eurozone
and in instruments designed to hedge the fund’s exposure
to non-US currencies. As of July 31, 2020, a
significant percentage of the Underlying Index was
comprised of securities of issuers from France (31.4%)
and Germany (28.6%). The fund will not enter into transactions
to hedge against declines in the value of the fund’s
assets that are denominated in foreign currency.
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
industrials (24.1%) and consumer discretionary (18.1%)
sectors. The industrials sector includes companies
engaged in the manufacture and distribution of capital
goods, such as those used in defense, construction and
engineering, companies that manufacture and distribute
electrical equipment and industrial machinery and those
that provide commercial and transportation services and
supplies. The consumer discretionary goods sector
includes durable goods, apparel, entertainment and
leisure, and automobiles. To the extent that the fund tracks
the Underlying Index, the fund’s investment in certain
sectors or countries may change over time.
While the fund is currently classified as
“
non-diversified
”
under the Investment Company Act of 1940, it may
operate as or become classified as
“
diversified
”
over time.
The fund could again become non-diversified solely as a
result of a change in relative market capitalization or index
weighting of one or more constituents of the index that
the fund is designed to track. Shareholder approval will not
be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
The fund is not issued, endorsed, sold, or promoted by
Nasdaq, Inc. or its affiliates.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Main Risks
As with any investment, you could lose all or part of your investment in the fund, and the fund’s performance could trail that of other investments.
The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective, as
well as numerous other risks that are described in greater
detail in the section of this Prospectus entitled
“
Additional
Information About Fund Strategies, Underlying Index Information
and Risks
”
and in the Statement of Additional
Information (
“
SAI
”
).
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
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overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Depositary receipts involve
similar risks to those associated with investments in securities
of non-US issuers. Depositary receipts also may be
less liquid than the underlying shares in their primary
trading market.
European investment risk.
European financial markets
have experienced volatility in recent years and have been
adversely affected by concerns about economic downturns,
credit rating downgrades, rising government debt
level and possible default on or restructuring of government
debt in several European countries. A default or debt
restructuring by any European country would adversely
impact holders of that country’s debt, and sellers of credit
default swaps linked to that country’s creditworthiness.
Most countries in Western Europe are members of the
European Union (EU), which faces major issues involving
its membership, structure, procedures and policies. In
June 2016, citizens of the United Kingdom approved a
referendum to leave the EU. On January 31, 2020, the
United Kingdom officially withdrew from the EU pursuant
to a withdrawal agreement, providing for a transition period
in which the United Kingdom will seek to negotiate and
finalize a trade deal with the EU. The transition period will
end on December 31, 2020 and can no longer be extended
under the terms of the withdrawal agreement. Significant
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uncertainty exists regarding any adverse economic and
political effects the United Kingdom’s withdrawal may have
on the United Kingdom, other EU countries and the global
economy, which could be significant, potentially resulting
in increased volatility and illiquidity and lower economic
growth.
European countries are also significantly affected by fiscal
and monetary controls implemented by the European
Economic and Monetary Union (EMU), and it is possible
that the timing and substance of these controls may not
address the needs of all EMU member countries. Investing
in euro-denominated securities also risks exposure to a
currency that may not fully reflect the strengths and weaknesses
of the disparate economies that comprise Europe.
There is continued concern over member state-level
support for the euro, which could lead to certain countries
leaving the EMU, the implementation of currency controls,
or potentially the dissolution of the euro. The dissolution of
the euro could have significant negative effects on European
financial markets.
Medium-sized company risk.
Medium-sized company
stocks tend to be more volatile than large company stocks.
Because stock analysts are less likely to follow medium-sized
companies, less information about them is available
to investors. Industry-wide reversals may have a greater
impact on medium-sized companies, since they lack the
financial resources of larger companies. Medium-sized
company stocks are typically less liquid than large
company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors
of the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Industrials sector risk.
To the extent that the fund invests
significantly in the industrials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
industrials sector. Companies in the industrials sector may
be adversely affected by changes in government regulation,
world events and economic conditions. In addition,
companies in the industrials sector may be adversely
affected by environmental damages, product liability claims
and exchange rates.
Consumer discretionary sector risk.
To the extent that
the fund invests significantly in the consumer discretionary
sector, the fund will be sensitive to changes in, and the
fund’s performance may depend to a greater extent on, the
overall condition of the consumer discretionary sector.
Companies engaged in the consumer discretionary sector
are subject to fluctuations in supply and demand. These
companies may also be adversely affected by changes in
consumer spending as a result of world events, political
and economic conditions, commodity price volatility,
changes in exchange rates, imposition of import controls,
increased competition, depletion of resources and labor
relations.
Currency risk.
Changes in currency exchange rates and
the relative value of non-US currencies may affect the
value of the fund’s investment and the value of your fund
shares. Because the fund’s NAV is determined on the
basis of the US dollar and the fund does not attempt to
hedge against changes in the value of non-US currencies,
investors may lose money if the foreign currency depreciates
against the US dollar, even if the foreign currency
value of the fund’s holdings in that market increases.
Conversely, the dollar value of your investment in the fund
may go up if the value of the foreign currency appreciates
against the US dollar. The value of the US dollar
measured against other currencies is influenced by a
variety of factors. These factors include: interest rates,
national debt levels and trade deficits, changes in balances
of payments and trade, domestic and foreign interest and
inflation rates, global or regional political, economic or
financial events, monetary policies of governments, actual
or potential government intervention, and global energy
prices. Political instability, the possibility of government
intervention and restrictive or opaque business and investment
policies may also reduce the value of a country’s
currency. Government monetary policies and the buying or
selling of currency by a country’s government may also
influence exchange rates. Currency exchange rates can be
very volatile and can change quickly and unpredictably.
Therefore, the value of an investment in the fund may also
go up or down quickly and unpredictably and investors
may lose money.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
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experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
the NAV during periods of market volatility. The Advisor
cannot predict whether shares will trade above, below or
at their NAV. Given the fact that shares can be created and
redeemed in Creation Units (defined below), the Advisor
believes that large discounts or premiums to the NAV of
shares should not be sustained in the long-term. If market
makers exit the business or are unable to continue making
markets in fund shares, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market). Further, while the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in market prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. In addition, the securities held by the fund
may be traded in markets that close at a different time
than the exchange on which the fund’s shares trade.
Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time
when the exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. Further, secondary markets may be subject
to irregular trading activity, wide bid-ask spreads and
extended trade settlement periods, which could cause a
material decline in the fund’s NAV. The fund’s investment
results are measured based upon the daily NAV of the
fund. Investors purchasing and selling shares in the
secondary market may not experience investment results
consistent with those experienced by those APs creating
and redeeming shares directly with the fund.
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Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk. The fund is classified as non-diversified under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.
If the fund becomes classified as
“
diversified
”
over time
and again becomes non-diversified as a result of a change
in relative market capitalization or index weighting of one
or more constituents of the index that the fund is designed
to track, non-diversification risk would apply.
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
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Past Performance
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund’s performance from year to year and by showing how the fund’s average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund’s past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future.
Updated performance information
is available on the fund’s website at
Xtrackers.com
(the website does not form a part of this prospectus).
Prior to October 27, 2017, the fund sought investment
results that corresponded generally to the performance,
before the fund’s fees and expenses, of the MSCI
Southern Europe US Dollar Hedged Index.
CALENDAR YEAR TOTAL RETURNS(%)
Average Annual Total Returns(For periods ended 12/31/2019 expressed as a %)
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax. Your own actual after-tax returns will depend on your tax situation and may differ from what is shown here. After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts (“IRAs”) or employee-sponsored retirement plans.
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After tax on distribu-
tions
|
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After tax on distribu-
tions and sale of fund
shares
|
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|
NASDAQ Eurozone
Large Mid Cap Index
(reflects no deductions
for fees, expenses or
taxes)
|
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MSCI ACWI ex USA
Index
(reflects no deduc-
tions for fees, expenses
or taxes)
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Management
Investment Advisor
DBX Advisors LLC
Portfolio Managers
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
Purchase and Sale of Fund Shares
The fund is an exchange-traded fund (commonly referred
to as an
“
ETF
”
). Individual fund shares may only be
purchased and sold through a brokerage firm. The price of
fund shares is based on market price, and because ETF
shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than
NAV (a discount). The fund will only issue or redeem
shares that have been aggregated into blocks of 50,000
shares or multiples thereof (
“
Creation Units
”
) to APs who
have entered into agreements with ALPS Distributors,
Inc., the fund’s distributor. You may incur costs attributable
to the difference between the highest price a buyer is
willing to pay to purchase shares of the fund (bid) and the
lowest price a seller is willing to accept for shares of the
fund (ask) when buying or selling shares (the
“
bid-ask
spread
”
). Information on the fund’s net asset value, market
price, premiums and discounts and bid-ask spreads may
be found at Xtrackers.com.
Tax Information
The fund's distributions are generally taxable to you as
ordinary income or capital gains, except when your investment
is in an IRA, 401(k), or other tax-deferred investment
plan. Any withdrawals you make from such tax- advantaged
investment plans, however, may be taxable to you.
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Payments to Broker-Dealers and
Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer
or other financial intermediary (such as a bank), the
Advisor or other related companies may pay the intermediary
for marketing activities and presentations,
educational training programs, the support of technology
platforms and/or reporting systems or other services
related to the sale or promotion of the fund. These
payments may create a conflict of interest by influencing
the broker-dealer or other intermediary and your salesperson
to recommend the fund over another investment.
Ask your salesperson or visit your financial intermediary’s
website for more information.
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Xtrackers MSCI Eurozone Hedged Equity ETF
|
Stock Exchange: NYSE Arca, Inc.
|
Investment Objective
Xtrackers MSCI Eurozone Hedged Equity ETF (the
“
fund
”
)
seeks investment results that correspond generally to the
performance, before fees and expenses, of the MSCI
EMU IMI US Dollar Hedged Index (the
“
Underlying
Index
”
).
Fees and Expenses
These are the fees and expenses that you will pay when
you buy, hold and sell shares.
You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below.
ANNUAL FUND OPERATING EXPENSES(expenses that you pay each year as a % of the value of your investment)
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Total annual fund operating expenses
|
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1
Other Expenses include interest expense of 0.02%.
EXAMPLE
This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then sell 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 operating expenses remain the same. The Example does not take into account brokerage commissions that you may pay on your purchases and sales of shares of the fund. It also does not include the transaction fees on purchases and redemptions of Creation Units (defined herein), because those fees will not be imposed on retail investors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
PORTFOLIO TURNOVER
The fund pays transaction costs, such as commissions,
when it buys and sells securities (or
“
turns over
”
its portfolio).
A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are
investing in a taxable account. These costs are not
reflected in annual fund operating expenses or in the
expense example, and can affect the fund's performance.
During the most recent fiscal year, the fund’s portfolio turnover
rate was
11
% of the average value of its portfolio.
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track the performance
of equity securities based in the countries in the
European Monetary Union (the
“
EMU
”
), while seeking to
mitigate exposure to fluctuations between the value of the
US dollar and the euro. The fund uses a full replication
indexing strategy to seek to track the Underlying Index. As
such, the fund invests directly in the component securities
(or a substantial number of the component securities)
of the Underlying Index in substantially the same
weightings in which they are represented in the Underlying
Index. If it is not possible for the fund to acquire
component securities due to limited availability or regulatory
restrictions, the fund may use a representative
sampling indexing strategy to seek to track the Underlying
Index instead of a full replication indexing strategy.
“
Representative
sampling
”
is an indexing strategy that involves
investing in a representative sample of securities that
collectively has an investment profile similar to the Underlying
Index. The securities selected are expected to have,
in the aggregate, investment characteristics (based on
factors such as market capitalization and industry
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weightings), fundamental characteristics (such as return
variability and yield), and liquidity measures similar to
those of the Underlying Index. The fund may or may not
hold all of the securities in the Underlying Index when
using a representative sampling indexing strategy. The
Underlying Index is composed of equities from countries
in the EMU, or the
“
Eurozone,
”
that have adopted the euro
as their common currency and sole legal tender. The fund
will invest at least 80% of its total assets (but typically
far more) in component securities (including depositary
receipts in respect of such securities) of the Underlying
Index.
As of July 31, 2020, the Underlying Index consisted of 674
securities with an average market capitalization of approximately
$7.16 billion and a minimum market capitalization
of approximately $77 million from issuers in the following
countries: Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Netherlands, Portugal and Spain. Under
normal circumstances, the Underlying Index is rebalanced
monthly. The fund rebalances its portfolio in accordance
with the Underlying Index, and, therefore, any changes to
the Underlying Index’s rebalance schedule will result in
corresponding changes to the fund’s rebalance schedule.
The fund enters into forward currency contracts designed
to offset the fund’s exposure to the euro. A forward
currency contract involves an obligation to purchase or sell
a specific currency at a future date, which may be any
fixed number of days from the date of the contract agreed
upon by the parties, at a price set at the time of the
contract. The fund (and the Underlying Index) hedges the
euro in the portfolio to US dollars by selling the euro
forward at the one-month forward rate published by
WM/Reuters.
The amount of forward contracts in the fund is based on
the aggregate exposure of the fund and Underlying Index
to the euro based on currency weights as of the beginning
of each month. While this approach is designed to minimize
the impact of currency fluctuations on fund returns,
this does not necessarily eliminate exposure to all currency
fluctuations. The return of the forward currency contracts
may not perfectly offset the actual fluctuations of the euro
relative to the US dollar. The fund may use non-deliverable
forward (
“
NDF
”
) contracts to execute its hedging transactions.
An NDF is a contract where there is no physical
settlement of two currencies at maturity (as opposed to
deliverable forward contracts, which per their terms are
settled by physical delivery of the currencies). Rather,
based on the movement of the currencies and the contractually
agreed upon exchange rate, a net cash settlement
is made by one party to the other in US dollars.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in equity securities from issuers in the
Eurozone. As of July 31, 2020, a significant percentage of
the Underlying Index was comprised of securities of
issuers from France (31.7%) and Germany (28.9%).
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated.
To the extent that the fund tracks the Underlying
Index, the fund’s investment in certain sectors or
countries may change over time.
The fund may become
“
non-diversified,
”
as defined under
the Investment Company Act of 1940, as amended, solely
as a result of a change in relative market capitalization or
index weighting of one or more constituents of the index
that the fund is designed to track. Shareholder approval will
not be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Main Risks
As with any investment, you could lose all or part of your investment in the fund, and the fund’s performance could trail that of other investments.
The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective, as
well as numerous other risks that are described in greater
detail in the section of this Prospectus entitled
“
Additional
Information About Fund Strategies, Underlying Index Information
and Risks
”
and in the Statement of Additional
Information (
“
SAI
”
).
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
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invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Depositary receipts involve
similar risks to those associated with investments in securities
of non-US issuers. Depositary receipts also may be
less liquid than the underlying shares in their primary
trading market.
European investment risk.
European financial markets
have experienced volatility in recent years and have been
adversely affected by concerns about economic downturns,
credit rating downgrades, rising government debt
level and possible default on or restructuring of government
debt in several European countries. A default or debt
restructuring by any European country would adversely
impact holders of that country’s debt, and sellers of credit
default swaps linked to that country’s creditworthiness.
Most countries in Western Europe are members of the
European Union (EU), which faces major issues involving
its membership, structure, procedures and policies. In
June 2016, citizens of the United Kingdom approved a
referendum to leave the EU. On January 31, 2020, the
United Kingdom officially withdrew from the EU pursuant
to a withdrawal agreement, providing for a transition period
in which the United Kingdom will seek to negotiate and
finalize a trade deal with the EU. The transition period will
end on December 31, 2020 and can no longer be extended
under the terms of the withdrawal agreement. Significant
uncertainty exists regarding any adverse economic and
political effects the United Kingdom’s withdrawal may have
on the United Kingdom, other EU countries and the global
economy, which could be significant, potentially resulting
in increased volatility and illiquidity and lower economic
growth.
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European countries are also significantly affected by fiscal
and monetary controls implemented by the European
Economic and Monetary Union (EMU), and it is possible
that the timing and substance of these controls may not
address the needs of all EMU member countries. Investing
in euro-denominated securities also risks exposure to a
currency that may not fully reflect the strengths and weaknesses
of the disparate economies that comprise Europe.
There is continued concern over member state-level
support for the euro, which could lead to certain countries
leaving the EMU, the implementation of currency controls,
or potentially the dissolution of the euro. The dissolution of
the euro could have significant negative effects on European
financial markets.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors of
the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Forward currency contract risk.
The fund’s forward
currency contracts may not be successful in minimizing
the impact of changes in the value of the non-US currencies
against the US dollar. To the extent the fund’s forward
currency contracts are not successful, the US dollar value
of your investment in the fund may go down. Furthermore,
because no changes in the currency weights in the Underlying
Index are made during the month to account for
changes in the Underlying Index due to price movement of
securities, corporate events, additions, deletions or any
other changes, changes in the value of non-US currencies
against the US dollar during the month may affect the
value of the fund’s investment. Currency exchange rates
can be very volatile and can change quickly and unpredictably.
Therefore, the value of an investment in the fund may
also go up or down quickly and unpredictably and investors
may lose money. NDFs may be less liquid than deliverable
forward currency contracts. A lack of liquidity in NDFs
of the hedged currency could adversely affect the fund’s
ability to hedge against currency fluctuations and properly
track the Underlying Index.
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
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decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
the NAV during periods of market volatility. The Advisor
cannot predict whether shares will trade above, below or
at their NAV. Given the fact that shares can be created and
redeemed in Creation Units (defined below), the Advisor
believes that large discounts or premiums to the NAV of
shares should not be sustained in the long-term. If market
makers exit the business or are unable to continue making
markets in fund shares, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market). Further, while the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in market prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. In addition, the securities held by the fund
may be traded in markets that close at a different time
than the exchange on which the fund’s shares trade.
Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time
when the exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. The bid-ask spread of the fund may be
wider in comparison to the bid-ask spread of other ETFs,
given the liquidity of the fund’s assets and the Underlying
Index’s (and thus the fund’s) hedging strategy. Further,
secondary markets may be subject to irregular trading
activity, wide bid-ask spreads and extended trade settlement
periods, which could cause a material decline in the
fund’s NAV. The fund’s investment results are measured
based upon the daily NAV of the fund. Investors purchasing
and selling shares in the secondary market may not experience
investment results consistent with those
experienced by those APs creating and redeeming shares
directly with the fund.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
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other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
At any given time, due to the
composition of the Underlying Index, the fund may be classified
as
“
non-diversified
”
under the Investment Company
Act of 1940, as amended. This means that the fund may
invest in securities of relatively few issuers. Thus, the
performance of one or a small number of portfolio holdings
can affect overall performance.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Past Performance
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund’s performance from year to year and by showing how the fund’s average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund’s past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future.
Updated performance information
is available on the fund’s website at
Xtrackers.com
(the website does not form a part of this prospectus).
CALENDAR YEAR TOTAL RETURNS(%)
Average Annual Total Returns(For periods ended 12/31/2019 expressed as a %)
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax. Your own actual after-tax returns will depend on your tax situation and may differ from what is shown here. After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts (“IRAs”) or employee-sponsored retirement plans.
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After tax on distribu-
tions
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After tax on distribu-
tions and sale of fund
shares
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MSCI EMU IMI US
Dollar Hedged Index
(reflects no deductions
for fees, expenses or
taxes)
|
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MSCI EMU IMI Index
(reflects no deductions
for fees, expenses or
taxes)
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Management
Investment Advisor
DBX Advisors LLC
Portfolio Managers
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
Purchase and Sale of Fund Shares
The fund is an exchange-traded fund (commonly referred
to as an
“
ETF
”
). Individual fund shares may only be
purchased and sold through a brokerage firm. The price of
fund shares is based on market price, and because ETF
shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than
NAV (a discount). The fund will only issue or redeem
shares that have been aggregated into blocks of 50,000
shares or multiples thereof (
“
Creation Units
”
) to APs who
have entered into agreements with ALPS Distributors,
Inc., the fund’s distributor. You may incur costs attributable
to the difference between the highest price a buyer is
willing to pay to purchase shares of the fund (bid) and the
lowest price a seller is willing to accept for shares of the
fund (ask) when buying or selling shares (the
“
bid-ask
spread
”
). Information on the fund’s net asset value, market
price, premiums and discounts and bid-ask spreads may
be found at Xtrackers.com.
Tax Information
The fund's distributions are generally taxable to you as
ordinary income or capital gains, except when your investment
is in an IRA, 401(k), or other tax-deferred investment
plan. Any withdrawals you make from such tax- advantaged
investment plans, however, may be taxable to you.
Payments to Broker-Dealers and
Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer
or other financial intermediary (such as a bank), the
Advisor or other related companies may pay the intermediary
for marketing activities and presentations,
educational training programs, the support of technology
platforms and/or reporting systems or other services
related to the sale or promotion of the fund. These
payments may create a conflict of interest by influencing
the broker-dealer or other intermediary and your salesperson
to recommend the fund over another investment.
Ask your salesperson or visit your financial intermediary’s
website for more information.
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Xtrackers Japan JPX-Nikkei 400 Equity ETF
|
Stock Exchange: NYSE Arca, Inc.
|
Investment Objective
Xtrackers Japan JPX-Nikkei 400 Equity ETF (the
“
fund
”
)
seeks investment results that correspond generally to the
performance, before fees and expenses, of the JPX-Nikkei
400 Index (the
“
Underlying Index
”
).
Fees and Expenses
These are the fees and expenses that you will pay when
you buy, hold and sell shares.
You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below.
ANNUAL FUND OPERATING EXPENSES(expenses that you pay each year as a % of the value of your investment)
|
|
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|
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Total annual fund operating expenses
|
|
EXAMPLE
This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then sell 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 operating expenses remain the same. The Example does not take into account brokerage commissions that you may pay on your purchases and sales of shares of the fund. It also does not include the transaction fees on purchases and redemptions of Creation Units (defined herein), because those fees will not be imposed on retail investors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
PORTFOLIO TURNOVER
The fund pays transaction costs, such as commissions,
when it buys and sells securities (or
“
turns over
”
its portfolio).
A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are
investing in a taxable account. These costs are not
reflected in annual fund operating expenses or in the
expense example, and can affect the fund's performance.
During the most recent fiscal year, the fund’s portfolio turnover
rate was
12
% of the average value of its portfolio.
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track the performance
of equity securities of issuers who are primarily
listed on the following sections of Tokyo Stock Exchange
(
“
TSE
”
): the 1st section, the 2nd section, Mothers or
JASDAQ Stock Exchange (
“
JASDAQ
”
). The fund uses a full
replication indexing strategy to seek to track the Underlying
Index. As such, the fund invests directly in the
component securities (or a substantial number of the
component securities) of the Underlying Index in substantially
the same weightings in which they are represented
in the Underlying Index. If it is not possible for the fund to
acquire component securities due to limited availability or
regulatory restrictions, the fund may use a representative
sampling indexing strategy to seek to track the
Underlying Index instead of a full replication indexing
strategy.
“
Representative sampling
”
is an indexing
strategy that involves investing in a representative sample
of securities that collectively has an investment profile
similar to the Underlying Index. The securities selected are
expected to have, in the aggregate, investment characteristics
(based on factors such as market capitalization
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and industry weightings), fundamental characteristics
(such as return variability and yield), and liquidity measures
similar to those of the Underlying Index. The fund may or
may not hold all of the securities in the Underlying Index
when using a representative sampling indexing strategy.
The Underlying Index is comprised of the equity securities
of the 400 highest scoring issuers listed on the TSE, as
measured in return on equity, cumulative operating profit
and current market value. The fund will invest at least 80%
of its total assets (but typically far more) in component
securities (including depositary receipts in respect of such
securities) of the Underlying Index.
As of July 31, 2020, the Underlying Index consisted of 396
securities with an average market capitalization of approximately
$10.83 billion and a minimum market capitalization
of approximately $309 million. Under normal circumstances,
the Underlying Index is rebalanced monthly.
Under normal circumstances, the Underlying Index is
rebalanced annually in August. The fund rebalances its
portfolio in accordance with the Underlying Index, and,
therefore, any changes to the Underlying Index’s rebalance
schedule will result in corresponding changes to the fund’s
rebalance schedule.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in equity securities from Japanese issuers. As
of July 31, 2020, the Underlying Index was solely
comprised of issuers in Japan. The fund will not enter into
transactions to hedge against declines in the value of the
fund’s assets that are denominated in foreign currency.
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
industrials (21.9%) and consumer discretionary (15.1%)
sectors. The industrials sector includes companies
engaged in the manufacture and distribution of capital
goods, such as those used in defense, construction and
engineering, companies that manufacture and distribute
electrical equipment and industrial machinery and those
that provide commercial and transportation services and
supplies. The consumer discretionary goods sector
includes durable goods, apparel, entertainment and
leisure, and automobiles. To the extent that the fund tracks
the Underlying Index, the fund’s investment in certain
sectors may change over time.
The fund may become
“
non-diversified,
”
as defined under
the Investment Company Act of 1940, as amended, solely
as a result of a change in relative market capitalization or
index weighting of one or more constituents of the index
that the fund is designed to track. Shareholder approval will
not be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
Xtrackers Japan JPX-Nikkei 400 Equity ETF is not in any
way sponsored, endorsed or promoted by Tokyo Stock
Exchange, Inc. TSE and Nikkei Inc.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Main Risks
As with any investment, you could lose all or part of your investment in the fund, and the fund’s performance could trail that of other investments.
The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective, as
well as numerous other risks that are described in greater
detail in the section of this Prospectus entitled
“
Additional
Information About Fund Strategies, Underlying Index Information
and Risks
”
and in the Statement of Additional
Information (
“
SAI
”
).
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
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operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Depositary receipts involve
similar risks to those associated with investments in securities
of non-US issuers. Depositary receipts also may be
less liquid than the underlying shares in their primary
trading market.
Risks related to investing in Japan.
The growth of
Japan’s economy has historically lagged behind that of its
Asian neighbors and other major developed economies.
The Japanese economy is heavily dependent on international
trade and has been adversely affected by trade
tariffs, other protectionist measures, competition from
emerging economies and the economic conditions of its
trading partners. Japan’s relations with its neighbors,
particularly China, North Korea, South Korea and Russia,
have at times been strained due to territorial disputes,
historical animosities and defense concerns. Most
recently, the Japanese government has shown concern
over the increased nuclear and military activity by North
Korea. Strained relations may cause uncertainty in the
Japanese markets and adversely affect the overall Japanese
economy in times of crisis. China has become an
important trading partner with Japan, yet the countries’
political relationship has become strained. Should political
tension increase, it could adversely affect the economy,
especially the export sector, and destabilize the region as a
whole. Japan is located in a part of the world that has
historically been prone to natural disasters such as earthquakes,
volcanoes and tsunamis and is economically
sensitive to environmental events. Any such event, such
as the major earthquake and tsunami which struck Japan in
March 2011, could result in a significant adverse impact
on the Japanese economy. Japan also remains heavily
dependent on oil imports, and higher commodity prices
could therefore have a negative impact on the economy.
Furthermore, Japanese corporations often engage in high
levels of corporate leveraging, extensive cross-purchases
of the securities of other corporations and are subject to a
changing corporate governance structure. Japan may be
subject to risks relating to political, economic and labor
risks. Any of these risks, individually or in the aggregate,
could adversely affect investments in the fund.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
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less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors of
the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Industrials sector risk.
To the extent that the fund invests
significantly in the industrials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
industrials sector. Companies in the industrials sector may
be adversely affected by changes in government regulation,
world events and economic conditions. In addition,
companies in the industrials sector may be adversely
affected by environmental damages, product liability claims
and exchange rates.
Consumer discretionary sector risk.
To the extent that
the fund invests significantly in the consumer discretionary
sector, the fund will be sensitive to changes in, and the
fund’s performance may depend to a greater extent on, the
overall condition of the consumer discretionary sector.
Companies engaged in the consumer discretionary sector
are subject to fluctuations in supply and demand. These
companies may also be adversely affected by changes in
consumer spending as a result of world events, political
and economic conditions, commodity price volatility,
changes in exchange rates, imposition of import controls,
increased competition, depletion of resources and labor
relations.
Currency risk.
Changes in currency exchange rates and
the relative value of non-US currencies may affect the
value of the fund’s investment and the value of your fund
shares. Because the fund’s NAV is determined on the
basis of the US dollar and the fund does not attempt to
hedge against changes in the value of non-US currencies,
investors may lose money if the foreign currency depreciates
against the US dollar, even if the foreign currency
value of the fund’s holdings in that market increases.
Conversely, the dollar value of your investment in the fund
may go up if the value of the foreign currency appreciates
against the US dollar. The value of the US dollar
measured against other currencies is influenced by a
variety of factors. These factors include: interest rates,
national debt levels and trade deficits, changes in balances
of payments and trade, domestic and foreign interest and
inflation rates, global or regional political, economic or
financial events, monetary policies of governments, actual
or potential government intervention, and global energy
prices. Political instability, the possibility of government
intervention and restrictive or opaque business and investment
policies may also reduce the value of a country’s
currency. Government monetary policies and the buying or
selling of currency by a country’s government may also
influence exchange rates. Currency exchange rates can be
very volatile and can change quickly and unpredictably.
Therefore, the value of an investment in the fund may also
go up or down quickly and unpredictably and investors
may lose money.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
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fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
the NAV during periods of market volatility. The Advisor
cannot predict whether shares will trade above, below or
at their NAV. Given the fact that shares can be created and
redeemed in Creation Units (defined below), the Advisor
believes that large discounts or premiums to the NAV of
shares should not be sustained in the long-term. If market
makers exit the business or are unable to continue making
markets in fund shares, shares may trade at a discount
to NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market). Further, while the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in market prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. In addition, the securities held by the fund
may be traded in markets that close at a different time
than the exchange on which the fund’s shares trade.
Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time
when the exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. Further, secondary markets may be subject
to irregular trading activity, wide bid-ask spreads and
extended trade settlement periods, which could cause a
material decline in the fund’s NAV. The fund’s investment
results are measured based upon the daily NAV of the
fund. Investors purchasing and selling shares in the
secondary market may not experience investment results
consistent with those experienced by those APs creating
and redeeming shares directly with the fund.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Country concentration risk.
To the extent that the fund
invests significantly in a single country, it is more likely to
be impacted by events or conditions affecting that country.
For example, political and economic conditions and
changes in regulatory, tax or economic policy in a country
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could significantly affect the market in that country and in
surrounding or related countries and have a negative
impact on the fund’s performance.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
At any given time, due to the
composition of the Underlying Index, the fund may be classified
as
“
non-diversified
”
under the Investment Company
Act of 1940, as amended. This means that the fund may
invest in securities of relatively few issuers. Thus, the
performance of one or a small number of portfolio holdings
can affect overall performance.
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Past Performance
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund’s performance from year to year and by showing how the fund’s average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund’s past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future.
Updated performance information
is available on the fund’s website at
Xtrackers.com
(the website does not form a part of this prospectus).
CALENDAR YEAR TOTAL RETURNS(%)
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Average Annual Total Returns(For periods ended 12/31/2019 expressed as a %)
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax. Your own actual after-tax returns will depend on your tax situation and may differ from what is shown here. After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts (“IRAs”) or employee-sponsored retirement plans.
|
|
|
|
|
|
|
|
After tax on distribu-
tions
|
|
|
|
After tax on distribu-
tions and sale of fund
shares
|
|
|
|
JPX-Nikkei 400 Index
(reflects no deductions
for fees, expenses or
taxes)
|
|
|
|
MSCI ACWI ex USA
Index
(reflects no deduc-
tions for fees, expenses
or taxes)
|
|
|
|
Management
Investment Advisor
DBX Advisors LLC
Portfolio Managers
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
Purchase and Sale of Fund Shares
The fund is an exchange-traded fund (commonly referred
to as an
“
ETF
”
). Individual fund shares may only be
purchased and sold through a brokerage firm. The price of
fund shares is based on market price, and because ETF
shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than
NAV (a discount). The fund will only issue or redeem
shares that have been aggregated into blocks of 50,000
shares or multiples thereof (
“
Creation Units
”
) to APs who
have entered into agreements with ALPS Distributors,
Inc., the fund’s distributor. You may incur costs attributable
to the difference between the highest price a buyer is
willing to pay to purchase shares of the fund (bid) and the
lowest price a seller is willing to accept for shares of the
fund (ask) when buying or selling shares (the
“
bid-ask
spread
”
). Information on the fund’s net asset value, market
price, premiums and discounts and bid-ask spreads may
be found at Xtrackers.com.
Tax Information
The fund's distributions are generally taxable to you as
ordinary income or capital gains, except when your investment
is in an IRA, 401(k), or other tax-deferred investment
plan. Any withdrawals you make from such tax- advantaged
investment plans, however, may be taxable to you.
Payments to Broker-Dealers and
Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer
or other financial intermediary (such as a bank), the
Advisor or other related companies may pay the intermediary
for marketing activities and presentations,
educational training programs, the support of technology
platforms and/or reporting systems or other services
related to the sale or promotion of the fund. These
payments may create a conflict of interest by influencing
the broker-dealer or other intermediary and your salesperson
to recommend the fund over another investment.
Ask your salesperson or visit your financial intermediary’s
website for more information.
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Additional Information About Fund
Strategies, Underlying Index
Information and Risks
Xtrackers MSCI Emerging Markets Hedged Equity ETF
Investment Objective
Xtrackers MSCI Emerging Markets Hedged Equity ETF
(the
“
fund
”
) seeks investment results that correspond
generally to the performance, before fees and expenses,
of the MSCI EM US Dollar Hedged Index (the
“
Underlying
Index
”
).
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track emerging
market performance while mitigating exposure to fluctuations
between the value of the US dollar and the
currencies of the countries included in the Underlying
Index. The fund uses a full replication indexing strategy to
seek to track the Underlying Index. As such, the fund
invests directly in the component securities (or a substantial
number of the component securities) of the Underlying
Index in substantially the same weightings in which they
are represented in the Underlying Index. If it is not possible
for the fund to acquire component securities due to
limited availability or regulatory restrictions, the fund may
use a representative sampling indexing strategy to seek to
track the Underlying Index instead of a full replication
indexing strategy.
“
Representative sampling
”
is an
indexing strategy that involves investing in a representative
sample of securities that collectively has an
investment profile similar to the Underlying Index. The
securities selected are expected to have, in the aggregate,
investment characteristics (based on factors such as
market capitalization and industry weightings), fundamental
characteristics (such as return variability and yield),
and liquidity measures similar to those of the Underlying
Index. The fund may or may not hold all of the securities in
the Underlying Index when using a representative
sampling indexing strategy. The fund will invest at least
80% of its total assets (but typically far more) in component
securities (including depositary receipts in respect of
such securities) of the Underlying Index.
As of July 31, 2020, the Underlying Index consisted of
1,385 securities, with an average market capitalization of
approximately $4.53 billion and a minimum market capitalization
of approximately $123 million, from issuers in the
following countries: Argentina, Brazil, Chile, China,
Colombia, Czech Republic, Egypt, Greece, Hungary, India,
Indonesia, Malaysia, Mexico, Pakistan, Peru, Philippines,
Poland, Qatar, Russia, Saudi Arabia, South Africa, South
Korea, Taiwan, Thailand, Turkey and the United Arab Emirates.
Under normal circumstances, the Underlying Index is
rebalanced monthly. The fund rebalances its portfolio in
accordance with the Underlying Index, and, therefore, any
changes to the Underlying Index’s rebalance schedule will
result in corresponding changes to the fund’s rebalance
schedule.
The fund enters into forward currency contracts designed
to offset the fund’s exposure to foreign currencies. The
fund hedges each foreign currency in the portfolio to US
dollars by selling the applicable foreign currency forward at
the one-month forward rate published by WM/Reuters.
The amount of forward contracts in the fund is based on
the aggregate exposure of the fund and Underlying Index
to each non-US currency based on currency weights as of
the beginning of each month. While this approach is
designed to minimize the impact of currency fluctuations
on fund returns, this does not necessarily eliminate exposure
to all currency fluctuations. The return of the forward
currency contracts may not perfectly offset the actual fluctuations
of non-US currencies relative to the US dollar.
The fund may use non-deliverable forward (
“
NDF
”
)
contracts to execute its hedging transactions. An NDF is a
contract where there is no physical settlement of two
currencies at maturity (as opposed to deliverable forward
contracts, which per their terms are settled by physical
delivery of the currencies). Rather, based on the movement
of the currencies and the contractually agreed upon
exchange rate, a net cash settlement is made by one party
to the other in US dollars.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in the equity securities of issuers from
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Fund Details
|
emerging markets countries and in instruments designed
to hedge against the fund’s exposure to non-US
currencies.
Emerging market countries are countries that major international
financial institutions, such as the World Bank,
generally consider to be less economically mature than
developed nations. Emerging market countries can include
every nation in the world except the United States,
Canada, Japan, Australia, New Zealand and most countries
located in Western Europe. As of July 31, 2020, a significant
percentage of the Underlying Index was comprised of
securities of issuers from China (41.1%).
The fund will concentrate its investments (i.e., hold 25%
or more of its total assets) in a particular industry or group
of industries to the extent that its Underlying Index is
concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
information technology (18.4%), financials (18.1%) and
consumer discretionary (18.0%) sectors. The information
technology sector includes companies engaged in developing
software and providing data processing and
outsourced services, along with manufacturing and distributing
communications equipment, computers and other
electronic equipment and instruments. The financials
sector includes companies involved in banking, consumer
finance, asset management and custody banks, as well
as investment banking and brokerage and insurance. The
consumer discretionary goods sector includes durable
goods, apparel, entertainment and leisure, and automobiles.
To the extent that the fund tracks the Underlying
Index, the fund’s investment in certain sectors or countries
may change over time.
The fund may also invest in depositary receipts in respect
of equity securities that comprise its Underlying Index
to seek performance that corresponds to the fund’s respective
Underlying Index. Investments in such depositary
receipts will count towards the fund’s 80% investment
policy discussed above with respect to instruments that
comprise the applicable Underlying Index. The fund will not
invest in any unlisted depositary receipt or any depositary
receipt that the Advisor deems illiquid at the time of
purchase or for which pricing information is not readily
available.
The fund may invest its remaining assets in other securities,
including securities not in the Underlying Index, cash
and cash equivalents, money market instruments, such
as repurchase agreements or money market funds
(including money market funds advised by the Advisor or
its affiliates (subject to applicable limitations under the
Investment Company Act of 1940, as amended (the
“
1940
Act
”
), or exemptions therefrom), convertible securities,
structured notes (notes on which the amount of principal
repayment and interest payments are based on the movement
of one or more specified factors, such as the
movement of a particular stock or stock index) and in
futures contracts, options on futures contracts and other
types of options and swaps related to its Underlying Index.
The fund will not use futures or options for speculative
purposes.
The fund expects to use futures contracts to a limited
extent in seeking performance that corresponds to its
Underlying Index. A futures contract is a standardized
exchange traded agreement to buy or sell a specific quantity
of an underlying instrument at a specific price at a
specific future time.
The fund may become
“
non-diversified,
”
as defined under
the Investment Company Act of 1940, as amended, solely
as a result of a change in relative market capitalization or
index weighting of one or more constituents of the index
that the fund is designed to track. Shareholder approval will
not be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
The Prospectus contains a more detailed description of
the limited relationship MSCI has with DBX Advisors LLC
and any related funds.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Underlying Index Information
MSCI EM US Dollar Hedged Index
Number of Components: approximately 1,385
Index Description.
The MSCI EM US Dollar Hedged Index
is designed to provide exposure to equity securities in
the global emerging markets, while at the same time mitigating
exposure to fluctuations between the value of the
US dollar and selected emerging market currencies. As of
July 31, 2020, the Underlying Index consisted of issuers
from the following 26 emerging market countries: Argentina,
Brazil, Chile, China, Colombia, Czech Republic, Egypt,
Greece, Hungary, India, Indonesia, Malaysia, Mexico, Pakistan,
Peru, Philippines, Poland, Qatar, Russia, Saudi Arabia,
South Africa, South Korea, Taiwan, Thailand, Turkey and
the United Arab Emirates.
Main Risks
As with any investment, you could lose all or part of your
investment in the fund, and the fund’s performance could
trail that of other investments. The fund is subject to the
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main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective.
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund
and its investments may be adversely affected by the
effects of the COVID-19 pandemic, and a prolonged
pandemic may result in the fund and its service providers
experiencing operational difficulties in coordinating a
remote workforce and implementing their business continuity
plans, among others.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Foreign investments in American
Depositary Receipts and other depositary receipts may
be less liquid than the underlying shares in their primary
trading market. Certain of the depositary receipts in which
the fund invests may be unsponsored depositary receipts.
Unsponsored depositary receipts may not provide as
much information about the underlying issuer and may not
carry the same voting privileges as sponsored depositary
receipts. Unsponsored depositary receipts are issued by
one or more depositaries in response to market demand,
but without a formal agreement with the company that
issues the underlying securities.
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Emerging market securities risk.
Investment in emerging
markets subjects the fund to a greater risk of loss than
investments in a developed market. This is due to, among
other things, (i) greater market volatility, (ii) lower trading
volume, (iii) political and economic instability, (iv) high
levels of inflation, deflation or currency devaluation, (v)
greater risk of market shut down, (vi) more governmental
limitations on foreign investments and limitations on repatriation
of invested capital than those typically found in a
developed market, and (vii) the risk that companies may be
held to lower disclosure, corporate governance, auditing
and financial reporting standards than companies in more
developed markets.
The financial stability of issuers (including governments) in
emerging market countries may be more precarious than
in other countries. As a result, there will tend to be an
increased risk of price volatility in the fund’s investments
in emerging market countries, which may be magnified by
currency fluctuations relative to the US dollar.
Settlement practices for transactions in foreign markets
may differ from those in US markets. Such differences
include delays beyond periods customary in the US and
practices, such as delivery of securities prior to receipt of
payment, which increase the likelihood of a
“
failed settlement.
”
Failed settlements can result in losses to the fund.
Low trading volumes and volatile prices in less developed
markets make trades harder to complete and settle, and
governments or trade groups may compel local agents to
hold securities in designated depositories that are not
subject to independent evaluation. Local agents are held
only to the standards of care of their local markets.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors of
the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Information technology sector risk.
To the extent that the
fund invests significantly in the information technology
sector, the fund will be sensitive to changes in, and the
fund’s performance may depend to a greater extent on, the
overall condition of the information technology sector. Information
technology companies are particularly vulnerable to
government regulation and competition, both domestically
and internationally, including competition from foreign
competitors with lower production costs. Information technology
companies also face competition for services of
qualified personnel. Additionally, the products of information
technology companies may face obsolescence due to
rapid technological development and frequent new
product introduction by competitors. Finally, information
technology companies are heavily dependent on patent
and intellectual property rights, the loss or impairment of
which may adversely affect profitability.
Financials sector risk.
To the extent that the fund invests
significantly in the financials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
financials sector. The financials sector is subject to extensive
government regulation, can be subject to relatively
rapid change due to increasingly blurred distinctions
between service segments, and can be significantly
affected by availability and cost of capital funds, changes in
interest rates, the rate of corporate and consumer debt
defaults, and price competition.
Numerous financial companies have experienced substantial
declines in the valuations of their assets, taken action
to raise capital (such as the issuance of debt or equity securities),
or even ceased operations. These actions have
caused the securities of many financial companies to
experience a dramatic decline in value. Moreover, certain
financial companies have avoided collapse due to intervention
by governmental regulatory authorities, but such
interventions have often not averted a substantial decline
in the value of such companies’ common stock. Issuers
that have exposure to the real estate, mortgage and credit
markets have been particularly affected by the foregoing
events and the general market turmoil, and it is uncertain
whether or for how long these conditions will continue.
Consumer discretionary sector risk.
To the extent that
the fund invests significantly in the consumer discretionary
sector, the fund will be sensitive to changes in, and the
fund’s performance may depend to a greater extent on, the
overall condition of the consumer discretionary sector.
Companies engaged in the consumer discretionary sector
are subject to fluctuations in supply and demand. These
companies may also be adversely affected by changes in
consumer spending as a result of world events, political
and economic conditions, commodity price volatility,
changes in exchange rates, imposition of import controls,
increased competition, depletion of resources and labor
relations.
Forward currency contract risk.
The fund invests in
forward currency contracts to attempt to minimize the
impact of changes in the value of the non-US currencies
included in its Underlying Index against the US dollar.
These contracts may not be successful. To the extent the
fund’s forward currency contracts are not successful in
hedging against such changes, the US dollar value of your
investment in the fund may go down if the value of the
local currency of the non-US markets in which the fund
invests depreciates against the US dollar. This is true even
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if the local currency value of securities in the fund’s holdings
goes up. In order to minimize transaction costs or for
other reasons, the fund’s exposure to the currencies
included in the Underlying Index may not be fully hedged
at all times. For example, the fund may not hedge against
exposure to currencies that represent a relatively smaller
portion of the Underlying Index. Furthermore, because no
changes in the currency weights in each fund’s Underlying
Index are made during the month to account for
changes in each fund’s Underlying Index due to price
movement of securities, corporate events, additions, deletions
or any other changes, changes in the value of the
non-US currencies included in the fund’s Underlying Index
against the US dollar during the month may affect the
value of the fund’s investment. Non-deliverable forward
(
“
NDF
”
) contracts may be less liquid than deliverable
forward currency contracts. A lack of liquidity in NDFs of
the hedged currency could adversely affect the fund’s
ability to hedge against currency fluctuations and properly
track the Underlying Index.
A forward currency contract is a negotiated agreement
between two parties to exchange specified amounts of
two or more currencies at a specified future time at a
specified rate. The rate specified by the forward currency
contract can be higher or lower than the spot rate between
the currencies that are the subject of the contract. Settlement
of a forward currency contract for the purchase of
most currencies typically must occur at a bank based in
the issuing nation. By entering into a forward currency
contract for the purchase or sale, for a fixed amount of
dollars or other currency, of the amount of foreign currency
involved in the underlying security transactions, the fund
may be able to protect itself against a possible loss
resulting from an adverse change in the relationship
between the US dollar or other currency which is being
used for the security purchase and the foreign currency in
which the security is denominated during the period
between the date on which the security is purchased or
sold and the date on which payment is made or received.
Furthermore, such transactions reduce or preclude the
opportunity for gain if the value of the currency should
move in the direction opposite to the position taken. There
is an additional risk to the extent that forward currency
contracts create exposure to currencies in which the fund’s
securities are not denominated. Unanticipated changes in
currency prices may result in poorer overall performance
for the fund than if it had not entered into such contracts.
Forward currency contracts may limit gains on portfolio
securities that could otherwise be realized had they not
been utilized and could result in losses. The contracts also
may increase the fund’s volatility and may involve a significant
amount of risk relative to the investment of cash.
Counterparty risk.
The foreign currency markets in which
the fund effects its transactions are over-the-counter or
“
interdealer
”
markets. The counterparty to an over-the
counter spot contract is generally a single bank or other
financial institution rather than a clearing organization
backed by a group of financial institutions. Participants in
over-the-counter markets are typically not subject to the
same credit evaluation and regulatory oversight as
members of exchange-based” markets. Because the funds
execute over-the-counter transactions, the fund constantly
takes credit risk with regard to parties with which it trades
and may also bear the risk of settlement default. These
risks may differ materially from those involved in exchange-traded
transactions which generally are characterized by
clearing organization guaranties, daily marking-to-market
and settlement, and segregation and minimum capital
requirements applicable to intermediaries. Transactions
entered into directly between two counterparties generally
do not benefit from these protections and the fund is
subject to the risk that a counterparty will not settle a
transaction in accordance with agreed terms and
conditions.
Further, if a counterparty becomes bankrupt or otherwise
fails to perform its obligations due to financial difficulties,
the fund may experience significant delays in obtaining any
recovery in a bankruptcy or other reorganization
proceeding. The fund may obtain only limited recovery or
may obtain no recovery in such circumstances. In addition,
the fund may enter into agreements with a limited number
of counterparties which may increase that fund’s exposure
to counterparty credit risk.
Because a contract’s terms may provide for collateral to
cover the variation margin exposure arising under the
contract only if a minimum transfer amount is triggered,
the fund may have an uncollateralized risk exposure to
a counterparty.
The use of spot foreign exchange contracts may also
expose the fund to legal risk, which is the risk of loss due
to the unexpected application of a law or regulation, or
because contracts are not legally enforceable.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
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Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
The need to comply with the tax diversification and other
requirements of the Internal Revenue Code of 1986, as
amended, may also impact the fund’s ability to replicate
the performance of the Underlying Index. In addition, if the
fund utilizes derivative instruments or holds other instruments
that are not included in the Underlying Index, the
fund’s return may not correlate as well with the returns of
the Underlying Index as would be the case if the fund
purchased all the securities in the Underlying Index
directly. Actions taken in response to proposed corporate
actions could result in increased tracking error.
For purposes of calculating the fund’s net asset value, the
value of assets denominated in non-US currencies is
converted into US dollars using prevailing market rates on
the date of valuation as quoted by one or more data
service providers. This conversion may result in a difference
between the prices used to calculate the fund’s net
asset value and the prices used by the Underlying Index,
which, in turn, could result in a difference between the
fund’s performance and the performance of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
NAV during periods of market volatility. Differences
between secondary market prices and the value of the
fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the
same forces as those influencing prices for securities held
by the fund at a particular time. The Advisor cannot predict
whether shares will trade above, below or at their NAV.
Given the fact that shares can be created and redeemed in
Creation Units, the Advisor believes that large discounts
or premiums to the NAV of shares should not be sustained
in the long-term. In addition, there may be times when
the market price and the value of the fund’s holdings vary
significantly and you may pay more than the value of the
fund’s holdings when buying shares on the secondary
market, and you may receive less than the value of the
fund’s holdings when you sell those shares. While the
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creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in trading prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. If market makers exit the business or are
unable to continue making markets in fund’s shares,
shares may trade at a discount to NAV like closed-end fund
shares and may even face delisting (that is, investors
would no longer be able to trade shares in the secondary
market). The market price of shares, like the price of any
exchange-traded security, includes a
“
bid-ask spread
”
charged by the exchange specialist, market makers or
other participants that trade the particular security. In times
of severe market disruption, the bid-ask spread often
increases significantly. This means that shares may trade
at a discount to the fund’s NAV, and the discount is likely to
be greatest when the price of shares is falling fastest,
which may be the time that you most want to sell your
shares. There are various methods by which investors can
purchase and sell shares of the funds and various orders
that may be placed. Investors should consult their financial
intermediary before purchasing or selling shares of the
fund.
In addition, the securities held by the fund may be traded
in markets that close at a different time than an exchange.
Liquidity in those securities may be reduced after the applicable
closing times. Accordingly, during the time when an
exchange is open but after the applicable market closing,
fixing or settlement times, bid-ask spreads and the
resulting premium or discount to the shares’ NAV is likely
to widen. More generally, secondary markets may be
subject to irregular trading activity, wide bid-ask spreads
and extended trade settlement periods, which could cause
a material decline in the fund’s NAV. The bid-ask spread
varies over time for shares of the fund based on the fund’s
trading volume and market liquidity, and is generally lower
if the fund has substantial trading volume and market
liquidity, and higher if the fund has little trading volume and
market liquidity (which is often the case for funds that are
newly launched or small in size). The fund’s bid-ask spread
may also be impacted by the liquidity of the underlying
securities held by the fund, particularly for newly launched
or smaller funds or in instances of significant volatility of
the underlying securities. The fund’s investment results are
measured based upon the daily NAV of the fund. Investors
purchasing and selling shares in the secondary market
may not experience investment results consistent with
those experienced by those APs creating and redeeming
shares directly with the fund. In addition, transactions by
large shareholders may account for a large percentage of
the trading volume on an exchange and may, therefore,
have a material effect on the market price of the fund’s
shares.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
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plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Cyber-attacks may include unauthorized attempts by third
parties to improperly access, modify, disrupt the operations
of, or prevent access to the systems of the fund’s
service providers or counterparties, issuers of securities
held by the fund or other market participants or data within
them. In addition, power or communications outages, acts
of god, information technology equipment malfunctions,
operational errors, and inaccuracies within software or data
processing systems may also disrupt business operations
or impact critical data.
Cyber-attacks, disruptions, or failures may adversely affect
the fund and its shareholders or cause reputational
damage and subject the fund to regulatory fines, litigation
costs, penalties or financial losses, reimbursement or
other compensation costs, and/or additional compliance
costs. In addition, cyber-attacks, disruptions, or failures
involving a fund counterparty could affect such
counterparty’s ability to meet its obligations to the fund,
which may result in losses to the fund and its shareholders.
Similar types of operational and technology risks
are also present for issuers of securities held by the fund,
which could have material adverse consequences for such
issuers, and may cause the fund’s investments to lose
value. Furthermore, as a result of cyber-attacks, disruptions,
or failures, an exchange or market may close or issue
trading halts on specific securities or the entire market,
which may result in the fund being, among other things,
unable to buy or sell certain securities or financial instruments
or unable to accurately price its investments.
For example, the fund relies on various sources to calculate
its NAV. Therefore, the fund is subject to certain
operational risks associated with reliance on third party
service providers and data sources. NAV calculation may
be impacted by operational risks arising from factors such
as failures in systems and technology. Such failures may
result in delays in the calculation of a fund’s NAV and/or the
inability to calculate NAV over extended time periods. The
fund may be unable to recover any losses associated with
such failures.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited or
diminished access to capital required to post collateral) and
no other AP is able to step forward to create and redeem
in either of these cases, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market).
Non-diversification risk.
At any given time, due to the
composition of the Underlying Index, the fund may be classified
as
“
non-diversified
”
and may invest a larger
percentage of its assets in securities of a few issuers or a
single issuer than that of a diversified fund. As a result,
the fund may be more susceptible to the risks associated
with these particular issuers, or to a single economic,
political or regulatory occurrence affecting these issuers.
This may increase the fund’s volatility and cause the performance
of a relatively smaller number of issuers to have a
greater impact on the fund’s performance.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Risk of investing in China.
Investments in China involve
certain risks and special considerations, including the
following:
Political and economic risk.
The economy of China, which
has been in a state of transition from a planned economy
to a more market oriented economy, differs from the
economies of most developed countries in many respects,
including the level of government involvement, its state
of development, its growth rate, control of foreign
exchange, and allocation of resources. Although the
majority of productive assets in China are still owned by
the PRC government at various levels, in recent years, the
PRC government has implemented economic reform
measures emphasizing utilization of market forces in the
development of the economy of China and a high level
of management autonomy. The economy of China has
experienced significant growth in recent decades, but
growth has been uneven both geographically and among
various sectors of the economy. Economic growth has also
been accompanied by periods of high inflation. The PRC
government has implemented various measures from time
to time to control inflation and restrain the rate of
economic growth.
For several decades, the PRC government has carried out
economic reforms to achieve decentralization and utilization
of market forces to develop the economy of the
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PRC. These reforms have resulted in significant economic
growth and social progress. However, there can be no
assurance that the PRC government will continue to
pursue such economic policies or that such policies, if
pursued, will be successful. Any adjustment and modification
of those economic policies may have an adverse
impact on the securities markets in the PRC as well as the
constituent securities of the Underlying Index. Further,
the PRC government may from time to time adopt corrective
measures to control the growth of the PRC economy
which may also have an adverse impact on the capital
growth and performance of the fund.
Political changes, social instability and adverse diplomatic
developments in the PRC could result in the imposition
of additional government restrictions including expropriation
of assets, confiscatory taxes or nationalization of
some or all of the property held by the issuers of the
A-Shares in the fund’s Underlying Index. The laws, regulations,
including the investment regulations, government
policies and political and economic climate in China may
change with little or no advance notice. Any such change
could adversely affect market conditions and the performance
of the Chinese economy and, thus, the value of
securities in the fund’s portfolio.
The Chinese government continues to be an active participant
in many economic sectors through ownership
positions and regulations. The allocation of resources in
China is subject to a high level of government control. The
Chinese government strictly regulates the payment of
foreign currency denominated obligations and sets
monetary policy. Through its policies, the government may
provide preferential treatment to particular industries or
companies. The policies set by the government could have
a substantial effect on the Chinese economy and the
fund’s investments.
The Chinese economy is export-driven and highly reliant
on trade. The performance of the Chinese economy may
differ favorably or unfavorably from the US economy in
such respects as growth of gross domestic product, rate
of inflation, currency depreciation, capital reinvestment,
resource self- sufficiency and balance of payments position.
The domestic consumer class in China is still
emergent, while the economy's dependence on exports
may not be sustainable. Adverse changes to the economic
conditions of its primary trading partners, such as the European
Union, the US, Hong Kong, the Association of South
East Asian Nations, and Japan, would adversely affect the
Chinese economy and the fund’s investments.
In addition, as much of China’s growth over recent decades
has been a result of significant investment in substantial
export trade, international trade tensions may arise from
time to time which can result in trade tariffs, embargoes,
trade limitations, trade wars and other negative consequences.
The current political climate has intensified
concerns about trade tariffs and a potential trade war
between China and the US. These consequences may
trigger a significant reduction in international trade, the
oversupply of certain manufactured goods, substantial
price reductions of goods and possible failure of individual
companies and/or large segments of China’s export
industry with a potentially severe negative impact to the
fund. In addition, it is possible that the continuation or worsening
of the current political climate could result in
regulatory restrictions being contemplated or imposed in
the US or in China that could have a material adverse effect
on the fund’s ability to invest in accordance with its investment
policies and/or achieve its investment objective. In
July 2020, the President’s Working Group on Financial
Markets (the
“
PWG
”
) proposed a number of regulatory
changes aimed at addressing potential risks to US investors
from investments in issuers that provide limited
access to their financial statements, including Chinese
companies. The PWG’s proposals included having the SEC
consider encouraging or requiring US registered funds to
conduct additional due diligence on an index’s exposure to
such issuers and how the index provider addresses
concerns arising from limited availability of such issuers’
financial information. If the SEC adopts these proposals,
they could have a material adverse effect on the fund’s
ability to continue tracking the Underlying Index. Events
such as these are difficult to predict and may or may not
occur in the future.
China has been transitioning to a market economy since
the late seventies, and has only recently opened up to
foreign investment and permitted private economic
activity. Under the economic reforms implemented by the
Chinese government, the Chinese economy has experienced
tremendous growth, developing into one of the
largest and fastest growing economies in the world. There
is no assurance, however, that the Chinese government
will not revert to the economic policy of central planning
that it implemented prior to 1978 or that such growth will
be sustained in the future. Moreover, the current major
slowdown in other significant economies of the world,
such as the US, the European Union and certain Asian
countries, may adversely affect economic growth in China.
An economic downturn in China would adversely impact
the fund’s investments.
Inflation.
Economic growth in China has historically been
accompanied by periods of high inflation. Beginning in
2004, the Chinese government commenced the implementation
of various measures to control inflation, which
included the tightening of the money supply, the raising of
interest rates and more stringent control over certain industries.
If these measures are not successful, and if inflation
were to steadily increase, the performance of the Chinese
economy and the fund’s investments could be adversely
affected.
Nationalization and expropriation.
After the formation of
the Chinese socialist state in 1949, the Chinese government
renounced various debt obligations and nationalized
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private assets without providing any form of compensation.
There can be no assurance that the Chinese
government will not take similar actions in the future.
Accordingly, an investment in the fund involves a risk of a
total loss.
Hong Kong policy.
As part of Hong Kong’s transition from
British to Chinese sovereignty in 1997, China agreed to
allow Hong Kong to maintain a high degree of autonomy
with regard to its political, legal and economic systems for
a period of at least 50 years. China controls matters that
relate to defense and foreign affairs. Under the agreement,
China does not tax Hong Kong, does not limit the
exchange of the Hong Kong dollar for foreign currencies
and does not place restrictions on free trade in Hong Kong.
However, there is no guarantee that China will continue
to honor the agreement, and China may change its policies
regarding Hong Kong at any time. As of July 2020, the
Chinese Standing Committee of the National People's
Congress enacted the Law of the People's Republic of
China on Safeguarding National Security in the Hong Kong
Special Administrative Region. As of the same month,
Hong Kong is no longer afforded preferential economic
treatment by the United States under US law, and there is
uncertainty as to how the economy of Hong Kong will be
affected. Any further changes in China's policies could
adversely affect market conditions and the performance of
the Chinese economy and, thus, the value of securities
in the fund’s portfolio.
Chinese securities markets.
The securities markets in
China have a limited operating history and are not as
developed as those in the US. The markets tend to be
smaller in size, have less liquidity and historically have had
greater volatility than markets in the US and some other
countries. In addition, under normal market conditions,
there is less regulation and monitoring of Chinese securities
markets and the activities of investors, brokers and
other participants than in the US. Accordingly, issuers of
securities in China are not subject to the same degree of
regulation as are US issuers with respect to such matters
as insider trading rules, tender offer regulation, stockholder
proxy requirements and the requirements mandating
timely disclosure of information. During periods of significant
market volatility, the Chinese government has, from
time to time, intervened in its domestic securities markets
to a greater degree than would be typical in more developed
markets, including both direct and indirect market
stabilization efforts, which may affect valuations of Chinese
issuers. Stock markets in China are in the process of
change and further development. This may lead to trading
volatility, difficulty in the settlement and recording of transactions
and difficulty in interpreting and applying the
relevant regulations.
Available disclosure about Chinese companies.
Chinese
companies are required to follow Chinese accounting standards
and practices, which only follow international
accounting standards to a certain extent. However, the
accounting, auditing and financial reporting standards and
practices applicable to PRC companies may be less
rigorous, and there may be significant differences between
financial statements prepared in accordance with Chinese
accounting standards and practice and those prepared in
accordance with international accounting standards. In
particular, the assets and profits appearing on the financial
statements of a Chinese issuer may not reflect its financial
position or results of operations in the way they would
be reflected had such financial statements been prepared
in accordance with US Generally Accepted Accounting
Principles. The quality of audits in China may be unreliable,
which may require enhanced procedures. Consequently,
the fund may not be provided the same degree of protection
or information as would generally apply in developed
countries and the fund may be exposed to significant
losses. There is also substantially less publicly available
information about Chinese issuers than there is about US
issuers. Therefore, disclosure of certain material information
may not be made, and less information may be
available to the fund and other investors than would be the
case if the fund’s investments were restricted to securities
of US issuers.
■
Chinese corporate and securities law.
Legal principles
relating to corporate affairs and the validity of corporate
procedures, directors’ fiduciary duties and liabilities and
stockholders’ rights often differ from those that may
apply in the US and other countries. Chinese laws
providing protection to investors, such as laws regarding
the fiduciary duties of officers and directors, are undeveloped
and will not provide investors, such as the fund,
with protection in all situations where protection would
be provided by comparable laws in the US.
■
China lacks a national set of laws that address all issues
that may arise with regard to a foreign investor such
as the fund. It may therefore be difficult for the fund to
enforce its rights as an investor under Chinese corporate
and securities laws, and it may be difficult or impossible
for the fund to obtain a judgment in court.
Moreover, as Chinese corporate and securities laws
continue to develop, these developments may adversely
affect foreign investors, such as the fund.
Sanctions and embargoes.
From time to time, certain of
the companies in which the fund expects to invest may
operate in, or have dealings with, countries subject to
sanctions or embargoes imposed by the US government
and the United Nations and/or countries identified by the
US government as state sponsors of terrorism. A company
may suffer damage to its reputation if it is identified as a
company which operates in, or has dealings with, countries
subject to sanctions or embargoes imposed by the
US government and the United Nations and/or countries
identified by the US government as state sponsors of
terrorism. As an investor in such companies, the fund will
be indirectly subject to those risks.
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Tax on retained income and gains.
To the extent the fund
does not distribute to shareholders all or substantially all of
its investment company taxable income and net capital
gain in a given year, it will be required to pay US federal
income tax on the retained income and gains, thereby
reducing the fund’s return. A fund may elect to treat any
retained net capital gain as having been distributed to
shareholders. In that case, shareholders of record on the
last day of the fund’s taxable year will be required to
include their attributable share of the retained gain in
income for the year as a long-term capital gain despite not
actually receiving the dividend, and will be entitled to a
tax credit or refund for the tax deemed paid on their behalf
by the fund as well as an increase in the basis of their
shares to reflect the difference between their attributable
share of the gain and the related credit or refund.
Cash redemption risk.
Because the fund invests a portion
of its assets in forward currency contracts, the fund may
pay out a portion of its redemption proceeds in cash rather
than through the in-kind delivery of portfolio securities. In
addition, the fund may be required to unwind such
contracts or sell portfolio securities in order to obtain the
cash needed to distribute redemption proceeds. This may
cause the fund to recognize a capital gain that it might not
have incurred if it had made a redemption in-kind. As a
result the fund may pay out higher annual capital gains
distributions than if the in-kind redemption process was
used. Only APs who have entered into an agreement with
the fund’s distributor may redeem shares from the fund
directly; all other investors buy and sell shares at market
prices on an exchange.
Derivatives risk.
Derivatives are financial instruments,
such as futures and swaps, whose values are based on the
value of one or more indicators, such as a security, asset,
currency, interest rate, or index. Derivatives involve risks
different from, and possibly greater than, the risks associated
with investing directly in securities and other more
traditional investments. For example, derivatives involve
the risk of mispricing or improper valuation and the risk
that changes in the value of a derivative may not correlate
perfectly with the underlying indicator. Derivative transactions
can create investment leverage, may be highly
volatile and the fund could lose more than the amount it
invests. Many derivative transactions are entered into
“
over-the-counter
”
(i.e., not on an exchange or contract market);
as a result, the value of such a derivative transaction will
depend on the ability and the willingness of the fund’s
counterparty to perform its obligations under the transaction.
If a counterparty were to default on its obligations,
the fund’s contractual remedies against such counterparty
may be subject to bankruptcy and insolvency laws, which
could affect the fund’s rights as a creditor (e.g., the fund
may not receive the net amount of payments that it is
contractually entitled to receive). A liquid secondary market
may not always exist for the fund’s derivative positions at
any time.
Futures risk.
The value of a futures contract tends to
increase and decrease in tandem with the value of the
underlying instrument. Depending on the terms of the
particular contract, futures contracts are settled through
either physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether,
when and how to use futures involves the exercise of skill
and judgment and even a well-conceived futures transaction
may be unsuccessful because of market behavior or
unexpected events. In addition to the derivatives risks
discussed above, the prices of futures can be highly volatile,
using futures can lower total return and the potential
loss from futures can exceed the fund’s initial investment
in such contracts.
Xtrackers MSCI EAFE Hedged Equity ETF
Investment Objective
Xtrackers MSCI EAFE Hedged Equity ETF (the
“
fund
”
)
seeks investment results that correspond generally to the
performance, before fees and expenses, of the MSCI
EAFE US Dollar Hedged Index (the
“
Underlying Index
”
).
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track developed
market performance while mitigating exposure to fluctuations
between the value of the US dollar and the
currencies of the countries included in the Underlying
Index. The fund uses a full replication indexing strategy to
seek to track the Underlying Index. As such, the fund
invests directly in the component securities (or a substantial
number of the component securities) of the Underlying
Index in substantially the same weightings in which they
are represented in the Underlying Index. If it is not possible
for the fund to acquire component securities due to
limited availability or regulatory restrictions, the fund may
use a representative sampling indexing strategy to seek to
track the Underlying Index instead of a full replication
indexing strategy.
“
Representative sampling
”
is an
indexing strategy that involves investing in a representative
sample of securities that collectively has an
investment profile similar to the Underlying Index. The
securities selected are expected to have, in the aggregate,
investment characteristics (based on factors such as
market capitalization and industry weightings), fundamental
characteristics (such as return variability and yield),
and liquidity measures similar to those of the Underlying
Index. The fund may or may not hold all of the securities in
the Underlying Index when using a representative
sampling indexing strategy. The fund will invest at least
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80% of its total assets (but typically far more) in component
securities (including depositary receipts in respect of
such securities) of the Underlying Index.
As of July 31, 2020, the Underlying Index consisted of 900
securities, with an average market capitalization of approximately
$14.88 billion and a minimum market capitalization
of approximately $1.21 billion, from issuers in the
following countries: Australia, Austria, Belgium, Denmark,
Finland, France, Germany, Hong Kong, Ireland, Israel, Italy,
Japan, Netherlands, New Zealand, Norway, Portugal,
Singapore, Spain, Sweden, Switzerland and the United
Kingdom. Under normal circumstances, the Underlying
Index is rebalanced monthly. The fund rebalances its portfolio
in accordance with the Underlying Index, and,
therefore, any changes to the Underlying Index’s rebalance
schedule will result in corresponding changes to the fund’s
rebalance schedule.
The fund enters into forward currency contracts designed
to offset the fund’s exposure to foreign currencies. The
fund hedges each foreign currency in the portfolio to US
dollars by selling the applicable foreign currency forward at
the one-month forward rate published by WM/Reuters.
The amount of forward contracts in the fund is based on
the aggregate exposure of the fund and Underlying Index
to each non-US currency based on currency weights as of
the beginning of each month. While this approach is
designed to minimize the impact of currency fluctuations
on fund returns, this does not necessarily eliminate exposure
to all currency fluctuations. The return of the forward
currency contracts may not perfectly offset the actual fluctuations
of non-US currencies relative to the US dollar.
The fund may use non-deliverable forward (
“
NDF
”
)
contracts to execute its hedging transactions. An NDF is a
contract where there is no physical settlement of two
currencies at maturity (as opposed to deliverable forward
contracts, which per their terms are settled by physical
delivery of the currencies). Rather, based on the movement
of the currencies and the contractually agreed upon
exchange rate, a net cash settlement is made by one party
to the other in US dollars.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in the equity securities of issuers from Europe,
Australia and the Far East and in instruments designed
to hedge against the fund’s exposure to non-US currencies.
As of July 31, 2020, a significant percentage of the
Underlying Index was comprised of securities of issuers
from Japan (24.4%).
The fund will concentrate its investments (i.e., hold 25%
or more of its total assets) in a particular industry or group
of industries to the extent that its Underlying Index is
concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
financials sector (15.8%). The financials sector includes
companies involved in banking, consumer finance, asset
management and custody banks, as well as investment
banking and brokerage and insurance. To the extent that
the fund tracks the Underlying Index, the fund’s investment
in certain sectors or countries may change over time.
The fund may also invest in depositary receipts in respect
of equity securities that comprise its Underlying Index
to seek performance that corresponds to the fund’s respective
Underlying Index. Investments in such depositary
receipts will count towards the fund’s 80% investment
policy discussed above with respect to instruments that
comprise the applicable Underlying Index. The fund will not
invest in any unlisted depositary receipt or any depositary
receipt that the Advisor deems illiquid at the time of
purchase or for which pricing information is not readily
available.
The fund may invest its remaining assets in other securities,
including securities not in the Underlying Index, cash
and cash equivalents, money market instruments, such
as repurchase agreements or money market funds
(including money market funds advised by the Advisor or
its affiliates (subject to applicable limitations under the
Investment Company Act of 1940, as amended (the
“
1940
Act
”
), or exemptions therefrom), convertible securities,
structured notes (notes on which the amount of principal
repayment and interest payments are based on the movement
of one or more specified factors, such as the
movement of a particular stock or stock index) and in
futures contracts, options on futures contracts and other
types of options and swaps related to its Underlying Index.
The fund will not use futures or options for speculative
purposes.
The fund expects to use futures contracts to a limited
extent in seeking performance that corresponds to its
Underlying Index. A futures contract is a standardized
exchange traded agreement to buy or sell a specific quantity
of an underlying instrument at a specific price at a
specific future time.
The fund may become
“
non-diversified,
”
as defined under
the Investment Company Act of 1940, as amended, solely
as a result of a change in relative market capitalization or
index weighting of one or more constituents of the index
that the fund is designed to track. Shareholder approval will
not be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
The Prospectus contains a more detailed description of
the limited relationship MSCI has with DBX Advisors LLC
and any related funds.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
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value of the portfolio securities being lent. This collateral is
marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Underlying Index Information
MSCI EAFE US Dollar Hedged Index
Number of Components: approximately 900
Index
Description
. The MSCI EAFE US Dollar Hedged
Index is designed to provide exposure to equity securities
in developed international stock markets, while at the
same time mitigating exposure to fluctuations between
the value of the US dollar and selected non-US currencies.
As of July 31, 2020, the Underlying Index consisted of
issuers from the following 21 developed market countries:
Australia, Austria, Belgium, Denmark, Finland, France,
Germany, Hong Kong, Ireland, Israel, Italy, Japan, Netherlands,
New Zealand, Norway, Portugal, Singapore, Spain,
Sweden, Switzerland and the United Kingdom.
Main Risks
As with any investment, you could lose all or part of your
investment in the fund, and the fund’s performance could
trail that of other investments. The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective.
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
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and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Foreign investments in American
Depositary Receipts and other depositary receipts may
be less liquid than the underlying shares in their primary
trading market. Certain of the depositary receipts in which
the fund invests may be unsponsored depositary receipts.
Unsponsored depositary receipts may not provide as
much information about the underlying issuer and may not
carry the same voting privileges as sponsored depositary
receipts. Unsponsored depositary receipts are issued by
one or more depositaries in response to market demand,
but without a formal agreement with the company that
issues the underlying securities.
European investment risk.
European financial markets
have experienced volatility in recent years and have been
adversely affected by concerns about economic downturns,
credit rating downgrades, rising government debt
level and possible default on or restructuring of government
debt in several European countries. A default or debt
restructuring by any European country would adversely
impact holders of that country’s debt, and sellers of credit
default swaps linked to that country’s creditworthiness.
Most countries in Western Europe are members of the
European Union (EU), which faces major issues involving
its membership, structure, procedures and policies. In
June 2016, citizens of the United Kingdom approved a
referendum to leave the EU. On January 31, 2020, the
United Kingdom officially withdrew from the EU pursuant
to a withdrawal agreement, providing for a transition period
in which the United Kingdom will seek to negotiate and
finalize a trade deal with the EU. The transition period will
end on December 31, 2020 and can no longer be extended
under the terms of the withdrawal agreement. Significant
uncertainty exists regarding any adverse economic and
political effects the United Kingdom’s withdrawal may have
on the United Kingdom, other EU countries and the global
economy, which could be significant, potentially resulting
in increased volatility and illiquidity and lower economic
growth.
European countries are also significantly affected by fiscal
and monetary controls implemented by the European
Economic and Monetary Union (EMU), and it is possible
that the timing and substance of these controls may not
address the needs of all EMU member countries. Investing
in euro-denominated securities also risks exposure to a
currency that may not fully reflect the strengths and weaknesses
of the disparate economies that comprise Europe.
There is continued concern over member state-level
support for the euro, which could lead to certain countries
leaving the EMU, the implementation of currency controls,
or potentially the dissolution of the euro. The dissolution of
the euro could have significant negative effects on European
financial markets.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors of
the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Financials sector risk.
To the extent that the fund invests
significantly in the financials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
financials sector. The financials sector is subject to extensive
government regulation, can be subject to relatively
rapid change due to increasingly blurred distinctions
between service segments, and can be significantly
affected by availability and cost of capital funds, changes in
interest rates, the rate of corporate and consumer debt
defaults, and price competition.
Numerous financial companies have experienced substantial
declines in the valuations of their assets, taken action
to raise capital (such as the issuance of debt or equity securities),
or even ceased operations. These actions have
caused the securities of many financial companies to
experience a dramatic decline in value. Moreover, certain
financial companies have avoided collapse due to intervention
by governmental regulatory authorities, but such
interventions have often not averted a substantial decline
in the value of such companies’ common stock. Issuers
that have exposure to the real estate, mortgage and credit
markets have been particularly affected by the foregoing
events and the general market turmoil, and it is uncertain
whether or for how long these conditions will continue.
Forward currency contract risk.
The fund invests in
forward currency contracts to attempt to minimize the
impact of changes in the value of the non-US currencies
included in its Underlying Index against the US dollar.
These contracts may not be successful. To the extent the
fund’s forward currency contracts are not successful in
hedging against such changes, the US dollar value of your
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investment in the fund may go down if the value of the
local currency of the non-US markets in which the fund
invests depreciates against the US dollar. This is true even
if the local currency value of securities in the fund’s holdings
goes up. In order to minimize transaction costs or for
other reasons, the fund’s exposure to the currencies
included in the Underlying Index may not be fully hedged
at all times. For example, the fund may not hedge against
exposure to currencies that represent a relatively smaller
portion of the Underlying Index. Furthermore, because no
changes in the currency weights in each fund’s Underlying
Index are made during the month to account for
changes in each fund’s Underlying Index due to price
movement of securities, corporate events, additions, deletions
or any other changes, changes in the value of the
non-US currencies included in the fund’s Underlying Index
against the US dollar during the month may affect the
value of the fund’s investment. Non-deliverable forward
(
“
NDF
”
) contracts may be less liquid than deliverable
forward currency contracts. A lack of liquidity in NDFs of
the hedged currency could adversely affect the fund’s
ability to hedge against currency fluctuations and properly
track the Underlying Index.
A forward currency contract is a negotiated agreement
between two parties to exchange specified amounts of
two or more currencies at a specified future time at a
specified rate. The rate specified by the forward currency
contract can be higher or lower than the spot rate between
the currencies that are the subject of the contract. Settlement
of a forward currency contract for the purchase of
most currencies typically must occur at a bank based in
the issuing nation. By entering into a forward currency
contract for the purchase or sale, for a fixed amount of
dollars or other currency, of the amount of foreign currency
involved in the underlying security transactions, the fund
may be able to protect itself against a possible loss
resulting from an adverse change in the relationship
between the US dollar or other currency which is being
used for the security purchase and the foreign currency in
which the security is denominated during the period
between the date on which the security is purchased or
sold and the date on which payment is made or received.
Furthermore, such transactions reduce or preclude the
opportunity for gain if the value of the currency should
move in the direction opposite to the position taken. There
is an additional risk to the extent that forward currency
contracts create exposure to currencies in which the fund’s
securities are not denominated. Unanticipated changes in
currency prices may result in poorer overall performance
for the fund than if it had not entered into such contracts.
Forward currency contracts may limit gains on portfolio
securities that could otherwise be realized had they not
been utilized and could result in losses. The contracts also
may increase the fund’s volatility and may involve a significant
amount of risk relative to the investment of cash.
Counterparty risk.
The foreign currency markets in which
the fund effects its transactions are over-the-counter or
“
interdealer
”
markets. The counterparty to an over-the
counter spot contract is generally a single bank or other
financial institution rather than a clearing organization
backed by a group of financial institutions. Participants in
over-the-counter markets are typically not subject to the
same credit evaluation and regulatory oversight as
members of exchange-based” markets. Because the funds
execute over-the-counter transactions, the fund constantly
takes credit risk with regard to parties with which it trades
and may also bear the risk of settlement default. These
risks may differ materially from those involved in exchange-traded
transactions which generally are characterized by
clearing organization guaranties, daily marking-to-market
and settlement, and segregation and minimum capital
requirements applicable to intermediaries. Transactions
entered into directly between two counterparties generally
do not benefit from these protections and the fund is
subject to the risk that a counterparty will not settle a
transaction in accordance with agreed terms and
conditions.
Further, if a counterparty becomes bankrupt or otherwise
fails to perform its obligations due to financial difficulties,
the fund may experience significant delays in obtaining any
recovery in a bankruptcy or other reorganization
proceeding. The fund may obtain only limited recovery or
may obtain no recovery in such circumstances. In addition,
the fund may enter into agreements with a limited number
of counterparties which may increase that fund’s exposure
to counterparty credit risk.
Because a contract’s terms may provide for collateral to
cover the variation margin exposure arising under the
contract only if a minimum transfer amount is triggered,
the fund may have an uncollateralized risk exposure to
a counterparty.
The use of spot foreign exchange contracts may also
expose the fund to legal risk, which is the risk of loss due
to the unexpected application of a law or regulation, or
because contracts are not legally enforceable.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
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Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based on
fair value prices and the value of the Underlying Index is
based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability to
track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
The need to comply with the tax diversification and other
requirements of the Internal Revenue Code of 1986, as
amended, may also impact the fund’s ability to replicate
the performance of the Underlying Index. In addition, if the
fund utilizes derivative instruments or holds other instruments
that are not included in the Underlying Index, the
fund’s return may not correlate as well with the returns of
the Underlying Index as would be the case if the fund
purchased all the securities in the Underlying Index
directly. Actions taken in response to proposed corporate
actions could result in increased tracking error.
For purposes of calculating the fund’s net asset value, the
value of assets denominated in non-US currencies is
converted into US dollars using prevailing market rates on
the date of valuation as quoted by one or more data
service providers. This conversion may result in a difference
between the prices used to calculate the fund’s net
asset value and the prices used by the Underlying Index,
which, in turn, could result in a difference between the
fund’s performance and the performance of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
NAV during periods of market volatility. Differences
between secondary market prices and the value of the
fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the
same forces as those influencing prices for securities held
by the fund at a particular time. The Advisor cannot predict
whether shares will trade above, below or at their NAV.
Given the fact that shares can be created and redeemed in
Creation Units, the Advisor believes that large discounts
or premiums to the NAV of shares should not be sustained
in the long-term. In addition, there may be times when
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the market price and the value of the fund’s holdings vary
significantly and you may pay more than the value of the
fund’s holdings when buying shares on the secondary
market, and you may receive less than the value of the
fund’s holdings when you sell those shares. While the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in trading prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. If market makers exit the business or are
unable to continue making markets in fund’s shares,
shares may trade at a discount to NAV like closed-end fund
shares and may even face delisting (that is, investors
would no longer be able to trade shares in the secondary
market). The market price of shares, like the price of any
exchange-traded security, includes a
“
bid-ask spread
”
charged by the exchange specialist, market makers or
other participants that trade the particular security. In times
of severe market disruption, the bid-ask spread often
increases significantly. This means that shares may trade
at a discount to the fund’s NAV, and the discount is likely to
be greatest when the price of shares is falling fastest,
which may be the time that you most want to sell your
shares. There are various methods by which investors can
purchase and sell shares of the funds and various orders
that may be placed. Investors should consult their financial
intermediary before purchasing or selling shares of the
fund.
In addition, the securities held by the fund may be traded
in markets that close at a different time than an exchange.
Liquidity in those securities may be reduced after the applicable
closing times. Accordingly, during the time when an
exchange is open but after the applicable market closing,
fixing or settlement times, bid-ask spreads and the
resulting premium or discount to the shares’ NAV is likely
to widen. More generally, secondary markets may be
subject to irregular trading activity, wide bid-ask spreads
and extended trade settlement periods, which could cause
a material decline in the fund’s NAV. The bid-ask spread
varies over time for shares of the fund based on the fund’s
trading volume and market liquidity, and is generally lower
if the fund has substantial trading volume and market
liquidity, and higher if the fund has little trading volume and
market liquidity (which is often the case for funds that are
newly launched or small in size). The fund’s bid-ask spread
may also be impacted by the liquidity of the underlying
securities held by the fund, particularly for newly launched
or smaller funds or in instances of significant volatility of
the underlying securities. The fund’s investment results are
measured based upon the daily NAV of the fund. Investors
purchasing and selling shares in the secondary market
may not experience investment results consistent with
those experienced by those APs creating and redeeming
shares directly with the fund. In addition, transactions by
large shareholders may account for a large percentage of
the trading volume on an exchange and may, therefore,
have a material effect on the market price of the fund’s
shares.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
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participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Cyber-attacks may include unauthorized attempts by third
parties to improperly access, modify, disrupt the operations
of, or prevent access to the systems of the fund’s
service providers or counterparties, issuers of securities
held by the fund or other market participants or data within
them. In addition, power or communications outages, acts
of god, information technology equipment malfunctions,
operational errors, and inaccuracies within software or data
processing systems may also disrupt business operations
or impact critical data.
Cyber-attacks, disruptions, or failures may adversely affect
the fund and its shareholders or cause reputational
damage and subject the fund to regulatory fines, litigation
costs, penalties or financial losses, reimbursement or
other compensation costs, and/or additional compliance
costs. In addition, cyber-attacks, disruptions, or failures
involving a fund counterparty could affect such
counterparty’s ability to meet its obligations to the fund,
which may result in losses to the fund and its shareholders.
Similar types of operational and technology risks
are also present for issuers of securities held by the fund,
which could have material adverse consequences for such
issuers, and may cause the fund’s investments to lose
value. Furthermore, as a result of cyber-attacks, disruptions,
or failures, an exchange or market may close or issue
trading halts on specific securities or the entire market,
which may result in the fund being, among other things,
unable to buy or sell certain securities or financial instruments
or unable to accurately price its investments.
For example, the fund relies on various sources to calculate
its NAV. Therefore, the fund is subject to certain
operational risks associated with reliance on third party
service providers and data sources. NAV calculation may
be impacted by operational risks arising from factors such
as failures in systems and technology. Such failures may
result in delays in the calculation of a fund’s NAV and/or the
inability to calculate NAV over extended time periods. The
fund may be unable to recover any losses associated with
such failures.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
At any given time, due to the
composition of the Underlying Index, the fund may be classified
as
“
non-diversified
”
and may invest a larger
percentage of its assets in securities of a few issuers or a
single issuer than that of a diversified fund. As a result,
the fund may be more susceptible to the risks associated
with these particular issuers, or to a single economic,
political or regulatory occurrence affecting these issuers.
This may increase the fund’s volatility and cause the performance
of a relatively smaller number of issuers to have a
greater impact on the fund’s performance.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Risks related to investing in Japan.
The growth of
Japan’s economy has historically lagged behind that of its
Asian neighbors and other major developed economies.
The Japanese economy is heavily dependent on international
trade and has been adversely affected by trade
tariffs, other protectionist measures, competition from
emerging economies and the economic conditions of its
trading partners. Japan’s relations with its neighbors,
particularly China, North Korea, South Korea and Russia,
have at times been strained due to territorial disputes,
historical animosities and defense concerns. Most
recently, the Japanese government has shown concern
over the increased nuclear and military activity by North
Korea. Strained relations may cause uncertainty in the
Japanese markets and adversely affect the overall Japanese
economy in times of crisis. China has become an
important trading partner with Japan, yet the countries’
political relationship has become strained. Should political
tension increase, it could adversely affect the economy,
especially the export sector, and destabilize the region as a
whole. Japan is located in a part of the world that has
historically been prone to natural disasters such as earthquakes,
volcanoes and tsunamis and is economically
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sensitive to environmental events. Any such event, such
as the major earthquake and tsunami which struck Japan in
March 2011, could result in a significant adverse impact
on the Japanese economy. Japan also remains heavily
dependent on oil imports, and higher commodity prices
could therefore have a negative impact on the economy.
Furthermore, Japanese corporations often engage in high
levels of corporate leveraging, extensive cross-purchases
of the securities of other corporations and are subject to a
changing corporate governance structure. Japan may be
subject to risks relating to political, economic and labor
risks. Any of these risks, individually or in the aggregate,
could adversely affect investments in the fund.
Historically, Japan has been subject to unpredictable
national politics and may experience frequent political turnover.
Future political developments may lead to changes
in policy that might adversely affect the fund’s investments.
In addition, the Japanese economy faces several
concerns, including a financial system with large levels of
nonperforming loans, over-leveraged corporate balance
sheets, extensive cross- ownership by major corporations,
a changing corporate governance structure, and large
government deficits. The Japanese yen has fluctuated
widely at times and any increase in its value may cause a
decline in exports that could weaken the economy. Furthermore,
Japan has an aging workforce. It is a labor market
undergoing fundamental structural changes, as traditional
lifetime employment clashes with the need for increased
labor mobility, which may adversely affect Japan’s
economic competitiveness.
Cash redemption risk.
Because the fund invests a portion
of its assets in forward currency contracts, the fund may
pay out a portion of its redemption proceeds in cash rather
than through the in-kind delivery of portfolio securities. In
addition, the fund may be required to unwind such
contracts or sell portfolio securities in order to obtain the
cash needed to distribute redemption proceeds. This may
cause the fund to recognize a capital gain that it might not
have incurred if it had made a redemption in-kind. As a
result the fund may pay out higher annual capital gains
distributions than if the in-kind redemption process was
used. Only APs who have entered into an agreement with
the fund’s distributor may redeem shares from the fund
directly; all other investors buy and sell shares at market
prices on an exchange.
Derivatives risk.
Derivatives are financial instruments,
such as futures and swaps, whose values are based on the
value of one or more indicators, such as a security, asset,
currency, interest rate, or index. Derivatives involve risks
different from, and possibly greater than, the risks associated
with investing directly in securities and other more
traditional investments. For example, derivatives involve
the risk of mispricing or improper valuation and the risk
that changes in the value of a derivative may not correlate
perfectly with the underlying indicator. Derivative transactions
can create investment leverage, may be highly
volatile and the fund could lose more than the amount it
invests. Many derivative transactions are entered into
“
over-the-counter
”
(i.e., not on an exchange or contract market);
as a result, the value of such a derivative transaction will
depend on the ability and the willingness of the fund’s
counterparty to perform its obligations under the transaction.
If a counterparty were to default on its obligations,
the fund’s contractual remedies against such counterparty
may be subject to bankruptcy and insolvency laws, which
could affect the fund’s rights as a creditor (e.g., the fund
may not receive the net amount of payments that it is
contractually entitled to receive). A liquid secondary market
may not always exist for the fund’s derivative positions at
any time.
Futures risk.
The value of a futures contract tends to
increase and decrease in tandem with the value of the
underlying instrument. Depending on the terms of the
particular contract, futures contracts are settled through
either physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether,
when and how to use futures involves the exercise of skill
and judgment and even a well-conceived futures transaction
may be unsuccessful because of market behavior or
unexpected events. In addition to the derivatives risks
discussed above, the prices of futures can be highly volatile,
using futures can lower total return and the potential
loss from futures can exceed the fund’s initial investment
in such contracts.
Xtrackers MSCI Germany Hedged Equity ETF
Investment Objective
The Xtrackers MSCI Germany Hedged Equity ETF (the
“
fund
”
) seeks investment results that correspond generally
to the performance, before fees and expenses, of the
MSCI Germany US Dollar Hedged Index (the
“
Underlying
Index
”
).
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track the performance
of the German equity market while mitigating
exposure to fluctuations between the value of the US
dollar and the euro. The fund uses a full replication indexing
strategy to seek to track the Underlying Index. As such,
the fund invests directly in the component securities (or a
substantial number of the component securities) of the
Underlying Index in substantially the same weightings in
which they are represented in the Underlying Index. If it is
not possible for the fund to acquire component securities
due to limited availability or regulatory restrictions, the
fund may use a representative sampling indexing strategy
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to seek to track the Underlying Index instead of a full replication
indexing strategy.
“
Representative sampling
”
is
an indexing strategy that involves investing in a representative
sample of securities that collectively has an
investment profile similar to the Underlying Index. The
securities selected are expected to have, in the aggregate,
investment characteristics (based on factors such as
market capitalization and industry weightings), fundamental
characteristics (such as return variability and yield),
and liquidity measures similar to those of the Underlying
Index. The fund may or may not hold all of the securities in
the Underlying Index when using a representative
sampling indexing strategy. The fund will invest at least
80% of its total assets (but typically far more) in component
securities (including depositary receipts in respect of
such securities) of the Underlying Index.
As of July 31, 2020, the Underlying Index consisted of 62
securities, with an average market capitalization of approximately
$20.51 billion and a minimum market capitalization
of approximately $1.63 billion. Under normal circumstances,
the Underlying Index is rebalanced monthly. The
fund rebalances its portfolio in accordance with the Underlying
Index, and, therefore, any changes to the Underlying
Index’s rebalance schedule will result in corresponding
changes to the fund’s rebalance schedule.
The fund enters into forward currency contracts designed
to offset the fund’s exposure to the euro. The fund hedges
the euro to the US dollar by selling euro currency forwards
at the one-month forward rate published by WM/Reuters.
The amount of forward contracts in the fund is based on
the aggregate exposure of the fund and Underlying Index
to the euro based on currency weights as of the beginning
of each month. While this approach is designed to minimize
the impact of currency fluctuations on fund returns,
this does not necessarily eliminate exposure to all currency
fluctuations. The return of the forward currency contracts
may not perfectly offset the actual fluctuations of the euro
relative to the US dollar.
The fund may use non-deliverable forward (
“
NDF
”
)
contracts to execute its hedging transactions. An NDF is a
contract where there is no physical settlement of two
currencies at maturity (as opposed to deliverable forward
contracts, which per their terms are settled by physical
delivery of the currencies). Rather, based on the movement
of the currencies and the contractually agreed upon
exchange rate, a net cash settlement is made by one party
to the other in US dollars.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in the equity securities of German issuers and
in instruments designed to hedge against the fund’s exposure
to the euro. As of July 31, 2020, the Underlying Index
was solely comprised of securities of issuers from
Germany.
The fund will concentrate its investments (i.e., hold 25%
or more of its total assets) in a particular industry or group
of industries to the extent that its Underlying Index is
concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
information technology (16.3%), consumer discretionary
(15.7%) and in the financials (15.2%) sectors. The information
technology sector includes companies engaged in
developing software and providing data processing and
outsourced services, along with manufacturing and distributing
communications equipment, computers and other
electronic equipment and instruments. The consumer
discretionary goods sector includes durable goods,
apparel, entertainment and leisure, and automobiles. The
financials sector includes companies involved in banking,
consumer finance, asset management and custody banks,
as well as investment banking and brokerage and insurance.
To the extent that the fund tracks the Underlying
Index, the fund’s investment in certain sectors may change
over time.
The fund may also invest in depositary receipts in respect
of equity securities that comprise its Underlying Index
to seek performance that corresponds to the fund’s respective
Underlying Index. Investments in such depositary
receipts will count towards the fund’s 80% investment
policy discussed above with respect to instruments that
comprise the applicable Underlying Index. The fund will not
invest in any unlisted depositary receipt or any depositary
receipt that the Advisor deems illiquid at the time of
purchase or for which pricing information is not readily
available.
The fund may invest its remaining assets in other securities,
including securities not in the Underlying Index, cash
and cash equivalents, money market instruments, such
as repurchase agreements or money market funds
(including money market funds advised by the Advisor or
its affiliates (subject to applicable limitations under the
Investment Company Act of 1940, as amended (the
“
1940
Act
”
), or exemptions therefrom), convertible securities,
structured notes (notes on which the amount of principal
repayment and interest payments are based on the movement
of one or more specified factors, such as the
movement of a particular stock or stock index) and in
futures contracts, options on futures contracts and other
types of options and swaps related to its Underlying Index.
The fund will not use futures or options for speculative
purposes.
The fund expects to use futures contracts to a limited
extent in seeking performance that corresponds to its
Underlying Index. A futures contract is a standardized
exchange traded agreement to buy or sell a specific quantity
of an underlying instrument at a specific price at a
specific future time.
While the fund is currently classified as
“
non-diversified
”
under the Investment Company Act of 1940, it may
operate as or become classified as
“
diversified
”
over time.
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The fund could again become non-diversified solely as a
result of a change in relative market capitalization or index
weighting of one or more constituents of the index that
the fund is designed to track. Shareholder approval will not
be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
The Prospectus contains a more detailed description of
the limited relationship MSCI has with DBX Advisors LLC
and any related funds.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Underlying Index Information
MSCI Germany US Dollar Hedged Index
Number of Components: approximately 62
Index
Description.
The MSCI Germany US Dollar Hedged
Index is designed to provide exposure to German equity
markets, while at the same time mitigating exposure to
fluctuations between the value of the US dollar and the
euro.
Main Risks
As with any investment, you could lose all or part of your
investment in the fund, and the fund’s performance could
trail that of other investments. The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective.
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
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securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Foreign investments in American
Depositary Receipts and other depositary receipts may
be less liquid than the underlying shares in their primary
trading market. Certain of the depositary receipts in which
the fund invests may be unsponsored depositary receipts.
Unsponsored depositary receipts may not provide as
much information about the underlying issuer and may not
carry the same voting privileges as sponsored depositary
receipts. Unsponsored depositary receipts are issued by
one or more depositaries in response to market demand,
but without a formal agreement with the company that
issues the underlying securities.
Risks related to investing in Germany.
The German
economy is dependent on the other countries in Europe as
key trade partners. Exports account for more than
one-third of Germany’s output and are a key element in
German economic expansion. Reduction in spending by
European countries on German products and services or
negative changes in any of these countries may cause an
adverse impact on the German economy. In addition, the
US is a large trade and investment partner of Germany.
Decreasing US imports, new trade regulations, changes in
the US dollar exchange rates or a recession in the US may
also have an adverse impact on the German economy.
During the most recent financial crisis, the German
economy, along with certain other EU economies, experienced
a significant economic slowdown. Recently, new
concerns emerged in relation to the economic health of
the EU. These concerns have led to tremendous downward
pressure on certain financial institutions, including
German financial services companies. During the recent
European debt crisis, Germany played a key role in stabilizing
the euro. However, such efforts may prove
unsuccessful, and any ongoing crisis may continue to
significantly affect the economies of every country in
Europe, including Germany.
Investing in German issuers involves political, social and
regulatory risks. Certain sectors and regions of Germany
have experienced high unemployment and social unrest.
These issues may have an adverse effect on the German
economy or the German industries or sectors in which the
fund invests. Heavy regulation of labor and product
markets is pervasive in Germany. These regulations may
stifle economic growth or result in extended recessionary
periods.
European investment risk.
European financial markets
have experienced volatility in recent years and have been
adversely affected by concerns about economic downturns,
credit rating downgrades, rising government debt
level and possible default on or restructuring of government
debt in several European countries. A default or debt
restructuring by any European country would adversely
impact holders of that country’s debt, and sellers of credit
default swaps linked to that country’s creditworthiness.
Most countries in Western Europe are members of the
European Union (EU), which faces major issues involving
its membership, structure, procedures and policies. In
June 2016, citizens of the United Kingdom approved a
referendum to leave the EU. On January 31, 2020, the
United Kingdom officially withdrew from the EU pursuant
to a withdrawal agreement, providing for a transition period
in which the United Kingdom will seek to negotiate and
finalize a trade deal with the EU. The transition period will
end on December 31, 2020 and can no longer be extended
under the terms of the withdrawal agreement. Significant
uncertainty exists regarding any adverse economic and
political effects the United Kingdom’s withdrawal may have
on the United Kingdom, other EU countries and the global
economy, which could be significant, potentially resulting
in increased volatility and illiquidity and lower economic
growth.
European countries are also significantly affected by fiscal
and monetary controls implemented by the European
Economic and Monetary Union (EMU), and it is possible
that the timing and substance of these controls may not
address the needs of all EMU member countries. Investing
in euro-denominated securities also risks exposure to a
currency that may not fully reflect the strengths and weaknesses
of the disparate economies that comprise Europe.
There is continued concern over member state-level
support for the euro, which could lead to certain countries
leaving the EMU, the implementation of currency controls,
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or potentially the dissolution of the euro. The dissolution of
the euro could have significant negative effects on European
financial markets.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors of
the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Information technology sector risk.
To the extent that the
fund invests significantly in the information technology
sector, the fund will be sensitive to changes in, and the
fund’s performance may depend to a greater extent on, the
overall condition of the information technology sector. Information
technology companies are particularly vulnerable to
government regulation and competition, both domestically
and internationally, including competition from foreign
competitors with lower production costs. Information technology
companies also face competition for services of
qualified personnel. Additionally, the products of information
technology companies may face obsolescence due to
rapid technological development and frequent new
product introduction by competitors. Finally, information
technology companies are heavily dependent on patent
and intellectual property rights, the loss or impairment of
which may adversely affect profitability.
Consumer discretionary sector risk.
To the extent that
the fund invests significantly in the consumer discretionary
sector, the fund will be sensitive to changes in, and the
fund’s performance may depend to a greater extent on, the
overall condition of the consumer discretionary sector.
Companies engaged in the consumer discretionary sector
are subject to fluctuations in supply and demand. These
companies may also be adversely affected by changes in
consumer spending as a result of world events, political
and economic conditions, commodity price volatility,
changes in exchange rates, imposition of import controls,
increased competition, depletion of resources and labor
relations.
Financials sector risk.
To the extent that the fund invests
significantly in the financials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
financials sector. The financials sector is subject to extensive
government regulation, can be subject to relatively
rapid change due to increasingly blurred distinctions
between service segments, and can be significantly
affected by availability and cost of capital funds, changes in
interest rates, the rate of corporate and consumer debt
defaults, and price competition.
Numerous financial companies have experienced substantial
declines in the valuations of their assets, taken action
to raise capital (such as the issuance of debt or equity securities),
or even ceased operations. These actions have
caused the securities of many financial companies to
experience a dramatic decline in value. Moreover, certain
financial companies have avoided collapse due to intervention
by governmental regulatory authorities, but such
interventions have often not averted a substantial decline
in the value of such companies’ common stock. Issuers
that have exposure to the real estate, mortgage and credit
markets have been particularly affected by the foregoing
events and the general market turmoil, and it is uncertain
whether or for how long these conditions will continue.
Forward currency contract risk.
The fund invests in
forward currency contracts to attempt to minimize the
impact of changes in the value of the non-US currencies
included in its Underlying Index against the US dollar.
These contracts may not be successful. To the extent the
fund’s forward currency contracts are not successful in
hedging against such changes, the US dollar value of your
investment in the fund may go down if the value of the
local currency of the non-US markets in which the fund
invests depreciates against the US dollar. This is true even
if the local currency value of securities in the fund’s holdings
goes up. In order to minimize transaction costs or for
other reasons, the fund’s exposure to the currencies
included in the Underlying Index may not be fully hedged
at all times. For example, the fund may not hedge against
exposure to currencies that represent a relatively smaller
portion of the Underlying Index. Furthermore, because no
changes in the currency weights in each fund’s Underlying
Index are made during the month to account for
changes in each fund’s Underlying Index due to price
movement of securities, corporate events, additions, deletions
or any other changes, changes in the value of the
non-US currencies included in the fund’s Underlying Index
against the US dollar during the month may affect the
value of the fund’s investment. Non-deliverable forward
(
“
NDF
”
) contracts may be less liquid than deliverable
forward currency contracts. A lack of liquidity in NDFs of
the hedged currency could adversely affect the fund’s
ability to hedge against currency fluctuations and properly
track the Underlying Index.
A forward currency contract is a negotiated agreement
between two parties to exchange specified amounts of
two or more currencies at a specified future time at a
specified rate. The rate specified by the forward currency
contract can be higher or lower than the spot rate between
the currencies that are the subject of the contract. Settlement
of a forward currency contract for the purchase of
most currencies typically must occur at a bank based in
the issuing nation. By entering into a forward currency
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contract for the purchase or sale, for a fixed amount of
dollars or other currency, of the amount of foreign currency
involved in the underlying security transactions, the fund
may be able to protect itself against a possible loss
resulting from an adverse change in the relationship
between the US dollar or other currency which is being
used for the security purchase and the foreign currency in
which the security is denominated during the period
between the date on which the security is purchased or
sold and the date on which payment is made or received.
Furthermore, such transactions reduce or preclude the
opportunity for gain if the value of the currency should
move in the direction opposite to the position taken. There
is an additional risk to the extent that forward currency
contracts create exposure to currencies in which the fund’s
securities are not denominated. Unanticipated changes in
currency prices may result in poorer overall performance
for the fund than if it had not entered into such contracts.
Forward currency contracts may limit gains on portfolio
securities that could otherwise be realized had they not
been utilized and could result in losses. The contracts also
may increase the fund’s volatility and may involve a significant
amount of risk relative to the investment of cash.
Counterparty risk.
The foreign currency markets in which
the fund effects its transactions are over-the-counter or
“
interdealer
”
markets. The counterparty to an over-the
counter spot contract is generally a single bank or other
financial institution rather than a clearing organization
backed by a group of financial institutions. Participants in
over-the-counter markets are typically not subject to the
same credit evaluation and regulatory oversight as
members of exchange-based” markets. Because the funds
execute over-the-counter transactions, the fund constantly
takes credit risk with regard to parties with which it trades
and may also bear the risk of settlement default. These
risks may differ materially from those involved in exchange-traded
transactions which generally are characterized by
clearing organization guaranties, daily marking-to-market
and settlement, and segregation and minimum capital
requirements applicable to intermediaries. Transactions
entered into directly between two counterparties generally
do not benefit from these protections and the fund is
subject to the risk that a counterparty will not settle a
transaction in accordance with agreed terms and
conditions.
Further, if a counterparty becomes bankrupt or otherwise
fails to perform its obligations due to financial difficulties,
the fund may experience significant delays in obtaining any
recovery in a bankruptcy or other reorganization
proceeding. The fund may obtain only limited recovery or
may obtain no recovery in such circumstances. In addition,
the fund may enter into agreements with a limited number
of counterparties which may increase that fund’s exposure
to counterparty credit risk.
Because a contract’s terms may provide for collateral to
cover the variation margin exposure arising under the
contract only if a minimum transfer amount is triggered,
the fund may have an uncollateralized risk exposure to
a counterparty.
The use of spot foreign exchange contracts may also
expose the fund to legal risk, which is the risk of loss due
to the unexpected application of a law or regulation, or
because contracts are not legally enforceable.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
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fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
The need to comply with the tax diversification and other
requirements of the Internal Revenue Code of 1986, as
amended, may also impact the fund’s ability to replicate
the performance of the Underlying Index. In addition, if the
fund utilizes derivative instruments or holds other instruments
that are not included in the Underlying Index, the
fund’s return may not correlate as well with the returns of
the Underlying Index as would be the case if the fund
purchased all the securities in the Underlying Index
directly. Actions taken in response to proposed corporate
actions could result in increased tracking error.
For purposes of calculating the fund’s net asset value, the
value of assets denominated in non-US currencies is
converted into US dollars using prevailing market rates on
the date of valuation as quoted by one or more data
service providers. This conversion may result in a difference
between the prices used to calculate the fund’s net
asset value and the prices used by the Underlying Index,
which, in turn, could result in a difference between the
fund’s performance and the performance of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
NAV during periods of market volatility. Differences
between secondary market prices and the value of the
fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the
same forces as those influencing prices for securities held
by the fund at a particular time. The Advisor cannot predict
whether shares will trade above, below or at their NAV.
Given the fact that shares can be created and redeemed in
Creation Units, the Advisor believes that large discounts
or premiums to the NAV of shares should not be sustained
in the long-term. In addition, there may be times when
the market price and the value of the fund’s holdings vary
significantly and you may pay more than the value of the
fund’s holdings when buying shares on the secondary
market, and you may receive less than the value of the
fund’s holdings when you sell those shares. While the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in trading prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. If market makers exit the business or are
unable to continue making markets in fund’s shares,
shares may trade at a discount to NAV like closed-end fund
shares and may even face delisting (that is, investors
would no longer be able to trade shares in the secondary
market). The market price of shares, like the price of any
exchange-traded security, includes a
“
bid-ask spread
”
charged by the exchange specialist, market makers or
other participants that trade the particular security. In times
of severe market disruption, the bid-ask spread often
increases significantly. This means that shares may trade
at a discount to the fund’s NAV, and the discount is likely to
be greatest when the price of shares is falling fastest,
which may be the time that you most want to sell your
shares. There are various methods by which investors can
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purchase and sell shares of the funds and various orders
that may be placed. Investors should consult their financial
intermediary before purchasing or selling shares of the
fund.
In addition, the securities held by the fund may be traded
in markets that close at a different time than an exchange.
Liquidity in those securities may be reduced after the applicable
closing times. Accordingly, during the time when an
exchange is open but after the applicable market closing,
fixing or settlement times, bid-ask spreads and the
resulting premium or discount to the shares’ NAV is likely
to widen. More generally, secondary markets may be
subject to irregular trading activity, wide bid-ask spreads
and extended trade settlement periods, which could cause
a material decline in the fund’s NAV. The bid-ask spread
varies over time for shares of the fund based on the fund’s
trading volume and market liquidity, and is generally lower
if the fund has substantial trading volume and market
liquidity, and higher if the fund has little trading volume and
market liquidity (which is often the case for funds that are
newly launched or small in size). The fund’s bid-ask spread
may also be impacted by the liquidity of the underlying
securities held by the fund, particularly for newly launched
or smaller funds or in instances of significant volatility of
the underlying securities. The fund’s investment results are
measured based upon the daily NAV of the fund. Investors
purchasing and selling shares in the secondary market
may not experience investment results consistent with
those experienced by those APs creating and redeeming
shares directly with the fund. In addition, transactions by
large shareholders may account for a large percentage of
the trading volume on an exchange and may, therefore,
have a material effect on the market price of the fund’s
shares.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Country concentration risk.
To the extent that the fund
invests significantly in a single country, it is more likely to
be impacted by events or conditions affecting that country.
For example, political and economic conditions and
changes in regulatory, tax or economic policy in a country
could significantly affect the market in that country and
in surrounding or related countries and have a negative
impact on the fund’s performance.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Cyber-attacks may include unauthorized attempts by third
parties to improperly access, modify, disrupt the operations
of, or prevent access to the systems of the fund’s
service providers or counterparties, issuers of securities
held by the fund or other market participants or data within
them. In addition, power or communications outages, acts
of god, information technology equipment malfunctions,
operational errors, and inaccuracies within software or data
processing systems may also disrupt business operations
or impact critical data.
Cyber-attacks, disruptions, or failures may adversely affect
the fund and its shareholders or cause reputational
damage and subject the fund to regulatory fines, litigation
costs, penalties or financial losses, reimbursement or
other compensation costs, and/or additional compliance
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costs. In addition, cyber-attacks, disruptions, or failures
involving a fund counterparty could affect such
counterparty’s ability to meet its obligations to the fund,
which may result in losses to the fund and its shareholders.
Similar types of operational and technology risks
are also present for issuers of securities held by the fund,
which could have material adverse consequences for such
issuers, and may cause the fund’s investments to lose
value. Furthermore, as a result of cyber-attacks, disruptions,
or failures, an exchange or market may close or issue
trading halts on specific securities or the entire market,
which may result in the fund being, among other things,
unable to buy or sell certain securities or financial instruments
or unable to accurately price its investments.
For example, the fund relies on various sources to calculate
its NAV. Therefore, the fund is subject to certain
operational risks associated with reliance on third party
service providers and data sources. NAV calculation may
be impacted by operational risks arising from factors such
as failures in systems and technology. Such failures may
result in delays in the calculation of a fund’s NAV and/or the
inability to calculate NAV over extended time periods. The
fund may be unable to recover any losses associated with
such failures.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Cash redemption risk.
Because the fund invests a portion
of its assets in forward currency contracts, the fund may
pay out a portion of its redemption proceeds in cash rather
than through the in-kind delivery of portfolio securities. In
addition, the fund may be required to unwind such
contracts or sell portfolio securities in order to obtain the
cash needed to distribute redemption proceeds. This may
cause the fund to recognize a capital gain that it might not
have incurred if it had made a redemption in-kind. As a
result the fund may pay out higher annual capital gains
distributions than if the in-kind redemption process was
used. Only APs who have entered into an agreement with
the fund’s distributor may redeem shares from the fund
directly; all other investors buy and sell shares at market
prices on an exchange.
Non-diversification risk.
The fund is classified as
non-diversified under the Investment Company Act of
1940, as amended. This means that the fund may invest in
securities of relatively few issuers. Thus, the performance
of one or a small number of portfolio holdings can affect
overall performance.
If the fund becomes classified as
“
diversified
”
over time
and again becomes non-diversified as a result of a change
in relative market capitalization or index weighting of one
or more constituents of the index that the fund is designed
to track, non-diversification risk would apply.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Derivatives risk.
Derivatives are financial instruments,
such as futures and swaps, whose values are based on the
value of one or more indicators, such as a security, asset,
currency, interest rate, or index. Derivatives involve risks
different from, and possibly greater than, the risks associated
with investing directly in securities and other more
traditional investments. For example, derivatives involve
the risk of mispricing or improper valuation and the risk
that changes in the value of a derivative may not correlate
perfectly with the underlying indicator. Derivative transactions
can create investment leverage, may be highly
volatile and the fund could lose more than the amount it
invests. Many derivative transactions are entered into
“
over-the-counter
”
(i.e., not on an exchange or contract market);
as a result, the value of such a derivative transaction will
depend on the ability and the willingness of the fund’s
counterparty to perform its obligations under the transaction.
If a counterparty were to default on its obligations,
the fund’s contractual remedies against such counterparty
may be subject to bankruptcy and insolvency laws, which
could affect the fund’s rights as a creditor (e.g., the fund
may not receive the net amount of payments that it is
contractually entitled to receive). A liquid secondary market
may not always exist for the fund’s derivative positions at
any time.
Futures risk.
The value of a futures contract tends to
increase and decrease in tandem with the value of the
underlying instrument. Depending on the terms of the
particular contract, futures contracts are settled through
either physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether,
when and how to use futures involves the exercise of skill
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and judgment and even a well-conceived futures transaction
may be unsuccessful because of market behavior or
unexpected events. In addition to the derivatives risks
discussed above, the prices of futures can be highly volatile,
using futures can lower total return and the potential
loss from futures can exceed the fund’s initial investment
in such contracts.
Xtrackers MSCI Japan Hedged Equity ETF
Investment Objective
The Xtrackers MSCI Japan Hedged Equity ETF (the
“
fund
”
)
seeks investment results that correspond generally to the
performance, before fees and expenses, of the MSCI
Japan US Dollar Hedged Index (the
“
Underlying Index
”
).
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track the performance
of the Japanese equity market while mitigating
exposure to fluctuations between the value of the US
dollar and the Japanese yen. The fund uses a full replication
indexing strategy to seek to track the Underlying
Index. As such, the fund invests directly in the component
securities (or a substantial number of the component securities)
of the Underlying Index in substantially the same
weightings in which they are represented in the Underlying
Index. If it is not possible for the fund to acquire component
securities due to limited availability or regulatory
restrictions, the fund may use a representative sampling
indexing strategy to seek to track the Underlying Index
instead of a full replication indexing strategy.
“
Representative
sampling
”
is an indexing strategy that involves
investing in a representative sample of securities that
collectively has an investment profile similar to the Underlying
Index. The securities selected are expected to have,
in the aggregate, investment characteristics (based on
factors such as market capitalization and industry
weightings), fundamental characteristics (such as return
variability and yield), and liquidity measures similar to
those of the Underlying Index. The fund may or may not
hold all of the securities in the Underlying Index when
using a representative sampling indexing strategy. The
fund will invest at least 80% of its total assets (but typically
far more) in component securities (including
depositary receipts in respect of such securities) of the
Underlying Index.
As of July 31, 2020, the Underlying Index consisted of 320
securities, with an average market capitalization of approximately
$10.22 billion and a minimum market capitalization
of approximately $1.22 billion. Under normal circumstances,
the Underlying Index is rebalanced monthly. The
fund rebalances its portfolio in accordance with the Underlying
Index, and, therefore, any changes to the Underlying
Index’s rebalance schedule will result in corresponding
changes to the fund’s rebalance schedule.
The fund enters into forward currency contracts designed
to offset the fund’s exposure to the Japanese yen. The
fund hedges the Japanese yen to the US dollar by selling
Japanese yen currency forwards at the one-month forward
rate published by WM/Reuters.
The amount of forward contracts in the fund is based on
the aggregate exposure of the fund and Underlying Index
to the Japanese yen based on currency weights as of the
beginning of each month. While this approach is designed
to minimize the impact of currency fluctuations on fund
returns, this does not necessarily eliminate exposure to all
currency fluctuations. The return of the forward currency
contracts may not perfectly offset the actual fluctuations of
the Japanese yen relative to the US dollar. The fund may
use non-deliverable forward (
“
NDF
”
) contracts to execute
its hedging transactions. An NDF is a contract where there
is no physical settlement of two currencies at maturity (as
opposed to deliverable forward contracts, which per their
terms are settled by physical delivery of the currencies).
Rather, based on the movement of the currencies and the
contractually agreed upon exchange rate, a net cash settlement
is made by one party to the other in US dollars.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in the equity securities of Japanese issuers and
in instruments designed to hedge against the fund’s exposure
to the Japanese yen. As of July 31, 2020, the
Underlying Index was solely comprised of securities of
issuers from Japan.
The fund will concentrate its investments (i.e., hold 25%
or more of its total assets) in a particular industry or group
of industries to the extent that its Underlying Index is
concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
industrials (19.7%) and consumer discretionary (17.6%)
sectors. The industrials sector includes companies
engaged in the manufacture and distribution of capital
goods, such as those used in defense, construction and
engineering, companies that manufacture and distribute
electrical equipment and industrial machinery and those
that provide commercial and transportation services and
supplies. The consumer discretionary goods sector
includes durable goods, apparel, entertainment and
leisure, and automobiles. To the extent that the fund tracks
the Underlying Index, the fund’s investment in certain
sectors may change over time.
The fund may also invest in depositary receipts in respect
of equity securities that comprise its Underlying Index
to seek performance that corresponds to the fund’s respective
Underlying Index. Investments in such depositary
receipts will count towards the fund’s 80% investment
policy discussed above with respect to instruments that
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comprise the applicable Underlying Index. The fund will
not invest in any unlisted depositary receipt or any depositary
receipt that the Advisor deems illiquid at the time of
purchase or for which pricing information is not readily
available.
The fund may invest its remaining assets in other securities,
including securities not in the Underlying Index, cash
and cash equivalents, money market instruments, such
as repurchase agreements or money market funds
(including money market funds advised by the Advisor or
its affiliates (subject to applicable limitations under the
Investment Company Act of 1940, as amended (the
“
1940
Act
”
), or exemptions therefrom), convertible securities,
structured notes (notes on which the amount of principal
repayment and interest payments are based on the movement
of one or more specified factors, such as the
movement of a particular stock or stock index) and in
futures contracts, options on futures contracts and other
types of options and swaps related to its Underlying Index.
The fund will not use futures or options for speculative
purposes.
The fund expects to use futures contracts to a limited
extent in seeking performance that corresponds to its
Underlying Index. A futures contract is a standardized
exchange traded agreement to buy or sell a specific quantity
of an underlying instrument at a specific price at a
specific future time.
The fund may become
“
non-diversified,
”
as defined under
the Investment Company Act of 1940, as amended, solely
as a result of a change in relative market capitalization or
index weighting of one or more constituents of the index
that the fund is designed to track. Shareholder approval will
not be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
The Prospectus contains a more detailed description of
the limited relationship MSCI has with DBX Advisors LLC
and any related funds.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Underlying Index Information
MSCI Japan US Dollar Hedged Index
Number of Components: approximately 320
Index Description
. The MSCI Japan US Dollar Hedged
Index is designed to provide exposure to Japanese equity
markets, while at the same time mitigating exposure to
fluctuations between the value of the US dollar and Japanese
yen.
Main Risks
As with any investment, you could lose all or part of your
investment in the fund, and the fund’s performance could
trail that of other investments. The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective.
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
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measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Foreign investments in American
Depositary Receipts and other depositary receipts may
be less liquid than the underlying shares in their primary
trading market. Certain of the depositary receipts in which
the fund invests may be unsponsored depositary receipts.
Unsponsored depositary receipts may not provide as
much information about the underlying issuer and may not
carry the same voting privileges as sponsored depositary
receipts. Unsponsored depositary receipts are issued by
one or more depositaries in response to market demand,
but without a formal agreement with the company that
issues the underlying securities.
Risks related to investing in Japan.
The growth of
Japan’s economy has historically lagged behind that of its
Asian neighbors and other major developed economies.
The Japanese economy is heavily dependent on international
trade and has been adversely affected by trade
tariffs, other protectionist measures, competition from
emerging economies and the economic conditions of its
trading partners. Japan’s relations with its neighbors,
particularly China, North Korea, South Korea and Russia,
have at times been strained due to territorial disputes,
historical animosities and defense concerns. Most
recently, the Japanese government has shown concern
over the increased nuclear and military activity by North
Korea. Strained relations may cause uncertainty in the
Japanese markets and adversely affect the overall Japanese
economy in times of crisis. China has become an
important trading partner with Japan, yet the countries’
political relationship has become strained. Should political
tension increase, it could adversely affect the economy,
especially the export sector, and destabilize the region as a
whole. Japan is located in a part of the world that has
historically been prone to natural disasters such as earthquakes,
volcanoes and tsunamis and is economically
sensitive to environmental events. Any such event, such
as the major earthquake and tsunami which struck Japan in
March 2011, could result in a significant adverse impact
on the Japanese economy. Japan also remains heavily
dependent on oil imports, and higher commodity prices
could therefore have a negative impact on the economy.
Furthermore, Japanese corporations often engage in high
levels of corporate leveraging, extensive cross-purchases
of the securities of other corporations and are subject to a
changing corporate governance structure. Japan may be
subject to risks relating to political, economic and labor
risks. Any of these risks, individually or in the aggregate,
could adversely affect investments in the fund.
Historically, Japan has been subject to unpredictable
national politics and may experience frequent political turnover.
Future political developments may lead to changes
in policy that might adversely affect the fund’s investments.
In addition, the Japanese economy faces several
concerns, including a financial system with large levels of
nonperforming loans, over-leveraged corporate balance
sheets, extensive cross- ownership by major corporations,
a changing corporate governance structure, and large
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government deficits. The Japanese yen has fluctuated
widely at times and any increase in its value may cause a
decline in exports that could weaken the economy. Furthermore,
Japan has an aging workforce. It is a labor market
undergoing fundamental structural changes, as traditional
lifetime employment clashes with the need for increased
labor mobility, which may adversely affect Japan’s
economic competitiveness.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors of
the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Consumer discretionary sector risk.
To the extent that
the fund invests significantly in the consumer discretionary
sector, the fund will be sensitive to changes in, and the
fund’s performance may depend to a greater extent on, the
overall condition of the consumer discretionary sector.
Companies engaged in the consumer discretionary sector
are subject to fluctuations in supply and demand. These
companies may also be adversely affected by changes in
consumer spending as a result of world events, political
and economic conditions, commodity price volatility,
changes in exchange rates, imposition of import controls,
increased competition, depletion of resources and labor
relations.
Industrials sector risk.
To the extent that the fund invests
significantly in the industrials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
industrials sector. Companies in the industrials sector may
be adversely affected by changes in government regulation,
world events and economic conditions. In addition,
companies in the industrials sector may be adversely
affected by environmental damages, product liability claims
and exchange rates.
Forward currency contract risk.
The fund invests in
forward currency contracts to attempt to minimize the
impact of changes in the value of the non-US currencies
included in its Underlying Index against the US dollar.
These contracts may not be successful. To the extent the
fund’s forward currency contracts are not successful in
hedging against such changes, the US dollar value of your
investment in the fund may go down if the value of the
local currency of the non-US markets in which the fund
invests depreciates against the US dollar. This is true even
if the local currency value of securities in the fund’s holdings
goes up. In order to minimize transaction costs or for
other reasons, the fund’s exposure to the currencies
included in the Underlying Index may not be fully hedged
at all times. For example, the fund may not hedge against
exposure to currencies that represent a relatively smaller
portion of the Underlying Index. Furthermore, because no
changes in the currency weights in each fund’s Underlying
Index are made during the month to account for
changes in each fund’s Underlying Index due to price
movement of securities, corporate events, additions, deletions
or any other changes, changes in the value of the
non-US currencies included in the fund’s Underlying Index
against the US dollar during the month may affect the
value of the fund’s investment. Non-deliverable forward
(
“
NDF
”
) contracts may be less liquid than deliverable
forward currency contracts. A lack of liquidity in NDFs of
the hedged currency could adversely affect the fund’s
ability to hedge against currency fluctuations and properly
track the Underlying Index.
A forward currency contract is a negotiated agreement
between two parties to exchange specified amounts of
two or more currencies at a specified future time at a
specified rate. The rate specified by the forward currency
contract can be higher or lower than the spot rate between
the currencies that are the subject of the contract. Settlement
of a forward currency contract for the purchase of
most currencies typically must occur at a bank based in
the issuing nation. By entering into a forward currency
contract for the purchase or sale, for a fixed amount of
dollars or other currency, of the amount of foreign currency
involved in the underlying security transactions, the fund
may be able to protect itself against a possible loss
resulting from an adverse change in the relationship
between the US dollar or other currency which is being
used for the security purchase and the foreign currency in
which the security is denominated during the period
between the date on which the security is purchased or
sold and the date on which payment is made or received.
Furthermore, such transactions reduce or preclude the
opportunity for gain if the value of the currency should
move in the direction opposite to the position taken. There
is an additional risk to the extent that forward currency
contracts create exposure to currencies in which the fund’s
securities are not denominated. Unanticipated changes in
currency prices may result in poorer overall performance
for the fund than if it had not entered into such contracts.
Forward currency contracts may limit gains on portfolio
securities that could otherwise be realized had they not
been utilized and could result in losses. The contracts also
may increase the fund’s volatility and may involve a significant
amount of risk relative to the investment of cash.
Counterparty risk.
The foreign currency markets in which
the fund effects its transactions are over-the-counter or
“
interdealer
”
markets. The counterparty to an over-the
counter spot contract is generally a single bank or other
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financial institution rather than a clearing organization
backed by a group of financial institutions. Participants in
over-the-counter markets are typically not subject to the
same credit evaluation and regulatory oversight as
members of exchange-based” markets. Because the funds
execute over-the-counter transactions, the fund constantly
takes credit risk with regard to parties with which it trades
and may also bear the risk of settlement default. These
risks may differ materially from those involved in exchange-traded
transactions which generally are characterized by
clearing organization guaranties, daily marking-to-market
and settlement, and segregation and minimum capital
requirements applicable to intermediaries. Transactions
entered into directly between two counterparties generally
do not benefit from these protections and the fund is
subject to the risk that a counterparty will not settle a
transaction in accordance with agreed terms and
conditions.
Further, if a counterparty becomes bankrupt or otherwise
fails to perform its obligations due to financial difficulties,
the fund may experience significant delays in obtaining any
recovery in a bankruptcy or other reorganization
proceeding. The fund may obtain only limited recovery or
may obtain no recovery in such circumstances. In addition,
the fund may enter into agreements with a limited number
of counterparties which may increase that fund’s exposure
to counterparty credit risk.
Because a contract’s terms may provide for collateral to
cover the variation margin exposure arising under the
contract only if a minimum transfer amount is triggered,
the fund may have an uncollateralized risk exposure to
a counterparty.
The use of spot foreign exchange contracts may also
expose the fund to legal risk, which is the risk of loss due
to the unexpected application of a law or regulation, or
because contracts are not legally enforceable.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
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to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
The need to comply with the tax diversification and other
requirements of the Internal Revenue Code of 1986, as
amended, may also impact the fund’s ability to replicate
the performance of the Underlying Index. In addition, if the
fund utilizes derivative instruments or holds other instruments
that are not included in the Underlying Index, the
fund’s return may not correlate as well with the returns of
the Underlying Index as would be the case if the fund
purchased all the securities in the Underlying Index
directly. Actions taken in response to proposed corporate
actions could result in increased tracking error.
For purposes of calculating the fund’s net asset value, the
value of assets denominated in non-US currencies is
converted into US dollars using prevailing market rates on
the date of valuation as quoted by one or more data
service providers. This conversion may result in a difference
between the prices used to calculate the fund’s net
asset value and the prices used by the Underlying Index,
which, in turn, could result in a difference between the
fund’s performance and the performance of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
NAV during periods of market volatility. Differences
between secondary market prices and the value of the
fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the
same forces as those influencing prices for securities held
by the fund at a particular time. The Advisor cannot predict
whether shares will trade above, below or at their NAV.
Given the fact that shares can be created and redeemed in
Creation Units, the Advisor believes that large discounts
or premiums to the NAV of shares should not be sustained
in the long-term. In addition, there may be times when
the market price and the value of the fund’s holdings vary
significantly and you may pay more than the value of the
fund’s holdings when buying shares on the secondary
market, and you may receive less than the value of the
fund’s holdings when you sell those shares. While the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in trading prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. If market makers exit the business or are
unable to continue making markets in fund’s shares,
shares may trade at a discount to NAV like closed-end fund
shares and may even face delisting (that is, investors
would no longer be able to trade shares in the secondary
market). The market price of shares, like the price of any
exchange-traded security, includes a
“
bid-ask spread
”
charged by the exchange specialist, market makers or
other participants that trade the particular security. In times
of severe market disruption, the bid-ask spread often
increases significantly. This means that shares may trade
at a discount to the fund’s NAV, and the discount is likely to
be greatest when the price of shares is falling fastest,
which may be the time that you most want to sell your
shares. There are various methods by which investors can
purchase and sell shares of the funds and various orders
that may be placed. Investors should consult their financial
intermediary before purchasing or selling shares of the
fund.
In addition, the securities held by the fund may be traded
in markets that close at a different time than an exchange.
Liquidity in those securities may be reduced after the applicable
closing times. Accordingly, during the time when an
exchange is open but after the applicable market closing,
fixing or settlement times, bid-ask spreads and the
resulting premium or discount to the shares’ NAV is likely
to widen. More generally, secondary markets may be
subject to irregular trading activity, wide bid-ask spreads
and extended trade settlement periods, which could cause
a material decline in the fund’s NAV. The bid-ask spread
varies over time for shares of the fund based on the fund’s
trading volume and market liquidity, and is generally lower
if the fund has substantial trading volume and market
liquidity, and higher if the fund has little trading volume and
market liquidity (which is often the case for funds that are
newly launched or small in size). The fund’s bid-ask spread
may also be impacted by the liquidity of the underlying
securities held by the fund, particularly for newly launched
or smaller funds or in instances of significant volatility of
the underlying securities. The fund’s investment results are
measured based upon the daily NAV of the fund. Investors
purchasing and selling shares in the secondary market
may not experience investment results consistent with
those experienced by those APs creating and redeeming
shares directly with the fund. In addition, transactions by
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large shareholders may account for a large percentage of
the trading volume on an exchange and may, therefore,
have a material effect on the market price of the fund’s
shares.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Country concentration risk.
To the extent that the fund
invests significantly in a single country, it is more likely to
be impacted by events or conditions affecting that country.
For example, political and economic conditions and
changes in regulatory, tax or economic policy in a country
could significantly affect the market in that country and
in surrounding or related countries and have a negative
impact on the fund’s performance.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Cyber-attacks may include unauthorized attempts by third
parties to improperly access, modify, disrupt the operations
of, or prevent access to the systems of the fund’s
service providers or counterparties, issuers of securities
held by the fund or other market participants or data within
them. In addition, power or communications outages, acts
of god, information technology equipment malfunctions,
operational errors, and inaccuracies within software or data
processing systems may also disrupt business operations
or impact critical data.
Cyber-attacks, disruptions, or failures may adversely affect
the fund and its shareholders or cause reputational
damage and subject the fund to regulatory fines, litigation
costs, penalties or financial losses, reimbursement or
other compensation costs, and/or additional compliance
costs. In addition, cyber-attacks, disruptions, or failures
involving a fund counterparty could affect such
counterparty’s ability to meet its obligations to the fund,
which may result in losses to the fund and its shareholders.
Similar types of operational and technology risks
are also present for issuers of securities held by the fund,
which could have material adverse consequences for such
issuers, and may cause the fund’s investments to lose
value. Furthermore, as a result of cyber-attacks, disruptions,
or failures, an exchange or market may close or issue
trading halts on specific securities or the entire market,
which may result in the fund being, among other things,
unable to buy or sell certain securities or financial instruments
or unable to accurately price its investments.
For example, the fund relies on various sources to calculate
its NAV. Therefore, the fund is subject to certain
operational risks associated with reliance on third party
service providers and data sources. NAV calculation may
be impacted by operational risks arising from factors such
as failures in systems and technology. Such failures may
result in delays in the calculation of a fund’s NAV and/or the
inability to calculate NAV over extended time periods. The
fund may be unable to recover any losses associated with
such failures.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
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“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
At any given time, due to the
composition of the Underlying Index, the fund may be classified
as
“
non-diversified
”
and may invest a larger
percentage of its assets in securities of a few issuers or a
single issuer than that of a diversified fund. As a result,
the fund may be more susceptible to the risks associated
with these particular issuers, or to a single economic,
political or regulatory occurrence affecting these issuers.
This may increase the fund’s volatility and cause the performance
of a relatively smaller number of issuers to have a
greater impact on the fund’s performance.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Cash redemption risk.
Because the fund invests a portion
of its assets in forward currency contracts, the fund may
pay out a portion of its redemption proceeds in cash rather
than through the in-kind delivery of portfolio securities. In
addition, the fund may be required to unwind such
contracts or sell portfolio securities in order to obtain the
cash needed to distribute redemption proceeds. This may
cause the fund to recognize a capital gain that it might not
have incurred if it had made a redemption in-kind. As a
result the fund may pay out higher annual capital gains
distributions than if the in-kind redemption process was
used. Only APs who have entered into an agreement with
the fund’s distributor may redeem shares from the fund
directly; all other investors buy and sell shares at market
prices on an exchange.
Derivatives risk.
Derivatives are financial instruments,
such as futures and swaps, whose values are based on the
value of one or more indicators, such as a security, asset,
currency, interest rate, or index. Derivatives involve risks
different from, and possibly greater than, the risks associated
with investing directly in securities and other more
traditional investments. For example, derivatives involve
the risk of mispricing or improper valuation and the risk
that changes in the value of a derivative may not correlate
perfectly with the underlying indicator. Derivative transactions
can create investment leverage, may be highly
volatile and the fund could lose more than the amount it
invests. Many derivative transactions are entered into
“
over-the-counter
”
(i.e., not on an exchange or contract market);
as a result, the value of such a derivative transaction will
depend on the ability and the willingness of the fund’s
counterparty to perform its obligations under the transaction.
If a counterparty were to default on its obligations,
the fund’s contractual remedies against such counterparty
may be subject to bankruptcy and insolvency laws, which
could affect the fund’s rights as a creditor (e.g., the fund
may not receive the net amount of payments that it is
contractually entitled to receive). A liquid secondary market
may not always exist for the fund’s derivative positions at
any time.
Futures risk.
The value of a futures contract tends to
increase and decrease in tandem with the value of the
underlying instrument. Depending on the terms of the
particular contract, futures contracts are settled through
either physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether,
when and how to use futures involves the exercise of skill
and judgment and even a well-conceived futures transaction
may be unsuccessful because of market behavior or
unexpected events. In addition to the derivatives risks
discussed above, the prices of futures can be highly volatile,
using futures can lower total return and the potential
loss from futures can exceed the fund’s initial investment
in such contracts.
Xtrackers MSCI Europe Hedged Equity ETF
Investment Objective
Xtrackers MSCI Europe Hedged Equity ETF (the
“
fund
”
)
seeks investment results that correspond generally to the
performance, before fees and expenses, of the MSCI
Europe US Dollar Hedged Index (the
“
Underlying Index
”
).
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track the performance
of the developed markets in Europe, while
mitigating exposure to fluctuations between the value of
the US dollar and the currencies of the countries included
in the Underlying Index. The fund uses a full replication
indexing strategy to seek to track the Underlying Index. As
such, the fund invests directly in the component securities
(or a substantial number of the component securities)
of the Underlying Index in substantially the same
weightings in which they are represented in the Underlying
Index. If it is not possible for the fund to acquire
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component securities due to limited availability or regulatory
restrictions, the fund may use a representative
sampling indexing strategy to seek to track the Underlying
Index instead of a full replication indexing strategy.
“
Representative
sampling
”
is an indexing strategy that involves
investing in a representative sample of securities that
collectively has an investment profile similar to the Underlying
Index. The securities selected are expected to have,
in the aggregate, investment characteristics (based on
factors such as market capitalization and industry
weightings), fundamental characteristics (such as return
variability and yield), and liquidity measures similar to
those of the Underlying Index. The fund may or may not
hold all of the securities in the Underlying Index when
using a representative sampling indexing strategy. The
fund will invest at least 80% of its total assets (but typically
far more) in component securities (including
depositary receipts in respect of such securities) of the
Underlying Index.
As of July 31, 2020, the Underlying Index consisted of 435
securities, with an average market capitalization of approximately
$19.49 billion and a minimum market capitalization
of approximately $1.21 billion, from issuers in the
following countries: Austria, Belgium, Denmark, Finland,
France, Germany, Ireland, Italy, Netherlands, Norway,
Portugal, Spain, Sweden, Switzerland and the United
Kingdom. Under normal circumstances, the Underlying
Index is rebalanced monthly. The fund rebalances its portfolio
in accordance with the Underlying Index, and,
therefore, any changes to the Underlying Index’s rebalance
schedule will result in corresponding changes to the fund’s
rebalance schedule.
The fund enters into forward currency contracts designed
to offset the fund’s exposure to foreign currencies. The
fund hedges each foreign currency in the portfolio to US
dollars by selling the applicable foreign currency forward at
the one-month forward rate published by WM/Reuters.
The amount of forward contracts in the fund is based on
the aggregate exposure of the fund and Underlying Index
to each non-US currency based on currency weights as of
the beginning of each month. While this approach is
designed to minimize the impact of currency fluctuations
on fund returns, this does not necessarily eliminate exposure
to all currency fluctuations. The return of the forward
currency contracts may not perfectly offset the actual fluctuations
of non-US currencies relative to the US dollar.
The fund may use non-deliverable forward (
“
NDF
”
)
contracts to execute its hedging transactions. An NDF is a
contract where there is no physical settlement of two
currencies at maturity (as opposed to deliverable forward
contracts, which per their terms are settled by physical
delivery of the currencies). Rather, based on the movement
of the currencies and the contractually agreed upon
exchange rate, a net cash settlement is made by one party
to the other in US dollars.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in the equity securities of issuers from Europe
and in instruments designed to hedge against the fund’s
exposure to non-US currencies. As of July 31, 2020, a
significant percentage of the Underlying Index was
comprised of securities of issuers from the United
Kingdom (22%), Switzerland (16.6%) and Germany
(15.0%).
The fund will concentrate its investments (i.e., hold 25%
or more of its total assets) in a particular industry or group
of industries to the extent that its Underlying Index is
concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
health care sector (16.3%) and consumer staples sector
(15.0%). Industries in the health care sector include pharmaceuticals,
biotechnology, medical products and
supplies, and health care services. The consumer staples
sector includes companies whose businesses are less
sensitive to economic cycles, such as manufacturers and
distributors of food, beverages and producers of
non-durable household goods and personal products. To
the extent that the fund tracks the Underlying Index, the
fund’s investment in certain sectors or countries may
change over time.
The fund may also invest in depositary receipts in respect
of equity securities that comprise its Underlying Index
to seek performance that corresponds to the fund’s respective
Underlying Index. Investments in such depositary
receipts will count towards the fund’s 80% investment
policy discussed above with respect to instruments that
comprise the applicable Underlying Index. The fund will not
invest in any unlisted depositary receipt or any depositary
receipt that the Advisor deems illiquid at the time of
purchase or for which pricing information is not readily
available.
The fund may invest its remaining assets in other securities,
including securities not in the Underlying Index, cash
and cash equivalents, money market instruments, such
as repurchase agreements or money market funds
(including money market funds advised by the Advisor or
its affiliates (subject to applicable limitations under the
Investment Company Act of 1940, as amended (the
“
1940
Act
”
), or exemptions therefrom), convertible securities,
structured notes (notes on which the amount of principal
repayment and interest payments are based on the movement
of one or more specified factors, such as the
movement of a particular stock or stock index) and in
futures contracts, options on futures contracts and other
types of options and swaps related to its Underlying Index.
The fund will not use futures or options for speculative
purposes.
The fund expects to use futures contracts to a limited
extent in seeking performance that corresponds to its
Underlying Index. A futures contract is a standardized
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exchange traded agreement to buy or sell a specific quantity
of an underlying instrument at a specific price at a
specific future time.
The fund may become
“
non-diversified,
”
as defined under
the Investment Company Act of 1940, as amended, solely
as a result of a change in relative market capitalization or
index weighting of one or more constituents of the index
that the fund is designed to track. Shareholder approval will
not be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
The Prospectus contains a more detailed description of
the limited relationship MSCI has with DBX Advisors LLC
and any related funds.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Underlying Index Information
MSCI Europe US Dollar Hedged Index
Number of Components: approximately 435
Index Description
. The MSCI Europe US Dollar Hedged
Index is designed to provide exposure to equity securities
in developed stock markets in Europe, while at the same
time mitigating exposure to fluctuations between the value
of the US dollar and selected non-US currencies. As of
July 31, 2020, the Underlying Index consisted of issuers
from the following 15 developed market countries: Austria,
Belgium, Denmark, Finland, France, Germany, Ireland,
Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland
and the United Kingdom.
Main Risks
As with any investment, you could lose all or part of your
investment in the fund, and the fund’s performance could
trail that of other investments. The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective.
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
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Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Foreign investments in American
Depositary Receipts and other depositary receipts may
be less liquid than the underlying shares in their primary
trading market. Certain of the depositary receipts in which
the fund invests may be unsponsored depositary receipts.
Unsponsored depositary receipts may not provide as
much information about the underlying issuer and may not
carry the same voting privileges as sponsored depositary
receipts. Unsponsored depositary receipts are issued by
one or more depositaries in response to market demand,
but without a formal agreement with the company that
issues the underlying securities.
European investment risk.
European financial markets
have experienced volatility in recent years and have been
adversely affected by concerns about economic downturns,
credit rating downgrades, rising government debt
level and possible default on or restructuring of government
debt in several European countries. A default or debt
restructuring by any European country would adversely
impact holders of that country’s debt, and sellers of credit
default swaps linked to that country’s creditworthiness.
Most countries in Western Europe are members of the
European Union (EU), which faces major issues involving
its membership, structure, procedures and policies. In
June 2016, citizens of the United Kingdom approved a
referendum to leave the EU. On January 31, 2020, the
United Kingdom officially withdrew from the EU pursuant
to a withdrawal agreement, providing for a transition period
in which the United Kingdom will seek to negotiate and
finalize a trade deal with the EU. The transition period will
end on December 31, 2020 and can no longer be extended
under the terms of the withdrawal agreement. Significant
uncertainty exists regarding any adverse economic and
political effects the United Kingdom’s withdrawal may have
on the United Kingdom, other EU countries and the global
economy, which could be significant, potentially resulting
in increased volatility and illiquidity and lower economic
growth.
European countries are also significantly affected by fiscal
and monetary controls implemented by the European
Economic and Monetary Union (EMU), and it is possible
that the timing and substance of these controls may not
address the needs of all EMU member countries. Investing
in euro-denominated securities also risks exposure to a
currency that may not fully reflect the strengths and weaknesses
of the disparate economies that comprise Europe.
There is continued concern over member state-level
support for the euro, which could lead to certain countries
leaving the EMU, the implementation of currency controls,
or potentially the dissolution of the euro. The dissolution of
the euro could have significant negative effects on European
financial markets.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors of
the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Health care sector risk.
To the extent that the fund invests
significantly in the health care sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
health care sector. The health care sector may be affected
by government regulations and government health care
programs, increases or decreases in the cost of medical
products and services and product liability claims, among
other factors. Many health care companies are heavily
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dependent on patent protection, and the expiration of a
company’s patent may adversely affect that company’s
profitability. Health care companies are subject to competitive
forces that may result in price discounting, and may
be thinly capitalized and susceptible to product
obsolescence.
Consumer staples sector risk.
To the extent that the fund
invests significantly in the consumer staples sector, the
fund will be sensitive to changes in, and the fund’s performance
may depend to a greater extent on, the overall
condition of the consumer staples sector. Companies in
the consumer staples sector may be adversely affected by
changes in the global economy, consumer spending,
competition, demographics and consumer preferences,
and production spending. Companies in the consumer
staples sector are also affected by changes in government
regulation, global economic, environmental and political
events, economic conditions and the depletion of
resources. In addition, companies in the consumer staples
sector may be subject to risks pertaining to the supply of,
demand for and prices of raw materials. The prices of raw
materials fluctuate in response to a number of factors,
including, without limitation, changes in government agricultural
support programs, exchange rates, import and
export controls, changes in international agricultural and
trading policies, and seasonal and weather conditions.
Numerous financial companies have experienced substantial
declines in the valuations of their assets, taken action
to raise capital (such as the issuance of debt or equity securities),
or even ceased operations. These actions have
caused the securities of many financial companies to
experience a dramatic decline in value. Moreover, certain
financial companies have avoided collapse due to intervention
by governmental regulatory authorities, but such
interventions have often not averted a substantial decline
in the value of such companies’ common stock. Issuers
that have exposure to the real estate, mortgage and credit
markets have been particularly affected by the foregoing
events and the general market turmoil, and it is uncertain
whether or for how long these conditions will continue.
Forward currency contract risk.
The fund invests in
forward currency contracts to attempt to minimize the
impact of changes in the value of the non-US currencies
included in its Underlying Index against the US dollar.
These contracts may not be successful. To the extent the
fund’s forward currency contracts are not successful in
hedging against such changes, the US dollar value of your
investment in the fund may go down if the value of the
local currency of the non-US markets in which the fund
invests depreciates against the US dollar. This is true even
if the local currency value of securities in the fund’s holdings
goes up. In order to minimize transaction costs or for
other reasons, the fund’s exposure to the currencies
included in the Underlying Index may not be fully hedged
at all times. For example, the fund may not hedge against
exposure to currencies that represent a relatively smaller
portion of the Underlying Index. Furthermore, because no
changes in the currency weights in each fund’s Underlying
Index are made during the month to account for
changes in each fund’s Underlying Index due to price
movement of securities, corporate events, additions, deletions
or any other changes, changes in the value of the
non-US currencies included in the fund’s Underlying Index
against the US dollar during the month may affect the
value of the fund’s investment. Non-deliverable forward
(
“
NDF
”
) contracts may be less liquid than deliverable
forward currency contracts. A lack of liquidity in NDFs of
the hedged currency could adversely affect the fund’s
ability to hedge against currency fluctuations and properly
track the Underlying Index.
A forward currency contract is a negotiated agreement
between two parties to exchange specified amounts of
two or more currencies at a specified future time at a
specified rate. The rate specified by the forward currency
contract can be higher or lower than the spot rate between
the currencies that are the subject of the contract. Settlement
of a forward currency contract for the purchase of
most currencies typically must occur at a bank based in
the issuing nation. By entering into a forward currency
contract for the purchase or sale, for a fixed amount of
dollars or other currency, of the amount of foreign currency
involved in the underlying security transactions, the fund
may be able to protect itself against a possible loss
resulting from an adverse change in the relationship
between the US dollar or other currency which is being
used for the security purchase and the foreign currency in
which the security is denominated during the period
between the date on which the security is purchased or
sold and the date on which payment is made or received.
Furthermore, such transactions reduce or preclude the
opportunity for gain if the value of the currency should
move in the direction opposite to the position taken. There
is an additional risk to the extent that forward currency
contracts create exposure to currencies in which the fund’s
securities are not denominated. Unanticipated changes in
currency prices may result in poorer overall performance
for the fund than if it had not entered into such contracts.
Forward currency contracts may limit gains on portfolio
securities that could otherwise be realized had they not
been utilized and could result in losses. The contracts also
may increase the fund’s volatility and may involve a significant
amount of risk relative to the investment of cash.
Counterparty risk.
The foreign currency markets in which
the fund effects its transactions are over-the-counter or
“
interdealer
”
markets. The counterparty to an over-the
counter spot contract is generally a single bank or other
financial institution rather than a clearing organization
backed by a group of financial institutions. Participants in
over-the-counter markets are typically not subject to the
same credit evaluation and regulatory oversight as
members of exchange-based” markets. Because the funds
execute over-the-counter transactions, the fund constantly
takes credit risk with regard to parties with which it trades
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and may also bear the risk of settlement default. These
risks may differ materially from those involved in exchange-traded
transactions which generally are characterized by
clearing organization guaranties, daily marking-to-market
and settlement, and segregation and minimum capital
requirements applicable to intermediaries. Transactions
entered into directly between two counterparties generally
do not benefit from these protections and the fund is
subject to the risk that a counterparty will not settle a
transaction in accordance with agreed terms and
conditions.
Further, if a counterparty becomes bankrupt or otherwise
fails to perform its obligations due to financial difficulties,
the fund may experience significant delays in obtaining any
recovery in a bankruptcy or other reorganization
proceeding. The fund may obtain only limited recovery or
may obtain no recovery in such circumstances. In addition,
the fund may enter into agreements with a limited number
of counterparties which may increase that fund’s exposure
to counterparty credit risk.
Because a contract’s terms may provide for collateral to
cover the variation margin exposure arising under the
contract only if a minimum transfer amount is triggered,
the fund may have an uncollateralized risk exposure to
a counterparty.
The use of spot foreign exchange contracts may also
expose the fund to legal risk, which is the risk of loss due
to the unexpected application of a law or regulation, or
because contracts are not legally enforceable.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
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construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
The need to comply with the tax diversification and other
requirements of the Internal Revenue Code of 1986, as
amended, may also impact the fund’s ability to replicate
the performance of the Underlying Index. In addition, if the
fund utilizes derivative instruments or holds other instruments
that are not included in the Underlying Index, the
fund’s return may not correlate as well with the returns of
the Underlying Index as would be the case if the fund
purchased all the securities in the Underlying Index
directly. Actions taken in response to proposed corporate
actions could result in increased tracking error.
For purposes of calculating the fund’s net asset value, the
value of assets denominated in non-US currencies is
converted into US dollars using prevailing market rates on
the date of valuation as quoted by one or more data
service providers. This conversion may result in a difference
between the prices used to calculate the fund’s net
asset value and the prices used by the Underlying Index,
which, in turn, could result in a difference between the
fund’s performance and the performance of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
NAV during periods of market volatility. Differences
between secondary market prices and the value of the
fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the
same forces as those influencing prices for securities held
by the fund at a particular time. The Advisor cannot predict
whether shares will trade above, below or at their NAV.
Given the fact that shares can be created and redeemed in
Creation Units, the Advisor believes that large discounts
or premiums to the NAV of shares should not be sustained
in the long-term. In addition, there may be times when
the market price and the value of the fund’s holdings vary
significantly and you may pay more than the value of the
fund’s holdings when buying shares on the secondary
market, and you may receive less than the value of the
fund’s holdings when you sell those shares. While the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in trading prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. If market makers exit the business or are
unable to continue making markets in fund’s shares,
shares may trade at a discount to NAV like closed-end fund
shares and may even face delisting (that is, investors
would no longer be able to trade shares in the secondary
market). The market price of shares, like the price of any
exchange-traded security, includes a
“
bid-ask spread
”
charged by the exchange specialist, market makers or
other participants that trade the particular security. In times
of severe market disruption, the bid-ask spread often
increases significantly. This means that shares may trade
at a discount to the fund’s NAV, and the discount is likely to
be greatest when the price of shares is falling fastest,
which may be the time that you most want to sell your
shares. There are various methods by which investors can
purchase and sell shares of the funds and various orders
that may be placed. Investors should consult their financial
intermediary before purchasing or selling shares of the
fund.
In addition, the securities held by the fund may be traded
in markets that close at a different time than an exchange.
Liquidity in those securities may be reduced after the applicable
closing times. Accordingly, during the time when an
exchange is open but after the applicable market closing,
fixing or settlement times, bid-ask spreads and the
resulting premium or discount to the shares’ NAV is likely
to widen. More generally, secondary markets may be
subject to irregular trading activity, wide bid-ask spreads
and extended trade settlement periods, which could cause
a material decline in the fund’s NAV. The bid-ask spread
varies over time for shares of the fund based on the fund’s
trading volume and market liquidity, and is generally lower
if the fund has substantial trading volume and market
liquidity, and higher if the fund has little trading volume and
market liquidity (which is often the case for funds that are
newly launched or small in size). The fund’s bid-ask spread
may also be impacted by the liquidity of the underlying
securities held by the fund, particularly for newly launched
or smaller funds or in instances of significant volatility of
the underlying securities. The fund’s investment results are
measured based upon the daily NAV of the fund. Investors
purchasing and selling shares in the secondary market
may not experience investment results consistent with
those experienced by those APs creating and redeeming
shares directly with the fund. In addition, transactions by
large shareholders may account for a large percentage of
the trading volume on an exchange and may, therefore,
have a material effect on the market price of the fund’s
shares.
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Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Cyber-attacks may include unauthorized attempts by third
parties to improperly access, modify, disrupt the operations
of, or prevent access to the systems of the fund’s
service providers or counterparties, issuers of securities
held by the fund or other market participants or data within
them. In addition, power or communications outages, acts
of god, information technology equipment malfunctions,
operational errors, and inaccuracies within software or data
processing systems may also disrupt business operations
or impact critical data.
Cyber-attacks, disruptions, or failures may adversely affect
the fund and its shareholders or cause reputational
damage and subject the fund to regulatory fines, litigation
costs, penalties or financial losses, reimbursement or
other compensation costs, and/or additional compliance
costs. In addition, cyber-attacks, disruptions, or failures
involving a fund counterparty could affect such
counterparty’s ability to meet its obligations to the fund,
which may result in losses to the fund and its shareholders.
Similar types of operational and technology risks
are also present for issuers of securities held by the fund,
which could have material adverse consequences for such
issuers, and may cause the fund’s investments to lose
value. Furthermore, as a result of cyber-attacks, disruptions,
or failures, an exchange or market may close or issue
trading halts on specific securities or the entire market,
which may result in the fund being, among other things,
unable to buy or sell certain securities or financial instruments
or unable to accurately price its investments.
For example, the fund relies on various sources to calculate
its NAV. Therefore, the fund is subject to certain
operational risks associated with reliance on third party
service providers and data sources. NAV calculation may
be impacted by operational risks arising from factors such
as failures in systems and technology. Such failures may
result in delays in the calculation of a fund’s NAV and/or the
inability to calculate NAV over extended time periods. The
fund may be unable to recover any losses associated with
such failures.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
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discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
At any given time, due to the
composition of the Underlying Index, the fund may be classified
as
“
non-diversified
”
and may invest a larger
percentage of its assets in securities of a few issuers or a
single issuer than that of a diversified fund. As a result,
the fund may be more susceptible to the risks associated
with these particular issuers, or to a single economic,
political or regulatory occurrence affecting these issuers.
This may increase the fund’s volatility and cause the performance
of a relatively smaller number of issuers to have a
greater impact on the fund’s performance.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Risks related to investing in the United Kingdom.
Investment
in British issuers may subject the fund to regulatory,
political, currency, security, and economic risks specific
to the United Kingdom. The British economy relies heavily
on export of financial services to the US and other European
countries. A prolonged slowdown in the financial
services sector may have a negative impact on the British
economy. In the past, the United Kingdom has been a
target of terrorism. Acts of terrorism in the United
Kingdom or against British interests abroad may cause
uncertainty in the British financial markets and adversely
affect the performance of the issuers to which the fund
has exposure. The British economy, along with the US and
certain other EU economies, experienced a significant
economic slowdown during the financial crisis.
In a referendum held on June 23, 2016, citizens of the
United Kingdom voted to leave the EU, creating economic,
political and legal uncertainty in its wake. Consequently,
the United Kingdom government, pursuant to the Treaty of
Lisbon (the
“
Treaty
”
), officially withdrew from the EU on
January 31, 2020. Considerable uncertainty remains as to
the ramifications of the withdrawal on the United Kingdom
and the EU.
The United Kingdom has one of the largest economies in
Europe, and member countries of the EU are substantial
trading partners of the United Kingdom. The City of
London’s economy is dominated by financial services,
some of which may have to move outside of the United
Kingdom post-referendum (e.g., currency trading, international
settlement). Under the referendum, banks may be
forced to move staff and comply with two separate sets of
rules or lose business to banks in Europe. Furthermore,
the referendum creates the potential for decreased trade,
the possibility of capital outflows, devaluation of the pound
sterling, the cost of higher corporate bond spreads due
to uncertainty, and the risk that all the above could damage
business and consumer spending as well as foreign direct
investment. As a result of the referendum, the British
economy and its currency may be negatively impacted by
changes to its economic and political relations with the EU.
The impact of the referendum in the near- and long-term
is still unknown and could have additional adverse effects
on economies, financial markets and asset valuations
around the world.
Risks related to investing in Switzerland.
Investment in
Swiss issuers may subject the fund to legal, regulatory,
political, currency, security, and economic risk specific to
Switzerland. International trade is a significant factor of the
Swiss economy and the country depends upon exports
to produce economic growth. Switzerland’s economic
growth generally reflects economic trends in other countries,
including the US and certain Western European
countries.
Risks related to investing in Germany.
The German
economy is dependent on the other countries in Europe as
key trade partners. Exports account for more than
one-third of Germany’s output and are a key element in
German economic expansion. Reduction in spending by
European countries on German products and services or
negative changes in any of these countries may cause an
adverse impact on the German economy. In addition, the
US is a large trade and investment partner of Germany.
Decreasing US imports, new trade regulations, changes in
the US dollar exchange rates or a recession in the US may
also have an adverse impact on the German economy.
During the most recent financial crisis, the German
economy, along with certain other EU economies, experienced
a significant economic slowdown. Recently, new
concerns emerged in relation to the economic health of
the EU. These concerns have led to tremendous downward
pressure on certain financial institutions, including
German financial services companies. During the recent
European debt crisis, Germany played a key role in stabilizing
the euro. However, such efforts may prove
unsuccessful, and any ongoing crisis may continue to
significantly affect the economies of every country in
Europe, including Germany.
Investing in German issuers involves political, social and
regulatory risks. Certain sectors and regions of Germany
have experienced high unemployment and social unrest.
These issues may have an adverse effect on the German
economy or the German industries or sectors in which the
fund invests. Heavy regulation of labor and product
markets is pervasive in Germany. These regulations may
stifle economic growth or result in extended recessionary
periods.
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Cash redemption risk.
Because the fund invests a portion
of its assets in forward currency contracts, the fund may
pay out a portion of its redemption proceeds in cash rather
than through the in-kind delivery of portfolio securities. In
addition, the fund may be required to unwind such
contracts or sell portfolio securities in order to obtain the
cash needed to distribute redemption proceeds. This may
cause the fund to recognize a capital gain that it might not
have incurred if it had made a redemption in-kind. As a
result the fund may pay out higher annual capital gains
distributions than if the in-kind redemption process was
used. Only APs who have entered into an agreement with
the fund’s distributor may redeem shares from the fund
directly; all other investors buy and sell shares at market
prices on an exchange.
Derivatives risk.
Derivatives are financial instruments,
such as futures and swaps, whose values are based on the
value of one or more indicators, such as a security, asset,
currency, interest rate, or index. Derivatives involve risks
different from, and possibly greater than, the risks associated
with investing directly in securities and other more
traditional investments. For example, derivatives involve
the risk of mispricing or improper valuation and the risk
that changes in the value of a derivative may not correlate
perfectly with the underlying indicator. Derivative transactions
can create investment leverage, may be highly
volatile and the fund could lose more than the amount it
invests. Many derivative transactions are entered into
“
over-the-counter
”
(i.e., not on an exchange or contract market);
as a result, the value of such a derivative transaction will
depend on the ability and the willingness of the fund’s
counterparty to perform its obligations under the transaction.
If a counterparty were to default on its obligations,
the fund’s contractual remedies against such counterparty
may be subject to bankruptcy and insolvency laws, which
could affect the fund’s rights as a creditor (e.g., the fund
may not receive the net amount of payments that it is
contractually entitled to receive). A liquid secondary market
may not always exist for the fund’s derivative positions at
any time.
Futures risk.
The value of a futures contract tends to
increase and decrease in tandem with the value of the
underlying instrument. Depending on the terms of the
particular contract, futures contracts are settled through
either physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether,
when and how to use futures involves the exercise of skill
and judgment and even a well-conceived futures transaction
may be unsuccessful because of market behavior or
unexpected events. In addition to the derivatives risks
discussed above, the prices of futures can be highly volatile,
using futures can lower total return and the potential
loss from futures can exceed the fund’s initial investment
in such contracts.
Xtrackers MSCI All World ex US Hedged Equity ETF
Investment Objective
The Xtrackers MSCI All World ex US Hedged Equity ETF
(the
“
fund
”
) seeks investment results that correspond
generally to the performance, before fees and expenses,
of the MSCI ACWI ex USA US Dollar Hedged Index (the
“
Underlying Index
”
).
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track the performance
of equity securities in developed and emerging
stock markets (excluding the United States), while mitigating
exposure to fluctuations between the value of the
US dollar and the currencies of the countries included in
the Underlying Index. The fund uses a full replication
indexing strategy to seek to track the Underlying Index. As
such, the fund invests directly in the component securities
(or a substantial number of the component securities)
of the Underlying Index in substantially the same
weightings in which they are represented in the Underlying
Index. If it is not possible for the fund to acquire
component securities due to limited availability or regulatory
restrictions, the fund may use a representative
sampling indexing strategy to seek to track the Underlying
Index instead of a full replication indexing strategy.
“
Representative
sampling
”
is an indexing strategy that involves
investing in a representative sample of securities that
collectively has an investment profile similar to the Underlying
Index. The securities selected are expected to have,
in the aggregate, investment characteristics (based on
factors such as market capitalization and industry
weightings), fundamental characteristics (such as return
variability and yield), and liquidity measures similar to
those of the Underlying Index. The fund may or may not
hold all of the securities in the Underlying Index when
using a representative sampling indexing strategy. The
fund will invest at least 80% of its total assets (but typically
far more) in component securities (including
depositary receipts in respect of such securities) of the
Underlying Index.
As of July 31, 2020, the Underlying Index consisted of
2,370 securities, with an average market capitalization of
approximately $8.89 billion and a minimum market capitalization
of approximately $123 million, from issuers in the
following countries: Argentina, Australia, Austria, Belgium,
Brazil, Canada, Chile, China, Colombia, Czech Republic,
Denmark, Egypt, Finland, France, Germany, Greece, Hong
Kong, Hungary, India, Indonesia, Ireland, Israel, Italy,
Japan, Malaysia, Mexico, Netherlands, New Zealand,
Norway, Pakistan, Peru, Philippines, Poland, Portugal,
Qatar, Russia, Saudi Arabia, Singapore, South Africa, South
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Korea, Spain, Sweden, Switzerland, Taiwan, Thailand,
Turkey, the United Arab Emirates and the United Kingdom.
Under normal circumstances, the Underlying Index is rebalanced
monthly. The fund rebalances its portfolio in
accordance with the Underlying Index, and, therefore, any
changes to the Underlying Index’s rebalance schedule will
result in corresponding changes to the fund’s rebalance
schedule.
The fund enters into forward currency contracts designed
to offset the fund’s exposure to foreign currencies. The
fund hedges each foreign currency in the portfolio to US
dollars by selling the applicable foreign currency forward at
the one-month forward rate published by WM/Reuters.
The amount of forward contracts in the fund is based on
the aggregate exposure of the fund and Underlying Index
to each non-US currency based on currency weights as of
the beginning of each month. While this approach is
designed to minimize the impact of currency fluctuations
on fund returns, this does not necessarily eliminate exposure
to all currency fluctuations. The return of the forward
currency contracts may not perfectly offset the actual fluctuations
of non-US currencies relative to the US dollar.
The fund may use non-deliverable forward (
“
NDF
”
)
contracts to execute its hedging transactions. An NDF is a
contract where there is no physical settlement of two
currencies at maturity (as opposed to deliverable forward
contracts, which per their terms are settled by physical
delivery of the currencies). Rather, based on the movement
of the currencies and the contractually agreed upon
exchange rate, a net cash settlement is made by one party
to the other in US dollars.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in the equity securities of issuers from countries
other than the United States and in instruments
designed to hedge against the fund’s exposure to non-US
currencies. As of July 31, 2020, a significant percentage of
the Underlying Index was comprised of securities of
issuers from Japan (15.5%).
The fund will concentrate its investments (i.e., hold 25%
or more of its total assets) in a particular industry or group
of industries to the extent that its Underlying Index is
concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
financials sector (17.6%). The financials sector includes
companies involved in banking, consumer finance, asset
management and custody banks, as well as investment
banking and brokerage and insurance. To the extent that
the fund tracks the Underlying Index, the fund’s investment
in certain sectors or countries may change over time.
The fund may also invest in depositary receipts in respect
of equity securities that comprise its Underlying Index
to seek performance that corresponds to the fund’s respective
Underlying Index. Investments in such depositary
receipts will count towards the fund’s 80% investment
policy discussed above with respect to instruments that
comprise the applicable Underlying Index. The fund will
not invest in any unlisted depositary receipt or any depositary
receipt that the Advisor deems illiquid at the time of
purchase or for which pricing information is not readily
available.
The fund may invest its remaining assets in other securities,
including securities not in the Underlying Index, cash
and cash equivalents, money market instruments, such
as repurchase agreements or money market funds
(including money market funds advised by the Advisor or
its affiliates (subject to applicable limitations under the
Investment Company Act of 1940, as amended (the
“
1940
Act
”
), or exemptions therefrom), convertible securities,
structured notes (notes on which the amount of principal
repayment and interest payments are based on the movement
of one or more specified factors, such as the
movement of a particular stock or stock index) and in
futures contracts, options on futures contracts and other
types of options and swaps related to its Underlying Index.
The fund will not use futures or options for speculative
purposes.
The fund expects to use futures contracts to a limited
extent in seeking performance that corresponds to its
Underlying Index. A futures contract is a standardized
exchange traded agreement to buy or sell a specific quantity
of an underlying instrument at a specific price at a
specific future time.
The fund may become
“
non-diversified,
”
as defined under
the Investment Company Act of 1940, as amended, solely
as a result of a change in relative market capitalization or
index weighting of one or more constituents of the index
that the fund is designed to track. Shareholder approval will
not be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
The Prospectus contains a more detailed description of
the limited relationship MSCI has with DBX Advisors LLC
and any related funds.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Underlying Index Information
MSCI ACWI ex USA US Dollar Hedged Index
Number of Components: approximately 2,370
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Index Description.
The MSCI ACWI ex USA US Dollar
Hedged Index is designed to provide exposure to equity
securities in developed and emerging stock markets
(excluding the United States), while at the same time mitigating
exposure to fluctuations between the value of the
US dollar and selected non-US currencies. As of July 31,
2020, the Underlying Index consisted of issuers from the
following 48 developed and emerging market countries:
Argentina, Australia, Austria, Belgium, Brazil, Canada,
Chile, China, Colombia, Czech Republic, Denmark, Egypt,
Finland, France, Germany, Greece, Hong Kong, Hungary,
India, Indonesia, Ireland, Israel, Italy, Japan, Malaysia,
Mexico, Netherlands, New Zealand, Norway, Pakistan,
Peru, Philippines, Poland, Portugal, Qatar, Russia, Saudi
Arabia, Singapore, South Africa, South Korea, Spain,
Sweden, Switzerland, Taiwan, Thailand, Turkey, the United
Arab Emirates and the United Kingdom.
Main Risks
As with any investment, you could lose all or part of your
investment in the fund, and the fund’s performance could
trail that of other investments. The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective.
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
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and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Foreign investments in American
Depositary Receipts and other depositary receipts may
be less liquid than the underlying shares in their primary
trading market. Certain of the depositary receipts in which
the fund invests may be unsponsored depositary receipts.
Unsponsored depositary receipts may not provide as
much information about the underlying issuer and may not
carry the same voting privileges as sponsored depositary
receipts. Unsponsored depositary receipts are issued by
one or more depositaries in response to market demand,
but without a formal agreement with the company that
issues the underlying securities.
Emerging market securities risk.
Investment in emerging
markets subjects the fund to a greater risk of loss than
investments in a developed market. This is due to, among
other things, (i) greater market volatility, (ii) lower trading
volume, (iii) political and economic instability, (iv) high
levels of inflation, deflation or currency devaluation, (v)
greater risk of market shut down, (vi) more governmental
limitations on foreign investments and limitations on repatriation
of invested capital than those typically found in a
developed market, and (vii) the risk that companies may be
held to lower disclosure, corporate governance, auditing
and financial reporting standards than companies in more
developed markets.
The financial stability of issuers (including governments) in
emerging market countries may be more precarious than
in other countries. As a result, there will tend to be an
increased risk of price volatility in the fund’s investments
in emerging market countries, which may be magnified by
currency fluctuations relative to the US dollar.
Settlement practices for transactions in foreign markets
may differ from those in US markets. Such differences
include delays beyond periods customary in the US and
practices, such as delivery of securities prior to receipt of
payment, which increase the likelihood of a
“
failed settlement.
”
Failed settlements can result in losses to the fund.
Low trading volumes and volatile prices in less developed
markets make trades harder to complete and settle, and
governments or trade groups may compel local agents to
hold securities in designated depositories that are not
subject to independent evaluation. Local agents are held
only to the standards of care of their local markets.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors of
the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Financials sector risk.
To the extent that the fund invests
significantly in the financials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
financials sector. The financials sector is subject to extensive
government regulation, can be subject to relatively
rapid change due to increasingly blurred distinctions
between service segments, and can be significantly
affected by availability and cost of capital funds, changes in
interest rates, the rate of corporate and consumer debt
defaults, and price competition.
Numerous financial companies have experienced substantial
declines in the valuations of their assets, taken action
to raise capital (such as the issuance of debt or equity securities),
or even ceased operations. These actions have
caused the securities of many financial companies to
experience a dramatic decline in value. Moreover, certain
financial companies have avoided collapse due to intervention
by governmental regulatory authorities, but such
interventions have often not averted a substantial decline
in the value of such companies’ common stock. Issuers
that have exposure to the real estate, mortgage and credit
markets have been particularly affected by the foregoing
events and the general market turmoil, and it is uncertain
whether or for how long these conditions will continue.
Forward currency contract risk.
The fund invests in
forward currency contracts to attempt to minimize the
impact of changes in the value of the non-US currencies
included in its Underlying Index against the US dollar.
These contracts may not be successful. To the extent the
fund’s forward currency contracts are not successful in
hedging against such changes, the US dollar value of your
investment in the fund may go down if the value of the
local currency of the non-US markets in which the fund
invests depreciates against the US dollar. This is true even
if the local currency value of securities in the fund’s holdings
goes up. In order to minimize transaction costs or for
other reasons, the fund’s exposure to the currencies
included in the Underlying Index may not be fully hedged
at all times. For example, the fund may not hedge against
exposure to currencies that represent a relatively smaller
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portion of the Underlying Index. Furthermore, because no
changes in the currency weights in each fund’s Underlying
Index are made during the month to account for
changes in each fund’s Underlying Index due to price
movement of securities, corporate events, additions, deletions
or any other changes, changes in the value of the
non-US currencies included in the fund’s Underlying Index
against the US dollar during the month may affect the
value of the fund’s investment. Non-deliverable forward
(
“
NDF
”
) contracts may be less liquid than deliverable
forward currency contracts. A lack of liquidity in NDFs of
the hedged currency could adversely affect the fund’s
ability to hedge against currency fluctuations and properly
track the Underlying Index.
A forward currency contract is a negotiated agreement
between two parties to exchange specified amounts of
two or more currencies at a specified future time at a
specified rate. The rate specified by the forward currency
contract can be higher or lower than the spot rate between
the currencies that are the subject of the contract. Settlement
of a forward currency contract for the purchase of
most currencies typically must occur at a bank based in
the issuing nation. By entering into a forward currency
contract for the purchase or sale, for a fixed amount of
dollars or other currency, of the amount of foreign currency
involved in the underlying security transactions, the fund
may be able to protect itself against a possible loss
resulting from an adverse change in the relationship
between the US dollar or other currency which is being
used for the security purchase and the foreign currency in
which the security is denominated during the period
between the date on which the security is purchased or
sold and the date on which payment is made or received.
Furthermore, such transactions reduce or preclude the
opportunity for gain if the value of the currency should
move in the direction opposite to the position taken. There
is an additional risk to the extent that forward currency
contracts create exposure to currencies in which the fund’s
securities are not denominated. Unanticipated changes in
currency prices may result in poorer overall performance
for the fund than if it had not entered into such contracts.
Forward currency contracts may limit gains on portfolio
securities that could otherwise be realized had they not
been utilized and could result in losses. The contracts also
may increase the fund’s volatility and may involve a significant
amount of risk relative to the investment of cash.
Counterparty risk.
The foreign currency markets in which
the fund effects its transactions are over-the-counter or
“
interdealer
”
markets. The counterparty to an over-the
counter spot contract is generally a single bank or other
financial institution rather than a clearing organization
backed by a group of financial institutions. Participants in
over-the-counter markets are typically not subject to the
same credit evaluation and regulatory oversight as
members of exchange-based” markets. Because the funds
execute over-the-counter transactions, the fund constantly
takes credit risk with regard to parties with which it trades
and may also bear the risk of settlement default. These
risks may differ materially from those involved in exchange-traded
transactions which generally are characterized by
clearing organization guaranties, daily marking-to-market
and settlement, and segregation and minimum capital
requirements applicable to intermediaries. Transactions
entered into directly between two counterparties generally
do not benefit from these protections and the fund is
subject to the risk that a counterparty will not settle a
transaction in accordance with agreed terms and
conditions.
Further, if a counterparty becomes bankrupt or otherwise
fails to perform its obligations due to financial difficulties,
the fund may experience significant delays in obtaining any
recovery in a bankruptcy or other reorganization
proceeding. The fund may obtain only limited recovery or
may obtain no recovery in such circumstances. In addition,
the fund may enter into agreements with a limited number
of counterparties which may increase that fund’s exposure
to counterparty credit risk.
Because a contract’s terms may provide for collateral to
cover the variation margin exposure arising under the
contract only if a minimum transfer amount is triggered,
the fund may have an uncollateralized risk exposure to
a counterparty.
The use of spot foreign exchange contracts may also
expose the fund to legal risk, which is the risk of loss due
to the unexpected application of a law or regulation, or
because contracts are not legally enforceable.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
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completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
The need to comply with the tax diversification and other
requirements of the Internal Revenue Code of 1986, as
amended, may also impact the fund’s ability to replicate
the performance of the Underlying Index. In addition, if the
fund utilizes derivative instruments or holds other instruments
that are not included in the Underlying Index, the
fund’s return may not correlate as well with the returns of
the Underlying Index as would be the case if the fund
purchased all the securities in the Underlying Index
directly. Actions taken in response to proposed corporate
actions could result in increased tracking error.
For purposes of calculating the fund’s net asset value, the
value of assets denominated in non-US currencies is
converted into US dollars using prevailing market rates on
the date of valuation as quoted by one or more data
service providers. This conversion may result in a difference
between the prices used to calculate the fund’s net
asset value and the prices used by the Underlying Index,
which, in turn, could result in a difference between the
fund’s performance and the performance of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
NAV during periods of market volatility. Differences
between secondary market prices and the value of the
fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the
same forces as those influencing prices for securities held
by the fund at a particular time. The Advisor cannot predict
whether shares will trade above, below or at their NAV.
Given the fact that shares can be created and redeemed in
Creation Units, the Advisor believes that large discounts
or premiums to the NAV of shares should not be sustained
in the long-term. In addition, there may be times when
the market price and the value of the fund’s holdings vary
significantly and you may pay more than the value of the
fund’s holdings when buying shares on the secondary
market, and you may receive less than the value of the
fund’s holdings when you sell those shares. While the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
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participants, or during periods of significant market volatility,
may result in trading prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. If market makers exit the business or are
unable to continue making markets in fund’s shares,
shares may trade at a discount to NAV like closed-end fund
shares and may even face delisting (that is, investors
would no longer be able to trade shares in the secondary
market). The market price of shares, like the price of any
exchange-traded security, includes a
“
bid-ask spread
”
charged by the exchange specialist, market makers or
other participants that trade the particular security. In times
of severe market disruption, the bid-ask spread often
increases significantly. This means that shares may trade
at a discount to the fund’s NAV, and the discount is likely to
be greatest when the price of shares is falling fastest,
which may be the time that you most want to sell your
shares. There are various methods by which investors can
purchase and sell shares of the funds and various orders
that may be placed. Investors should consult their financial
intermediary before purchasing or selling shares of the
fund.
In addition, the securities held by the fund may be traded
in markets that close at a different time than an exchange.
Liquidity in those securities may be reduced after the applicable
closing times. Accordingly, during the time when an
exchange is open but after the applicable market closing,
fixing or settlement times, bid-ask spreads and the
resulting premium or discount to the shares’ NAV is likely
to widen. More generally, secondary markets may be
subject to irregular trading activity, wide bid-ask spreads
and extended trade settlement periods, which could cause
a material decline in the fund’s NAV. The bid-ask spread
varies over time for shares of the fund based on the fund’s
trading volume and market liquidity, and is generally lower
if the fund has substantial trading volume and market
liquidity, and higher if the fund has little trading volume and
market liquidity (which is often the case for funds that are
newly launched or small in size). The fund’s bid-ask spread
may also be impacted by the liquidity of the underlying
securities held by the fund, particularly for newly launched
or smaller funds or in instances of significant volatility of
the underlying securities. The fund’s investment results are
measured based upon the daily NAV of the fund. Investors
purchasing and selling shares in the secondary market
may not experience investment results consistent with
those experienced by those APs creating and redeeming
shares directly with the fund. In addition, transactions by
large shareholders may account for a large percentage of
the trading volume on an exchange and may, therefore,
have a material effect on the market price of the fund’s
shares.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
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could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Cyber-attacks may include unauthorized attempts by third
parties to improperly access, modify, disrupt the operations
of, or prevent access to the systems of the fund’s
service providers or counterparties, issuers of securities
held by the fund or other market participants or data within
them. In addition, power or communications outages, acts
of god, information technology equipment malfunctions,
operational errors, and inaccuracies within software or data
processing systems may also disrupt business operations
or impact critical data.
Cyber-attacks, disruptions, or failures may adversely affect
the fund and its shareholders or cause reputational
damage and subject the fund to regulatory fines, litigation
costs, penalties or financial losses, reimbursement or
other compensation costs, and/or additional compliance
costs. In addition, cyber-attacks, disruptions, or failures
involving a fund counterparty could affect such
counterparty’s ability to meet its obligations to the fund,
which may result in losses to the fund and its shareholders.
Similar types of operational and technology risks
are also present for issuers of securities held by the fund,
which could have material adverse consequences for such
issuers, and may cause the fund’s investments to lose
value. Furthermore, as a result of cyber-attacks, disruptions,
or failures, an exchange or market may close or issue
trading halts on specific securities or the entire market,
which may result in the fund being, among other things,
unable to buy or sell certain securities or financial instruments
or unable to accurately price its investments.
For example, the fund relies on various sources to calculate
its NAV. Therefore, the fund is subject to certain
operational risks associated with reliance on third party
service providers and data sources. NAV calculation may
be impacted by operational risks arising from factors such
as failures in systems and technology. Such failures may
result in delays in the calculation of a fund’s NAV and/or the
inability to calculate NAV over extended time periods. The
fund may be unable to recover any losses associated with
such failures.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
At any given time, due to the
composition of the Underlying Index, the fund may be classified
as
“
non-diversified
”
and may invest a larger
percentage of its assets in securities of a few issuers or a
single issuer than that of a diversified fund. As a result,
the fund may be more susceptible to the risks associated
with these particular issuers, or to a single economic,
political or regulatory occurrence affecting these issuers.
This may increase the fund’s volatility and cause the performance
of a relatively smaller number of issuers to have a
greater impact on the fund’s performance.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Risks related to investing in Japan.
The growth of
Japan’s economy has historically lagged behind that of its
Asian neighbors and other major developed economies.
The Japanese economy is heavily dependent on international
trade and has been adversely affected by trade
tariffs, other protectionist measures, competition from
emerging economies and the economic conditions of its
trading partners. Japan’s relations with its neighbors,
particularly China, North Korea, South Korea and Russia,
have at times been strained due to territorial disputes,
historical animosities and defense concerns. Most
recently, the Japanese government has shown concern
over the increased nuclear and military activity by North
Korea. Strained relations may cause uncertainty in the
Japanese markets and adversely affect the overall Japanese
economy in times of crisis. China has become an
important trading partner with Japan, yet the countries’
political relationship has become strained. Should political
tension increase, it could adversely affect the economy,
especially the export sector, and destabilize the region as a
whole. Japan is located in a part of the world that has
historically been prone to natural disasters such as earthquakes,
volcanoes and tsunamis and is economically
sensitive to environmental events. Any such event, such
as the major earthquake and tsunami which struck Japan in
March 2011, could result in a significant adverse impact
on the Japanese economy. Japan also remains heavily
dependent on oil imports, and higher commodity prices
could therefore have a negative impact on the economy.
Furthermore, Japanese corporations often engage in high
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levels of corporate leveraging, extensive cross-purchases
of the securities of other corporations and are subject to a
changing corporate governance structure. Japan may be
subject to risks relating to political, economic and labor
risks. Any of these risks, individually or in the aggregate,
could adversely affect investments in the fund.
Historically, Japan has been subject to unpredictable
national politics and may experience frequent political turnover.
Future political developments may lead to changes
in policy that might adversely affect the fund’s investments.
In addition, the Japanese economy faces several
concerns, including a financial system with large levels of
nonperforming loans, over-leveraged corporate balance
sheets, extensive cross- ownership by major corporations,
a changing corporate governance structure, and large
government deficits. The Japanese yen has fluctuated
widely at times and any increase in its value may cause a
decline in exports that could weaken the economy. Furthermore,
Japan has an aging workforce. It is a labor market
undergoing fundamental structural changes, as traditional
lifetime employment clashes with the need for increased
labor mobility, which may adversely affect Japan’s
economic competitiveness.
Cash redemption risk.
Because the fund invests a portion
of its assets in forward currency contracts, the fund may
pay out a portion of its redemption proceeds in cash rather
than through the in-kind delivery of portfolio securities. In
addition, the fund may be required to unwind such
contracts or sell portfolio securities in order to obtain the
cash needed to distribute redemption proceeds. This may
cause the fund to recognize a capital gain that it might not
have incurred if it had made a redemption in-kind. As a
result the fund may pay out higher annual capital gains
distributions than if the in-kind redemption process was
used. Only APs who have entered into an agreement with
the fund’s distributor may redeem shares from the fund
directly; all other investors buy and sell shares at market
prices on an exchange.
Derivatives risk.
Derivatives are financial instruments,
such as futures and swaps, whose values are based on the
value of one or more indicators, such as a security, asset,
currency, interest rate, or index. Derivatives involve risks
different from, and possibly greater than, the risks associated
with investing directly in securities and other more
traditional investments. For example, derivatives involve
the risk of mispricing or improper valuation and the risk
that changes in the value of a derivative may not correlate
perfectly with the underlying indicator. Derivative transactions
can create investment leverage, may be highly
volatile and the fund could lose more than the amount it
invests. Many derivative transactions are entered into
“
over-the-counter
”
(i.e., not on an exchange or contract market);
as a result, the value of such a derivative transaction will
depend on the ability and the willingness of the fund’s
counterparty to perform its obligations under the transaction.
If a counterparty were to default on its obligations,
the fund’s contractual remedies against such counterparty
may be subject to bankruptcy and insolvency laws, which
could affect the fund’s rights as a creditor (e.g., the fund
may not receive the net amount of payments that it is
contractually entitled to receive). A liquid secondary market
may not always exist for the fund’s derivative positions at
any time.
Futures risk.
The value of a futures contract tends to
increase and decrease in tandem with the value of the
underlying instrument. Depending on the terms of the
particular contract, futures contracts are settled through
either physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether,
when and how to use futures involves the exercise of skill
and judgment and even a well-conceived futures transaction
may be unsuccessful because of market behavior or
unexpected events. In addition to the derivatives risks
discussed above, the prices of futures can be highly volatile,
using futures can lower total return and the potential
loss from futures can exceed the fund’s initial investment
in such contracts.
Xtrackers MSCI All World ex US High Dividend Yield
Equity ETF
Investment Objective
The Xtrackers MSCI All World ex US High Dividend Yield
Equity ETF (the
“
fund
”
) seeks investment results that
correspond generally to the performance, before fees and
expenses, of the MSCI ACWI ex USA High Dividend Yield
Index (the
“
Underlying Index
”
).
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track the performance
of equity securities in developed and emerging
stock markets (excluding the United States).
The fund uses a full replication indexing strategy to seek
to track the Underlying Index. As such, the fund invests
directly in the component securities (or a substantial
number of the component securities) of the Underlying
Index in substantially the same weightings in which they
are represented in the Underlying Index. If it is not possible
for the fund to acquire component securities due to
limited availability or regulatory restrictions, the fund may
use a representative sampling indexing strategy to seek to
track the Underlying Index instead of a full replication
indexing strategy.
“
Representative sampling
”
is an
indexing strategy that involves investing in a representative
sample of securities that collectively has an
investment profile similar to the Underlying Index. The
securities selected are expected to have, in the aggregate,
investment characteristics (based on factors such as
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market capitalization and industry weightings), fundamental
characteristics (such as return variability and yield),
and liquidity measures similar to those of the Underlying
Index. The fund may or may not hold all of the securities in
the Underlying Index when using a representative
sampling indexing strategy. The Underlying Index is
designed to reflect the performance of equities (excluding
real estate investment trusts (
“
REITs
”
)) in its parent index,
the MSCI ACWI ex USA Index, with higher dividend
income and quality characteristics than average dividend
yields of equities in the parent index, where such higher
dividend income and quality characteristics are both
sustainable and persistent. The fund will invest at least
80% of its total assets (but typically far more) in component
securities (including depositary receipts in respect of
such securities) of the Underlying Index.
The Underlying Index is a free float adjusted market capitalization
weighted index. As of July 31, 2020, the
Underlying Index consisted of 351 securities, with an
average market capitalization of approximately $9.38 billion
and a minimum market capitalization of approximately
$128 million, from issuers in the following countries:
Australia, Belgium, Brazil, Canada, Chile, China, Colombia,
Denmark, Egypt, Finland, France, Germany, Greece, Hong
Kong, India, Indonesia, Israel, Italy, Japan, Malaysia,
Mexico, Netherlands, New Zealand, Norway, Pakistan,
Peru, Philippines, Poland, Portugal, Qatar, Russia, Saudi
Arabia, Singapore, South Africa, South Korea, Spain,
Sweden, Switzerland, Taiwan, Thailand, Turkey, the United
Arab Emirates and the United Kingdom. Under normal
circumstances, the Underlying Index is rebalanced semi-annually
in May and November. The fund rebalances its
portfolio in accordance with the Underlying Index, and,
therefore, any changes to the Underlying Index’s rebalance
schedule will result in corresponding changes to the fund’s
rebalance schedule.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in equity securities of issuers located in countries
other than the United States. The fund will not enter
into transactions to hedge against declines in the value
of the fund’s assets that are denominated in foreign
currency.
The fund will concentrate its investments (i.e., hold 25%
or more of its total assets) in a particular industry or group
of industries to the extent that its Underlying Index is
concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
financials (27.6%) sector. The financials sector includes
companies involved in banking, consumer finance, asset
management and custody banks, as well as investment
banking and brokerage and insurance. To the extent that
the fund tracks the Underlying Index, the fund’s investment
in certain sectors or countries may change over time.
The fund may also invest in depositary receipts in respect
of equity securities that comprise its Underlying Index
to seek performance that corresponds to the fund’s respective
Underlying Index. Investments in such depositary
receipts will count towards the fund’s 80% investment
policy discussed above with respect to instruments that
comprise the applicable Underlying Index. The fund will not
invest in any unlisted depositary receipt or any depositary
receipt that the Advisor deems illiquid at the time of
purchase or for which pricing information is not readily
available.
The fund may invest its remaining assets in other securities,
including securities not in the Underlying Index, cash
and cash equivalents, money market instruments, such
as repurchase agreements or money market funds
(including money market funds advised by the Advisor or
its affiliates (subject to applicable limitations under the
Investment Company Act of 1940, as amended (the
“
1940
Act
”
), or exemptions therefrom), convertible securities,
structured notes (notes on which the amount of principal
repayment and interest payments are based on the movement
of one or more specified factors, such as the
movement of a particular stock or stock index) and in
futures contracts, options on futures contracts and other
types of options and swaps related to its Underlying Index.
The fund will not use futures or options for speculative
purposes.
The fund expects to use futures contracts to a limited
extent in seeking performance that corresponds to its
Underlying Index. A futures contract is a standardized
exchange traded agreement to buy or sell a specific quantity
of an underlying instrument at a specific price at a
specific future time. The fund will not invest in forward
currency contracts to hedge against changes in the value
of the US dollar against specified foreign currencies.
The fund may become
“
non-diversified,
”
as defined under
the Investment Company Act of 1940, as amended, solely
as a result of a change in relative market capitalization or
index weighting of one or more constituents of the index
that the fund is designed to track. Shareholder approval will
not be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
The Prospectus contains a more detailed description of
the limited relationship MSCI has with DBX Advisors LLC
and any related funds.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
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value of the portfolio securities being lent. This collateral is
marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Underlying Index Information
MSCI ACWI ex USA High Dividend Yield Index
Number of Components: approximately 351
Index Description
. The MSCI ACWI ex USA High Dividend
Yield Index is designed to provide exposure to equity securities
(excluding REITs) in developed and emerging stock
markets (excluding the United States) in its parent index,
the MSCI ACWI ex USA Index, with higher dividend
income and quality characteristics than average dividend
yields of equities in the parent index, where such higher
dividend income and quality characteristics are both
sustainable and persistent. The MSCI ACWI ex USA Index
includes large- and mid-capitalization securities across
developed markets countries (excluding the United States)
and emerging market countries. As of July 31, 2020, the
Underlying Index consisted of issuers from the following
43 countries: Australia, Belgium, Brazil, Canada, Chile,
China, Colombia, Denmark, Egypt, Finland, France,
Germany, Greece, Hong Kong, India, Indonesia, Israel,
Italy, Japan, Malaysia, Mexico, Netherlands, New Zealand,
Norway, Pakistan, Peru, Philippines, Poland, Portugal,
Qatar, Russia, Saudi Arabia, Singapore, South Africa, South
Korea, Spain, Sweden, Switzerland, Taiwan, Thailand,
Turkey, the United Arab Emirates and the United Kingdom.
Main Risks
As with any investment, you could lose all or part of your
investment in the fund, and the fund’s performance could
trail that of other investments. The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective.
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Dividend-paying stock risk.
As a category, dividend-paying
stocks may underperform non-dividend paying
stocks (and the stock market as a whole) over any period
of time. In addition, issuers of dividend-paying stocks may
have discretion to defer or stop paying dividends for a
stated period of time, or the anticipated acceleration of
dividends may not occur as a result of, among other things,
a sharp rise in interest rates or an economic downturn. If
the dividend-paying stocks held by the fund reduce or stop
paying dividends, the fund’s ability to generate income
may be adversely affected.
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Changes in the dividend policies of companies in the
fund’s portfolio and capital resources available for these
companies’ dividend payments may adversely affect the
fund. Depending upon market conditions, dividend-paying
stocks that meet the fund’s investment criteria may not
be widely available and/or may be highly concentrated in
only a few market sectors.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Foreign investments in American
Depositary Receipts and other depositary receipts may
be less liquid than the underlying shares in their primary
trading market. Certain of the depositary receipts in which
the fund invests may be unsponsored depositary receipts.
Unsponsored depositary receipts may not provide as
much information about the underlying issuer and may not
carry the same voting privileges as sponsored depositary
receipts. Unsponsored depositary receipts are issued by
one or more depositaries in response to market demand,
but without a formal agreement with the company that
issues the underlying securities.
European investment risk.
European financial markets
have experienced volatility in recent years and have been
adversely affected by concerns about economic downturns,
credit rating downgrades, rising government debt
level and possible default on or restructuring of government
debt in several European countries. A default or debt
restructuring by any European country would adversely
impact holders of that country’s debt, and sellers of credit
default swaps linked to that country’s creditworthiness.
Most countries in Western Europe are members of the
European Union (EU), which faces major issues involving
its membership, structure, procedures and policies. In
June 2016, citizens of the United Kingdom approved a
referendum to leave the EU. On January 31, 2020, the
United Kingdom officially withdrew from the EU pursuant
to a withdrawal agreement, providing for a transition period
in which the United Kingdom will seek to negotiate and
finalize a trade deal with the EU. The transition period will
end on December 31, 2020 and can no longer be extended
under the terms of the withdrawal agreement. Significant
uncertainty exists regarding any adverse economic and
political effects the United Kingdom’s withdrawal may have
on the United Kingdom, other EU countries and the global
economy, which could be significant, potentially resulting
in increased volatility and illiquidity and lower economic
growth.
European countries are also significantly affected by fiscal
and monetary controls implemented by the European
Economic and Monetary Union (EMU), and it is possible
that the timing and substance of these controls may not
address the needs of all EMU member countries. Investing
in euro-denominated securities also risks exposure to a
currency that may not fully reflect the strengths and weaknesses
of the disparate economies that comprise Europe.
There is continued concern over member state-level
support for the euro, which could lead to certain countries
leaving the EMU, the implementation of currency controls,
or potentially the dissolution of the euro. The dissolution of
the euro could have significant negative effects on European
financial markets.
Emerging market securities risk.
Investment in emerging
markets subjects the fund to a greater risk of loss than
investments in a developed market. This is due to, among
other things, (i) greater market volatility, (ii) lower trading
volume, (iii) political and economic instability, (iv) high
levels of inflation, deflation or currency devaluation, (v)
greater risk of market shut down, (vi) more governmental
limitations on foreign investments and limitations on repatriation
of invested capital than those typically found in a
developed market, and (vii) the risk that companies may be
held to lower disclosure, corporate governance, auditing
and financial reporting standards than companies in more
developed markets.
The financial stability of issuers (including governments) in
emerging market countries may be more precarious than
in other countries. As a result, there will tend to be an
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increased risk of price volatility in the fund’s investments
in emerging market countries, which may be magnified by
currency fluctuations relative to the US dollar.
Settlement practices for transactions in foreign markets
may differ from those in US markets. Such differences
include delays beyond periods customary in the US and
practices, such as delivery of securities prior to receipt of
payment, which increase the likelihood of a
“
failed settlement.
”
Failed settlements can result in losses to the fund.
Low trading volumes and volatile prices in less developed
markets make trades harder to complete and settle, and
governments or trade groups may compel local agents to
hold securities in designated depositories that are not
subject to independent evaluation. Local agents are held
only to the standards of care of their local markets.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors of
the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Financials sector risk.
To the extent that the fund invests
significantly in the financials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
financials sector. The financials sector is subject to extensive
government regulation, can be subject to relatively
rapid change due to increasingly blurred distinctions
between service segments, and can be significantly
affected by availability and cost of capital funds, changes in
interest rates, the rate of corporate and consumer debt
defaults, and price competition.
Numerous financial companies have experienced substantial
declines in the valuations of their assets, taken action
to raise capital (such as the issuance of debt or equity securities),
or even ceased operations. These actions have
caused the securities of many financial companies to
experience a dramatic decline in value. Moreover, certain
financial companies have avoided collapse due to intervention
by governmental regulatory authorities, but such
interventions have often not averted a substantial decline
in the value of such companies’ common stock. Issuers
that have exposure to the real estate, mortgage and credit
markets have been particularly affected by the foregoing
events and the general market turmoil, and it is uncertain
whether or for how long these conditions will continue.
Currency risk.
Changes in currency exchange rates and
the relative value of non-US currencies may affect the
value of the fund’s investment and the value of your fund
shares. Because the fund’s NAV is determined on the
basis of the US dollar and the fund does not attempt to
hedge against changes in the value of non-US currencies,
investors may lose money if the foreign currency depreciates
against the US dollar, even if the foreign currency
value of the fund’s holdings in that market increases.
Conversely, the dollar value of your investment in the fund
may go up if the value of the foreign currency appreciates
against the US dollar. The value of the US dollar
measured against other currencies is influenced by a
variety of factors. These factors include: interest rates,
national debt levels and trade deficits, changes in balances
of payments and trade, domestic and foreign interest and
inflation rates, global or regional political, economic or
financial events, monetary policies of governments, actual
or potential government intervention, and global energy
prices. Political instability, the possibility of government
intervention and restrictive or opaque business and investment
policies may also reduce the value of a country’s
currency. Government monetary policies and the buying or
selling of currency by a country’s government may also
influence exchange rates. Currency exchange rates can be
very volatile and can change quickly and unpredictably.
Therefore, the value of an investment in the fund may also
go up or down quickly and unpredictably and investors
may lose money.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
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and does not guarantee that the Underlying Index will be
in line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or
the construction of the Underlying Index in accordance
with its stated methodology may occur from time to time
and may not be identified and corrected by the index
provider for a period of time or at all, which may have an
adverse impact on the fund and its shareholders. The
Advisor and its affiliates do not provide any warranty or
guarantee against such errors. Therefore, the gains, losses
or costs associated with the index provider’s errors will
generally be borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes,
the fund may sell certain securities, and such sale may
cause the fund to realize a loss and deviate from the
performance of the Underlying Index. In light of the factors
discussed above, the fund’s return may deviate significantly
from the return of the Underlying Index.
The need to comply with the tax diversification and other
requirements of the Internal Revenue Code of 1986, as
amended, may also impact the fund’s ability to replicate
the performance of the Underlying Index. In addition, if the
fund utilizes derivative instruments or holds other instruments
that are not included in the Underlying Index, the
fund’s return may not correlate as well with the returns of
the Underlying Index as would be the case if the fund
purchased all the securities in the Underlying Index
directly. Actions taken in response to proposed corporate
actions could result in increased tracking error.
For purposes of calculating the fund’s net asset value, the
value of assets denominated in non-US currencies is
converted into US dollars using prevailing market rates on
the date of valuation as quoted by one or more data
service providers. This conversion may result in a difference
between the prices used to calculate the fund’s net
asset value and the prices used by the Underlying Index,
which, in turn, could result in a difference between the
fund’s performance and the performance of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
NAV during periods of market volatility. Differences
between secondary market prices and the value of the
fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the
same forces as those influencing prices for securities held
by the fund at a particular time. The Advisor cannot predict
whether shares will trade above, below or at their NAV.
Given the fact that shares can be created and redeemed in
Creation Units, the Advisor believes that large discounts
or premiums to the NAV of shares should not be sustained
in the long-term. In addition, there may be times when
the market price and the value of the fund’s holdings vary
significantly and you may pay more than the value of the
fund’s holdings when buying shares on the secondary
market, and you may receive less than the value of the
fund’s holdings when you sell those shares. While the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in trading prices that differ significantly
from the value of the fund’s holdings. Although market
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makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. If market makers exit the business or are
unable to continue making markets in fund’s shares,
shares may trade at a discount to NAV like closed-end fund
shares and may even face delisting (that is, investors
would no longer be able to trade shares in the secondary
market). The market price of shares, like the price of any
exchange-traded security, includes a
“
bid-ask spread
”
charged by the exchange specialist, market makers or
other participants that trade the particular security. In times
of severe market disruption, the bid-ask spread often
increases significantly. This means that shares may trade
at a discount to the fund’s NAV, and the discount is likely to
be greatest when the price of shares is falling fastest,
which may be the time that you most want to sell your
shares. There are various methods by which investors can
purchase and sell shares of the funds and various orders
that may be placed. Investors should consult their financial
intermediary before purchasing or selling shares of the
fund.
In addition, the securities held by the fund may be traded
in markets that close at a different time than an exchange.
Liquidity in those securities may be reduced after the applicable
closing times. Accordingly, during the time when an
exchange is open but after the applicable market closing,
fixing or settlement times, bid-ask spreads and the
resulting premium or discount to the shares’ NAV is likely
to widen. More generally, secondary markets may be
subject to irregular trading activity, wide bid-ask spreads
and extended trade settlement periods, which could cause
a material decline in the fund’s NAV. The bid-ask spread
varies over time for shares of the fund based on the fund’s
trading volume and market liquidity, and is generally lower
if the fund has substantial trading volume and market
liquidity, and higher if the fund has little trading volume and
market liquidity (which is often the case for funds that are
newly launched or small in size). The fund’s bid-ask spread
may also be impacted by the liquidity of the underlying
securities held by the fund, particularly for newly launched
or smaller funds or in instances of significant volatility of
the underlying securities. The fund’s investment results are
measured based upon the daily NAV of the fund. Investors
purchasing and selling shares in the secondary market
may not experience investment results consistent with
those experienced by those APs creating and redeeming
shares directly with the fund. In addition, transactions by
large shareholders may account for a large percentage of
the trading volume on an exchange and may, therefore,
have a material effect on the market price of the fund’s
shares.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
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Cyber-attacks may include unauthorized attempts by third
parties to improperly access, modify, disrupt the operations
of, or prevent access to the systems of the fund’s
service providers or counterparties, issuers of securities
held by the fund or other market participants or data within
them. In addition, power or communications outages, acts
of god, information technology equipment malfunctions,
operational errors, and inaccuracies within software or data
processing systems may also disrupt business operations
or impact critical data.
Cyber-attacks, disruptions, or failures may adversely affect
the fund and its shareholders or cause reputational
damage and subject the fund to regulatory fines, litigation
costs, penalties or financial losses, reimbursement or
other compensation costs, and/or additional compliance
costs. In addition, cyber-attacks, disruptions, or failures
involving a fund counterparty could affect such
counterparty’s ability to meet its obligations to the fund,
which may result in losses to the fund and its shareholders.
Similar types of operational and technology risks
are also present for issuers of securities held by the fund,
which could have material adverse consequences for such
issuers, and may cause the fund’s investments to lose
value. Furthermore, as a result of cyber-attacks, disruptions,
or failures, an exchange or market may close or issue
trading halts on specific securities or the entire market,
which may result in the fund being, among other things,
unable to buy or sell certain securities or financial instruments
or unable to accurately price its investments.
For example, the fund relies on various sources to calculate
its NAV. Therefore, the fund is subject to certain
operational risks associated with reliance on third party
service providers and data sources. NAV calculation may
be impacted by operational risks arising from factors such
as failures in systems and technology. Such failures may
result in delays in the calculation of a fund’s NAV and/or the
inability to calculate NAV over extended time periods. The
fund may be unable to recover any losses associated with
such failures.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
At any given time, due to the
composition of the Underlying Index, the fund may be classified
as
“
non-diversified
”
and may invest a larger
percentage of its assets in securities of a few issuers or a
single issuer than that of a diversified fund. As a result,
the fund may be more susceptible to the risks associated
with these particular issuers, or to a single economic,
political or regulatory occurrence affecting these issuers.
This may increase the fund’s volatility and cause the performance
of a relatively smaller number of issuers to have a
greater impact on the fund’s performance.
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Derivatives risk.
Derivatives are financial instruments,
such as futures and swaps, whose values are based on the
value of one or more indicators, such as a security, asset,
currency, interest rate, or index. Derivatives involve risks
different from, and possibly greater than, the risks associated
with investing directly in securities and other more
traditional investments. For example, derivatives involve
the risk of mispricing or improper valuation and the risk
that changes in the value of a derivative may not correlate
perfectly with the underlying indicator. Derivative transactions
can create investment leverage, may be highly
volatile and the fund could lose more than the amount it
invests. Many derivative transactions are entered into
“
over-the-counter
”
(i.e., not on an exchange or contract market);
as a result, the value of such a derivative transaction will
depend on the ability and the willingness of the fund’s
counterparty to perform its obligations under the transaction.
If a counterparty were to default on its obligations,
the fund’s contractual remedies against such counterparty
may be subject to bankruptcy and insolvency laws, which
could affect the fund’s rights as a creditor (e.g., the fund
may not receive the net amount of payments that it is
contractually entitled to receive). A liquid secondary market
may not always exist for the fund’s derivative positions at
any time.
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Futures risk.
The value of a futures contract tends to
increase and decrease in tandem with the value of the
underlying instrument. Depending on the terms of the
particular contract, futures contracts are settled through
either physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether,
when and how to use futures involves the exercise of skill
and judgment and even a well-conceived futures transaction
may be unsuccessful because of market behavior or
unexpected events. In addition to the derivatives risks
discussed above, the prices of futures can be highly volatile,
using futures can lower total return and the potential
loss from futures can exceed the fund’s initial investment
in such contracts.
Xtrackers MSCI EAFE High Dividend Yield Equity ETF
Investment Objective
Xtrackers MSCI EAFE High Dividend Yield Equity ETF (the
“
fund
”
) seeks investment results that correspond generally
to the performance, before fees and expenses, of the
MSCI EAFE High Dividend Yield Index (the
“
Underlying
Index
”
).
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track developed
market performance.
The fund uses a full replication indexing strategy to seek
to track the Underlying Index. As such, the fund invests
directly in the component securities (or a substantial
number of the component securities) of the Underlying
Index in substantially the same weightings in which they
are represented in the Underlying Index. If it is not possible
for the fund to acquire component securities due to
limited availability or regulatory restrictions, the fund may
use a representative sampling indexing strategy to seek to
track the Underlying Index instead of a full replication
indexing strategy.
“
Representative sampling
”
is an
indexing strategy that involves investing in a representative
sample of securities that collectively has an
investment profile similar to the Underlying Index. The
securities selected are expected to have, in the aggregate,
investment characteristics (based on factors such as
market capitalization and industry weightings), fundamental
characteristics (such as return variability and yield),
and liquidity measures similar to those of the Underlying
Index. The fund may or may not hold all of the securities in
the Underlying Index when using a representative
sampling indexing strategy. The Underlying Index is
designed to reflect the performance of equities (excluding
REITs) in its parent index, the MSCI EAFE Index, with
higher dividend income and quality characteristics than
average dividend yields of equities in the parent index,
where such higher dividend income and quality characteristics
are both sustainable and persistent. The fund will
invest at least 80% of its total assets (but typically far
more) in component securities (including depositary
receipts in respect of such securities) of the Underlying
Index.
The Underlying Index is a free float adjusted market capitalization
weighted index. As of July 31, 2020, the
Underlying Index consisted of 117 securities, with an
average market capitalization of approximately $16.11
billion and a minimum market capitalization of approximately
$1.55 billion from issuers in the following countries:
Australia, Belgium, Denmark, Finland, France, Germany,
Hong Kong, Israel, Italy, Japan, Netherlands, New Zealand,
Norway, Portugal, Singapore, Spain, Sweden, Switzerland
and the United Kingdom. Under normal circumstances. the
Underlying Index is rebalanced semi-annually in May and
November. The fund rebalances its portfolio in accordance
with the Underlying Index, and, therefore, any changes to
the Underlying Index’s rebalance schedule will result in
corresponding changes to the fund’s rebalance schedule.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in equity securities located in developed countries
in Europe, Australasia and the Far East. As of July 31,
2020, a significant percentage of the Underlying Index
was comprised of securities of issuers from the United
Kingdom (22.1%) and Japan (19.1%). The fund will not
enter into transactions to hedge against declines in the
value of the fund’s assets that are denominated in foreign
currency.
The fund will concentrate its investments (i.e., hold 25%
or more of its total assets) in a particular industry or group
of industries to the extent that its Underlying Index is
concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
financials sector (21%). The financials sector includes
companies involved in banking, consumer finance, asset
management and custody banks, as well as investment
banking and brokerage and insurance. To the extent that
the fund tracks the Underlying Index, the fund’s investment
in certain sectors or countries may change over time.
The fund may also invest in depositary receipts in respect
of equity securities that comprise its Underlying Index
to seek performance that corresponds to the fund’s respective
Underlying Index. Investments in such depositary
receipts will count towards the fund’s 80% investment
policy discussed above with respect to instruments that
comprise the applicable Underlying Index. The fund will not
invest in any unlisted depositary receipt or any depositary
receipt that the Advisor deems illiquid at the time of
purchase or for which pricing information is not readily
available.
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The fund may invest its remaining assets in other securities,
including securities not in the Underlying Index, cash
and cash equivalents, money market instruments, such
as repurchase agreements or money market funds
(including money market funds advised by the Advisor or
its affiliates (subject to applicable limitations under the
Investment Company Act of 1940, as amended (the
“
1940
Act
”
), or exemptions therefrom), convertible securities,
structured notes (notes on which the amount of principal
repayment and interest payments are based on the movement
of one or more specified factors, such as the
movement of a particular stock or stock index) and in
futures contracts, options on futures contracts and other
types of options and swaps related to its Underlying Index.
The fund will not use futures or options for speculative
purposes.
The fund expects to use futures contracts to a limited
extent in seeking performance that corresponds to its
Underlying Index. A futures contract is a standardized
exchange traded agreement to buy or sell a specific quantity
of an underlying instrument at a specific price at a
specific future time. The fund will not invest in forward
currency contracts to hedge against changes in the value
of the US dollar against specified foreign currencies.
While the fund is currently classified as
“
non-diversified
”
under the Investment Company Act of 1940, it may
operate as or become classified as
“
diversified
”
over time.
The fund could again become non-diversified solely as a
result of a change in relative market capitalization or index
weighting of one or more constituents of the index that
the fund is designed to track. Shareholder approval will not
be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
The Prospectus contains a more detailed description of
the limited relationship MSCI has with DBX Advisors LLC
and any related funds.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Underlying Index Information
MSCI EAFE High Dividend Yield Index
Number of Components: approximately 117
Index Description
. The MSCI EAFE High Dividend Yield
Index is designed to provide exposure to equity securities
(excluding REITs) in developed international stock markets
(excluding the US and Canada) in its parent index, the
MSCI EAFE Index, with higher dividend income and quality
characteristics than average dividend yields of equities in
the parent index, where such higher dividend income and
quality characteristics are both sustainable and persistent.
The MSCI EAFE Index includes large- and
mid-capitalization securities across developed markets in
Europe, Australasia and the Far East. As of July 31, 2020,
the Underlying Index consisted of issuers from the
following 19 developed markets countries: Australia,
Belgium, Denmark, Finland, France, Germany, Hong Kong,
Israel, Italy, Japan, Netherlands, New Zealand, Norway,
Portugal, Singapore, Spain, Sweden, Switzerland and the
United Kingdom.
Main Risks
As with any investment, you could lose all or part of your
investment in the fund, and the fund’s performance could
trail that of other investments. The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective.
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
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Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Dividend-paying stock risk.
As a category, dividend-paying
stocks may underperform non-dividend paying
stocks (and the stock market as a whole) over any period
of time. In addition, issuers of dividend-paying stocks may
have discretion to defer or stop paying dividends for a
stated period of time, or the anticipated acceleration of
dividends may not occur as a result of, among other things,
a sharp rise in interest rates or an economic downturn. If
the dividend-paying stocks held by the fund reduce or stop
paying dividends, the fund’s ability to generate income
may be adversely affected.
Changes in the dividend policies of companies in the
fund’s portfolio and capital resources available for these
companies’ dividend payments may adversely affect the
fund. Depending upon market conditions, dividend-paying
stocks that meet the fund’s investment criteria may not
be widely available and/or may be highly concentrated in
only a few market sectors.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Foreign investments in American
Depositary Receipts and other depositary receipts may
be less liquid than the underlying shares in their primary
trading market. Certain of the depositary receipts in which
the fund invests may be unsponsored depositary receipts.
Unsponsored depositary receipts may not provide as
much information about the underlying issuer and may not
carry the same voting privileges as sponsored depositary
receipts. Unsponsored depositary receipts are issued by
one or more depositaries in response to market demand,
but without a formal agreement with the company that
issues the underlying securities.
European investment risk.
European financial markets
have experienced volatility in recent years and have been
adversely affected by concerns about economic downturns,
credit rating downgrades, rising government debt
level and possible default on or restructuring of government
debt in several European countries. A default or debt
restructuring by any European country would adversely
impact holders of that country’s debt, and sellers of credit
default swaps linked to that country’s creditworthiness.
Most countries in Western Europe are members of the
European Union (EU), which faces major issues involving
its membership, structure, procedures and policies. In
June 2016, citizens of the United Kingdom approved a
referendum to leave the EU. On January 31, 2020, the
United Kingdom officially withdrew from the EU pursuant
to a withdrawal agreement, providing for a transition period
in which the United Kingdom will seek to negotiate and
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finalize a trade deal with the EU. The transition period will
end on December 31, 2020 and can no longer be extended
under the terms of the withdrawal agreement. Significant
uncertainty exists regarding any adverse economic and
political effects the United Kingdom’s withdrawal may have
on the United Kingdom, other EU countries and the global
economy, which could be significant, potentially resulting
in increased volatility and illiquidity and lower economic
growth.
European countries are also significantly affected by fiscal
and monetary controls implemented by the European
Economic and Monetary Union (EMU), and it is possible
that the timing and substance of these controls may not
address the needs of all EMU member countries. Investing
in euro-denominated securities also risks exposure to a
currency that may not fully reflect the strengths and weaknesses
of the disparate economies that comprise Europe.
There is continued concern over member state-level
support for the euro, which could lead to certain countries
leaving the EMU, the implementation of currency controls,
or potentially the dissolution of the euro. The dissolution of
the euro could have significant negative effects on European
financial markets.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors of
the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Financials sector risk.
To the extent that the fund invests
significantly in the financials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
financials sector. The financials sector is subject to extensive
government regulation, can be subject to relatively
rapid change due to increasingly blurred distinctions
between service segments, and can be significantly
affected by availability and cost of capital funds, changes in
interest rates, the rate of corporate and consumer debt
defaults, and price competition.
Numerous financial companies have experienced substantial
declines in the valuations of their assets, taken action
to raise capital (such as the issuance of debt or equity securities),
or even ceased operations. These actions have
caused the securities of many financial companies to
experience a dramatic decline in value. Moreover, certain
financial companies have avoided collapse due to intervention
by governmental regulatory authorities, but such
interventions have often not averted a substantial decline
in the value of such companies’ common stock. Issuers
that have exposure to the real estate, mortgage and credit
markets have been particularly affected by the foregoing
events and the general market turmoil, and it is uncertain
whether or for how long these conditions will continue.
Currency risk.
Changes in currency exchange rates and
the relative value of non-US currencies may affect the
value of the fund’s investment and the value of your fund
shares. Because the fund’s NAV is determined on the
basis of the US dollar and the fund does not attempt to
hedge against changes in the value of non-US currencies,
investors may lose money if the foreign currency depreciates
against the US dollar, even if the foreign currency
value of the fund’s holdings in that market increases.
Conversely, the dollar value of your investment in the fund
may go up if the value of the foreign currency appreciates
against the US dollar. The value of the US dollar
measured against other currencies is influenced by a
variety of factors. These factors include: interest rates,
national debt levels and trade deficits, changes in balances
of payments and trade, domestic and foreign interest and
inflation rates, global or regional political, economic or
financial events, monetary policies of governments, actual
or potential government intervention, and global energy
prices. Political instability, the possibility of government
intervention and restrictive or opaque business and investment
policies may also reduce the value of a country’s
currency. Government monetary policies and the buying or
selling of currency by a country’s government may also
influence exchange rates. Currency exchange rates can be
very volatile and can change quickly and unpredictably.
Therefore, the value of an investment in the fund may also
go up or down quickly and unpredictably and investors
may lose money.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
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could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability to
track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
The need to comply with the tax diversification and other
requirements of the Internal Revenue Code of 1986, as
amended, may also impact the fund’s ability to replicate
the performance of the Underlying Index. In addition, if the
fund utilizes derivative instruments or holds other instruments
that are not included in the Underlying Index, the
fund’s return may not correlate as well with the returns of
the Underlying Index as would be the case if the fund
purchased all the securities in the Underlying Index
directly. Actions taken in response to proposed corporate
actions could result in increased tracking error.
For purposes of calculating the fund’s net asset value, the
value of assets denominated in non-US currencies is
converted into US dollars using prevailing market rates on
the date of valuation as quoted by one or more data
service providers. This conversion may result in a difference
between the prices used to calculate the fund’s net
asset value and the prices used by the Underlying Index,
which, in turn, could result in a difference between the
fund’s performance and the performance of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
NAV during periods of market volatility. Differences
between secondary market prices and the value of the
fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the
same forces as those influencing prices for securities held
by the fund at a particular time. The Advisor cannot predict
whether shares will trade above, below or at their NAV.
Given the fact that shares can be created and redeemed in
Creation Units, the Advisor believes that large discounts
or premiums to the NAV of shares should not be sustained
in the long-term. In addition, there may be times when
the market price and the value of the fund’s holdings vary
significantly and you may pay more than the value of the
fund’s holdings when buying shares on the secondary
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market, and you may receive less than the value of the
fund’s holdings when you sell those shares. While the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in trading prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. If market makers exit the business or are
unable to continue making markets in fund’s shares,
shares may trade at a discount to NAV like closed-end fund
shares and may even face delisting (that is, investors
would no longer be able to trade shares in the secondary
market). The market price of shares, like the price of any
exchange-traded security, includes a
“
bid-ask spread
”
charged by the exchange specialist, market makers or
other participants that trade the particular security. In times
of severe market disruption, the bid-ask spread often
increases significantly. This means that shares may trade
at a discount to the fund’s NAV, and the discount is likely to
be greatest when the price of shares is falling fastest,
which may be the time that you most want to sell your
shares. There are various methods by which investors can
purchase and sell shares of the funds and various orders
that may be placed. Investors should consult their financial
intermediary before purchasing or selling shares of the
fund.
In addition, the securities held by the fund may be traded
in markets that close at a different time than an exchange.
Liquidity in those securities may be reduced after the applicable
closing times. Accordingly, during the time when an
exchange is open but after the applicable market closing,
fixing or settlement times, bid-ask spreads and the
resulting premium or discount to the shares’ NAV is likely
to widen. More generally, secondary markets may be
subject to irregular trading activity, wide bid-ask spreads
and extended trade settlement periods, which could cause
a material decline in the fund’s NAV. The bid-ask spread
varies over time for shares of the fund based on the fund’s
trading volume and market liquidity, and is generally lower
if the fund has substantial trading volume and market
liquidity, and higher if the fund has little trading volume and
market liquidity (which is often the case for funds that are
newly launched or small in size). The fund’s bid-ask spread
may also be impacted by the liquidity of the underlying
securities held by the fund, particularly for newly launched
or smaller funds or in instances of significant volatility of
the underlying securities. The fund’s investment results are
measured based upon the daily NAV of the fund. Investors
purchasing and selling shares in the secondary market
may not experience investment results consistent with
those experienced by those APs creating and redeeming
shares directly with the fund. In addition, transactions by
large shareholders may account for a large percentage of
the trading volume on an exchange and may, therefore,
have a material effect on the market price of the fund’s
shares.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
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plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Cyber-attacks may include unauthorized attempts by third
parties to improperly access, modify, disrupt the operations
of, or prevent access to the systems of the fund’s
service providers or counterparties, issuers of securities
held by the fund or other market participants or data within
them. In addition, power or communications outages, acts
of god, information technology equipment malfunctions,
operational errors, and inaccuracies within software or data
processing systems may also disrupt business operations
or impact critical data.
Cyber-attacks, disruptions, or failures may adversely affect
the fund and its shareholders or cause reputational
damage and subject the fund to regulatory fines, litigation
costs, penalties or financial losses, reimbursement or
other compensation costs, and/or additional compliance
costs. In addition, cyber-attacks, disruptions, or failures
involving a fund counterparty could affect such
counterparty’s ability to meet its obligations to the fund,
which may result in losses to the fund and its shareholders.
Similar types of operational and technology risks
are also present for issuers of securities held by the fund,
which could have material adverse consequences for such
issuers, and may cause the fund’s investments to lose
value. Furthermore, as a result of cyber-attacks, disruptions,
or failures, an exchange or market may close or issue
trading halts on specific securities or the entire market,
which may result in the fund being, among other things,
unable to buy or sell certain securities or financial instruments
or unable to accurately price its investments.
For example, the fund relies on various sources to calculate
its NAV. Therefore, the fund is subject to certain
operational risks associated with reliance on third party
service providers and data sources. NAV calculation may
be impacted by operational risks arising from factors such
as failures in systems and technology. Such failures may
result in delays in the calculation of a fund’s NAV and/or the
inability to calculate NAV over extended time periods. The
fund may be unable to recover any losses associated with
such failures.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited or
diminished access to capital required to post collateral) and
no other AP is able to step forward to create and redeem
in either of these cases, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market).
Non-diversification risk.
The fund is classified as
non-diversified under the Investment Company Act of
1940, as amended. This means that the fund may invest in
securities of relatively few issuers. Thus, the performance
of one or a small number of portfolio holdings can affect
overall performance.
If the fund becomes classified as
“
diversified
”
over time
and again becomes non-diversified as a result of a change
in relative market capitalization or index weighting of one
or more constituents of the index that the fund is designed
to track, non-diversification risk would apply.
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Risks related to investing in the United Kingdom.
Investment
in British issuers may subject the fund to regulatory,
political, currency, security, and economic risks specific
to the United Kingdom. The British economy relies heavily
on export of financial services to the US and other European
countries. A prolonged slowdown in the financial
services sector may have a negative impact on the British
economy. In the past, the United Kingdom has been a
target of terrorism. Acts of terrorism in the United
Kingdom or against British interests abroad may cause
uncertainty in the British financial markets and adversely
affect the performance of the issuers to which the fund
has exposure. The British economy, along with the US and
certain other EU economies, experienced a significant
economic slowdown during the financial crisis.
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In a referendum held on June 23, 2016, citizens of the
United Kingdom voted to leave the EU, creating economic,
political and legal uncertainty in its wake. Consequently,
the United Kingdom government, pursuant to the Treaty of
Lisbon (the
“
Treaty
”
), officially withdrew from the EU on
January 31, 2020. Considerable uncertainty remains as to
the ramifications of the withdrawal on the United Kingdom
and the EU.
The United Kingdom has one of the largest economies in
Europe, and member countries of the EU are substantial
trading partners of the United Kingdom. The City of
London’s economy is dominated by financial services,
some of which may have to move outside of the United
Kingdom post-referendum (e.g., currency trading, international
settlement). Under the referendum, banks may be
forced to move staff and comply with two separate sets of
rules or lose business to banks in Europe. Furthermore,
the referendum creates the potential for decreased trade,
the possibility of capital outflows, devaluation of the pound
sterling, the cost of higher corporate bond spreads due
to uncertainty, and the risk that all the above could damage
business and consumer spending as well as foreign direct
investment. As a result of the referendum, the British
economy and its currency may be negatively impacted by
changes to its economic and political relations with the EU.
The impact of the referendum in the near- and long-term
is still unknown and could have additional adverse effects
on economies, financial markets and asset valuations
around the world.
Risks related to investing in Japan.
The growth of
Japan’s economy has historically lagged behind that of its
Asian neighbors and other major developed economies.
The Japanese economy is heavily dependent on international
trade and has been adversely affected by trade
tariffs, other protectionist measures, competition from
emerging economies and the economic conditions of its
trading partners. Japan’s relations with its neighbors,
particularly China, North Korea, South Korea and Russia,
have at times been strained due to territorial disputes,
historical animosities and defense concerns. Most
recently, the Japanese government has shown concern
over the increased nuclear and military activity by North
Korea. Strained relations may cause uncertainty in the
Japanese markets and adversely affect the overall Japanese
economy in times of crisis. China has become an
important trading partner with Japan, yet the countries’
political relationship has become strained. Should political
tension increase, it could adversely affect the economy,
especially the export sector, and destabilize the region as a
whole. Japan is located in a part of the world that has
historically been prone to natural disasters such as earthquakes,
volcanoes and tsunamis and is economically
sensitive to environmental events. Any such event, such
as the major earthquake and tsunami which struck Japan in
March 2011, could result in a significant adverse impact
on the Japanese economy. Japan also remains heavily
dependent on oil imports, and higher commodity prices
could therefore have a negative impact on the economy.
Furthermore, Japanese corporations often engage in high
levels of corporate leveraging, extensive cross-purchases
of the securities of other corporations and are subject to a
changing corporate governance structure. Japan may be
subject to risks relating to political, economic and labor
risks. Any of these risks, individually or in the aggregate,
could adversely affect investments in the fund.
Historically, Japan has been subject to unpredictable
national politics and may experience frequent political turnover.
Future political developments may lead to changes
in policy that might adversely affect the fund’s investments.
In addition, the Japanese economy faces several
concerns, including a financial system with large levels of
nonperforming loans, over-leveraged corporate balance
sheets, extensive cross- ownership by major corporations,
a changing corporate governance structure, and large
government deficits. The Japanese yen has fluctuated
widely at times and any increase in its value may cause a
decline in exports that could weaken the economy. Furthermore,
Japan has an aging workforce. It is a labor market
undergoing fundamental structural changes, as traditional
lifetime employment clashes with the need for increased
labor mobility, which may adversely affect Japan’s
economic competitiveness.
Derivatives risk.
Derivatives are financial instruments,
such as futures and swaps, whose values are based on the
value of one or more indicators, such as a security, asset,
currency, interest rate, or index. Derivatives involve risks
different from, and possibly greater than, the risks associated
with investing directly in securities and other more
traditional investments. For example, derivatives involve
the risk of mispricing or improper valuation and the risk
that changes in the value of a derivative may not correlate
perfectly with the underlying indicator. Derivative transactions
can create investment leverage, may be highly
volatile and the fund could lose more than the amount it
invests. Many derivative transactions are entered into
“
over-the-counter
”
(i.e., not on an exchange or contract market);
as a result, the value of such a derivative transaction will
depend on the ability and the willingness of the fund’s
counterparty to perform its obligations under the transaction.
If a counterparty were to default on its obligations,
the fund’s contractual remedies against such counterparty
may be subject to bankruptcy and insolvency laws, which
could affect the fund’s rights as a creditor (e.g., the fund
may not receive the net amount of payments that it is
contractually entitled to receive). A liquid secondary market
may not always exist for the fund’s derivative positions at
any time.
Futures risk.
The value of a futures contract tends to
increase and decrease in tandem with the value of the
underlying instrument. Depending on the terms of the
particular contract, futures contracts are settled through
either physical delivery of the underlying instrument on the
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settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether,
when and how to use futures involves the exercise of skill
and judgment and even a well-conceived futures transaction
may be unsuccessful because of market behavior or
unexpected events. In addition to the derivatives risks
discussed above, the prices of futures can be highly volatile,
using futures can lower total return and the potential
loss from futures can exceed the fund’s initial investment
in such contracts.
Xtrackers Eurozone Equity ETF
Investment Objective
Xtrackers Eurozone Equity ETF (the
“
fund
”
) seeks investment
results that correspond generally to the
performance, before fees and expenses, of the NASDAQ
Eurozone Large Mid Cap Index (the
“
Underlying Index
”
).
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track the performance
of equity securities of large- and mid-capitalization
companies based in the countries in the Economic and
Monetary Union (the
“
EMU
”
or
“
Eurozone
”
) of the European
Union (
“
EU
”
). The Underlying Index is composed
of equity securities of companies that are based in countries
in the Eurozone that have adopted the euro as their
common currency and sole legal tender. When
constructing the Underlying Index, Nasdaq Global Indexes
(
“
Nasdaq
”
or the
“
Index Provider
”
) assigns each eligible
index security to a country which will govern its inclusion
in the Underlying Index based on three categories: (i) the
index security’s country of incorporation; (ii) the index security’s
country of domicile; and (iii) the index security’s
country of primary exchange listing. Generally, if two or
more of the categories match, the index security will be
assigned to that country. The Underlying Index is market
capitalization weighted and, under normal circumstances,
is rebalanced semi-annually in March and September. The
fund rebalances its portfolio in accordance with the Underlying
Index, and, therefore, any changes to the Underlying
Index’s rebalance schedule will result in corresponding
changes to the fund’s rebalance schedule.
The fund uses a full replication indexing strategy to seek
to track the Underlying Index. As such, the fund invests
directly in the component securities (or a substantial
number of the component securities) of the Underlying
Index in substantially the same weightings in which they
are represented in the Underlying Index. If it is not possible
for the fund to acquire component securities due to
limited availability or regulatory restrictions, the fund may
use a representative sampling indexing strategy to seek to
track the Underlying Index instead of a full replication
indexing strategy.
“
Representative sampling
”
is an
indexing strategy that involves investing in a representative
sample of securities that collectively has an
investment profile similar to the Underlying Index. The
securities selected are expected to have, in the aggregate,
investment characteristics (based on factors such as
market capitalization and industry weightings), fundamental
characteristics (such as return variability and yield),
and liquidity measures similar to those of the Underlying
Index. The fund may or may not hold all of the securities in
the Underlying Index when using a representative
sampling indexing strategy. The fund will invest at least
80% of its total assets (but typically far more) in component
securities (including depositary receipts in respect of
such securities) of the Underlying Index.
As of July 31, 2020, the Underlying Index consisted of 287
securities with an average market capitalization of approximately
$21.6 billion and a minimum market capitalization
of approximately $1.82 billion from issuers in the following
countries: Austria, Belgium, Finland, France, Germany,
Greece, Ireland, Italy, Luxembourg, Netherlands, Portugal,
Spain and Switzerland. The Underlying Index is market
capitalization weighted and, under normal circumstances,
is rebalanced semi-annually in March and September. The
fund rebalances its portfolio in accordance with the Underlying
Index, and, therefore, any changes to the Underlying
Index’s rebalance schedule will result in corresponding
changes to the fund’s rebalance schedule.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in equity securities from issuers in the Eurozone
and in instruments designed to hedge the fund’s exposure
to non-US currencies. As of July 31, 2020, a
significant percentage of the Underlying Index was
comprised of securities of issuers from France (31.4%)
and Germany (28.6%). The fund will not enter into transactions
to hedge against declines in the value of the fund’s
assets that are denominated in foreign currency.
The fund will concentrate its investments (i.e., hold 25%
or more of its total assets) in a particular industry or group
of industries to the extent that its Underlying Index is
concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
industrials (24.1%) and consumer discretionary (18.1%)
sectors. The industrials sector includes companies
engaged in the manufacture and distribution of capital
goods, such as those used in defense, construction and
engineering, companies that manufacture and distribute
electrical equipment and industrial machinery and those
that provide commercial and transportation services and
supplies. The consumer discretionary goods sector
includes durable goods, apparel, entertainment and
leisure, and automobiles. To the extent that the fund tracks
the Underlying Index, the fund’s investment in certain
sectors or countries may change over time.
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The fund may also invest in depositary receipts in respect
of equity securities that comprise its Underlying Index
to seek performance that corresponds to the fund’s respective
Underlying Index. Investments in such depositary
receipts will count towards the fund’s 80% investment
policy discussed above with respect to instruments that
comprise the applicable Underlying Index. The fund will not
invest in any unlisted depositary receipt or any depositary
receipt that the Advisor deems illiquid at the time of
purchase or for which pricing information is not readily
available.
The fund may invest its remaining assets in other securities,
including securities not in the Underlying Index, cash
and cash equivalents, money market instruments, such
as repurchase agreements or money market funds
(including money market funds advised by the Advisor or
its affiliates (subject to applicable limitations under the
Investment Company Act of 1940, as amended (the
“
1940
Act
”
), or exemptions therefrom), convertible securities,
structured notes (notes on which the amount of principal
repayment and interest payments are based on the movement
of one or more specified factors, such as the
movement of a particular stock or stock index) and in
futures contracts, options on futures contracts and other
types of options and swaps related to its Underlying Index.
The fund will not use futures or options for speculative
purposes.
The fund will not invest in forward currency contracts to
hedge against changes in the value of the US dollar against
specified foreign currencies.
While the fund is currently classified as
“
non-diversified
”
under the Investment Company Act of 1940, it may
operate as or become classified as
“
diversified
”
over time.
The fund could again become non-diversified solely as a
result of a change in relative market capitalization or index
weighting of one or more constituents of the index that
the fund is designed to track. Shareholder approval will not
be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
The fund is not issued, endorsed, sold, or promoted by
Nasdaq, Inc. or its affiliates.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Underlying Index Information
NASDAQ Eurozone Large Mid Cap Index
Number of components: approximately 308
The NASDAQ Eurozone Large Mid Cap Index (the
“
Underlying
Index
”
) is designed to track the performance of
equity securities of large- and mid-capitalization companies
based in the countries in the EMU.
Main Risks
As with any investment, you could lose all or part of your
investment in the fund, and the fund’s performance could
trail that of other investments. The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective.
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
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measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Foreign investments in American
Depositary Receipts and other depositary receipts may
be less liquid than the underlying shares in their primary
trading market. Certain of the depositary receipts in which
the fund invests may be unsponsored depositary receipts.
Unsponsored depositary receipts may not provide as
much information about the underlying issuer and may not
carry the same voting privileges as sponsored depositary
receipts. Unsponsored depositary receipts are issued by
one or more depositaries in response to market demand,
but without a formal agreement with the company that
issues the underlying securities.
European investment risk.
European financial markets
have experienced volatility in recent years and have been
adversely affected by concerns about economic downturns,
credit rating downgrades, rising government debt
level and possible default on or restructuring of government
debt in several European countries. A default or debt
restructuring by any European country would adversely
impact holders of that country’s debt, and sellers of credit
default swaps linked to that country’s creditworthiness.
Most countries in Western Europe are members of the
European Union (EU), which faces major issues involving
its membership, structure, procedures and policies. In
June 2016, citizens of the United Kingdom approved a
referendum to leave the EU. On January 31, 2020, the
United Kingdom officially withdrew from the EU pursuant
to a withdrawal agreement, providing for a transition period
in which the United Kingdom will seek to negotiate and
finalize a trade deal with the EU. The transition period will
end on December 31, 2020 and can no longer be extended
under the terms of the withdrawal agreement. Significant
uncertainty exists regarding any adverse economic and
political effects the United Kingdom’s withdrawal may have
on the United Kingdom, other EU countries and the global
economy, which could be significant, potentially resulting
in increased volatility and illiquidity and lower economic
growth.
European countries are also significantly affected by fiscal
and monetary controls implemented by the European
Economic and Monetary Union (EMU), and it is possible
that the timing and substance of these controls may not
address the needs of all EMU member countries. Investing
in euro-denominated securities also risks exposure to a
currency that may not fully reflect the strengths and weaknesses
of the disparate economies that comprise Europe.
There is continued concern over member state-level
support for the euro, which could lead to certain countries
leaving the EMU, the implementation of currency controls,
or potentially the dissolution of the euro. The dissolution of
the euro could have significant negative effects on European
financial markets.
Medium-sized company risk.
Medium-sized company
stocks tend to be more volatile than large company stocks.
Because stock analysts are less likely to follow medium-sized
companies, less information about them is available
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to investors. Industry-wide reversals may have a greater
impact on medium-sized companies, since they lack the
financial resources of larger companies. Medium-sized
company stocks are typically less liquid than large
company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors
of the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Industrials sector risk.
To the extent that the fund invests
significantly in the industrials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
industrials sector. Companies in the industrials sector may
be adversely affected by changes in government regulation,
world events and economic conditions. In addition,
companies in the industrials sector may be adversely
affected by environmental damages, product liability claims
and exchange rates.
Consumer discretionary sector risk.
To the extent that
the fund invests significantly in the consumer discretionary
sector, the fund will be sensitive to changes in, and the
fund’s performance may depend to a greater extent on, the
overall condition of the consumer discretionary sector.
Companies engaged in the consumer discretionary sector
are subject to fluctuations in supply and demand. These
companies may also be adversely affected by changes in
consumer spending as a result of world events, political
and economic conditions, commodity price volatility,
changes in exchange rates, imposition of import controls,
increased competition, depletion of resources and labor
relations.
Currency risk.
Changes in currency exchange rates and
the relative value of non-US currencies may affect the
value of the fund’s investment and the value of your fund
shares. Because the fund’s NAV is determined on the
basis of the US dollar and the fund does not attempt to
hedge against changes in the value of non-US currencies,
investors may lose money if the foreign currency depreciates
against the US dollar, even if the foreign currency
value of the fund’s holdings in that market increases.
Conversely, the dollar value of your investment in the fund
may go up if the value of the foreign currency appreciates
against the US dollar. The value of the US dollar
measured against other currencies is influenced by a
variety of factors. These factors include: interest rates,
national debt levels and trade deficits, changes in balances
of payments and trade, domestic and foreign interest and
inflation rates, global or regional political, economic or
financial events, monetary policies of governments, actual
or potential government intervention, and global energy
prices. Political instability, the possibility of government
intervention and restrictive or opaque business and investment
policies may also reduce the value of a country’s
currency. Government monetary policies and the buying or
selling of currency by a country’s government may also
influence exchange rates. Currency exchange rates can be
very volatile and can change quickly and unpredictably.
Therefore, the value of an investment in the fund may also
go up or down quickly and unpredictably and investors
may lose money.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
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when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
The need to comply with the tax diversification and other
requirements of the Internal Revenue Code of 1986, as
amended, may also impact the fund’s ability to replicate
the performance of the Underlying Index. In addition, if the
fund utilizes derivative instruments or holds other instruments
that are not included in the Underlying Index, the
fund’s return may not correlate as well with the returns of
the Underlying Index as would be the case if the fund
purchased all the securities in the Underlying Index
directly. Actions taken in response to proposed corporate
actions could result in increased tracking error.
For purposes of calculating the fund’s net asset value, the
value of assets denominated in non-US currencies is
converted into US dollars using prevailing market rates on
the date of valuation as quoted by one or more data
service providers. This conversion may result in a difference
between the prices used to calculate the fund’s net
asset value and the prices used by the Underlying Index,
which, in turn, could result in a difference between the
fund’s performance and the performance of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
NAV during periods of market volatility. Differences
between secondary market prices and the value of the
fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the
same forces as those influencing prices for securities held
by the fund at a particular time. The Advisor cannot predict
whether shares will trade above, below or at their NAV.
Given the fact that shares can be created and redeemed in
Creation Units, the Advisor believes that large discounts
or premiums to the NAV of shares should not be sustained
in the long-term. In addition, there may be times when
the market price and the value of the fund’s holdings vary
significantly and you may pay more than the value of the
fund’s holdings when buying shares on the secondary
market, and you may receive less than the value of the
fund’s holdings when you sell those shares. While the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in trading prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. If market makers exit the business or are
unable to continue making markets in fund’s shares,
shares may trade at a discount to NAV like closed-end fund
shares and may even face delisting (that is, investors
would no longer be able to trade shares in the secondary
market). The market price of shares, like the price of any
exchange-traded security, includes a
“
bid-ask spread
”
charged by the exchange specialist, market makers or
other participants that trade the particular security. In times
of severe market disruption, the bid-ask spread often
increases significantly. This means that shares may trade
at a discount to the fund’s NAV, and the discount is likely to
be greatest when the price of shares is falling fastest,
which may be the time that you most want to sell your
shares. There are various methods by which investors can
purchase and sell shares of the funds and various orders
that may be placed. Investors should consult their financial
intermediary before purchasing or selling shares of the
fund.
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In addition, the securities held by the fund may be traded
in markets that close at a different time than an exchange.
Liquidity in those securities may be reduced after the applicable
closing times. Accordingly, during the time when an
exchange is open but after the applicable market closing,
fixing or settlement times, bid-ask spreads and the
resulting premium or discount to the shares’ NAV is likely
to widen. More generally, secondary markets may be
subject to irregular trading activity, wide bid-ask spreads
and extended trade settlement periods, which could cause
a material decline in the fund’s NAV. The bid-ask spread
varies over time for shares of the fund based on the fund’s
trading volume and market liquidity, and is generally lower
if the fund has substantial trading volume and market
liquidity, and higher if the fund has little trading volume and
market liquidity (which is often the case for funds that are
newly launched or small in size). The fund’s bid-ask spread
may also be impacted by the liquidity of the underlying
securities held by the fund, particularly for newly launched
or smaller funds or in instances of significant volatility of
the underlying securities. The fund’s investment results are
measured based upon the daily NAV of the fund. Investors
purchasing and selling shares in the secondary market
may not experience investment results consistent with
those experienced by those APs creating and redeeming
shares directly with the fund. In addition, transactions by
large shareholders may account for a large percentage of
the trading volume on an exchange and may, therefore,
have a material effect on the market price of the fund’s
shares.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Cyber-attacks may include unauthorized attempts by third
parties to improperly access, modify, disrupt the operations
of, or prevent access to the systems of the fund’s
service providers or counterparties, issuers of securities
held by the fund or other market participants or data within
them. In addition, power or communications outages, acts
of god, information technology equipment malfunctions,
operational errors, and inaccuracies within software or data
processing systems may also disrupt business operations
or impact critical data.
Cyber-attacks, disruptions, or failures may adversely affect
the fund and its shareholders or cause reputational
damage and subject the fund to regulatory fines, litigation
costs, penalties or financial losses, reimbursement or
other compensation costs, and/or additional compliance
costs. In addition, cyber-attacks, disruptions, or failures
involving a fund counterparty could affect such
counterparty’s ability to meet its obligations to the fund,
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which may result in losses to the fund and its shareholders.
Similar types of operational and technology risks
are also present for issuers of securities held by the fund,
which could have material adverse consequences for such
issuers, and may cause the fund’s investments to lose
value. Furthermore, as a result of cyber-attacks, disruptions,
or failures, an exchange or market may close or issue
trading halts on specific securities or the entire market,
which may result in the fund being, among other things,
unable to buy or sell certain securities or financial instruments
or unable to accurately price its investments.
For example, the fund relies on various sources to calculate
its NAV. Therefore, the fund is subject to certain
operational risks associated with reliance on third party
service providers and data sources. NAV calculation may
be impacted by operational risks arising from factors such
as failures in systems and technology. Such failures may
result in delays in the calculation of a fund’s NAV and/or the
inability to calculate NAV over extended time periods. The
fund may be unable to recover any losses associated with
such failures.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
The fund is classified as
non-diversified under the Investment Company Act of
1940, as amended. This means that the fund may invest in
securities of relatively few issuers. Thus, the performance
of one or a small number of portfolio holdings can affect
overall performance.
If the fund becomes classified as
“
diversified
”
over time
and again becomes non-diversified as a result of a change
in relative market capitalization or index weighting of one
or more constituents of the index that the fund is designed
to track, non-diversification risk would apply.
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Risks related to investing in France.
Investment in
French issuers may subject the fund to legal, regulatory,
political, currency, security, and economic risk specific to
France. During the most recent financial crisis, the French
economy, along with certain other EU economies, experienced
a significant economic slowdown. Recently, new
concerns emerged in relation to the economic health of
the EU. These concerns have led to tremendous downward
pressure on certain EU member states, including
France. Interest rates on France’s debt may rise to levels
that make it difficult for it to service high debt levels
without significant financial help from, among others, the
European Central Bank and could potentially lead to
default. In addition, the French economy is dependent to a
significant extent on the economies of certain key trading
partners, including Germany and other Western European
countries. Reduction in spending on French products and
services, or changes in any of the economies may cause
an adverse impact on the French economy. France may be
subject to acts of terrorism. The French economy is dependent
on exports from the agricultural sector. Leading
agricultural exports include dairy products, meat, wine,
fruit and vegetables, and fish. As a result, the French
economy is susceptible to fluctuations in demand for agricultural
products.
Risks related to investing in Germany.
The German
economy is dependent on the other countries in Europe as
key trade partners. Exports account for more than
one-third of Germany’s output and are a key element in
German economic expansion. Reduction in spending by
European countries on German products and services or
negative changes in any of these countries may cause an
adverse impact on the German economy. In addition, the
US is a large trade and investment partner of Germany.
Decreasing US imports, new trade regulations, changes in
the US dollar exchange rates or a recession in the US may
also have an adverse impact on the German economy.
During the most recent financial crisis, the German
economy, along with certain other EU economies, experienced
a significant economic slowdown. Recently, new
concerns emerged in relation to the economic health of
the EU. These concerns have led to tremendous downward
pressure on certain financial institutions, including
German financial services companies. During the recent
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European debt crisis, Germany played a key role in stabilizing
the euro. However, such efforts may prove
unsuccessful, and any ongoing crisis may continue to
significantly affect the economies of every country in
Europe, including Germany.
Investing in German issuers involves political, social and
regulatory risks. Certain sectors and regions of Germany
have experienced high unemployment and social unrest.
These issues may have an adverse effect on the German
economy or the German industries or sectors in which the
fund invests. Heavy regulation of labor and product
markets is pervasive in Germany. These regulations may
stifle economic growth or result in extended recessionary
periods.
Derivatives risk.
Derivatives are financial instruments,
such as futures and swaps, whose values are based on the
value of one or more indicators, such as a security, asset,
currency, interest rate, or index. Derivatives involve risks
different from, and possibly greater than, the risks associated
with investing directly in securities and other more
traditional investments. For example, derivatives involve
the risk of mispricing or improper valuation and the risk
that changes in the value of a derivative may not correlate
perfectly with the underlying indicator. Derivative transactions
can create investment leverage, may be highly
volatile and the fund could lose more than the amount it
invests. Many derivative transactions are entered into
“
over-the-counter
”
(i.e., not on an exchange or contract market);
as a result, the value of such a derivative transaction will
depend on the ability and the willingness of the fund’s
counterparty to perform its obligations under the transaction.
If a counterparty were to default on its obligations,
the fund’s contractual remedies against such counterparty
may be subject to bankruptcy and insolvency laws, which
could affect the fund’s rights as a creditor (e.g., the fund
may not receive the net amount of payments that it is
contractually entitled to receive). A liquid secondary market
may not always exist for the fund’s derivative positions at
any time.
Futures risk.
The value of a futures contract tends to
increase and decrease in tandem with the value of the
underlying instrument. Depending on the terms of the
particular contract, futures contracts are settled through
either physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether,
when and how to use futures involves the exercise of skill
and judgment and even a well-conceived futures transaction
may be unsuccessful because of market behavior or
unexpected events. In addition to the derivatives risks
discussed above, the prices of futures can be highly volatile,
using futures can lower total return and the potential
loss from futures can exceed the fund’s initial investment
in such contracts.
Xtrackers MSCI Eurozone Hedged Equity ETF
Investment Objective
Xtrackers MSCI Eurozone Hedged Equity ETF (the
“
fund
”
)
seeks investment results that correspond generally to the
performance, before fees and expenses, of the MSCI
EMU IMI US Dollar Hedged Index (the
“
Underlying
Index
”
).
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track the performance
of equity securities based in the countries in the
European Monetary Union (the
“
EMU
”
), while seeking to
mitigate exposure to fluctuations between the value of the
US dollar and the euro. The fund uses a full replication
indexing strategy to seek to track the Underlying Index. As
such, the fund invests directly in the component securities
(or a substantial number of the component securities)
of the Underlying Index in substantially the same
weightings in which they are represented in the Underlying
Index. If it is not possible for the fund to acquire
component securities due to limited availability or regulatory
restrictions, the fund may use a representative
sampling indexing strategy to seek to track the Underlying
Index instead of a full replication indexing strategy.
“
Representative
sampling
”
is an indexing strategy that involves
investing in a representative sample of securities that
collectively has an investment profile similar to the Underlying
Index. The securities selected are expected to have,
in the aggregate, investment characteristics (based on
factors such as market capitalization and industry
weightings), fundamental characteristics (such as return
variability and yield), and liquidity measures similar to
those of the Underlying Index. The fund may or may not
hold all of the securities in the Underlying Index when
using a representative sampling indexing strategy. The
Underlying Index is composed of equities from countries
in the EMU, or the
“
Eurozone,
”
that have adopted the euro
as their common currency and sole legal tender. The fund
will invest at least 80% of its total assets (but typically
far more) in component securities (including depositary
receipts in respect of such securities) of the Underlying
Index.
As of July 31, 2020, the Underlying Index consisted of 674
securities with an average market capitalization of approximately
$7.16 billion and a minimum market capitalization
of approximately $77 million from issuers in the following
countries: Austria, Belgium, Finland, France, Germany,
Ireland, Italy, Netherlands, Portugal and Spain. Under
normal circumstances, the Underlying Index is rebalanced
monthly. The fund rebalances its portfolio in accordance
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with the Underlying Index, and, therefore, any changes to
the Underlying Index’s rebalance schedule will result in
corresponding changes to the fund’s rebalance schedule.
The fund enters into forward currency contracts designed
to offset the fund’s exposure to the euro. A forward
currency contract involves an obligation to purchase or sell
a specific currency at a future date, which may be any
fixed number of days from the date of the contract agreed
upon by the parties, at a price set at the time of the
contract. The fund (and the Underlying Index) hedges the
euro in the portfolio to US dollars by selling the euro
forward at the one-month forward rate published by
WM/Reuters.
The amount of forward contracts in the fund is based on
the aggregate exposure of the fund and Underlying Index
to the euro based on currency weights as of the beginning
of each month. While this approach is designed to minimize
the impact of currency fluctuations on fund returns,
this does not necessarily eliminate exposure to all currency
fluctuations. The return of the forward currency contracts
may not perfectly offset the actual fluctuations of the euro
relative to the US dollar. The fund may use non-deliverable
forward (
“
NDF
”
) contracts to execute its hedging transactions.
An NDF is a contract where there is no physical
settlement of two currencies at maturity (as opposed to
deliverable forward contracts, which per their terms are
settled by physical delivery of the currencies). Rather,
based on the movement of the currencies and the contractually
agreed upon exchange rate, a net cash settlement
is made by one party to the other in US dollars.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in equity securities from issuers in the
Eurozone. As of July 31, 2020, a significant percentage of
the Underlying Index was comprised of securities of
issuers from France (31.7%) and Germany (28.9%).
The fund will concentrate its investments (i.e., hold 25%
or more of its total assets) in a particular industry or group
of industries to the extent that its Underlying Index is
concentrated.
To the extent that the fund tracks the Underlying
Index, the fund’s investment in certain sectors or
countries may change over time.
The fund may also invest in depositary receipts in respect
of equity securities that comprise its Underlying Index
to seek performance that corresponds to the fund’s respective
Underlying Index. Investments in such depositary
receipts will count towards the fund’s 80% investment
policy discussed above with respect to instruments that
comprise the applicable Underlying Index. The fund will not
invest in any unlisted depositary receipt or any depositary
receipt that the Advisor deems illiquid at the time of
purchase or for which pricing information is not readily
available.
The fund may invest its remaining assets in other securities,
including securities not in the Underlying Index, cash
and cash equivalents, money market instruments, such
as repurchase agreements or money market funds
(including money market funds advised by the Advisor or
its affiliates (subject to applicable limitations under the
Investment Company Act of 1940, as amended (the
“
1940
Act
”
), or exemptions therefrom), convertible securities,
structured notes (notes on which the amount of principal
repayment and interest payments are based on the movement
of one or more specified factors, such as the
movement of a particular stock or stock index) and in
futures contracts, options on futures contracts and other
types of options and swaps related to its Underlying Index.
The fund will not use futures or options for speculative
purposes.
The fund expects to use futures contracts to a limited
extent in seeking performance that corresponds to its
Underlying Index. A futures contract is a standardized
exchange traded agreement to buy or sell a specific quantity
of an underlying instrument at a specific price at a
specific future time.
The fund may become
“
non-diversified,
”
as defined under
the Investment Company Act of 1940, as amended, solely
as a result of a change in relative market capitalization or
index weighting of one or more constituents of the index
that the fund is designed to track. Shareholder approval will
not be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
The Prospectus contains a more detailed description of
the limited relationship MSCI has with DBX Advisors LLC
and any related funds.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Underlying Index Information
MSCI EMU IMI US Dollar Hedged Index
Number of Components: approximately 674
Index Description.
The MSCI EMU IMI US Dollar Hedged
Index (the
“
Underlying Index
”
) is designed to provide exposure
to equity securities from countries in the European
Monetary Union, while mitigating exposure to fluctuations
between the value of the US dollar and the euro. As of
July 31, 2020, the Underlying Index consisted of issuers
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from the following 10 countries: Austria, Belgium, Finland,
France, Germany, Ireland, Italy, the Netherlands, Portugal
and Spain.
Main Risks
As with any investment, you could lose all or part of your
investment in the fund, and the fund’s performance could
trail that of other investments. The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective.
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Foreign investments in American
Depositary Receipts and other depositary receipts may
be less liquid than the underlying shares in their primary
trading market. Certain of the depositary receipts in which
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the fund invests may be unsponsored depositary receipts.
Unsponsored depositary receipts may not provide as
much information about the underlying issuer and may not
carry the same voting privileges as sponsored depositary
receipts. Unsponsored depositary receipts are issued by
one or more depositaries in response to market demand,
but without a formal agreement with the company that
issues the underlying securities.
European investment risk.
European financial markets
have experienced volatility in recent years and have been
adversely affected by concerns about economic downturns,
credit rating downgrades, rising government debt
level and possible default on or restructuring of government
debt in several European countries. A default or debt
restructuring by any European country would adversely
impact holders of that country’s debt, and sellers of credit
default swaps linked to that country’s creditworthiness.
Most countries in Western Europe are members of the
European Union (EU), which faces major issues involving
its membership, structure, procedures and policies. In
June 2016, citizens of the United Kingdom approved a
referendum to leave the EU. On January 31, 2020, the
United Kingdom officially withdrew from the EU pursuant
to a withdrawal agreement, providing for a transition period
in which the United Kingdom will seek to negotiate and
finalize a trade deal with the EU. The transition period will
end on December 31, 2020 and can no longer be extended
under the terms of the withdrawal agreement. Significant
uncertainty exists regarding any adverse economic and
political effects the United Kingdom’s withdrawal may have
on the United Kingdom, other EU countries and the global
economy, which could be significant, potentially resulting
in increased volatility and illiquidity and lower economic
growth.
European countries are also significantly affected by fiscal
and monetary controls implemented by the European
Economic and Monetary Union (EMU), and it is possible
that the timing and substance of these controls may not
address the needs of all EMU member countries. Investing
in euro-denominated securities also risks exposure to a
currency that may not fully reflect the strengths and weaknesses
of the disparate economies that comprise Europe.
There is continued concern over member state-level
support for the euro, which could lead to certain countries
leaving the EMU, the implementation of currency controls,
or potentially the dissolution of the euro. The dissolution of
the euro could have significant negative effects on European
financial markets.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources
of larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors of
the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Forward currency contract risk.
The fund invests in
forward currency contracts to attempt to minimize the
impact of changes in the value of the non-US currencies
included in its Underlying Index against the US dollar.
These contracts may not be successful. To the extent the
fund’s forward currency contracts are not successful in
hedging against such changes, the US dollar value of your
investment in the fund may go down if the value of the
local currency of the non-US markets in which the fund
invests depreciates against the US dollar. This is true even
if the local currency value of securities in the fund’s holdings
goes up. In order to minimize transaction costs or for
other reasons, the fund’s exposure to the currencies
included in the Underlying Index may not be fully hedged
at all times. For example, the fund may not hedge against
exposure to currencies that represent a relatively smaller
portion of the Underlying Index. Furthermore, because no
changes in the currency weights in each fund’s Underlying
Index are made during the month to account for
changes in each fund’s Underlying Index due to price
movement of securities, corporate events, additions, deletions
or any other changes, changes in the value of the
non-US currencies included in the fund’s Underlying Index
against the US dollar during the month may affect the
value of the fund’s investment. Non-deliverable forward
(
“
NDF
”
) contracts may be less liquid than deliverable
forward currency contracts. A lack of liquidity in NDFs of
the hedged currency could adversely affect the fund’s
ability to hedge against currency fluctuations and properly
track the Underlying Index.
A forward currency contract is a negotiated agreement
between two parties to exchange specified amounts of
two or more currencies at a specified future time at a
specified rate. The rate specified by the forward currency
contract can be higher or lower than the spot rate between
the currencies that are the subject of the contract. Settlement
of a forward currency contract for the purchase of
most currencies typically must occur at a bank based in
the issuing nation. By entering into a forward currency
contract for the purchase or sale, for a fixed amount of
dollars or other currency, of the amount of foreign currency
involved in the underlying security transactions, the fund
may be able to protect itself against a possible loss
resulting from an adverse change in the relationship
between the US dollar or other currency which is being
used for the security purchase and the foreign currency in
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which the security is denominated during the period
between the date on which the security is purchased or
sold and the date on which payment is made or received.
Furthermore, such transactions reduce or preclude the
opportunity for gain if the value of the currency should
move in the direction opposite to the position taken. There
is an additional risk to the extent that forward currency
contracts create exposure to currencies in which the fund’s
securities are not denominated. Unanticipated changes in
currency prices may result in poorer overall performance
for the fund than if it had not entered into such contracts.
Forward currency contracts may limit gains on portfolio
securities that could otherwise be realized had they not
been utilized and could result in losses. The contracts also
may increase the fund’s volatility and may involve a significant
amount of risk relative to the investment of cash.
Counterparty risk.
The foreign currency markets in which
the fund effects its transactions are over-the-counter or
“
interdealer
”
markets. The counterparty to an over-the
counter spot contract is generally a single bank or other
financial institution rather than a clearing organization
backed by a group of financial institutions. Participants in
over-the-counter markets are typically not subject to the
same credit evaluation and regulatory oversight as
members of exchange-based” markets. Because the funds
execute over-the-counter transactions, the fund constantly
takes credit risk with regard to parties with which it trades
and may also bear the risk of settlement default. These
risks may differ materially from those involved in exchange-traded
transactions which generally are characterized by
clearing organization guaranties, daily marking-to-market
and settlement, and segregation and minimum capital
requirements applicable to intermediaries. Transactions
entered into directly between two counterparties generally
do not benefit from these protections and the fund is
subject to the risk that a counterparty will not settle a
transaction in accordance with agreed terms and
conditions.
Further, if a counterparty becomes bankrupt or otherwise
fails to perform its obligations due to financial difficulties,
the fund may experience significant delays in obtaining any
recovery in a bankruptcy or other reorganization
proceeding. The fund may obtain only limited recovery or
may obtain no recovery in such circumstances. In addition,
the fund may enter into agreements with a limited number
of counterparties which may increase that fund’s exposure
to counterparty credit risk.
Because a contract’s terms may provide for collateral to
cover the variation margin exposure arising under the
contract only if a minimum transfer amount is triggered,
the fund may have an uncollateralized risk exposure to
a counterparty.
The use of spot foreign exchange contracts may also
expose the fund to legal risk, which is the risk of loss due
to the unexpected application of a law or regulation, or
because contracts are not legally enforceable.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
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exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
The need to comply with the tax diversification and other
requirements of the Internal Revenue Code of 1986, as
amended, may also impact the fund’s ability to replicate
the performance of the Underlying Index. In addition, if the
fund utilizes derivative instruments or holds other instruments
that are not included in the Underlying Index, the
fund’s return may not correlate as well with the returns of
the Underlying Index as would be the case if the fund
purchased all the securities in the Underlying Index
directly. Actions taken in response to proposed corporate
actions could result in increased tracking error.
For purposes of calculating the fund’s net asset value, the
value of assets denominated in non-US currencies is
converted into US dollars using prevailing market rates on
the date of valuation as quoted by one or more data
service providers. This conversion may result in a difference
between the prices used to calculate the fund’s net
asset value and the prices used by the Underlying Index,
which, in turn, could result in a difference between the
fund’s performance and the performance of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
NAV during periods of market volatility. Differences
between secondary market prices and the value of the
fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the
same forces as those influencing prices for securities held
by the fund at a particular time. The Advisor cannot predict
whether shares will trade above, below or at their NAV.
Given the fact that shares can be created and redeemed in
Creation Units, the Advisor believes that large discounts
or premiums to the NAV of shares should not be sustained
in the long-term. In addition, there may be times when
the market price and the value of the fund’s holdings vary
significantly and you may pay more than the value of the
fund’s holdings when buying shares on the secondary
market, and you may receive less than the value of the
fund’s holdings when you sell those shares. While the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in trading prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. If market makers exit the business or are
unable to continue making markets in fund’s shares,
shares may trade at a discount to NAV like closed-end fund
shares and may even face delisting (that is, investors
would no longer be able to trade shares in the secondary
market). The market price of shares, like the price of any
exchange-traded security, includes a
“
bid-ask spread
”
charged by the exchange specialist, market makers or
other participants that trade the particular security. In times
of severe market disruption, the bid-ask spread often
increases significantly. This means that shares may trade
at a discount to the fund’s NAV, and the discount is likely to
be greatest when the price of shares is falling fastest,
which may be the time that you most want to sell your
shares. There are various methods by which investors can
purchase and sell shares of the funds and various orders
that may be placed. Investors should consult their financial
intermediary before purchasing or selling shares of the
fund.
In addition, the securities held by the fund may be traded
in markets that close at a different time than an exchange.
Liquidity in those securities may be reduced after the applicable
closing times. Accordingly, during the time when an
exchange is open but after the applicable market closing,
fixing or settlement times, bid-ask spreads and the
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resulting premium or discount to the shares’ NAV is likely
to widen. More generally, secondary markets may be
subject to irregular trading activity, wide bid-ask spreads
and extended trade settlement periods, which could cause
a material decline in the fund’s NAV. The bid-ask spread
varies over time for shares of the fund based on the fund’s
trading volume and market liquidity, and is generally lower
if the fund has substantial trading volume and market
liquidity, and higher if the fund has little trading volume and
market liquidity (which is often the case for funds that are
newly launched or small in size). The fund’s bid-ask spread
may also be impacted by the liquidity of the underlying
securities held by the fund, particularly for newly launched
or smaller funds or in instances of significant volatility of
the underlying securities. The fund’s investment results are
measured based upon the daily NAV of the fund. Investors
purchasing and selling shares in the secondary market
may not experience investment results consistent with
those experienced by those APs creating and redeeming
shares directly with the fund. In addition, transactions by
large shareholders may account for a large percentage of
the trading volume on an exchange and may, therefore,
have a material effect on the market price of the fund’s
shares.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Cyber-attacks may include unauthorized attempts by third
parties to improperly access, modify, disrupt the operations
of, or prevent access to the systems of the fund’s
service providers or counterparties, issuers of securities
held by the fund or other market participants or data within
them. In addition, power or communications outages, acts
of god, information technology equipment malfunctions,
operational errors, and inaccuracies within software or data
processing systems may also disrupt business operations
or impact critical data.
Cyber-attacks, disruptions, or failures may adversely affect
the fund and its shareholders or cause reputational
damage and subject the fund to regulatory fines, litigation
costs, penalties or financial losses, reimbursement or
other compensation costs, and/or additional compliance
costs. In addition, cyber-attacks, disruptions, or failures
involving a fund counterparty could affect such
counterparty’s ability to meet its obligations to the fund,
which may result in losses to the fund and its shareholders.
Similar types of operational and technology risks
are also present for issuers of securities held by the fund,
which could have material adverse consequences for such
issuers, and may cause the fund’s investments to lose
value. Furthermore, as a result of cyber-attacks, disruptions,
or failures, an exchange or market may close or issue
trading halts on specific securities or the entire market,
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which may result in the fund being, among other things,
unable to buy or sell certain securities or financial instruments
or unable to accurately price its investments.
For example, the fund relies on various sources to calculate
its NAV. Therefore, the fund is subject to certain
operational risks associated with reliance on third party
service providers and data sources. NAV calculation may
be impacted by operational risks arising from factors such
as failures in systems and technology. Such failures may
result in delays in the calculation of a fund’s NAV and/or the
inability to calculate NAV over extended time periods. The
fund may be unable to recover any losses associated with
such failures.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
At any given time, due to the
composition of the Underlying Index, the fund may be classified
as
“
non-diversified
”
and may invest a larger
percentage of its assets in securities of a few issuers or a
single issuer than that of a diversified fund. As a result,
the fund may be more susceptible to the risks associated
with these particular issuers, or to a single economic,
political or regulatory occurrence affecting these issuers.
This may increase the fund’s volatility and cause the performance
of a relatively smaller number of issuers to have a
greater impact on the fund’s performance.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Risks related to investing in France.
Investment in
French issuers may subject the fund to legal, regulatory,
political, currency, security, and economic risk specific to
France. During the most recent financial crisis, the French
economy, along with certain other EU economies, experienced
a significant economic slowdown. Recently, new
concerns emerged in relation to the economic health of
the EU. These concerns have led to tremendous downward
pressure on certain EU member states, including
France. Interest rates on France’s debt may rise to levels
that make it difficult for it to service high debt levels
without significant financial help from, among others, the
European Central Bank and could potentially lead to
default. In addition, the French economy is dependent to a
significant extent on the economies of certain key trading
partners, including Germany and other Western European
countries. Reduction in spending on French products and
services, or changes in any of the economies may cause
an adverse impact on the French economy. France may be
subject to acts of terrorism. The French economy is dependent
on exports from the agricultural sector. Leading
agricultural exports include dairy products, meat, wine,
fruit and vegetables, and fish. As a result, the French
economy is susceptible to fluctuations in demand for agricultural
products.
Risks related to investing in Germany.
The German
economy is dependent on the other countries in Europe as
key trade partners. Exports account for more than
one-third of Germany’s output and are a key element in
German economic expansion. Reduction in spending by
European countries on German products and services or
negative changes in any of these countries may cause an
adverse impact on the German economy. In addition, the
US is a large trade and investment partner of Germany.
Decreasing US imports, new trade regulations, changes in
the US dollar exchange rates or a recession in the US may
also have an adverse impact on the German economy.
During the most recent financial crisis, the German
economy, along with certain other EU economies, experienced
a significant economic slowdown. Recently, new
concerns emerged in relation to the economic health of
the EU. These concerns have led to tremendous downward
pressure on certain financial institutions, including
German financial services companies. During the recent
European debt crisis, Germany played a key role in stabilizing
the euro. However, such efforts may prove
unsuccessful, and any ongoing crisis may continue to
significantly affect the economies of every country in
Europe, including Germany.
Investing in German issuers involves political, social and
regulatory risks. Certain sectors and regions of Germany
have experienced high unemployment and social unrest.
These issues may have an adverse effect on the German
economy or the German industries or sectors in which the
fund invests. Heavy regulation of labor and product
markets is pervasive in Germany. These regulations may
stifle economic growth or result in extended recessionary
periods.
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Cash redemption risk.
Because the fund invests a portion
of its assets in forward currency contracts, the fund may
pay out a portion of its redemption proceeds in cash rather
than through the in-kind delivery of portfolio securities. In
addition, the fund may be required to unwind such
contracts or sell portfolio securities in order to obtain the
cash needed to distribute redemption proceeds. This may
cause the fund to recognize a capital gain that it might not
have incurred if it had made a redemption in-kind. As a
result the fund may pay out higher annual capital gains
distributions than if the in-kind redemption process was
used. Only APs who have entered into an agreement with
the fund’s distributor may redeem shares from the fund
directly; all other investors buy and sell shares at market
prices on an exchange.
Derivatives risk.
Derivatives are financial instruments,
such as futures and swaps, whose values are based on the
value of one or more indicators, such as a security, asset,
currency, interest rate, or index. Derivatives involve risks
different from, and possibly greater than, the risks associated
with investing directly in securities and other more
traditional investments. For example, derivatives involve
the risk of mispricing or improper valuation and the risk
that changes in the value of a derivative may not correlate
perfectly with the underlying indicator. Derivative transactions
can create investment leverage, may be highly
volatile and the fund could lose more than the amount it
invests. Many derivative transactions are entered into
“
over-the-counter
”
(i.e., not on an exchange or contract market);
as a result, the value of such a derivative transaction will
depend on the ability and the willingness of the fund’s
counterparty to perform its obligations under the transaction.
If a counterparty were to default on its obligations,
the fund’s contractual remedies against such counterparty
may be subject to bankruptcy and insolvency laws, which
could affect the fund’s rights as a creditor (e.g., the fund
may not receive the net amount of payments that it is
contractually entitled to receive). A liquid secondary market
may not always exist for the fund’s derivative positions at
any time.
Futures risk.
The value of a futures contract tends to
increase and decrease in tandem with the value of the
underlying instrument. Depending on the terms of the
particular contract, futures contracts are settled through
either physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether,
when and how to use futures involves the exercise of skill
and judgment and even a well-conceived futures transaction
may be unsuccessful because of market behavior or
unexpected events. In addition to the derivatives risks
discussed above, the prices of futures can be highly volatile,
using futures can lower total return and the potential
loss from futures can exceed the fund’s initial investment
in such contracts.
Xtrackers Japan JPX-Nikkei 400 Equity ETF
Investment Objective
Xtrackers Japan JPX-Nikkei 400 Equity ETF (the
“
fund
”
)
seeks investment results that correspond generally to the
performance, before fees and expenses, of the JPX-Nikkei
400 Index (the
“
Underlying Index
”
).
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track the performance
of equity securities of issuers who are primarily
listed on the following sections of Tokyo Stock Exchange
(
“
TSE
”
): the 1st section, the 2nd section, Mothers or
JASDAQ Stock Exchange (
“
JASDAQ
”
). The fund uses a full
replication indexing strategy to seek to track the Underlying
Index. As such, the fund invests directly in the
component securities (or a substantial number of the
component securities) of the Underlying Index in substantially
the same weightings in which they are represented
in the Underlying Index. If it is not possible for the fund to
acquire component securities due to limited availability or
regulatory restrictions, the fund may use a representative
sampling indexing strategy to seek to track the
Underlying Index instead of a full replication indexing
strategy.
“
Representative sampling
”
is an indexing
strategy that involves investing in a representative sample
of securities that collectively has an investment profile
similar to the Underlying Index. The securities selected are
expected to have, in the aggregate, investment characteristics
(based on factors such as market capitalization
and industry weightings), fundamental characteristics
(such as return variability and yield), and liquidity measures
similar to those of the Underlying Index. The fund may or
may not hold all of the securities in the Underlying Index
when using a representative sampling indexing strategy.
The Underlying Index is comprised of the equity securities
of the 400 highest scoring issuers listed on the TSE, as
measured in return on equity, cumulative operating profit
and current market value. The fund will invest at least 80%
of its total assets (but typically far more) in component
securities (including depositary receipts in respect of such
securities) of the Underlying Index.
As of July 31, 2020, the Underlying Index consisted of 396
securities with an average market capitalization of approximately
$10.83 billion and a minimum market capitalization
of approximately $309 million. Under normal circumstances,
the Underlying Index is rebalanced monthly.
Under normal circumstances, the Underlying Index is
rebalanced annually in August. The fund rebalances its
portfolio in accordance with the Underlying Index, and,
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therefore, any changes to the Underlying Index’s rebalance
schedule will result in corresponding changes to the fund’s
rebalance schedule.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in equity securities from Japanese issuers. As
of July 31, 2020, the Underlying Index was solely
comprised of issuers in Japan. The fund will not enter into
transactions to hedge against declines in the value of the
fund’s assets that are denominated in foreign currency.
The fund will concentrate its investments (i.e., hold 25%
or more of its total assets) in a particular industry or group
of industries to the extent that its Underlying Index is
concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
industrials (21.9%) and consumer discretionary (15.1%)
sectors. The industrials sector includes companies
engaged in the manufacture and distribution of capital
goods, such as those used in defense, construction and
engineering, companies that manufacture and distribute
electrical equipment and industrial machinery and those
that provide commercial and transportation services and
supplies. The consumer discretionary goods sector
includes durable goods, apparel, entertainment and
leisure, and automobiles. To the extent that the fund tracks
the Underlying Index, the fund’s investment in certain
sectors may change over time.
The fund may also invest in depositary receipts in respect
of equity securities that comprise its Underlying Index
to seek performance that corresponds to the fund’s respective
Underlying Index. Investments in such depositary
receipts will count towards the fund’s 80% investment
policy discussed above with respect to instruments that
comprise the applicable Underlying Index. The fund will not
invest in any unlisted depositary receipt or any depositary
receipt that the Advisor deems illiquid at the time of
purchase or for which pricing information is not readily
available.
The fund may invest its remaining assets in other securities,
including securities not in the Underlying Index, cash
and cash equivalents, money market instruments, such
as repurchase agreements or money market funds
(including money market funds advised by the Advisor or
its affiliates (subject to applicable limitations under the
Investment Company Act of 1940, as amended (the
“
1940
Act
”
), or exemptions therefrom), convertible securities,
structured notes (notes on which the amount of principal
repayment and interest payments are based on the movement
of one or more specified factors, such as the
movement of a particular stock or stock index) and in
futures contracts, options on futures contracts and other
types of options and swaps related to its Underlying Index.
The fund will not use futures or options for speculative
purposes.
The fund will not invest in forward currency contracts to
hedge against changes in the value of the US dollar against
specified foreign currencies.
The fund may become
“
non-diversified,
”
as defined under
the Investment Company Act of 1940, as amended, solely
as a result of a change in relative market capitalization or
index weighting of one or more constituents of the index
that the fund is designed to track. Shareholder approval will
not be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
Xtrackers Japan JPX-Nikkei 400 Equity ETF is not in any
way sponsored, endorsed or promoted by Tokyo Stock
Exchange, Inc. TSE and Nikkei Inc.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Underlying Index Information
JPX-Nikkei 400 Index
Number of Components: approximately 396
Index
Description.
The JPX-Nikkei 400 Index is designed
to reflect the performance of the Japanese stock market,
specifically companies which are primarily listed on the
TSE 1st section, TSE 2nd section, TSE Mothers or JASDAQ
markets. The currency of the component securities is the
Japanese yen.
Main Risks
As with any investment, you could lose all or part of your
investment in the fund, and the fund’s performance could
trail that of other investments. The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective.
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
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result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Depositary receipt risk.
Foreign investments in American
Depositary Receipts and other depositary receipts may
be less liquid than the underlying shares in their primary
trading market. Certain of the depositary receipts in which
the fund invests may be unsponsored depositary receipts.
Unsponsored depositary receipts may not provide as
much information about the underlying issuer and may not
carry the same voting privileges as sponsored depositary
receipts. Unsponsored depositary receipts are issued by
one or more depositaries in response to market demand,
but without a formal agreement with the company that
issues the underlying securities.
Risks related to investing in Japan.
The growth of
Japan’s economy has historically lagged behind that of its
Asian neighbors and other major developed economies.
The Japanese economy is heavily dependent on international
trade and has been adversely affected by trade
tariffs, other protectionist measures, competition from
emerging economies and the economic conditions of its
trading partners. Japan’s relations with its neighbors,
particularly China, North Korea, South Korea and Russia,
have at times been strained due to territorial disputes,
historical animosities and defense concerns. Most
recently, the Japanese government has shown concern
over the increased nuclear and military activity by North
Korea. Strained relations may cause uncertainty in the
Japanese markets and adversely affect the overall Japanese
economy in times of crisis. China has become an
important trading partner with Japan, yet the countries’
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political relationship has become strained. Should political
tension increase, it could adversely affect the economy,
especially the export sector, and destabilize the region as a
whole. Japan is located in a part of the world that has
historically been prone to natural disasters such as earthquakes,
volcanoes and tsunamis and is economically
sensitive to environmental events. Any such event, such
as the major earthquake and tsunami which struck Japan in
March 2011, could result in a significant adverse impact
on the Japanese economy. Japan also remains heavily
dependent on oil imports, and higher commodity prices
could therefore have a negative impact on the economy.
Furthermore, Japanese corporations often engage in high
levels of corporate leveraging, extensive cross-purchases
of the securities of other corporations and are subject to a
changing corporate governance structure. Japan may be
subject to risks relating to political, economic and labor
risks. Any of these risks, individually or in the aggregate,
could adversely affect investments in the fund.
Historically, Japan has been subject to unpredictable
national politics and may experience frequent political turnover.
Future political developments may lead to changes
in policy that might adversely affect the fund’s investments.
In addition, the Japanese economy faces several
concerns, including a financial system with large levels of
nonperforming loans, over-leveraged corporate balance
sheets, extensive cross- ownership by major corporations,
a changing corporate governance structure, and large
government deficits. The Japanese yen has fluctuated
widely at times and any increase in its value may cause a
decline in exports that could weaken the economy. Furthermore,
Japan has an aging workforce. It is a labor market
undergoing fundamental structural changes, as traditional
lifetime employment clashes with the need for increased
labor mobility, which may adversely affect Japan’s
economic competitiveness.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors of
the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Industrials sector risk.
To the extent that the fund invests
significantly in the industrials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
industrials sector. Companies in the industrials sector may
be adversely affected by changes in government regulation,
world events and economic conditions. In addition,
companies in the industrials sector may be adversely
affected by environmental damages, product liability claims
and exchange rates.
Consumer discretionary sector risk.
To the extent that
the fund invests significantly in the consumer discretionary
sector, the fund will be sensitive to changes in, and the
fund’s performance may depend to a greater extent on, the
overall condition of the consumer discretionary sector.
Companies engaged in the consumer discretionary sector
are subject to fluctuations in supply and demand. These
companies may also be adversely affected by changes in
consumer spending as a result of world events, political
and economic conditions, commodity price volatility,
changes in exchange rates, imposition of import controls,
increased competition, depletion of resources and labor
relations.
Currency risk.
Changes in currency exchange rates and
the relative value of non-US currencies may affect the
value of the fund’s investment and the value of your fund
shares. Because the fund’s NAV is determined on the
basis of the US dollar and the fund does not attempt to
hedge against changes in the value of non-US currencies,
investors may lose money if the foreign currency depreciates
against the US dollar, even if the foreign currency
value of the fund’s holdings in that market increases.
Conversely, the dollar value of your investment in the fund
may go up if the value of the foreign currency appreciates
against the US dollar. The value of the US dollar
measured against other currencies is influenced by a
variety of factors. These factors include: interest rates,
national debt levels and trade deficits, changes in balances
of payments and trade, domestic and foreign interest and
inflation rates, global or regional political, economic or
financial events, monetary policies of governments, actual
or potential government intervention, and global energy
prices. Political instability, the possibility of government
intervention and restrictive or opaque business and investment
policies may also reduce the value of a country’s
currency. Government monetary policies and the buying or
selling of currency by a country’s government may also
influence exchange rates. Currency exchange rates can be
very volatile and can change quickly and unpredictably.
Therefore, the value of an investment in the fund may also
go up or down quickly and unpredictably and investors
may lose money.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
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Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
The need to comply with the tax diversification and other
requirements of the Internal Revenue Code of 1986, as
amended, may also impact the fund’s ability to replicate
the performance of the Underlying Index. In addition, if the
fund utilizes derivative instruments or holds other instruments
that are not included in the Underlying Index, the
fund’s return may not correlate as well with the returns of
the Underlying Index as would be the case if the fund
purchased all the securities in the Underlying Index
directly. Actions taken in response to proposed corporate
actions could result in increased tracking error.
For purposes of calculating the fund’s net asset value, the
value of assets denominated in non-US currencies is
converted into US dollars using prevailing market rates on
the date of valuation as quoted by one or more data
service providers. This conversion may result in a difference
between the prices used to calculate the fund’s net
asset value and the prices used by the Underlying Index,
which, in turn, could result in a difference between the
fund’s performance and the performance of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
NAV during periods of market volatility. Differences
between secondary market prices and the value of the
fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the
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same forces as those influencing prices for securities held
by the fund at a particular time. The Advisor cannot predict
whether shares will trade above, below or at their NAV.
Given the fact that shares can be created and redeemed in
Creation Units, the Advisor believes that large discounts
or premiums to the NAV of shares should not be sustained
in the long-term. In addition, there may be times when
the market price and the value of the fund’s holdings vary
significantly and you may pay more than the value of the
fund’s holdings when buying shares on the secondary
market, and you may receive less than the value of the
fund’s holdings when you sell those shares. While the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in trading prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. If market makers exit the business or are
unable to continue making markets in fund’s shares,
shares may trade at a discount to NAV like closed-end fund
shares and may even face delisting (that is, investors
would no longer be able to trade shares in the secondary
market). The market price of shares, like the price of any
exchange-traded security, includes a
“
bid-ask spread
”
charged by the exchange specialist, market makers or
other participants that trade the particular security. In times
of severe market disruption, the bid-ask spread often
increases significantly. This means that shares may trade
at a discount to the fund’s NAV, and the discount is likely to
be greatest when the price of shares is falling fastest,
which may be the time that you most want to sell your
shares. There are various methods by which investors can
purchase and sell shares of the funds and various orders
that may be placed. Investors should consult their financial
intermediary before purchasing or selling shares of the
fund.
In addition, the securities held by the fund may be traded
in markets that close at a different time than an exchange.
Liquidity in those securities may be reduced after the applicable
closing times. Accordingly, during the time when an
exchange is open but after the applicable market closing,
fixing or settlement times, bid-ask spreads and the
resulting premium or discount to the shares’ NAV is likely
to widen. More generally, secondary markets may be
subject to irregular trading activity, wide bid-ask spreads
and extended trade settlement periods, which could cause
a material decline in the fund’s NAV. The bid-ask spread
varies over time for shares of the fund based on the fund’s
trading volume and market liquidity, and is generally lower
if the fund has substantial trading volume and market
liquidity, and higher if the fund has little trading volume and
market liquidity (which is often the case for funds that are
newly launched or small in size). The fund’s bid-ask spread
may also be impacted by the liquidity of the underlying
securities held by the fund, particularly for newly launched
or smaller funds or in instances of significant volatility of
the underlying securities. The fund’s investment results are
measured based upon the daily NAV of the fund. Investors
purchasing and selling shares in the secondary market
may not experience investment results consistent with
those experienced by those APs creating and redeeming
shares directly with the fund. In addition, transactions by
large shareholders may account for a large percentage of
the trading volume on an exchange and may, therefore,
have a material effect on the market price of the fund’s
shares.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Country concentration risk.
To the extent that the fund
invests significantly in a single country, it is more likely to
be impacted by events or conditions affecting that country.
For example, political and economic conditions and
changes in regulatory, tax or economic policy in a country
could significantly affect the market in that country and
in surrounding or related countries and have a negative
impact on the fund’s performance.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
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events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Cyber-attacks may include unauthorized attempts by third
parties to improperly access, modify, disrupt the operations
of, or prevent access to the systems of the fund’s
service providers or counterparties, issuers of securities
held by the fund or other market participants or data within
them. In addition, power or communications outages, acts
of god, information technology equipment malfunctions,
operational errors, and inaccuracies within software or data
processing systems may also disrupt business operations
or impact critical data.
Cyber-attacks, disruptions, or failures may adversely affect
the fund and its shareholders or cause reputational
damage and subject the fund to regulatory fines, litigation
costs, penalties or financial losses, reimbursement or
other compensation costs, and/or additional compliance
costs. In addition, cyber-attacks, disruptions, or failures
involving a fund counterparty could affect such
counterparty’s ability to meet its obligations to the fund,
which may result in losses to the fund and its shareholders.
Similar types of operational and technology risks
are also present for issuers of securities held by the fund,
which could have material adverse consequences for such
issuers, and may cause the fund’s investments to lose
value. Furthermore, as a result of cyber-attacks, disruptions,
or failures, an exchange or market may close or issue
trading halts on specific securities or the entire market,
which may result in the fund being, among other things,
unable to buy or sell certain securities or financial instruments
or unable to accurately price its investments.
For example, the fund relies on various sources to calculate
its NAV. Therefore, the fund is subject to certain
operational risks associated with reliance on third party
service providers and data sources. NAV calculation may
be impacted by operational risks arising from factors such
as failures in systems and technology. Such failures may
result in delays in the calculation of a fund’s NAV and/or the
inability to calculate NAV over extended time periods. The
fund may be unable to recover any losses associated with
such failures.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
At any given time, due to the
composition of the Underlying Index, the fund may be classified
as
“
non-diversified
”
and may invest a larger
percentage of its assets in securities of a few issuers or a
single issuer than that of a diversified fund. As a result,
the fund may be more susceptible to the risks associated
with these particular issuers, or to a single economic,
political or regulatory occurrence affecting these issuers.
This may increase the fund’s volatility and cause the performance
of a relatively smaller number of issuers to have a
greater impact on the fund’s performance.
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Derivatives risk.
Derivatives are financial instruments,
such as futures and swaps, whose values are based on the
value of one or more indicators, such as a security, asset,
currency, interest rate, or index. Derivatives involve risks
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different from, and possibly greater than, the risks associated
with investing directly in securities and other more
traditional investments. For example, derivatives involve
the risk of mispricing or improper valuation and the risk
that changes in the value of a derivative may not correlate
perfectly with the underlying indicator. Derivative transactions
can create investment leverage, may be highly
volatile and the fund could lose more than the amount it
invests. Many derivative transactions are entered into
“
over-the-counter
”
(i.e., not on an exchange or contract market);
as a result, the value of such a derivative transaction will
depend on the ability and the willingness of the fund’s
counterparty to perform its obligations under the transaction.
If a counterparty were to default on its obligations,
the fund’s contractual remedies against such counterparty
may be subject to bankruptcy and insolvency laws, which
could affect the fund’s rights as a creditor (e.g., the fund
may not receive the net amount of payments that it is
contractually entitled to receive). A liquid secondary market
may not always exist for the fund’s derivative positions at
any time.
Futures risk.
The value of a futures contract tends to
increase and decrease in tandem with the value of the
underlying instrument. Depending on the terms of the
particular contract, futures contracts are settled through
either physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether,
when and how to use futures involves the exercise of skill
and judgment and even a well-conceived futures transaction
may be unsuccessful because of market behavior or
unexpected events. In addition to the derivatives risks
discussed above, the prices of futures can be highly volatile,
using futures can lower total return and the potential
loss from futures can exceed the fund’s initial investment
in such contracts.
Other Policies and Risks
While the previous pages describe the main points of each
fund’s strategy and risks, there are a few other matters
to know about:
■
Each of the policies described herein, including the
investment objective and 80% investment policies of
each fund, constitutes a non-fundamental policy that
may be changed by the Board without shareholder
approval. Each fund’s 80% investment policies require
60 days’ prior written notice to shareholders before they
can be changed. Certain fundamental policies of each
fund are set forth in the SAI.
■
Because each fund seeks to track its Underlying Index,
no fund invests defensively and each fund will not invest
in money market instruments or other short-term investments
as part of a temporary defensive strategy to
protect against potential market declines.
■
Each fund may borrow money from a bank up to a limit
of 10% of the value of its assets, but only for temporary
or emergency purposes.
■
Xtrackers MSCI All World ex US Hedged Equity ETF,
Xtrackers MSCI All World ex US High Dividend Yield
Equity ETF and Xtrackers MSCI Emerging Markets
Hedged Equity ETF may borrow money under a credit
facility to the extent necessary for temporary or emergency
purposes, including the funding of shareholder
redemption requests, trade settlements, and as necessary
to distribute to shareholders any income necessary
to maintain a fund’s status as a regulated investment
company (
“
RIC
”
).
■
Secondary market trading in fund shares may be halted
by a stock exchange because of market conditions or
other reasons. In addition, trading in fund shares on a
stock exchange or in any market may be subject to
trading halts caused by extraordinary market volatility
pursuant to
“
circuit breaker
”
rules on the exchange or
market. If a trading halt or unanticipated early closing of
a stock exchange occurs, a shareholder may be unable
to purchase or sell shares of each fund. There can be no
assurance that the requirements necessary to maintain
the listing or trading of fund shares will continue to
be met or will remain unchanged or that shares will
trade with any volume, or at all, in any secondary
market. As with all other exchange traded securities,
shares may be sold short and may experience increased
volatility and price decreases associated with such
trading activity.
■
From time to time a third party, the Advisor and/or its
affiliates may invest in a fund and hold its investment for
a specific period of time in order for a fund to achieve
size or scale. There can be no assurance that any such
entity would not redeem its investment or that the size
of a fund would be maintained at such levels. In order to
comply with applicable law, it is possible that the
Advisor or its affiliates, to the extent they are invested in
a fund, may be required to redeem some or all of their
ownership interests in a fund prematurely or at an inopportune
time.
■
From time to time, a fund may have a concentration of
shareholder accounts holding a significant percentage of
shares outstanding. Investment activities of these shareholders
could have a material impact on a fund. For
example, a fund may be used as an underlying investment
for other registered investment companies.
Portfolio Holdings Information
A description of DBX ETF Trust’s (
“
Trust
”
) policies and
procedures with respect to the disclosure of each fund’s
portfolio securities is available in each fund’s SAI. The top
holdings of each fund can be found at Xtrackers.com. Fund
fact sheets provide information regarding each fund’s top
holdings and may be requested by calling 1-855-329-3837
(1-855-DBX-ETFS).
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Who Manages and Oversees the Funds
The Investment Advisor
DBX Advisors LLC (
“
Advisor
”
), with headquarters at 875
Third Avenue, New York, NY 10022, is the investment
advisor for the fund. Under the oversight of the Board, the
Advisor makes the investment decisions, buys and sells
securities for the fund and conducts research that leads to
these purchase and sale decisions.
The Advisor is an indirect, wholly-owned subsidiary of
DWS Group GmbH & Co. KGaA (
“
DWS Group
”
), a separate,
publicly-listed financial services firm that is an
indirect, majority-owned subsidiary of Deutsche Bank AG.
Founded in 2010, the Advisor managed approximately
$17.3 billion in 33 operational exchange-traded funds, as of
August 31, 2020.
DWS represents the asset management activities
conducted by DWS Group or any of its subsidiaries,
including the Advisor and other affiliated investment
advisors.
DWS is a global organization that offers a wide range of
investing expertise and resources, including hundreds of
portfolio managers and analysts and an office network that
reaches the world’s major investment centers. This well-
resourced global investment platform brings together a
wide variety of experience and investment insight across
industries, regions, asset classes and investing styles.
The Advisor may utilize the resources of its global investment
platform to provide investment management
services through branch offices or affiliates located outside
the US. In some cases, the Advisor may also utilize its
branch offices or affiliates located in the US or outside the
US to perform certain services, such as trade execution,
trade matching and settlement, or various administrative,
back-office or other services. To the extent services are
performed outside the US, such activity may be subject to
both US and foreign regulation. It is possible that the jurisdiction
in which the Advisor or its affiliate performs such
services may impose restrictions or limitations on portfolio
transactions that are different from, and in addition to,
those in the US.
Management Fee.
Under the Investment Advisory Agreement,
the Advisor is responsible for substantially all
expenses of each fund, including the cost of transfer
agency, custody, fund administration, compensation paid
to the Independent Board Members, legal, audit and other
services, except for the fee payments to the Advisor under
the Investment Advisory Agreement (also known as a
“
unitary advisory fee
”
), interest expense, acquired fund
fees and expenses, taxes, brokerage expenses, distribution
fees or expenses (if any), litigation expenses and other
extraordinary expenses.
For its services to each fund, during the most recent fiscal
year, the Advisor received aggregate unitary advisory fees
at the following annual rates as a percentage of each
fund’s average daily net assets.
|
|
Xtrackers MSCI Emerging
Markets Hedged Equity ETF
|
|
Xtrackers MSCI EAFE Hedged
Equity ETF
|
|
Xtrackers MSCI Germany
Hedged Equity ETF
|
|
Xtrackers MSCI Japan
Hedged Equity ETF
|
|
Xtrackers MSCI Europe
Hedged Equity ETF
|
|
Xtrackers MSCI All World ex
US Hedged Equity ETF
|
|
Xtrackers MSCI All World ex
US High Dividend Yield Equity
ETF
|
|
Xtrackers MSCI EAFE High
Dividend Yield Equity ETF
|
|
Xtrackers Eurozone Equity
ETF
|
|
Xtrackers MSCI Eurozone
Hedged Equity ETF
|
|
Xtrackers Japan JPX-Nikkei
400 Equity ETF
|
|
A discussion regarding the basis for the Board's approval
of each fund’s Investment Advisory Agreement is
contained in the most recent annual report for the annual
period ended May 31. For information on how to obtain
shareholder reports, see the back cover.
Multi-Manager Structure.
The Advisor and the Trust may
rely on an exemptive order (the
“
Order
”
) from the SEC that
permits the Advisor to enter into investment sub-advisory
agreements with unaffiliated and affiliated subadvisors
without obtaining shareholder approval. The Advisor,
subject to the review and approval of the Board, selects
subadvisors for each fund and supervises, monitors and
evaluates the performance of the subadvisor.
The Order also permits the Advisor, subject to the approval
of the Board, to replace subadvisors and amend investment
subadvisory agreements, including fees, without
shareholder approval whenever the Advisor and the Board
believe such action will benefit a fund and its shareholders.
The Advisor thus has the ultimate responsibility
(subject to the ultimate oversight of the Board) to recommend
the hiring and replacement of subadvisors as well as
the discretion to terminate any subadvisor and reallocate
a fund’s assets for management among any other
subadvisor(s) and itself. This means that the Advisor is able
to reduce the subadvisory fees and retain a larger portion
of the management fee, or increase the subadvisory fees
and retain a smaller portion of the management fee.
Pursuant to the Order, the Advisor is not required to
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disclose its contractual fee arrangements with any
subadvisor. The Advisor compensates a subadvisor out of
its management fee.
Management
Xtrackers MSCI Emerging Markets Hedged Equity ETF
The following Portfolio Managers are primarily responsible
for the day-to-day management of the fund. Each Portfolio
Manager functions as a member of a portfolio
management team.
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
■
Joined DWS in 2011 with 11 years of industry experience.
Prior to joining DWS, he worked in ETF
management at XShares Advisors, an ETF issuer based
in New York, and before that he served as an equity
analyst for Fairhaven Capital LLC, a long/short equity
fund.
■
Head of Passive Portfolio Management, Americas: New
York.
■
BS in Finance, Boston College.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
■
Joined DWS in 2016 with 16 years of industry experience.
Prior to joining DWS, he was the head of Northern
Trust’s Equity Index, ETF, and Overlay portfolio management
team in Chicago, managing portfolios for North
American based clients. His time at Northern Trust
included working in New York, Chicago, and in Hong
Kong building a portfolio management desk. Prior to
joining Northern Trust in 2003, he participated in the
Deutsche Asset Management graduate training
program. He rotated through the domestic fixed income
and US structured equity fund management groups.
■
Lead Equity Portfolio Manager, US Passive Equities:
New York.
■
BS in Finance, Rutgers University.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
■
Joined DWS in 2017 with 13 years of industry experience.
Prior to joining DWS, Mr. Bassous worked at
Northern Trust where he filled a variety of operational
functions supporting portfolio management. In 2010 he
began managing equity portfolios on behalf of institutional
clients across a variety of global benchmarks.
Before joining Northern Trust in 2007, he worked at The
Bank of New York Mellon and Morgan Stanley in a
variety of roles supporting equity trading and portfolio
management.
■
Equity Portfolio Manager, US Passive Equities: New York.
■
BS in Finance, Yeshiva University.
Xtrackers MSCI EAFE Hedged Equity ETF
The following Portfolio Managers are primarily responsible
for the day-to-day management of the fund. Each Portfolio
Manager functions as a member of a portfolio
management team.
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
■
Joined DWS in 2011 with 11 years of industry experience.
Prior to joining DWS, he worked in ETF
management at XShares Advisors, an ETF issuer based
in New York, and before that he served as an equity
analyst for Fairhaven Capital LLC, a long/short equity
fund.
■
Head of Passive Portfolio Management, Americas: New
York.
■
BS in Finance, Boston College.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
■
Joined DWS in 2016 with 16 years of industry experience.
Prior to joining DWS, he was the head of Northern
Trust’s Equity Index, ETF, and Overlay portfolio management
team in Chicago, managing portfolios for North
American based clients. His time at Northern Trust
included working in New York, Chicago, and in Hong
Kong building a portfolio management desk. Prior to
joining Northern Trust in 2003, he participated in the
Deutsche Asset Management graduate training
program. He rotated through the domestic fixed income
and US structured equity fund management groups.
■
Lead Equity Portfolio Manager, US Passive Equities:
New York.
■
BS in Finance, Rutgers University.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
■
Joined DWS in 2017 with 13 years of industry experience.
Prior to joining DWS, Mr. Bassous worked at
Northern Trust where he filled a variety of operational
functions supporting portfolio management. In 2010 he
began managing equity portfolios on behalf of institutional
clients across a variety of global benchmarks.
Before joining Northern Trust in 2007, he worked at The
Bank of New York Mellon and Morgan Stanley in a
variety of roles supporting equity trading and portfolio
management.
■
Equity Portfolio Manager, US Passive Equities: New York.
■
BS in Finance, Yeshiva University.
Xtrackers MSCI Germany Hedged Equity ETF
The following Portfolio Managers are primarily responsible
for the day-to-day management of the fund. Each Portfolio
Manager functions as a member of a portfolio
management team.
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
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|
■
Joined DWS in 2011 with 11 years of industry experience.
Prior to joining DWS, he worked in ETF
management at XShares Advisors, an ETF issuer based
in New York, and before that he served as an equity
analyst for Fairhaven Capital LLC, a long/short equity
fund.
■
Head of Passive Portfolio Management, Americas: New
York.
■
BS in Finance, Boston College.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
■
Joined DWS in 2016 with 16 years of industry experience.
Prior to joining DWS, he was the head of Northern
Trust’s Equity Index, ETF, and Overlay portfolio management
team in Chicago, managing portfolios for North
American based clients. His time at Northern Trust
included working in New York, Chicago, and in Hong
Kong building a portfolio management desk. Prior to
joining Northern Trust in 2003, he participated in the
Deutsche Asset Management graduate training
program. He rotated through the domestic fixed income
and US structured equity fund management groups.
■
Lead Equity Portfolio Manager, US Passive Equities:
New York.
■
BS in Finance, Rutgers University.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
■
Joined DWS in 2017 with 13 years of industry experience.
Prior to joining DWS, Mr. Bassous worked at
Northern Trust where he filled a variety of operational
functions supporting portfolio management. In 2010 he
began managing equity portfolios on behalf of institutional
clients across a variety of global benchmarks.
Before joining Northern Trust in 2007, he worked at The
Bank of New York Mellon and Morgan Stanley in a
variety of roles supporting equity trading and portfolio
management.
■
Equity Portfolio Manager, US Passive Equities: New York.
■
BS in Finance, Yeshiva University.
Xtrackers MSCI Japan Hedged Equity ETF
The following Portfolio Managers are primarily responsible
for the day-to-day management of the fund. Each Portfolio
Manager functions as a member of a portfolio
management team.
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
■
Joined DWS in 2011 with 11 years of industry experience.
Prior to joining DWS, he worked in ETF
management at XShares Advisors, an ETF issuer based
in New York, and before that he served as an equity
analyst for Fairhaven Capital LLC, a long/short equity
fund.
■
Head of Passive Portfolio Management, Americas: New
York.
■
BS in Finance, Boston College.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
■
Joined DWS in 2016 with 16 years of industry experience.
Prior to joining DWS, he was the head of Northern
Trust’s Equity Index, ETF, and Overlay portfolio management
team in Chicago, managing portfolios for North
American based clients. His time at Northern Trust
included working in New York, Chicago, and in Hong
Kong building a portfolio management desk. Prior to
joining Northern Trust in 2003, he participated in the
Deutsche Asset Management graduate training
program. He rotated through the domestic fixed income
and US structured equity fund management groups.
■
Lead Equity Portfolio Manager, US Passive Equities:
New York.
■
BS in Finance, Rutgers University.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
■
Joined DWS in 2017 with 13 years of industry experience.
Prior to joining DWS, Mr. Bassous worked at
Northern Trust where he filled a variety of operational
functions supporting portfolio management. In 2010 he
began managing equity portfolios on behalf of institutional
clients across a variety of global benchmarks.
Before joining Northern Trust in 2007, he worked at The
Bank of New York Mellon and Morgan Stanley in a
variety of roles supporting equity trading and portfolio
management.
■
Equity Portfolio Manager, US Passive Equities: New York.
■
BS in Finance, Yeshiva University.
Xtrackers MSCI Europe Hedged Equity ETF
The following Portfolio Managers are primarily responsible
for the day-to-day management of the fund. Each Portfolio
Manager functions as a member of a portfolio
management team.
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
■
Joined DWS in 2011 with 11 years of industry experience.
Prior to joining DWS, he worked in ETF
management at XShares Advisors, an ETF issuer based
in New York, and before that he served as an equity
analyst for Fairhaven Capital LLC, a long/short equity
fund.
■
Head of Passive Portfolio Management, Americas: New
York.
■
BS in Finance, Boston College.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
Prospectus
October 1, 2020
|
173
|
Fund Details
|
■
Joined DWS in 2016 with 16 years of industry experience.
Prior to joining DWS, he was the head of Northern
Trust’s Equity Index, ETF, and Overlay portfolio management
team in Chicago, managing portfolios for North
American based clients. His time at Northern Trust
included working in New York, Chicago, and in Hong
Kong building a portfolio management desk. Prior to
joining Northern Trust in 2003, he participated in the
Deutsche Asset Management graduate training
program. He rotated through the domestic fixed income
and US structured equity fund management groups.
■
Lead Equity Portfolio Manager, US Passive Equities:
New York.
■
BS in Finance, Rutgers University.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
■
Joined DWS in 2017 with 13 years of industry experience.
Prior to joining DWS, Mr. Bassous worked at
Northern Trust where he filled a variety of operational
functions supporting portfolio management. In 2010 he
began managing equity portfolios on behalf of institutional
clients across a variety of global benchmarks.
Before joining Northern Trust in 2007, he worked at The
Bank of New York Mellon and Morgan Stanley in a
variety of roles supporting equity trading and portfolio
management.
■
Equity Portfolio Manager, US Passive Equities: New York.
■
BS in Finance, Yeshiva University.
Xtrackers MSCI All World ex US Hedged Equity ETF
The following Portfolio Managers are primarily responsible
for the day-to-day management of the fund. Each Portfolio
Manager functions as a member of a portfolio
management team.
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
■
Joined DWS in 2011 with 11 years of industry experience.
Prior to joining DWS, he worked in ETF
management at XShares Advisors, an ETF issuer based
in New York, and before that he served as an equity
analyst for Fairhaven Capital LLC, a long/short equity
fund.
■
Head of Passive Portfolio Management, Americas: New
York.
■
BS in Finance, Boston College.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
■
Joined DWS in 2016 with 16 years of industry experience.
Prior to joining DWS, he was the head of Northern
Trust’s Equity Index, ETF, and Overlay portfolio management
team in Chicago, managing portfolios for North
American based clients. His time at Northern Trust
included working in New York, Chicago, and in Hong
Kong building a portfolio management desk. Prior to
joining Northern Trust in 2003, he participated in the
Deutsche Asset Management graduate training
program. He rotated through the domestic fixed income
and US structured equity fund management groups.
■
Lead Equity Portfolio Manager, US Passive Equities:
New York.
■
BS in Finance, Rutgers University.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
■
Joined DWS in 2017 with 13 years of industry experience.
Prior to joining DWS, Mr. Bassous worked at
Northern Trust where he filled a variety of operational
functions supporting portfolio management. In 2010 he
began managing equity portfolios on behalf of institutional
clients across a variety of global benchmarks.
Before joining Northern Trust in 2007, he worked at The
Bank of New York Mellon and Morgan Stanley in a
variety of roles supporting equity trading and portfolio
management.
■
Equity Portfolio Manager, US Passive Equities: New York.
■
BS in Finance, Yeshiva University.
Xtrackers MSCI All World ex US High Dividend Yield
Equity ETF
The following Portfolio Managers are primarily responsible
for the day-to-day management of the fund. Each Portfolio
Manager functions as a member of a portfolio
management team.
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
■
Joined DWS in 2011 with 11 years of industry experience.
Prior to joining DWS, he worked in ETF
management at XShares Advisors, an ETF issuer based
in New York, and before that he served as an equity
analyst for Fairhaven Capital LLC, a long/short equity
fund.
■
Head of Passive Portfolio Management, Americas: New
York.
■
BS in Finance, Boston College.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
Prospectus
October 1, 2020
|
174
|
Fund Details
|
■
Joined DWS in 2016 with 16 years of industry experience.
Prior to joining DWS, he was the head of Northern
Trust’s Equity Index, ETF, and Overlay portfolio management
team in Chicago, managing portfolios for North
American based clients. His time at Northern Trust
included working in New York, Chicago, and in Hong
Kong building a portfolio management desk. Prior to
joining Northern Trust in 2003, he participated in the
Deutsche Asset Management graduate training
program. He rotated through the domestic fixed income
and US structured equity fund management groups.
■
Lead Equity Portfolio Manager, US Passive Equities:
New York.
■
BS in Finance, Rutgers University.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
■
Joined DWS in 2017 with 13 years of industry experience.
Prior to joining DWS, Mr. Bassous worked at
Northern Trust where he filled a variety of operational
functions supporting portfolio management. In 2010 he
began managing equity portfolios on behalf of institutional
clients across a variety of global benchmarks.
Before joining Northern Trust in 2007, he worked at The
Bank of New York Mellon and Morgan Stanley in a
variety of roles supporting equity trading and portfolio
management.
■
Equity Portfolio Manager, US Passive Equities: New York.
■
BS in Finance, Yeshiva University.
Xtrackers MSCI EAFE High Dividend Yield Equity ETF
The following Portfolio Managers are primarily responsible
for the day-to-day management of the fund. Each Portfolio
Manager functions as a member of a portfolio
management team.
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
■
Joined DWS in 2011 with 11 years of industry experience.
Prior to joining DWS, he worked in ETF
management at XShares Advisors, an ETF issuer based
in New York, and before that he served as an equity
analyst for Fairhaven Capital LLC, a long/short equity
fund.
■
Head of Passive Portfolio Management, Americas: New
York.
■
BS in Finance, Boston College.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
■
Joined DWS in 2016 with 16 years of industry experience.
Prior to joining DWS, he was the head of Northern
Trust’s Equity Index, ETF, and Overlay portfolio management
team in Chicago, managing portfolios for North
American based clients. His time at Northern Trust
included working in New York, Chicago, and in Hong
Kong building a portfolio management desk. Prior to
joining Northern Trust in 2003, he participated in the
Deutsche Asset Management graduate training
program. He rotated through the domestic fixed income
and US structured equity fund management groups.
■
Lead Equity Portfolio Manager, US Passive Equities:
New York.
■
BS in Finance, Rutgers University.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
■
Joined DWS in 2017 with 13 years of industry experience.
Prior to joining DWS, Mr. Bassous worked at
Northern Trust where he filled a variety of operational
functions supporting portfolio management. In 2010 he
began managing equity portfolios on behalf of institutional
clients across a variety of global benchmarks.
Before joining Northern Trust in 2007, he worked at The
Bank of New York Mellon and Morgan Stanley in a
variety of roles supporting equity trading and portfolio
management.
■
Equity Portfolio Manager, US Passive Equities: New York.
■
BS in Finance, Yeshiva University.
Xtrackers Eurozone Equity ETF
The following Portfolio Managers are primarily responsible
for the day-to-day management of the fund. Each Portfolio
Manager functions as a member of a portfolio
management team.
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
■
Joined DWS in 2011 with 11 years of industry experience.
Prior to joining DWS, he worked in ETF
management at XShares Advisors, an ETF issuer based
in New York, and before that he served as an equity
analyst for Fairhaven Capital LLC, a long/short equity
fund.
■
Head of Passive Portfolio Management, Americas: New
York.
■
BS in Finance, Boston College.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
Prospectus
October 1, 2020
|
175
|
Fund Details
|
■
Joined DWS in 2016 with 16 years of industry experience.
Prior to joining DWS, he was the head of Northern
Trust’s Equity Index, ETF, and Overlay portfolio management
team in Chicago, managing portfolios for North
American based clients. His time at Northern Trust
included working in New York, Chicago, and in Hong
Kong building a portfolio management desk. Prior to
joining Northern Trust in 2003, he participated in the
Deutsche Asset Management graduate training
program. He rotated through the domestic fixed income
and US structured equity fund management groups.
■
Lead Equity Portfolio Manager, US Passive Equities:
New York.
■
BS in Finance, Rutgers University.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
■
Joined DWS in 2017 with 13 years of industry experience.
Prior to joining DWS, Mr. Bassous worked at
Northern Trust where he filled a variety of operational
functions supporting portfolio management. In 2010 he
began managing equity portfolios on behalf of institutional
clients across a variety of global benchmarks.
Before joining Northern Trust in 2007, he worked at The
Bank of New York Mellon and Morgan Stanley in a
variety of roles supporting equity trading and portfolio
management.
■
Equity Portfolio Manager, US Passive Equities: New York.
■
BS in Finance, Yeshiva University.
Xtrackers MSCI Eurozone Hedged Equity ETF
The following Portfolio Managers are primarily responsible
for the day-to-day management of the fund. Each Portfolio
Manager functions as a member of a portfolio
management team.
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
■
Joined DWS in 2011 with 11 years of industry experience.
Prior to joining DWS, he worked in ETF
management at XShares Advisors, an ETF issuer based
in New York, and before that he served as an equity
analyst for Fairhaven Capital LLC, a long/short equity
fund.
■
Head of Passive Portfolio Management, Americas: New
York.
■
BS in Finance, Boston College.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
■
Joined DWS in 2016 with 16 years of industry experience.
Prior to joining DWS, he was the head of Northern
Trust’s Equity Index, ETF, and Overlay portfolio management
team in Chicago, managing portfolios for North
American based clients. His time at Northern Trust
included working in New York, Chicago, and in Hong
Kong building a portfolio management desk. Prior to
joining Northern Trust in 2003, he participated in the
Deutsche Asset Management graduate training
program. He rotated through the domestic fixed income
and US structured equity fund management groups.
■
Lead Equity Portfolio Manager, US Passive Equities:
New York.
■
BS in Finance, Rutgers University.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
■
Joined DWS in 2017 with 13 years of industry experience.
Prior to joining DWS, Mr. Bassous worked at
Northern Trust where he filled a variety of operational
functions supporting portfolio management. In 2010 he
began managing equity portfolios on behalf of institutional
clients across a variety of global benchmarks.
Before joining Northern Trust in 2007, he worked at The
Bank of New York Mellon and Morgan Stanley in a
variety of roles supporting equity trading and portfolio
management.
■
Equity Portfolio Manager, US Passive Equities: New York.
■
BS in Finance, Yeshiva University.
Xtrackers Japan JPX-Nikkei 400 Equity ETF
The following Portfolio Managers are primarily responsible
for the day-to-day management of the fund. Each Portfolio
Manager functions as a member of a portfolio
management team.
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
■
Joined DWS in 2011 with 11 years of industry experience.
Prior to joining DWS, he worked in ETF
management at XShares Advisors, an ETF issuer based
in New York, and before that he served as an equity
analyst for Fairhaven Capital LLC, a long/short equity
fund.
■
Head of Passive Portfolio Management, Americas: New
York.
■
BS in Finance, Boston College.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
Prospectus
October 1, 2020
|
176
|
Fund Details
|
■
Joined DWS in 2016 with 16 years of industry experience.
Prior to joining DWS, he was the head of Northern
Trust’s Equity Index, ETF, and Overlay portfolio management
team in Chicago, managing portfolios for North
American based clients. His time at Northern Trust
included working in New York, Chicago, and in Hong
Kong building a portfolio management desk. Prior to
joining Northern Trust in 2003, he participated in the
Deutsche Asset Management graduate training
program. He rotated through the domestic fixed income
and US structured equity fund management groups.
■
Lead Equity Portfolio Manager, US Passive Equities:
New York.
■
BS in Finance, Rutgers University.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
■
Joined DWS in 2017 with 13 years of industry experience.
Prior to joining DWS, Mr. Bassous worked at
Northern Trust where he filled a variety of operational
functions supporting portfolio management. In 2010 he
began managing equity portfolios on behalf of institutional
clients across a variety of global benchmarks.
Before joining Northern Trust in 2007, he worked at The
Bank of New York Mellon and Morgan Stanley in a
variety of roles supporting equity trading and portfolio
management.
■
Equity Portfolio Manager, US Passive Equities: New York.
■
BS in Finance, Yeshiva University.
Each fund’s Statement of Additional Information provides
additional information about a portfolio manager’s investments
in each fund, a description of the portfolio
management compensation structure and information
regarding other accounts managed.
Prospectus
October 1, 2020
|
177
|
Fund Details
|
Additional shareholder information, including how to buy
and sell shares of a fund, is available free of charge by
calling toll-free: 1-855-329-3837 (1-855-DBX-ETFS) or
visiting our website at Xtrackers.com.
Buying and Selling Shares
Shares of a fund are listed for trading on a national securities
exchange during the trading day. Shares can be
bought and sold throughout the trading day at market
prices like shares of other publicly-traded companies. The
Trust does not impose any minimum investment for shares
of a fund purchased on an exchange. Buying or selling
fund shares involves two types of costs that may apply to
all securities transactions. When buying or selling shares
of a fund through a broker, you will likely incur a brokerage
commission or other charges determined by your broker.
In addition, you may incur the cost of the
“
spread
”
– that
is, any difference between the bid price and the ask price.
The commission is frequently a fixed amount and may be
a significant proportional cost for investors seeking to buy
or sell small amounts of shares. The spread varies over
time for shares of a fund based on its trading volume and
market liquidity, and is generally lower if a fund has a lot of
trading volume and market liquidity and higher if a fund
has little trading volume and market liquidity.
Shares of a fund may be acquired or redeemed directly
from a fund only in Creation Units or multiples thereof, as
discussed in the section of this Prospectus entitled
“
Creations and Redemptions.
”
Only an AP may engage in
creation or redemption transactions directly with a fund.
Once created, shares of a fund generally trade in the
secondary market in amounts less than a Creation Unit.
The Board has evaluated the risks of market timing activities
by a fund’s shareholders. The Board noted that shares
of a fund can only be purchased and redeemed directly
from the fund in Creation Units by APs and that the vast
majority of trading in a fund’s shares occurs on the
secondary market. Because the secondary market trades
do not involve a fund directly, it is unlikely those trades
would cause many of the harmful effects of market timing,
including dilution, disruption of portfolio management,
increases in a fund’s trading costs and the realization of
capital gains. With regard to the purchase or redemption of
Creation Units directly with a fund, to the extent effected
in-kind (i.e., for securities), such trades do not cause any of
the harmful effects (as previously noted) that may result
from frequent cash trades. To the extent trades are
effected in whole or in part in cash, the Board noted that
such trades could result in dilution to a fund and increased
transaction costs, which could negatively impact a fund’s
ability to achieve its investment objective. However, the
Board noted that direct trading by APs is critical to ensuring
that a fund’s shares trade at or close to NAV. In addition,
a fund imposes both fixed and variable transaction fees on
purchases and redemptions of fund shares to cover the
custodial and other costs incurred by a fund in effecting
trades. These fees increase if an investor substitutes cash
in part or in whole for securities, reflecting the fact that
a fund’s trading costs increase in those circumstances.
Given this structure, the Board determined that with
respect to a fund it is not necessary to adopt policies and
procedures to detect and deter market timing of a fund’s
shares.
The 1940 Act imposes certain restrictions on investments
by registered investment companies in the securities of
other investment companies, such as the funds. Registered
investment companies are permitted to invest in a
fund beyond applicable 1940 Act limitations, subject to
certain terms and conditions set forth in an SEC exemptive
order issued to the Trust, including that such
investment companies enter into an agreement with the
Trust.
Shares of a fund trade on the exchange and under the
ticker symbol as shown in the table below.
Prospectus
October 1, 2020
|
178
|
Investing in the Funds
|
|
|
|
Xtrackers MSCI
Emerging
Markets Hedged Equity
ETF
|
|
|
Xtrackers MSCI EAFE
Hedged
Equity ETF
|
|
|
Xtrackers MSCI
Germany
Hedged Equity ETF
|
|
|
Xtrackers MSCI Japan
Hedged
Equity ETF
|
|
|
Xtrackers MSCI Europe
Hedged Equity ETF
|
|
|
Xtrackers MSCI All
World ex
US Hedged Equity ETF
|
|
|
Xtrackers MSCI All
World ex
US High Dividend Yield
Equity ETF
|
|
|
Xtrackers MSCI EAFE
High
Dividend Yield Equity
ETF
|
|
|
Xtrackers Eurozone
Equity ETF
|
|
|
Xtrackers MSCI
Eurozone
Hedged Equity ETF
|
|
|
Xtrackers Japan
JPX-Nikkei
400 Equity ETF
|
|
|
Book Entry
Shares of a fund are held in book-entry form, which means
that no stock certificates are issued. The Depository Trust
Company (
“
DTC
”
) or its nominee is the record owner of all
outstanding shares of a fund and is recognized as the
owner of all shares for all purposes.
Investors owning shares of a fund are beneficial owners as
shown on the records of DTC or its participants. DTC
serves as the securities depository for shares of a fund.
DTC participants include securities brokers and dealers,
banks, trust companies, clearing corporations and other
institutions that directly or indirectly maintain a custodial
relationship with DTC. As a beneficial owner of shares, you
are not entitled to receive physical delivery of stock certificates
or to have shares registered in your name, and you
are not considered a registered owner of shares. Therefore,
to exercise any right as an owner of shares, you must
rely upon the procedures of DTC and its participants.
These procedures are the same as those that apply to any
other securities that you hold in book-entry or
“
street
name
”
form.
Share Prices
The trading prices of a fund’s shares in the secondary
market generally differ from a fund’s daily NAV per share
and are affected by market forces such as supply and
demand, economic conditions and other factors. Information
regarding the intraday value of shares of a fund, also
known as the
“
indicative optimized portfolio value
”
(
“
IOPV
”
), is disseminated every 15 seconds throughout
the trading day by the national securities exchange on
which a fund’s shares are listed or by market data vendors
or other information providers. The IOPV is based on the
current market value of the securities and/or cash required
to be deposited in exchange for a Creation Unit. The IOPV
does not necessarily reflect the precise composition of the
current portfolio of securities held by a fund at a particular
point in time nor the best possible valuation of the current
portfolio. Therefore, the IOPV should not be viewed as a
“
real-time
”
update of the NAV, which is computed only
once a day. The IOPV is generally determined by using both
current market quotations and/or price quotations obtained
from broker-dealers that may trade in the portfolio securities
held by a fund. The quotations of certain fund holdings
may not be updated during US trading hours if such holdings
do not trade in the US. Each fund is not involved in, or
responsible for, the calculation or dissemination of the
IOPV and makes no representation or warranty as to its
accuracy.
Determination of Net Asset Value
The NAV of each fund is generally determined once daily
Monday through Friday as of the regularly scheduled close
of business of the New York Stock Exchange (
“
NYSE
”
)
(normally 4:00 p.m., Eastern time) on each day that the
NYSE is open for trading, provided that (a) any fund assets
or liabilities denominated in currencies other than the US
dollar are translated into US dollars at the prevailing market
rates on the date of valuation as quoted by one or more
data service providers (as detailed below) and (b) US fixed-income
assets may be valued as of the announced closing
time for trading in fixed-income instruments in a particular
market or exchange. NAV is calculated by deducting all
of the fund’s liabilities from the total value of its assets and
dividing the result by the number of shares outstanding,
rounding to the nearest cent. All valuations are subject to
review by the Trust’s Board or its delegate.
In determining NAV, expenses are accrued and applied
daily and securities and other assets for which market
quotations are available are valued at market value. Equity
investments are valued at market value, which is generally
determined using the last reported official closing or
last trading price on the exchange or market on which the
security is primarily traded at the time of valuation. Debt
securities’ values are based on price quotations or other
equivalent indications of value provided by a third-party
pricing service. Any such third-party pricing service may
use a variety of methodologies to value some or all of a
fund’s debt securities to determine the market price. For
Prospectus
October 1, 2020
|
179
|
Investing in the Funds
|
example, the prices of securities with characteristics
similar to those held by a fund may be used to assist with
the pricing process. In addition, the pricing service may
use proprietary pricing models. In certain cases, some of a
fund’s debt securities may be valued at the mean between
the last available bid and ask prices for such securities or, if
such prices are not available, at prices for securities of
comparable maturity, quality, and type. Short- term securities
for which market quotations are not readily available
are valued at amortized cost, which approximates market
value. Money market securities maturing in 60 days or less
will be valued at amortized cost. The approximate value
of shares of the applicable fund, an amount representing
on a per share basis the sum of the current value of the
deposit securities based on their then current market price
and the estimated cash component will be disseminated
every 15 seconds throughout the trading day through the
facilities of the Consolidated Tape Association. As the
respective international local markets close, the market
value of the deposit securities will continue to be updated
for foreign exchange rates for the remainder of the US
trading day at the prescribed 15 second intervals. With
respect to Xtrackers MSCI All World ex US High Dividend
Yield Equity ETF, Xtrackers MSCI EAFE High Dividend Yield
Equity ETF, Xtrackers Eurozone Equity ETF and Xtrackers
Japan JPX-Nikkei 400 Equity ETF (the
“
Non-Currency
Hedged Funds
”
), foreign currency exchange rates with
respect to the fund’s non-US securities are generally determined
as of 4:00 p.m., London time. Generally, trading in
non-US securities, US government securities, money
market instruments and certain fixed-income securities is
substantially completed each day at various times prior
to the close of business on the NYSE. The values of such
securities used in computing the NAV of the Non-Currency
Hedged Funds are determined as of such times. The value
of each Underlying Index will not be calculated and
disseminated intra-day. The value and return of each Underlying
Index is calculated once each trading day by the
Index Provider based on prices received from the respective
international local markets. In addition, with respect to
the Non-Currency Hedged Funds, the value of assets or
liabilities denominated in non-US currencies will be
converted into US dollars using prevailing market rates on
the date of the valuation as quoted by one or more data
service providers. Use of a rate different from the rate
used by the Index Provider (to the extent the Index
Provider calculates a US dollar value for the Underlying
Index) may adversely affect the fund’s ability to track its
Underlying Index.
If a security’s market price is not readily available or does
not otherwise accurately reflect the fair value of the security,
the security will be valued by another method that
the Advisor believes will better reflect fair value in accordance
with the Trust’s valuation policies and procedures
approved by the Board. Each fund may use fair value
pricing in a variety of circumstances, including but not
limited to, situations when the value of a security in a
fund’s portfolio has been materially affected by events
occurring after the close of the market on which the security
is principally traded (such as a corporate action or other
news that may materially affect the price of a security) or
trading in a security has been suspended or halted. Fair
value pricing involves subjective judgments and it is
possible that a fair value determination for a security is
materially different from the value that could be realized
upon the sale of the security. In addition, fair value pricing
could result in a difference between the prices used to
calculate a fund’s NAV and the prices used by the fund’s
Underlying Index. This may adversely affect a fund’s ability
to track its Underlying Index. With respect to securities
that are primarily listed on foreign exchanges, the value of
a fund’s portfolio securities may change on days when
you will not be able to purchase or sell your shares.
Creations and Redemptions
Prior to trading in the secondary market, shares of the
funds are
“
created
”
at NAV by market makers, large investors
and institutions only in block-size Creation Units of
50,000 shares or multiples thereof (
“
Creation Units
”
). The
size of a Creation Unit will be subject to change. Each
“
creator
”
or AP (which must be a DTC participant) enters
into an authorized participant agreement (
“
Authorized
Participant Agreement
”
) with the fund’s distributor, ALPS
Distributors, Inc. (the
“
Distributor
”
), subject to acceptance
by the Transfer Agent. Only an AP may create or redeem
Creation Units. Creation Units generally are issued and
redeemed in exchange for a specific basket of securities
approximating the holdings of a fund and a designated
amount of cash. Because certain funds invest a portion of
its assets in forward currency contracts, those funds may
pay out a portion of its redemption proceeds in cash rather
than through the in-kind delivery of portfolio securities.
Except when aggregated in Creation Units, shares are not
redeemable by the fund. The prices at which creations
and redemptions occur are based on the next calculation
of NAV after an order is received in a form described in the
Authorized Participant Agreement.
Additional information about the procedures regarding
creation and redemption of Creation Units (including the
cut-off times for receipt of creation and redemption orders)
is included in the SAI.
Each fund intends to comply with the US federal securities
laws in accepting securities for deposits and satisfying
redemptions with redemption securities, including that the
securities accepted for deposits and the securities used
to satisfy redemption requests will be sold in transactions
that would be exempt from registration under the Securities
Act of 1933, as amended (
“
1933 Act
”
). Further, an AP
that is not a
“
qualified institutional buyer,
”
as such term is
defined under Rule 144A under the 1933 Act, will not be
able to receive fund securities that are restricted securities
eligible for resale under Rule 144A.
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|
Dividends and Distributions
General Policies.
Dividends from net investment income, if
any, are generally declared and paid semi-annually by each
fund. Distributions of net realized capital gains, if any,
generally are declared and paid once a year, but the Trust
may make distributions on a more frequent basis for a
fund. The Trust reserves the right to declare special distributions
if, in its reasonable discretion, such action is
necessary or advisable to preserve its status as a regulated
investment company or to avoid imposition of income
or excise taxes on undistributed income or realized gains.
Dividends and other distributions on shares of a fund are
distributed on a pro rata basis to beneficial owners of such
shares. Dividend payments are made through DTC participants
and indirect participants to beneficial owners as of
the record date with proceeds received from a fund.
Dividend Reinvestment Service.
No dividend reinvestment
service is provided by the Trust. Broker-dealers may make
available the DTC book-entry Dividend Reinvestment
Service for use by beneficial owners of a fund for reinvestment
of their dividend distributions. Beneficial owners
should contact their broker to determine the availability
and costs of the service and the details of participation
therein. Brokers may require beneficial owners to adhere
to specific procedures and timetables. If this service is
available and used, dividend distributions of both income
and realized gains will be automatically reinvested in additional
whole shares of a fund purchased in the secondary
market.
Taxes
As with any investment, you should consider how your
investment in shares of a fund will be taxed. The tax information
in this Prospectus is provided as general
information. You should consult your own tax professional
about the tax consequences of an investment in shares
of a fund.
Unless your investment in fund shares is made through a
tax-exempt entity or tax-deferred retirement account, such
as an IRA, you need to be aware of the possible tax consequences
when a fund makes distributions or you sell fund
shares.
Taxes on Distributions
Distributions from a fund’s net investment income (other
than qualified dividend income), including distributions
of income from securities lending and distributions out of
the fund’s net short-term capital gains, if any, are taxable to
you as ordinary income. Distributions by a fund of net long-term
capital gains in excess of net short-term capital
losses (capital gain dividends) are taxable to you as long-
term capital gains, regardless of how long you have held
such fund’s shares. Distributions by a fund that qualify as
qualified dividend income are taxable to you at long-term
capital gain rates. The maximum individual rate applicable
to
“
qualified dividend income
”
and long-term capital gains
is generally either 15% or 20%, depending on whether
the individual’s income exceeds certain threshold
amounts.
Dividends are eligible to be qualified dividend income to
you, if you meet certain holding period requirements
discussed below, if they are attributable to qualified dividend
income received by a fund. Generally, qualified
dividend income includes dividend income from taxable
US corporations and qualified non-US corporations,
provided that a fund satisfies certain holding period
requirements in respect of the stock of such corporations
and has not hedged its position in the stock in certain
ways. For this purpose, a qualified non-US corporation
means any non-US corporation that is eligible for benefits
under a comprehensive income tax treaty with the United
States which includes an exchange of information program
or if the stock with respect to which the dividend was paid
is readily tradable on an established United States security
market. The term excludes a corporation that is a passive
foreign investment company.
Dividends received by a fund from a real estate investment
trust (
“
REIT
”
) or another RIC generally are qualified
dividend income only to the extent the dividend distributions
are made out of qualified dividend income received
by such REIT or RIC. It is expected that dividends received
by a fund from a REIT and distributed to a shareholder
generally will be taxable to the shareholder as ordinary
income and eligible for a special 20% deduction by shareholders
if so reported by the fund.
For a dividend to be treated as qualified dividend income,
the dividend must be received with respect to a share
of stock held without being hedged by a fund, and to a
share of the fund held without being hedged by you, for 61
days during the 121-day period beginning at the date
which is 60 days before the date on which such share
becomes ex- dividend with respect to such dividend or in
the case of certain preferred stock 91 days during the
181-day period beginning 90 days before such date.
In general, your distributions are subject to US federal
income tax for the year when they are paid. Certain distributions
paid in January, however, may be treated as paid
on December 31 of the prior year.
If a fund’s distributions exceed current and accumulated
earnings and profits, all or a portion of the distributions
made in the taxable year may be re-characterized as a
return of capital to shareholders. A return of capital distribution
generally will not be taxable but will reduce the
shareholder’s cost basis and result in a higher capital gain
or lower capital loss when those shares on which the distribution
was received are sold.
If you are neither a resident nor a citizen of the United
States or if you are a non-US entity, a fund’s ordinary
income dividends (which include distributions of net short-
term capital gains) will generally be subject to a 30% US
Prospectus
October 1, 2020
|
181
|
Investing in the Funds
|
withholding tax, unless a lower treaty rate applies,
provided that withholding tax will generally not apply to
any gain or income realized by a non-US shareholder in
respect of any distributions of long-term capital gains or
upon the sale or other disposition of shares of a fund.
Dividends and interest received by a fund with respect to
non-US securities may give rise to withholding and other
taxes imposed by non-US countries. Tax conventions
between certain countries and the United States may
reduce or eliminate such taxes. If more than 50% of the
total assets of a fund at the close of a year consist of
non-US stocks or securities, the fund may
“
pass through
”
to you certain non-US income taxes (including withholding
taxes) paid by the fund. This means that you would be
considered to have received as additional gross income
your share of such non-US taxes, but you may, in such
case, be entitled to either a corresponding tax deduction in
calculating your taxable income, or, subject to certain limitations,
a credit in calculating your US federal income tax.
If you are a resident or a citizen of the United States, by
law, back-up withholding (currently at a rate of 24%) will
apply to your distributions and proceeds if you have not
provided a taxpayer identification number or social security
number and made other required certifications.
Taxes when Shares are Sold
Currently, any capital gain or loss realized upon a sale of
fund shares is generally treated as a long-term gain or loss
if the shares have been held for more than one year. Any
capital gain or loss realized upon a sale of fund shares held
for one year or less is generally treated as short-term gain
or loss, except that any capital loss on the sale of shares
held for six months or less is treated as long-term capital
loss to the extent that capital gain dividends were paid
with respect to such shares.
Medicare Tax
An additional 3.8% Medicare tax is imposed on certain net
investment income (including ordinary dividends and
capital gain distributions received from a fund and net
gains from redemptions or other taxable dispositions of
fund shares) of US individuals, estates and trusts to the
extent that such person’s
“
modified adjusted gross
income
”
(in the case of an individual) or
“
adjusted gross
income
”
(in the case of an estate or trust) exceeds certain
threshold amounts.
The foregoing discussion summarizes some of the consequences
under current US federal tax law of an
investment in a fund. It is not a substitute for personal tax
advice. You may also be subject to state and local taxation
on fund distributions and sales of shares. Consult your
personal tax advisor about the potential tax consequences
of an investment in shares of a fund under all applicable
tax laws.
Authorized Participants and the Continuous Offering of
Shares
Because new shares may be created and issued on an
ongoing basis, at any point during the life of a fund a
“
distribution,
”
as such term is used in the 1933 Act, may be
occurring. Broker-dealers and other persons are cautioned
that some activities on their part may, depending on the
circumstances, result in their being deemed participants in
a distribution in a manner that could render them statutory
underwriters and subject to the prospectus delivery
and liability provisions of the 1933 Act. Any determination
of whether one is an underwriter must take into account
all the relevant facts and circumstances of each particular
case.
Broker-dealers should also note that dealers who are not
“
underwriters
”
but are participating in a distribution (as
contrasted to ordinary secondary transactions), and thus
dealing with shares that are part of an
“
unsold allotment
”
within the meaning of Section 4(3)(C) of the 1933 Act,
would be unable to take advantage of the prospectus
delivery exemption provided by Section 4(3) of the 1933
Act. For delivery of prospectuses to exchange members,
the prospectus delivery mechanism of Rule 153 under the
1933 Act is available only with respect to transactions on
a national securities exchange.
Certain affiliates of a fund and the Advisor may purchase
and resell fund shares pursuant to this Prospectus.
Transaction Fees
APs are charged standard creation and redemption transaction
fees to offset transfer and other transaction costs
associated with the issuance and redemption of Creation
Units. Purchasers and redeemers of Creation Units for
cash are required to pay an additional variable charge (up
to a maximum of 2% for redemptions, including the standard
redemption fee) to compensate for brokerage and
market impact expenses. The standard creation and
redemption transaction fee for each fund is set forth in the
table below. The maximum redemption fee, as a
percentage of the amount redeemed, is 2%.
Prospectus
October 1, 2020
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|
Investing in the Funds
|
|
|
Xtrackers MSCI Emerging
Markets Hedged Equity ETF
|
|
Xtrackers MSCI EAFE Hedged
Equity ETF
|
|
Xtrackers MSCI Germany
Hedged Equity ETF
|
|
Xtrackers MSCI Japan
Hedged Equity ETF
|
|
Xtrackers MSCI Europe
Hedged Equity ETF
|
|
Xtrackers MSCI All World ex
US Hedged Equity ETF
|
|
Xtrackers MSCI All World ex
US High Dividend Yield Equity
ETF
|
|
Xtrackers MSCI EAFE High
Dividend Yield Equity ETF
(1)
|
|
Xtrackers Eurozone Equity
ETF
|
|
Xtrackers MSCI Eurozone
Hedged Equity ETF
|
|
Xtrackers Japan JPX-Nikkei
400 Equity ETF
|
|
(1)
Effective January 30, 2019, the standard and maximum transaction
fees for the creation or redemption of a Creation Unit of the Xtrackers
MSCI EAFE High Dividend Yield Equity ETF will be paid by the fund’s
Advisor. As such, the standard and maximum transaction fees for the
creation or redemption of a Creation Unit of the fund will be reduced from
$900 to $0; however, the Advisor reserves the right to amend or discontinue
this subsidy upon supplement to a fund’s prospectus.
Distribution
The Distributor distributes Creation Units for each fund on
an agency basis. The Distributor does not maintain a
secondary market in shares of a fund. The Distributor has
no role in determining the policies of a fund or the securities
that are purchased or sold by a fund. The Distributor’s
principal address is 1290 Broadway, Suite 1000, Denver,
Colorado 80203.
The Advisor and/or its affiliates may pay additional compensation,
out of their own assets and not as an additional
charge to a fund, to selected affiliated and unaffiliated
brokers, dealers, participating insurance companies or
other financial intermediaries (
“
financial representatives
”
)
in connection with the sale and/or distribution of fund
shares or the retention and/or servicing of fund investors
and fund shares (
“
revenue sharing
”
). For example, the
Advisor and/or its affiliates may compensate financial representatives
for providing a fund with
“
shelf space
”
or
access to a third party platform or fund offering list or other
marketing programs, including, without limitation, inclusion
of a fund on preferred or recommended sales lists,
fund
“
supermarket
”
platforms and other formal sales
programs; granting the Advisor and/ or its affiliates access
to the financial representative’s sales force; granting the
Advisor and/or its affiliates access to the financial representative’s
conferences and meetings; assistance in
training and educating the financial representative’s
personnel; and obtaining other forms of marketing support.
The level of revenue sharing payments made to financial
representatives may be a fixed fee or based upon one
or more of the following factors: gross sales, current
assets and/or number of accounts of a fund attributable to
the financial representative, the particular fund or fund
type or other measures as agreed to by the Advisor and/or
its affiliates and the financial representatives or any combination
thereof. The amount of these revenue sharing
payments is determined at the discretion of the Advisor
and/or its affiliates from time to time, may be substantial,
and may be different for different financial representatives
based on, for example, the nature of the services provided
by the financial representative.
Receipt of, or the prospect of receiving, additional compensation
may influence your financial representative’s
recommendation of a fund. You should review your financial
representative’s compensation disclosure and/or talk to
your financial representative to obtain more information
on how this compensation may have influenced your financial
representative’s recommendation of the fund.
Additional information regarding these revenue sharing
payments is included in a fund’s Statement of Additional
Information, which is available to you on request at no
charge (see the back cover of this Prospectus for more
information on how to request a copy of the Statement of
Additional Information).
It is possible that broker-dealers that execute portfolio transactions
for a fund will also sell shares of a fund to their
customers. However, the Advisor will not consider the sale
of fund shares as a factor in the selection of broker-dealers
to execute portfolio transactions for a fund. Accordingly,
the Advisor has implemented policies and procedures
reasonably designed to prevent its traders from considering
sales of fund shares as a factor in the selection of
broker-dealers to execute portfolio transactions for a fund.
In addition, the Advisor and/or its affiliates will not use
fund brokerage to pay for their obligation to provide additional
compensation to financial representatives as
described above.
Premium/Discount Information
Information regarding how often shares of each fund
traded on NYSE Arca or Cboe at a price above (i.e., at a
premium) or below (i.e., at a discount) the NAV of each
fund during the past calendar year can be found at
Xtrackers.com.
Prospectus
October 1, 2020
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Investing in the Funds
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The financial highlights are designed to help you understand recent financial performance. The figures in the first part of
each table are for a single share. The total return figures represent the percentage that an investor in a fund would have
earned (or lost), assuming all dividends and distributions were reinvested. This information has been audited by Ernst &
Young LLP, independent registered public accounting firm, whose report, along with each fund’s financial statements, is
included in each fund’s Annual Report (see
“
For More Information
”
on the back cover).
Xtrackers MSCI Emerging Markets Hedged Equity ETF
|
|
|
|
|
|
|
|
|
Net Asset Value, beginning of year
|
|
|
|
|
|
Income (loss) from investment operations:
|
|
|
|
|
|
Net investment income (loss)
a
|
|
|
|
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
|
Total from investment operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, end of year
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets and Supplemental Data
|
Net Assets, end of year ($ millions)
|
|
|
|
|
|
Ratio of expenses before fee waiver (%)
|
|
|
|
|
|
Ratio of expenses after fee waiver (%)
|
|
|
|
|
|
Ratio of net investment income (loss) (%)
|
|
|
|
|
|
Portfolio turnover rate (%)
c
|
|
|
|
|
|
a
Based on average shares outstanding during the period.
b
Total Return would have been lower if certain expenses had not been reimbursed by the Advisor.
c
Portfolio turnover rate does not include securities received or delivered from processing creations or redemptions.
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October 1, 2020
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184
|
Financial Highlights
|
Xtrackers MSCI EAFE Hedged Equity ETF
|
|
|
|
|
|
|
|
|
Net Asset Value, beginning of year
|
|
|
|
|
|
Income (loss) from investment operations:
|
|
|
|
|
|
Net investment income (loss)
a
|
|
|
|
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
|
Total from investment operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, end of year
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets and Supplemental Data
|
Net Assets, end of year ($ millions)
|
|
|
|
|
|
Ratio of expenses before fee waiver (%)
|
|
|
|
|
|
Ratio of expenses after fee waiver (%)
|
|
|
|
|
|
Ratio of net investment income (loss) (%)
|
|
|
|
|
|
Portfolio turnover rate (%)
c
|
|
|
|
|
|
a
Based on average shares outstanding during the period.
b
Total Return would have been lower if certain expenses had not been reimbursed by the Advisor.
c
Portfolio turnover rate does not include securities received or delivered from processing creations or redemptions.
Xtrackers MSCI Germany Hedged Equity ETF
|
|
|
|
|
|
|
|
|
Net Asset Value, beginning of year
|
|
|
|
|
|
Income (loss) from investment operations:
|
|
|
|
|
|
Net investment income (loss)
a
|
|
|
|
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
|
Total from investment operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, end of year
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets and Supplemental Data
|
Net Assets, end of year ($ millions)
|
|
|
|
|
|
Ratio of expenses before fee waiver (%)
|
|
|
|
|
|
Ratio of expenses after fee waiver (%)
|
|
|
|
|
|
Ratio of net investment income (loss) (%)
|
|
|
|
|
|
Portfolio turnover rate (%)
c
|
|
|
|
|
|
a
Based on average shares outstanding during the period.
b
Total Return would have been lower if certain expenses had not been reimbursed by the Advisor.
c
Portfolio turnover rate does not include securities received or delivered from processing creations or redemptions.
Prospectus
October 1, 2020
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|
Financial Highlights
|
Xtrackers MSCI Japan Hedged Equity ETF
|
|
|
|
|
|
|
|
|
Net Asset Value, beginning of year
|
|
|
|
|
|
Income (loss) from investment operations:
|
|
|
|
|
|
Net investment income (loss)
a
|
|
|
|
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
|
Total from investment operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, end of year
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets and Supplemental Data
|
Net Assets, end of year ($ millions)
|
|
|
|
|
|
Ratio of expenses before fee waiver (%)
|
|
|
|
|
|
Ratio of expenses after fee waiver (%)
|
|
|
|
|
|
Ratio of net investment income (loss) (%)
|
|
|
|
|
|
Portfolio turnover rate (%)
c
|
|
|
|
|
|
a
Based on average shares outstanding during the period.
b
Total Return would have been lower if certain expenses had not been reimbursed by the Advisor.
c
Portfolio turnover rate does not include securities received or delivered from processing creations or redemptions.
Prospectus
October 1, 2020
|
186
|
Financial Highlights
|
Xtrackers MSCI Europe Hedged Equity ETF
|
|
|
|
|
|
|
|
|
Net Asset Value, beginning of year
|
|
|
|
|
|
Income (loss) from investment operations:
|
|
|
|
|
|
Net investment income (loss)
a
|
|
|
|
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
|
Total from investment operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, end of year
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets and Supplemental Data
|
Net Assets, end of year ($ millions)
|
|
|
|
|
|
Ratio of expenses before fee waiver (%)
|
|
|
|
|
|
Ratio of expenses after fee waiver (%)
|
|
|
|
|
|
Ratio of net investment income (loss) (%)
|
|
|
|
|
|
Portfolio turnover rate (%)
d
|
|
|
|
|
|
a
Based on average shares outstanding during the period.
b
Because of the timing of subscriptions and redemptions in relation to fluctuating markets at value, the amount
shown may not agree with the change in aggregate gains and losses.
c
Total Return would have been lower if certain expenses had not been reimbursed by the Advisor.
d
Portfolio turnover rate does not include securities received or delivered from processing creations or redemptions.
Prospectus
October 1, 2020
|
187
|
Financial Highlights
|
Xtrackers MSCI All World ex US Hedged Equity ETF
|
|
|
|
|
|
|
|
|
Net Asset Value, beginning of year
|
|
|
|
|
|
Income (loss) from investment operations:
|
|
|
|
|
|
Net investment income (loss)
a
|
|
|
|
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
|
Total from investment operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, end of year
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets and Supplemental Data
|
Net Assets, end of year ($ millions)
|
|
|
|
|
|
Ratio of expenses before fee waiver (%)
|
|
|
|
|
|
Ratio of expenses after fee waiver (%)
|
|
|
|
|
|
Ratio of net investment income (loss) (%)
|
|
|
|
|
|
Portfolio turnover rate (%)
c
|
|
|
|
|
|
a
Based on average shares outstanding during the period.
b
Total Return would have been lower if certain expenses had not been reimbursed by the Advisor.
c
Portfolio turnover rate does not include securities received or delivered from processing creations or redemptions.
Prospectus
October 1, 2020
|
188
|
Financial Highlights
|
Xtrackers MSCI All World ex US High Dividend Yield Equity ETF
|
|
|
|
|
|
|
|
|
|
Net Asset Value, beginning of period
|
|
|
|
|
|
Income (loss) from investment operations:
|
|
|
|
|
|
Net investment income (loss)
b
|
|
|
|
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
|
Total from investment operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
|
|
|
|
|
Net Asset Value, end of period
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets and Supplemental Data
|
Net Assets, end of period ($ millions)
|
|
|
|
|
|
Ratio of expenses before fee waiver (%)
|
|
|
|
|
|
Ratio of expenses after fee waiver (%)
|
|
|
|
|
|
Ratio of net investment income (loss) (%)
|
|
|
|
|
|
Portfolio turnover rate (%)
d
|
|
|
|
|
|
a
For the period August 12, 2015 (commencement of operations) through May 31, 2016.
b
Based on average shares outstanding during the period.
c
Total Return would have been lower if certain expenses had not been reimbursed by the Advisor.
d
Portfolio turnover rate does not include securities received or delivered from processing creations or redemptions.
Prospectus
October 1, 2020
|
189
|
Financial Highlights
|
Xtrackers MSCI EAFE High Dividend Yield Equity ETF
|
|
|
|
|
|
|
|
|
|
Net Asset Value, beginning of period
|
|
|
|
|
|
Income (loss) from investment operations:
|
|
|
|
|
|
Net investment income (loss)
b
|
|
|
|
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
|
Total from investment operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, end of period
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets and Supplemental Data
|
Net Assets, end of period ($ millions)
|
|
|
|
|
|
Ratio of expenses before fee waiver (%)
|
|
|
|
|
|
Ratio of expenses after fee waiver (%)
|
|
|
|
|
|
Ratio of net investment income (loss) (%)
|
|
|
|
|
|
Portfolio turnover rate (%)
d
|
|
|
|
|
|
a
For the period August 12, 2015 (commencement of operations) through May 31, 2016.
b
Based on average shares outstanding during the period.
c
Total Return would have been lower if certain expenses had not been reimbursed by the Advisor.
d
Portfolio turnover rate does not include securities received or delivered from processing creations or redemptions.
e
The Fund’s total return includes a reimbursement by the Advisor for a realized loss on a trade executed incorrectly, which otherwise would have
reduced total return by 0.32%.
Prospectus
October 1, 2020
|
190
|
Financial Highlights
|
Xtrackers Eurozone Equity ETF
|
|
|
|
|
|
|
|
|
|
Net Asset Value, beginning of period
|
|
|
|
|
|
Income (loss) from investment operations:
|
|
|
|
|
|
Net investment income (loss)
b
|
|
|
|
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
|
Total from investment operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, end of period
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets and Supplemental Data
|
Net Assets, end of period ($ millions)
|
|
|
|
|
|
Ratio of expenses before fee waiver (%)
|
|
|
|
|
|
Ratio of expenses after fee waiver (%)
|
|
|
|
|
|
Ratio of net investment income (loss) (%)
|
|
|
|
|
|
Portfolio turnover rate (%)
d
|
|
|
|
|
|
a
For the period August 19, 2015 (commencement of operations) through May 31, 2016.
b
Based on average shares outstanding during the period.
c
Total Return would have been lower if certain expenses had not been reimbursed by the Advisor.
d
Portfolio turnover rate does not include securities received or delivered from processing creations or redemptions.
Prospectus
October 1, 2020
|
191
|
Financial Highlights
|
Xtrackers MSCI Eurozone Hedged Equity ETF
|
|
|
|
|
|
|
|
|
Net Asset Value, beginning of year
|
|
|
|
|
|
Income (loss) from investment operations:
|
|
|
|
|
|
Net investment income (loss)
a
|
|
|
|
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
|
Total from investment operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, end of year
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets and Supplemental Data
|
Net Assets, end of year ($ millions)
|
|
|
|
|
|
Ratio of expenses before fee waiver (%)
|
|
|
|
|
|
Ratio of expenses after fee waiver (%)
|
|
|
|
|
|
Ratio of net investment income (loss) (%)
|
|
|
|
|
|
Portfolio turnover rate (%)
d
|
|
|
|
|
|
a
Based on average shares outstanding during the period.
b
Because of the timing of subscriptions and redemptions in relation to fluctuating markets at value, the amount
shown may not agree with the change in aggregate gains and losses.
c
Total Return would have been lower if certain expenses had not been reimbursed by the Advisor.
d
Portfolio turnover rate does not include securities received or delivered from processing creations or redemptions.
Prospectus
October 1, 2020
|
192
|
Financial Highlights
|
Xtrackers Japan JPX-Nikkei 400 Equity ETF
|
|
|
|
|
|
|
|
|
|
Net Asset Value, beginning of period
|
|
|
|
|
|
Income (loss) from investment operations:
|
|
|
|
|
|
Net investment income (loss)
c
|
|
|
|
|
|
Net realized and unrealized gain (loss)
|
|
|
|
|
|
Total from investment operations
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Asset Value, end of period
|
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets and Supplemental Data
|
Net Assets, end of period ($ millions)
|
|
|
|
|
|
Ratio of expenses before fee waiver (%)
|
|
|
|
|
|
Ratio of expenses after fee waiver (%)
|
|
|
|
|
|
Ratio of net investment income (loss) (%)
|
|
|
|
|
|
Portfolio turnover rate (%)
g
|
|
|
|
|
|
a
For the period June 24, 2015 (commencement of operations) through May 31, 2016.
c
Based on average shares outstanding during the period.
d
Because of the timing of subscriptions and redemptions in relation to fluctuating markets at value, the amount shown may not agree with the change
in aggregate gains and losses.
e
Total Return would have been lower if certain expenses had not been reimbursed by the Advisor.
f
The Fund’s total return includes a reimbursement by the Advisor for a realized loss on a trade executed incorrectly, which otherwise would have
reduced total return by 0.22%.
g
Portfolio turnover rate does not include securities received or delivered from processing creations or redemptions.
Prospectus
October 1, 2020
|
193
|
Financial Highlights
|
Index Providers and Licenses
MSCI, Inc. (
“
MSCI
”
) is a leading provider of global indexes and benchmark related products and services to investors
worldwide. MSCI is not affiliated with the Trust, the Advisor, The Bank of New York Mellon, the Distributor or any of their
respective affiliates.
Nasdaq is responsible for the rules-based methodology of the Nasdaq Indexes. Nasdaq is not affiliated with the Trust, the
Advisor, BNYM, the Distributor or any of their respective affiliates. Nasdaq is responsible for administration and calculation
of the Nasdaq Indexes. Nasdaq is responsible for implementing the methodology for the composition of the Nasdaq
Indexes.
The Advisor has entered into a license agreement with each Index Provider to use each Underlying Index. All license fees
are paid by the Advisor out of its own resources and not the assets of a fund.
During extraordinary market conditions, an Index Provider may delay any scheduled rebalancing of an Underlying Index.
During any such delay it is possible that the Underlying Index will deviate from the Underlying Index’s stated methodology.
MSCI Indexes
The MSCI Indexes are calculated and maintained by MSCI Inc. (
“
Index Provider
”
or
“
MSCI
”
). MSCI’s Global Investable
Market Indexes (the
“
MSCI GIMI
”
) provide exhaustive coverage and non-overlapping market segmentation by market capitalization
size, sector and by style segments and combinations thereof.
The MSCI GIMI intends to target approximately 99% coverage of the free float-adjusted market capitalization in each
market of large-, mid- and small-cap securities.
■
MSCI Global Standard Indexes cover all investable large- and mid-cap securities by including approximately 85% of each
market’s free float-adjusted market capitalization.
■
MSCI Global Small Cap Indexes provide coverage to all companies with a market capitalization below that of the companies
in the MSCI Global Standard Indexes by including above and beyond the coverage of the MSCI Global Standard
Indexes.
Under MSCI’s Global Investable Market Index methodology, the small-cap universe consists of securities of those companies
not included in the large-cap or mid- cap segments of a particular market, which together comprise approximately
85% of each market’s free float- adjusted market capitalization. The small cap segment covers the 85%-99% range of
each market’s free float- adjusted market capitalization.
Defining the Equity Universe.
MSCI begins with securities listed in countries in the MSCI Global Index Series. Of these
countries, 23 are classified as developed markets and 26 as emerging markets. All listed equity securities and listed securities
that exhibit characteristics of equity securities, except mutual funds, exchange-traded funds, equity derivatives,
limited partnerships and most investment trusts, are eligible for inclusion in the equity universe. Real estate investment
trusts (
“
REITs
”
) in some countries and certain income trusts in Canada are also eligible for inclusion. Each company and
its securities (i.e., Share classes) are classified in only one country, which allows for a distinctive sorting of each company
by its respective country.
MSCI Hedged Indexes
The MSCI Hedged Indexes are currency hedged versions of the MSCI GIMI Indexes. The MSCI Hedged Indexes are maintained
with an objective of reflecting the evolution of the underlying currency exposures in the MSCI GIMI Indexes on a
timely basis. In particular, index maintenance involves:
■
Resetting the weights of the currencies to be sold in the index; and
■
Rolling the forward contracts over to the next month.
Prospectus
October 1, 2020
|
194
|
Appendix
|
The MSCI Hedged Indexes are rebalanced monthly on the last trading day of the month, when the index will take into
account the effect of rolling into new 1-month forward contracts based on the newly determined weights of currency to
be sold for the next month’s index calculation. The currency weights are determined as of the close of two business days
before the first calendar day of following month and remain constant intra month. This means that no changes in the
weights are made during the month to account for changes in the indexes due to price movement of securities, corporate
events, additions, deletions or any other changes. The daily calculation of MSCI Hedged Indexes marks to market the
one-month forward contracts on a daily basis by using an equal and offsetting forward position.
MSCI High Dividend Yield Indexes
The MSCI High Dividend Yield Indexes exclude REITs. REITs have structurally very high dividend yield and, if included,
would represent a very significant proportion of the MSCI High Dividend Yield Index. Also, typically, regulatory constraints
restrict the inclusion of REITs in meaningful proportions in many institutional portfolios.
Each MSCI High Dividend Yield Index targets companies with high dividend income and quality characteristics and
includes companies that have higher than average dividend yields that are both sustainable and persistent. Index
construction starts with a dividend screening process: only securities with a track record of consistent dividend payments
over the previous four years and with the capacity to sustain dividend payouts into the future are eligible index constituents.
A determination by MSCI that an issuer has the capacity to sustain dividends into the future is no guarantee that
such issuer will continue to distribute dividends. Securities are also screened based on certain
“
quality
”
factors such as
return on equity, earnings variability, debt to equity, and on recent 12-month price performance. The goal is to exclude
stocks with potentially deteriorating fundamentals that could be forced to cut or reduce dividends. From the list of eligible
companies, only those with higher than average dividend yields are selected for inclusion in the index. Issuer weights
are capped at 5%. Each MSCI High Dividend Yield Index is market cap weighted and rebalanced semi-annually in May and
November.
MSCI High Dividend Yield Indexes consider the following:
■
Securities with zero or negative payout ratios are not considered for inclusion in the MSCI High Dividend Yield Indexes
as they either do not pay dividends or have negative earnings which may put their future dividend payments at risk.
Additionally, securities with an extremely high payout ratio, which occurs when earnings are low relative to dividends
and may also indicate that the dividend payment might not be sustainable in the future, are also not considered for inclusion
in the MSCI High Dividend Yield Indexes. Under this screen, securities with extremely high payout ratios, defined
to be the top 5% of securities by number within the universe of securities with positive payout, are not considered
eligible for inclusion in the index. The use of a relative payout ratio screen ensures that the companies at most relative
risk of dividend cuts are excluded irrespective of the absolute level of the payout.
■
Securities with a negative five-year dividend per share (
“
DPS
”
) growth are also excluded from the MSCI High Dividend
Yield Indexes as their dividend growth is shrinking which could be a precursor to lower dividends. In addition, securities
ranked in the bottom 5% of the universe of securities with negative one-year price performance are excluded from
the MSCI High Dividend Yield Indexes.
Securities that have passed the above two screens are then considered for inclusion in the MSCI High Dividend Yield
Indexes. Only securities with a dividend yield greater than or equal to 1.3 times the dividend yield of the Parent Index are
included in the MSCI High Dividend Yield Indexes. For example, MSCI compares the yield of a European security to the
yield of the MSCI Europe Index to determine if it is eligible for inclusion in the MSCI Europe High Dividend Yield Index. By
contrast, MSCI compares the yield of the same security to the yield of the MSCI World Index to determine if it is eligible
for inclusion in the MSCI World High Dividend Yield Index.
Each MSCI High Dividend Yield Index is a free float adjusted market capitalization weighted index. The MSCI Hedged
Indexes, which are the Funds’ Underlying Indexes, are currency-hedged versions of the respective MSCI High Dividend
Yield Indexes.
NASDAQ Indexes
The NASDAQ Eurozone Large Mid Cap Index (the
“
NASDAQ Index
”
) is calculated and maintained by Nasdaq Global
Indexes (
“
Index Provider
”
or
“
Nasdaq
”
). The NASDAQ Indexes are float adjusted market capitalization-weighted indexes.
Defining the Equity Universe.
The selection universe for the NASDAQ Indexes is defined by the constituents of the
NASDAQ Global Index (the
“
Global Index
”
). The Global Index covers approximately 9,000 large-, mid- and small- capitalization
securities which are weighted according to their free float adjusted market capitalization. The Global Index does not
overlap, meaning that all individual securities can only be assigned to one country, one size segment and one sector.
To be initially eligible for inclusion in the NASDAQ Global Index, an index security must meet the following criteria:
■
The index security must have been traded for at least three months on an index eligible global stock exchange;
Prospectus
October 1, 2020
|
195
|
Appendix
|
■
Security types generally eligible for inclusion include common stocks, ordinary shares, depositary receipts, shares of
beneficial interest of REITs and preferred shares. Security types generally not included include closed-end funds, convertible
debentures, exchange- traded funds, limited partnership interests, preferred stock, rights, shares of limited liability
companies, warrants and other derivative securities;
■
Must have a minimum worldwide market capitalization of US $150 million;
■
Must have a minimum three month average daily trading volume of US $100,000;
■
Must have a minimum free float percentage of at least 20%. A security with a free float percentage of less than 20%
but greater than 5% will be eligible for inclusion as long as its free float adjusted market capitalization weight within its
country is greater than 5% of the aggregate weight of the country;
■
The security must have been traded for at least three months on an index eligible stock exchange;
■
The security must be within a country classified as developed or emerging markets; and
■
The security may not be issued by an issuer currently in bankruptcy proceedings.
The NASDAQ Developed Markets Index is a subset of the NASDAQ Global Index and is comprised of the indexes of 25
countries designated as developed markets by the Index Provider. In order to qualify for inclusion in the developed
markets segment, a country must meet the following quantitative criteria:
■
Must have a gross national income per capita of US $20,000 or higher for three consecutive years;
■
Must have a market capitalization of US $30 billion or higher;
■
Volume, or total annual turnover, must be US $10 billion or higher;
■
Must have a minimum free float percentage of at least 45%; and
■
Must have at least 10 index securities that qualify for inclusion in the index.
Each eligible index security is then assigned by Nasdaq to a country which will govern its inclusion into a country,
sub-region, region and segment index based on three categories:
(i)
the index security’s country of incorporation;
(ii)
the index security’s country of domicile; and
(iii)
the index security’s country of primary exchange listing. Generally, if two or more of the categories match, the index
security will be assigned to that country.
At each semi-annual evaluation in March and September, Nasdaq divides the indices into large cap, mid cap, large mid
cap and small cap segments based on cumulative market capitalization weight. Nasdaq utilizes a top-down approach to
assign the index securities into the respective size indexes. The large mid cap index includes index securities with a
market capitalization in the top 90% of the NASDAQ Global Index market capitalization.
Maintaining the Equity Universe.
The NASDAQ Indexes are evaluated semi-annually in March and September to allow
for continued and correct representation of the changing global equity markets.
JPX-Nikkei 400 Index
In order to be eligible for inclusion in the JPX-Nikkei 400 Index, equity securities must meet the following criteria:
(1)
Must have been listed on the following sections of Tokyo Stock Exchange (
“
TSE
”
) for at least three years: the 1
st
section, the 2
nd
section, Mothers or JASDAQ;
(2)
Generally, must be common stocks (non-common stocks may be included in the eligible constituents if they are
regarded as equivalent to common stocks and their inclusion is deemed particularly necessary by the Index
Providers);
(3)
Must have more assets than liabilities for the last three fiscal years;
(4)
Must have no operating or overall deficit in the last three fiscal years;
(5)
No notes to the going concern assumption in the company’s financial statements, and must not have a statement
that there is a significant insufficiency or not possible to release appraisal of internal controls in the company’s
internal control report;
(6)
Are not designated as a security to be de-listed or a security on alert; and
(7)
In the past year, must not have been subject to
(a)
public announcement measures
1
, (b) request for improvement reports for public inspection, or (c) payment of a
penalty for violation of the listing agreement.
The top 1,000 companies that meet the above criteria, ranked by market capitalization, will be selected based on trading
volume during the past three years and current market capitalization as of the base date for selection (typically the last
business day of June). The top 1,000 securities by market capitalization shall be selected in descending order out of the
Prospectus
October 1, 2020
|
196
|
Appendix
|
1,200 securities with the highest trading value in the three years since the base date (such 1,200 securities being the
“
Selection Pool
”
). In cases where less than 1,000 securities are eligible to be selected per this method, the remaining
securities shall be selected by taking the remaining securities in the Selection Pool that have the highest market capitalization
on the base date.
The 1,000 securities selected are then scored according to the ranking of the following three items (i.e., first will be allocated
1,000 points and last will be allocated one point). An overall score is then determined by aggregating those ranking
scores with the following weights:
(1)
Three year return on equity: 40%;
(2)
Three year cumulative operating profit: 40%; and
(3)
Market capitalization on the selection date: 20%.
The 400 highest scoring securities will then be selected as constituents of the Underlying Index and weighted according
to free float (i.e., the amount available for trading) market capitalization. No one Underlying Index component may
comprise more than 1.5% of the Underlying Index as of the base date. The Underlying Index is rebalanced annually in
August.
The Underlying Index is a total return index. A total return index calculates the performance of the index constituents on
the basis that any dividends or distributions are reinvested.
Disclaimers
THE FUNDS ARE NOT SPONSORED, ENDORSED, SOLD OR PROMOTED BY MSCI INC. (
“
MSCI
”
), ANY OF ITS AFFILIATES,
ANY OF ITS INFORMATION PROVIDERS OR ANY OTHER THIRD PARTY INVOLVED IN, OR RELATED TO,
COMPILING, COMPUTING OR CREATING ANY MSCI INDEX (COLLECTIVELY, THE
“
MSCI PARTIES
”
). THE MSCI
INDEXES ARE THE EXCLUSIVE PROPERTY OF MSCI. MSCI AND THE MSCI INDEX NAMES ARE SERVICE MARK(S) OF
MSCI OR ITS AFFILIATES AND HAVE BEEN LICENSED FOR USE FOR CERTAIN PURPOSES BY THE ADVISER. NONE
OF THE MSCI PARTIES MAKES ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE ISSUER OR
OWNERS OF THE FUNDS OR ANY OTHER PERSON OR ENTITY REGARDING THE ADVISABILITY OF INVESTING IN
FUNDS GENERALLY OR IN A FUND PARTICULARLY OR THE ABILITY OF ANY MSCI INDEX TO TRACK CORRESPONDING
STOCK MARKET PERFORMANCE. MSCI OR ITS AFFILIATES ARE THE LICENSORS OF CERTAIN
TRADEMARKS, SERVICE MARKS AND TRADE NAMES AND OF THE MSCI INDEXES WHICH ARE DETERMINED,
COMPOSED AND CALCULATED BY MSCI WITHOUT REGARD TO THE FUNDS OR THE ISSUER OR OWNERS OF THE
FUNDS OR ANY OTHER PERSON OR ENTITY. NONE OF THE MSCI PARTIES HAS ANY OBLIGATION TO TAKE THE
NEEDS OF THE ISSUER OR OWNERS OF THE FUNDS OR ANY OTHER PERSON OR ENTITY INTO CONSIDERATION IN
DETERMINING, COMPOSING OR CALCULATING THE MSCI INDEXES. NONE OF THE MSCI PARTIES IS RESPONSIBLE
FOR OR HAS PARTICIPATED IN THE DETERMINATION OF THE TIMING OF, PRICES AT, OR QUANTITIES OF THE FUNDS
TO BE ISSUED OR IN THE DETERMINATION OR CALCULATION OF THE EQUATION BY OR THE CONSIDERATION INTO
WHICH THE FUNDS ARE REDEEMABLE. FURTHER, NONE OF THE MSCI PARTIES HAS ANY OBLIGATION OR
LIABILITY TO THE ISSUER OR OWNERS OF THE FUNDS OR ANY OTHER PERSON OR ENTITY IN CONNECTION WITH
THE ADMINISTRATION, MARKETING OR OFFERING OF THE FUNDS.
ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE
MSCI INDEXES FROM SOURCES THAT MSCI CONSIDERS RELIABLE, NONE OF THE MSCI PARTIES WARRANTS OR
GUARANTEES THE ORIGINALITY, ACCURACY AND/OR THE COMPLETENESS OF ANY MSCI INDEX OR ANY DATA
INCLUDED THEREIN. NONE OF THE MSCI PARTIES MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS
TO BE OBTAINED BY THE ISSUER OF THE FUNDS, OWNERS OF THE FUNDS, OR ANY OTHER PERSON OR ENTITY,
FROM THE USE OF ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. NONE OF THE MSCI PARTIES SHALL HAVE
ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS OF OR IN CONNECTION WITH ANY MSCI INDEX
OR ANY DATA INCLUDED THEREIN. FURTHER, NONE OF THE MSCI PARTIES MAKES ANY EXPRESS OR IMPLIED
WARRANTIES OF ANY KIND, AND THE MSCI PARTIES HEREBY EXPRESSLY DISCLAIM ALL WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO EACH MSCI INDEX AND ANY
DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL ANY OF THE MSCI
PARTIES HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER
DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
Prospectus
October 1, 2020
|
197
|
Appendix
|
NO PURCHASER, SELLER OR HOLDER OF THIS SECURITY, PRODUCT OR FUND, OR ANY OTHER PERSON OR ENTITY,
SHOULD USE OR REFER TO ANY MSCI TRADE NAME, TRADEMARK OR SERVICE MARK TO SPONSOR, ENDORSE,
MARKET OR PROMOTE THIS SECURITY WITHOUT FIRST CONTACTING MSCI TO DETERMINE WHETHER MSCI’S
PERMISSION IS REQUIRED. UNDER NO CIRCUMSTANCES MAY ANY PERSON OR ENTITY CLAIM ANY AFFILIATION
WITH MSCI WITHOUT THE PRIOR WRITTEN PERMISSION OF MSCI.
(This information applies to Xtrackers Japan JPX-Nikkei 400 Equity ETF only)
The
“
JPX-Nikkei Index 400
“
is a copyrightable work calculated using a methodology independently developed by Tokyo
Stock Exchange, Inc. (hereinafter referred to as
“
TSE
”
) and Nikkei Inc. (hereinafter called
“
Nikkei
”
). TSE and Nikkei jointly
own copyrights and any other intellectual property rights subsisting in
“
JPX-Nikkei Index 400
”
itself and the methodology
to calculate the
“
JPX-Nikkei Index 400
”
. Xtrackers Japan JPX-Nikkei 400 Equity ETF is not in any way sponsored, endorsed
or promoted by TSE and Nikkei. TSE and Nikkei do not make any warranty or representation. TSE and Nikkei have no obligation
to publish the
“
JPX-Nikkei Index 400
”
continuously and shall not be liable for any errors, delays or suspensions of
the publication of the
“
JPX-Nikkei Index 400.
”
Shares of Xtrackers MSCI Emerging Markets Hedged Equity ETF, Xtrackers MSCI EAFE Hedged Equity ETF, Xtrackers
MSCI Germany Hedged Equity ETF, Xtrackers MSCI Japan Hedged Equity ETF, Xtrackers MSCI Europe Hedged Equity ETF,
Xtrackers MSCI All World ex US Hedged Equity ETF, Xtrackers MSCI All World ex US High Dividend Yield Equity ETF,
Xtrackers MSCI EAFE High Dividend Yield Equity ETF, Xtrackers MSCI Eurozone Hedged Equity ETF and Xtrackers Japan
JPX-Nikkei 400 Equity ETF are not sponsored, endorsed or promoted by NYSE Arca. NYSE Arca makes no representation
or warranty, express or implied, to the owners of the shares of the funds or any member of the public regarding the
ability of the funds to track the total return performance of their Underlying Indexes or the ability of the Underlying Indexes
to track stock market performance. NYSE Arca is not responsible for, nor has it participated in, the determination of the
compilation or the calculation of the Underlying Indexes, nor in the determination of the timing of, prices of, or quantities
of shares of the funds to be issued, nor in the determination or calculation of the equation by which the shares are redeemable.
NYSE Arca has no obligation or liability to owners of the shares of the funds in connection with the administration,
marketing or trading of the shares of the funds.
NYSE Arca does not guarantee the accuracy and/or the completeness of the Underlying Indexes or any data included
therein. NYSE Arca makes no warranty, express or implied, as to results to be obtained by the Trust on behalf of the funds
as licensee, licensee’s customers and counterparties, owners of the shares of the funds, or any other person or entity
from the use of the subject index or any data included therein in connection with the rights licensed as described herein
or for any other use. NYSE Arca makes no express or implied warranties and hereby expressly disclaims all warranties of
merchantability or fitness for a particular purpose with respect to the Underlying Indexes or any data included therein.
Without limiting any of the foregoing, in no event shall NYSE Arca have any liability for any direct, indirect, special, punitive,
consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
The Product(s) are not sponsored, endorsed, sold or promoted by NASDAQ, Inc. (
“
NASDAQ
”
) or its affiliates (NASDAQ,
with its affiliates, are referred to as the
“
Corporations
”
). The Corporations have not passed on the legality or suitability of,
or the accuracy or adequacy of descriptions and disclosures relating to, the Product(s). The Corporations make no representation
or warranty, express or implied to the owners of the Product(s) or any member of the public regarding the
advisability of investing in securities generally or in the Product(s) particularly, or the ability of each Underlying Index to
track general stock market performance. The Corporations’ only relationship to each fund (
“
Licensee
”
) is in the licensing
of the Nasdaq
®
and certain trade names of the Corporations and the use of each Underlying Index which is determined,
composed and calculated by NASDAQ without regard to Licensee or the Product(s). NASDAQ has no obligation to take the
needs of the Licensee or the owners of the Product(s) into consideration in determining, composing or calculating each
Underlying Index. The Corporations are not responsible for and have not participated in the determination of the timing of,
prices at, or quantities of the Product(s) to be issued or in the determination or calculation of the equation by which the
Product(s) is to be converted into cash. The Corporations have no liability in connection with the administration, marketing
or trading of the Product(s).
THE CORPORATIONS DO NOT GUARANTEE THE ACCURACY AND/OR UNINTERRUPTED CALCULATION OF EACH
UNDERLYING INDEX OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS MAKE NO WARRANTY, EXPRESS OR
IMPLIED, AS TO RESULTS TO BE OBTAINED BY LICENSEE, OWNERS OF THE PRODUCT(S), OR ANY OTHER PERSON
OR ENTITY FROM THE USE OF EACH UNDERLYING INDEX OR ANY DATA INCLUDED THEREIN. THE CORPORATIONS
MAKE NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIM ALL WARRANTIES OF MERCHANTABILITY
OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO EACH UNDERLYING INDEX OR ANY
DATA INCLUDED THEREIN. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL THE CORPORATIONS
HAVE ANY LIABILITY FOR ANY LOST PROFITS OR SPECIAL, INCIDENTAL, PUNITIVE, INDIRECT, OR CONSEQUENTIAL
DAMAGES, EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
Prospectus
October 1, 2020
|
198
|
Appendix
|
Shares of Xtrackers Eurozone Equity ETF are not sponsored, endorsed or promoted by Cboe. Cboe makes no representation
or warranty, express or implied, to the owners of the shares of the funds or any member of the public regarding the
ability of the funds to track the total return performance of their Underlying Indexes or the ability of the Underlying Indexes
to track stock market performance.
Cboe is not responsible for, nor has it participated in, the determination of the compilation or the calculation of the Underlying
Indexes, nor in the determination of the timing of, prices of, or quantities of shares of the funds to be issued, nor
in the determination or calculation of the equation by which the shares are redeemable. Cboe has no obligation or liability
to owners of the shares of the funds in connection with the administration, marketing or trading of the shares of the
funds.
Cboe does not guarantee the accuracy and/or the completeness of the Underlying Indexes or any data included therein.
Cboe makes no warranty, express or implied, as to results to be obtained by the Trust on behalf of the funds as licensee,
licensee’s customers and counterparties, owners of the shares of the funds, or any other person or entity from the use of
the subject index or any data included therein in connection with the rights licensed as described herein or for any other
use. Cboe makes no express or implied warranties and hereby expressly disclaims all warranties of merchantability or
fitness for a particular purpose with respect to the Underlying Indexes or any data included therein. Without limiting any
of the foregoing, in no event shall Cboe have any liability for any direct, indirect, special, punitive, consequential or any
other damages (including lost profits) even if notified of the possibility of such damages.
The Advisor does not guarantee the accuracy or the completeness of the Underlying Indexes or any data included therein
and the Advisor shall have no liability for any errors, omissions or interruptions therein.
The Advisor makes no warranty, express or implied, to the owners of shares of the funds or to any other person or entity,
as to results to be obtained by the funds from the use of the Underlying Indexes or any data included therein. The Advisor
makes no express or implied warranties and expressly disclaims all warranties of merchantability or fitness for a particular
purpose or use with respect to the Underlying Indexes or any data included therein. Without limiting any of the foregoing,
in no event shall the Advisor have any liability for any special, punitive, direct, indirect or consequential damages (including
lost profits), even if notified of the possibility of such damages.
Prospectus
October 1, 2020
|
199
|
Appendix
|
FOR MORE INFORMATION:
XTRACKERS.COM
1-855-329-3837 (1-855-DBX-ETFS)
Copies of the prospectus, SAI and recent shareholder
reports, when available, can be found on our website at
Xtrackers.com. For more information about a fund, you
may request a copy of the SAI. The SAI provides detailed
information about a fund and is incorporated by reference
into this prospectus. This means that the SAI, for legal
purposes, is a part of this prospectus.
If you have any questions about the Trust or shares of a
fund or you wish to obtain the SAI or shareholder report
free of charge, please:
|
1-855-329-3837 or 1-855-DBX-ETFS
(toll free) Monday through Friday
8:30 a.m. to 6:30 p.m. (Eastern time)
E-mail: dbxquestions@list.db.com
|
|
DBX ETF Trust
c/o ALPS Distributors, Inc.
1290 Broadway, Suite 1000
Denver, Colorado 80203
|
Information about a fund (including the SAI), reports and
other information about a fund are available on the EDGAR
Database on the SEC’s website at sec.gov, and copies of
this information may be obtained, after paying a duplicating
fee, by electronic request at the following e-mail address:
publicinfo@sec.gov.
Householding is an option available to certain fund investors.
Householding is a method of delivery, based on the
preference of the individual investor, in which a single copy
of certain shareholder documents can be delivered to investors
who share the same address, even if their accounts
are registered under different names. Please contact your
broker-dealer if you are interested in enrolling in
householding and receiving a single copy of prospectuses
and other shareholder documents, or if you are currently
enrolled in householding and wish to change your
householding status.
No person is authorized to give any information or to make
any representations about a fund and their shares not
contained in this prospectus and you should not rely on
any other information. Read and keep the prospectus for
future reference.
Investment Company Act File No.: 811-22487
Prospectus
October 1, 2020
Xtrackers J.P. Morgan ESG USD High Yield Corporate Bond ETF
|
Cboe BZX Exchange, Inc.: ESHY
|
Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF
|
Cboe BZX Exchange, Inc.: ESCR
|
The Securities and Exchange Commission (
“
SEC
”
) has not approved or disapproved these securities or passed
upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
Your investment in a fund is not a bank deposit and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency, entity or person.
Xtrackers J.P. Morgan ESG USD High Yield Corporate Bond ETF
|
Stock Exchange: Cboe BZX Exchange, Inc.
|
Investment Objective
Xtrackers J.P. Morgan ESG USD High Yield Corporate Bond
ETF (the
“
fund
”
) seeks investment results that correspond
generally to the performance, before fees and expenses,
of the J.P. Morgan ESG DM Corporate High Yield USD
Index (the
“
Underlying Index
”
).
Fees and Expenses
These are the fees and expenses that you will pay when
you buy, hold and sell shares.
You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below.
ANNUAL FUND OPERATING EXPENSES(expenses that you pay each year as a % of the value of your investment)
|
|
|
|
|
|
Total annual fund operating expenses
|
|
1
Effective May 12, 2020, the fund’s management fee was reduced from 0.35% to 0.20% of the fund’s average daily net assets.
EXAMPLE
This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then sell 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 operating expenses remain the same. The Example does not take into account brokerage commissions that you may pay on your purchases and sales of shares of the fund. It also does not include the transaction fees on purchases and redemptions of Creation Units (defined herein), because those fees will not be imposed on retail investors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
PORTFOLIO TURNOVER
The fund pays transaction costs, such as commissions,
when it buys and sells securities (or
“
turns over
”
its portfolio).
A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are
investing in a taxable account. These costs are not
reflected in annual fund operating expenses or in the
expense example, and can affect the fund's performance.
During the most recent fiscal year, the fund’s portfolio turnover
rate was
113
% of the average value of its portfolio.
Prior to May 12, 2020, the fund tracked its prior underlying
index, the Solactive USD High Yield Corporate Bond -
Interest Rate Hedged Index.
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which applies environmental, social and
governance (
“
ESG
”
) considerations to a broader parent
index. The Underlying Index generally aims to keep the
broad characteristics of its parent index, the J.P. Morgan
DM High Yield USD Index (a USD denominated high yield
corporate bond index of developed market issuers),
resulting in a broad high yield fixed income market exposure
with ESG aspects.
The Underlying Index uses the J.P. Morgan DM High Yield
USD Index as its parent index before implementing ESG
considerations. Each issuer within the parent index is given
an ESG score, and assigned to a quintile based on that
score. All issuers within the lowest quintile are removed
from consideration for the Underlying Index, and the
remainder are either weighted up or down based on which
quintile they were scored in; with the best performers
being weighted more heavily, and the remaining lower
scoring issuers being weighted more lightly.
Prospectus
October 1, 2020
|
1
|
Xtrackers J.P. Morgan ESG USD High Yield Corporate Bond ETF
|
The Index Provider obtains ESG factor valuations for each
issuer in the parent index from RepRisk and Sustainalytics,
which are investment research providers dedicated to
responsible investing and ESG research. These ESG factor
valuations are obtained from each provider and translated
by the Index Provider to a range of 0 – 100, with 100 being
the best possible score. The Index Provider’s finalized ESG
score for each issuer incorporates a 3-month rolling
average of the scores from each individual provider. The
Index Provider calculates ESG scores daily.
In addition, if an instrument is categorized as
“
green
”
by
the Climate Bond Initiative (
“
CBI
”
) under the criteria used
by the CBI to certify bonds as being closely linked with
green and climate friendly assets or projects, the security
will be upgraded one quintile from the quintile to which
it originally was assigned. Issuers involved in thermal coal,
tobacco, weapons, or UN Global Compact principle violation
are excluded from the index regardless of their ESG
score.
The Underlying Index consists of fixed rate bonds, floating
rate bonds, hybrid bonds, step-up bonds (securities that
pay an initial interest rate but also have a feature where the
rate increases at periodic intervals), payment-in-kind
(
“
PIK
”
) bonds, toggle bonds (PIK bonds where the issuer
has an option to defer an interest payment by paying an
increased coupon in the future), amortizer bonds (bonds
where the principal on the debt is paid down regularly),
perpetual bonds (a bond with no maturity date), Sukuk
bonds (Islamic financial certificates) and all subordinated
financial bonds excluding AT1 bonds (a category of bonds
issued by banks designed to absorb losses if the bank’s
equity capital dips below a certain threshold), structured
bonds, credit enhanced bonds, and securities issued by
sovereign and quasi-sovereign entities (bonds issued by
entities wholly-owned or guaranteed by the government).
Additional exclusions include bonds with less than two
years to maturity to enter the Underlying Index, less than
13 months to maturity if already part of the Underlying
Index, and have less than $250 million of minimum issue
size. The Underling Index only includes eligible bonds
issued by countries in developed markets which currently
are Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Greece, Ireland, Italy, Malta, Netherlands,
New Zealand, Norway, Puerto Rico, Spain, Sweden,
the United Kingdom, and the United States.
Inclusion in the Underlying Index is limited to USD denominated
high yield securities of developed market issuers.
Credit rating will be determined based on the following
rules: (i) the middle rating of the S&P Global Ratings
(
“
S&P
”
), Moody’s Investors Services, Inc. (
“
Moody’s
”
) or
Fitch Investors Services, Inc. (
“
Fitch
”
); (ii) the lower rating
when two ratings are available; and (iii) the sole rating
when only one rating is provided. Under normal circumstances,
the Underlying Index is rebalanced on a monthly
basis. The fund rebalances its portfolio in accordance with
the Underlying Index, and, therefore, any changes to the
Underlying Index’s rebalance schedule will result in corresponding
changes to the fund’s rebalance schedule.
As of July 31, 2020, the Underlying Index was comprised
of 1,832 bonds issued by 769 different issuers, with an
average market capitalization of approximately $455 million
and a minimum market capitalization of approximately $13
million. As of July 31, 2020, a significant percentage of the
Underlying Index was comprised of securities of issuers
from the United States (87.7%). The fund uses a representative
sampling indexing strategy in seeking to track the
Underlying Index, meaning it generally will invest in a
sample of securities in the index whose risk, return and
other characteristics resemble the risk, return and other
characteristics of the Underlying Index as a whole.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in corporate bonds rated high yield by credit
rating agencies (e.g., S&P rating below BBB-). In addition,
the fund will invest at least 80% of its total assets, but
typically far more, in instruments that comprise the Underlying
Index.
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
consumer (19.8%) sector. The consumer sector includes
apparel/textiles, consumer products, diversified services
(consumer/business solutions), food and beverage
producers, food and beverage retail (restaurants), gaming/lodging/leisure,
internet/ecommerce, non-food retail/specialty
retail, supermarkets and retail pharmacy, and
tobacco. To the extent that the fund tracks the Underlying
Index, the fund’s investment in certain sectors or countries
may change over time.
The fund is not sponsored, endorsed, or promoted by J.P.
Morgan Chase & Co., and J.P. Morgan Chase & Co. bears
no liability with respect to any index on which the fund is
based.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Main Risks
As with any investment, you could lose all or part of your investment in the fund, and the fund’s performance could trail that of other investments.
The fund is subject to the
main risks noted below, any of which may adversely affect
Prospectus
October 1, 2020
|
2
|
Xtrackers J.P. Morgan ESG USD High Yield Corporate Bond ETF
|
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective, as
well as numerous other risks that are described in greater
detail in the section of this Prospectus entitled
“
Additional
Information About Fund Strategies, Underlying Index Information
and Risks
”
and in the Statement of Additional
Information (
“
SAI
”
).
Fixed income markets risk.
The values of many types of
debt securities have been reduced over a period of many
years since the credit crisis started due to problems
relating to subprime mortgages. These market problems
have also affected debt securities that are not related to
mortgage loans. In addition, broker-dealers and other
market participants have been less willing to make a
market in some types of debt instruments, which has
impacted the liquidity of those instruments. These developments
also have had a negative effect on the broader
economy.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
ESG investment strategy risk.
The Underlying Index’s
ESG methodology, and thus the fund’s investment
strategy, limits the types and number of investment opportunities
available to the fund and, as a result, the fund may
underperform other funds that do not have an ESG focus.
The Underlying Index’s ESG methodology may result in the
fund investing in securities or industry sectors that underperform
the market as a whole or underperform other
funds screened for ESG standards. In addition, the index
provider may be unsuccessful in creating an index
composed of companies that exhibit positive ESG characteristics.
Regulatory changes or interpretations regarding
the definitions and/or use of ESG criteria could have a
material adverse effect on the fund’s ability to invest in
accordance with its investment policies and/or achieve its
investment objective, as well as the ability of certain
classes of investors to invest in funds following an ESG
strategy such as the fund.
Fixed income securities risk.
Fixed-income securities are
subject to the risk of the issuer’s inability to meet principal
and interest payments on its obligations (i.e., credit
risk) and are subject to price volatility resulting from,
among other things, interest rate sensitivity, market
perception of the creditworthiness of the issuer and
general market liquidity (i.e., market risk). Lower rated
fixed-income securities have greater volatility because
there is less certainty that principal and interest payments
will be made as scheduled. There is a risk that a lack of
liquidity or other adverse credit market conditions may
hamper the fund’s ability to sell the debt securities in
which it invests or to find and purchase debt instruments
included in the Underlying Index.
Consumer sector risk.
To the extent that the fund invests
significantly in the consumer sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
consumer sector. Companies engaged in the consumer
sector are subject to fluctuations in supply and demand.
These companies may also be adversely affected by
changes in consumer spending as a result of world events,
political and economic conditions, commodity price volatility,
changes in exchange rates, imposition of import
controls, increased competition, depletion of resources
and labor relations.
High yield securities risk.
Securities that are rated below
investment-grade (commonly referred to as
“
junk bonds,
”
including those bonds rated lower than
“
BBB-
”
by Standard
& Poor’s Ratings Services and Fitch, Inc. or
“
Baa3
”
by
Moody’s Investors Services, Inc.), or are unrated, may be
deemed speculative and may be more volatile than higher
rated securities of similar maturity with respect to the
issuer’s continuing ability to meet principal and interest
Prospectus
October 1, 2020
|
3
|
Xtrackers J.P. Morgan ESG USD High Yield Corporate Bond ETF
|
payments. High-yield debt securities’ total return and yield
may generally be expected to fluctuate more than the total
return and yield of investment-grade debt securities. A real
or perceived economic downturn or an increase in market
interest rates could cause a decline in the value of high-yield
debt securities, result in increased redemptions
and/or result in increased portfolio turnover, which could
result in a decline in the NAV of the fund, reduce liquidity
for certain investments and/or increase costs. High-yield
debt securities are often thinly traded and can be more
difficult to sell and value accurately than investment-grade
debt securities because there may be no established
secondary market. Investments in high-yield debt securities
could increase liquidity risk for the fund. In addition,
the market for high-yield debt securities could experience
sudden and sharp volatility, which is generally associated
more with investments in stocks.
Interest rate risk.
When interest rates rise, prices of debt
securities generally decline. The longer the duration of
the fund’s debt securities, the more sensitive the fund will
be to interest rate changes. (As a general rule, a 1% rise
in interest rates means a 1% fall in value for every year of
duration.) Recent and potential future changes in monetary
policy made by central banks or governments are likely to
affect the level of interest rates. Rising interest rates may
prompt redemptions from the fund. Although the fund
primarily seeks to redeem shares of the fund on an in-kind
basis, if the fund is forced to sell underlying investments
at reduced prices or under unfavorable conditions to meet
redemption requests or other cash needs, the fund may
suffer a loss. The fund may be subject to a greater risk of
rising interest rates due to the current period of historically
low rates. Certain countries have experienced negative
interest rates on certain debt securities. Negative or very
low interest rates could magnify the risks associated with
changes in interest rates. In general, changing interest
rates, including rates that fall below zero, could have unpredictable
effects on markets and may expose debt and
related markets to heightened volatility. During periods
when interest rates are low or there are negative interest
rates, the fund's yield (and total return) also may be low or
the fund may be unable to maintain positive returns. In
addition, in response to the COVID-19 pandemic, as with
other serious economic disruptions, governmental authorities
and regulators are enacting significant fiscal and
monetary policy changes, including providing direct capital
infusions into companies, creating new monetary
programs and lowering interest rates considerably. These
actions present heightened risks to debt instruments, and
such risks could be even further heightened if these
actions are unexpectedly or suddenly reversed or are ineffective
in achieving their desired outcomes.
London Interbank Offered Rate (LIBOR), the benchmark
rate for certain floating rate securities, is expected to be
phased out by the end of 2021. The fund or the instruments
in which the fund invests may be adversely affected
by the phase out by, among other things, increased volatility
or illiquidity. There remains uncertainty regarding the
future use of LIBOR and the nature of any replacement
reference rate and, accordingly, it is difficult to predict the
impact to the fund of the transition away from LIBOR.
Credit risk.
The fund’s performance could be hurt if an
issuer of a debt security suffers an adverse change in
financial condition that results in a payment default, security
downgrade or inability to meet a financial obligation.
Credit risk is greater for lower-rated securities. Because
the issuers of junk bonds may be in uncertain financial
health, the prices of their debt securities could be more
vulnerable to bad economic news, or even the expectation
of bad news, than investment-grade debt securities. Credit
ratings may not be an accurate assessment of credit risk.
Prepayment and extension risk.
When interest rates fall,
issuers of high interest debt obligations may pay off the
debts earlier than expected (prepayment risk), and the
fund may have to reinvest the proceeds at lower yields.
When interest rates rise, issuers of lower interest debt
obligations may pay off the debts later than expected
(extension risk), thus keeping the fund’s assets tied up in
lower interest debt obligations. Ultimately, any unexpected
behavior in interest rates could increase the volatility of
the fund’s share price and yield and could hurt fund performance.
Prepayments could also create capital gains tax
liability in some instances.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
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Xtrackers J.P. Morgan ESG USD High Yield Corporate Bond ETF
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of the securities in the fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the
fund’s shares.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors
of the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Restricted securities/Rule 144A securities risk.
The fund
may invest a significant portion of its assets in securities
offered pursuant to Rule 144A under the Securities Act of
1933, as amended (the
“
1933 Act
”
), which are restricted
securities. They may be less liquid and more difficult to
value than other investments because such securities may
not be readily marketable in broad public markets. The
fund may not be able to sell a restricted security promptly
or at a reasonable price. Although there is a substantial
institutional market for Rule 144A securities, it is not
possible to predict exactly how the market for Rule 144A
securities will develop. A restricted security that was liquid
at the time of purchase may subsequently become illiquid
and its value may decline as a result. Restricted securities
that are deemed illiquid will count towards the fund’s 15%
limitation on illiquid securities. In addition, transaction
costs may be higher for restricted securities than for more
liquid securities. The fund may have to bear the expense
of registering Rule 144A securities for resale and the risk
of substantial delays in effecting the registration.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in a rising interest rate environment or other circumstances
where redemptions from the fund may be higher
than normal.
Pricing risk.
If market conditions make it difficult to value
some investments, the fund may value these investments
using more subjective methods, such as fair value pricing.
In such cases, the value determined for an investment
could be different from the value realized upon such investment’s
sale. As a result, you could pay more than the
market value when buying fund shares or receive less than
the market value when selling fund shares.
Issuer-specific risk.
The value of an individual security or
particular type of security may be more volatile than the
market as a whole and may perform differently from the
value of the market as a whole.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
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Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
the NAV during periods of market volatility. The Advisor
cannot predict whether shares will trade above, below or
at their NAV. Given the fact that shares can be created and
redeemed in Creation Units (defined below), the Advisor
believes that large discounts or premiums to the NAV of
shares should not be sustained in the long-term. If market
makers exit the business or are unable to continue making
markets in fund shares, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market). Further, while the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in market prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. In addition, the securities held by the fund
may be traded in markets that close at a different time
than the exchange on which the fund’s shares trade.
Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time
when the exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. Further, secondary markets may be subject
to irregular trading activity, wide bid-ask spreads and
extended trade settlement periods, which could cause a
material decline in the fund’s NAV. The fund’s investment
results are measured based upon the daily NAV of the
fund. Investors purchasing and selling shares in the
secondary market may not experience investment results
consistent with those experienced by those APs creating
and redeeming shares directly with the fund.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
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that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers could
impact the ability to conduct the fund’s operations. In addition,
the fund cannot directly control any cybersecurity
plans and systems put in place by its service providers,
fund counterparties, issuers of securities held by the fund
or other market participants.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Past Performance
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund’s performance from year to year and by showing how the fund’s average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund’s past performance (before and
after taxes) is not necessarily an indication of how the fund will perform in the future.
Updated performance information
is available on the fund’s website at
Xtrackers.com
(the website does not form a part of this prospectus).
Prior to May 12, 2020, the fund operated with a different
investment strategy. Performance would have been
different if the fund’s current investment strategy had been
in effect. Returns prior to May 12, 2020 reflect those of
the fund when it was tracking the prior underlying index.
CALENDAR YEAR TOTAL RETURNS(%)
Average Annual Total Returns(For periods ended 12/31/2019 expressed as a %)
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax. Your own actual after-tax returns will depend on your tax situation and may differ from what is shown here. After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts (“IRAs”) or employee-sponsored retirement plans.
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After tax on distribu-
tions
|
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After tax on distribu-
tions and sale of fund
shares
|
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J.P. Morgan ESG DM
Corporate High Yield
USD Index
(reflects no
deductions for fees,
expenses or taxes)
|
|
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|
Solactive USD High
Yield Corporate Bond –
Interest Rate Hedged
Index
(reflects no deduc-
tions for fees, expenses
or taxes)
|
|
|
|
J.P. Morgan DM Corpo-
rate High Yield Index
(reflects no deductions
for fees, expenses or
taxes)
|
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|
Solactive High Yield
Corporate Bond Index
(Long only component)
(reflects no deductions
for fees, expenses or
taxes)
|
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|
Effective May 12, 2020, the fund changed its underlying index to the J.P. Morgan ESG DM Corporate High Yield USD Index from the Solactive USD High Yield Corporate Bond - Interest Rate Hedged Index. Returns prior to May 12, 2020 reflect performance for the fund when it was seeking investment results of the prior underlying index.
J.P. Morgan DM Corporate HY Index replaced Solactive High Yield Corporate Bond Index (Long only component) as the fund’s broad market benchmark because the Advisor believes the J.P. Morgan DM Corporate HY Index more accurately reflects the fund’s current investment strategies.
Management
Investment Advisor
DBX Advisors LLC
Portfolio Managers
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
Brandon Matsui, CFA, Director.
Portfolio Manager of the
fund. Began managing the fund in 2016.
Tanuj Dora, Vice President.
Portfolio Manager of the fund.
Began managing the fund in 2016.
Alexander Bridgeforth, Assistant Vice President.
Portfolio
Manager of the fund. Began managing the fund in
2016.
Purchase and Sale of Fund Shares
The fund is an exchange-traded fund (commonly referred
to as an
“
ETF
”
). Individual fund shares may only be
purchased and sold through a brokerage firm. The price of
fund shares is based on market price, and because ETF
shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than
NAV (a discount). The fund will only issue or redeem
shares that have been aggregated into blocks of 50,000
shares or multiples thereof (
“
Creation Units
”
) to APs who
have entered into agreements with ALPS Distributors,
Inc., the fund’s distributor. You may incur costs attributable
to the difference between the highest price a buyer is
willing to pay to purchase shares of the fund (bid) and the
lowest price a seller is willing to accept for shares of the
fund (ask) when buying or selling shares (the
“
bid-ask
spread
”
). Information on the fund’s net asset value, market
price, premiums and discounts and bid-ask spreads may
be found at Xtrackers.com.
Tax Information
The fund's distributions are generally taxable to you as
ordinary income or capital gains, except when your investment
is in an IRA, 401(k), or other tax-deferred investment
plan. Any withdrawals you make from such tax- advantaged
investment plans, however, may be taxable to you.
Payments to Broker-Dealers and
Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer
or other financial intermediary (such as a bank), the
Advisor or other related companies may pay the intermediary
for marketing activities and presentations,
educational training programs, the support of technology
platforms and/or reporting systems or other services
related to the sale or promotion of the fund. These
payments may create a conflict of interest by influencing
the broker-dealer or other intermediary and your salesperson
to recommend the fund over another investment.
Ask your salesperson or visit your financial intermediary’s
website for more information.
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Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF
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Stock Exchange: Cboe BZX Exchange, Inc.
|
Investment Objective
Xtrackers Bloomberg Barclays US Investment Grade
Corporate ESG ETF (the
“
fund
”
) seeks investment results
that correspond generally to the performance, before fees
and expenses, of the Bloomberg Barclays MSCI US Corporate
Sustainability SRI Sector/Credit/Maturity Neutral Index
(the
“
Underlying Index
”
).
Fees and Expenses
These are the fees and expenses that you will pay when
you buy, hold and sell shares.
You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below.
ANNUAL FUND OPERATING EXPENSES(expenses that you pay each year as a % of the value of your investment)
|
|
|
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|
Total annual fund operating expenses
|
|
1
Effective May 12, 2020, the fund’s management fee was reduced from 0.25% to 0.15% of the fund’s average daily net assets.
EXAMPLE
This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then sell 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 operating expenses remain the same. The Example does not take into account brokerage commissions that you may pay on your purchases and sales of shares of the fund. It also does not include the transaction fees on purchases and redemptions of Creation Units (defined herein), because those fees will not be
imposed on retail investors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
PORTFOLIO TURNOVER
The fund pays transaction costs, such as commissions,
when it buys and sells securities (or
“
turns over
”
its portfolio).
A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are
investing in a taxable account. These costs are not
reflected in annual fund operating expenses or in the
expense example, and can affect the fund's performance.
During the most recent fiscal year, the fund’s portfolio turnover
rate was
57
% of the average value of its portfolio.
Prior to May 12, 2020, the fund tracked its prior underlying
index, the Solactive Investment Grade Bond - Interest Rate
Hedged Index.
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which applies environmental, social and
governance (
“
ESG
”
) considerations to a broader parent
index. The Underlying Index generally aims to keep the
broad characteristics of its parent index, the Bloomberg
Barclays US Corporate Index (an investment grade corporate
bond universe), resulting in a broad investment grade
fixed income market exposure with ESG aspects. The
Underlying Index uses the Bloomberg Barclays US Corporate
Index as its parent index, and then via the index
methodology the following screens are implemented:
ESG criteria
■
Issuers with ESG scores lower than BBB are excluded
from the Underlying Index, per MSCI’s ESG scoring
methodology which Bloomberg Barclays uses for the
Underlying Index);
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Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF
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Controversies
■
These are controversies regarding the negative ESG
impact of a company’s operations, product and services,
as assessed by MSCI’s ESG Controversies monitoring
system;
Specified business activities
■
These include adult entertainment, alcohol, gambling,
tobacco, nuclear and controversial weapons, civilian firearms,
nuclear power and genetically modified
organisms.
Once all relevant companies are screened out, the
remaining companies are included in the Underlying Index
and are reweighted in a manner designed for the Underlying
Index to approximate the properties of the parent
index across three factors: sector, maturity and rating.
Currently, the bonds eligible for inclusion in the Underlying
Index include US dollar-denominated corporate bonds that:
(i) are rated investment-grade using the middle rating of
Moody’s Investor Services, Inc. (
“
Moody's
”
), S&P Global
Ratings (
“
S&P
”
), and Fitch Investors Services, Inc.
(
“
Fitch
”
); (ii) have at least $300 million minimum par
amount outstanding; and (iii) have at least one year to
maturity. Under normal circumstances, the Underlying
Index is rebalanced on a monthly basis. The fund rebalances
its portfolio in accordance with the Underlying
Index, and, therefore, any changes to the Underlying
Index’s rebalance schedule will result in corresponding
changes to the fund’s rebalance schedule.
As of July 31, 2020, the Underlying Index was comprised
of 3,672 bonds issued by 531 different issuers, with an
average market capitalization of approximately $1.06 billion
and a minimum market capitalization of approximately
$226 million, from issuers in the following countries:
Australia, Bermuda, Canada, Cayman Islands, Chile, China,
Colombia, France, Germany, Guernsey, Ireland, Italy,
Japan, Luxembourg, Mexico, Netherlands, Spain, Sweden,
the United Kingdom, and the United States. As of July
31, 2020, a significant percentage of the Underlying Index
was comprised of securities of issuers from the United
States (81.9%). The fund uses a representative sampling
indexing strategy in seeking to track the Underlying Index,
meaning it generally will invest in a sample of securities
in the index whose risk, return and other characteristics
resemble the risk, return and other characteristics of the
Underlying Index as a whole.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in corporate bonds rated investment grade by
credit rating agencies (e.g., S&P rating of BBB- or above).
In addition, the fund will invest at least 80% of its total
assets, but typically far more, in instruments that comprise
the Underlying Index.
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is
concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
financials sector (27.9%) and the consumer staples sector
(18.2%). The financials sector includes companies involved
in banking, consumer finance, asset management and
custody banks, as well as investment banking and
brokerage and insurance. The consumer staples sector
includes companies whose businesses are less sensitive
to economic cycles, such as manufacturers and distributors
of food, beverages and producers of non-durable
household goods and personal products. To the extent that
the fund tracks the Underlying Index, the fund’s investment
in certain sectors or countries may change over time.
Neither Bloomberg nor Barclays is affiliated with DBX Advisors
LLC, and neither approves, endorses, reviews or
recommends Xtrackers Bloomberg Barclays US Investment
Grade Corporate ESG ETF.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Main Risks
As with any investment, you could lose all or part of your investment in the fund, and the fund’s performance could trail that of other investments.
The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective, as
well as numerous other risks that are described in greater
detail in the section of this Prospectus entitled
“
Additional
Information About Fund Strategies, Underlying Index Information
and Risks
”
and in the Statement of Additional
Information (
“
SAI
”
).
Fixed income markets risk.
The values of many types of
debt securities have been reduced over a period of many
years since the credit crisis started due to problems
relating to subprime mortgages. These market problems
have also affected debt securities that are not related to
mortgage loans. In addition, broker-dealers and other
market participants have been less willing to make a
market in some types of debt instruments, which has
impacted the liquidity of those instruments. These developments
also have had a negative effect on the broader
economy.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
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adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
ESG investment strategy risk.
The Underlying Index’s
ESG methodology, and thus the fund’s investment
strategy, limits the types and number of investment opportunities
available to the fund and, as a result, the fund may
underperform other funds that do not have an ESG focus.
The Underlying Index’s ESG methodology may result in the
fund investing in securities or industry sectors that underperform
the market as a whole or underperform other
funds screened for ESG standards. In addition, the index
provider may be unsuccessful in creating an index
composed of companies that exhibit positive ESG characteristics.
Regulatory changes or interpretations regarding
the definitions and/or use of ESG criteria could have a
material adverse effect on the fund’s ability to invest in
accordance with its investment policies and/or achieve its
investment objective, as well as the ability of certain
classes of investors to invest in funds following an ESG
strategy such as the fund.
Fixed income securities risk.
Fixed-income securities are
subject to the risk of the issuer’s inability to meet principal
and interest payments on its obligations (i.e., credit
risk) and are subject to price volatility resulting from,
among other things, interest rate sensitivity, market
perception of the creditworthiness of the issuer and
general market liquidity (i.e., market risk). Lower rated
fixed-income securities have greater volatility because
there is less certainty that principal and interest payments
will be made as scheduled. There is a risk that a lack of
liquidity or other adverse credit market conditions may
hamper the fund’s ability to sell the debt securities in
which it invests or to find and purchase debt instruments
included in the Underlying Index.
Interest rate risk.
When interest rates rise, prices of debt
securities generally decline. The longer the duration of
the fund’s debt securities, the more sensitive the fund will
be to interest rate changes. (As a general rule, a 1% rise
in interest rates means a 1% fall in value for every year of
duration.) Recent and potential future changes in monetary
policy made by central banks or governments are likely to
affect the level of interest rates. Rising interest rates may
prompt redemptions from the fund. Although the fund
primarily seeks to redeem shares of the fund on an in-kind
basis, if the fund is forced to sell underlying investments
at reduced prices or under unfavorable conditions to meet
redemption requests or other cash needs, the fund may
suffer a loss. The fund may be subject to a greater risk of
rising interest rates due to the current period of historically
low rates. Certain countries have experienced negative
interest rates on certain debt securities. Negative or very
low interest rates could magnify the risks associated with
changes in interest rates. In general, changing interest
rates, including rates that fall below zero, could have unpredictable
effects on markets and may expose debt and
related markets to heightened volatility. During periods
when interest rates are low or there are negative interest
rates, the fund's yield (and total return) also may be low or
the fund may be unable to maintain positive returns. In
addition, in response to the COVID-19 pandemic, as with
other serious economic disruptions, governmental authorities
and regulators are enacting significant fiscal and
monetary policy changes, including providing direct capital
infusions into companies, creating new monetary
programs and lowering interest rates considerably. These
actions present heightened risks to debt instruments, and
such risks could be even further heightened if these
actions are unexpectedly or suddenly reversed or are ineffective
in achieving their desired outcomes.
London Interbank Offered Rate (LIBOR), the benchmark
rate for certain floating rate securities, is expected to be
phased out by the end of 2021. The fund or the instruments
in which the fund invests may be adversely affected
by the phase out by, among other things, increased volatility
or illiquidity. There remains uncertainty regarding the
future use of LIBOR and the nature of any replacement
reference rate and, accordingly, it is difficult to predict the
impact to the fund of the transition away from LIBOR.
Prospectus
October 1, 2020
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11
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Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF
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Credit risk.
The fund’s performance could be hurt if an
issuer of a debt security suffers an adverse change in financial
condition that results in a payment default, security
downgrade or inability to meet a financial obligation. Credit
risk is greater for lower-rated securities. Because the
issuers of lower rated investment grade bonds may be in
uncertain financial health, the prices of their debt securities
could be more vulnerable to bad economic news, or
even the expectation of bad news, than higher rated
investment-grade debt securities. Credit ratings may not
be an accurate assessment of credit risk.
Prepayment and extension risk.
When interest rates fall,
issuers of high interest debt obligations may pay off the
debts earlier than expected (prepayment risk), and the
fund may have to reinvest the proceeds at lower yields.
When interest rates rise, issuers of lower interest debt
obligations may pay off the debts later than expected
(extension risk), thus keeping the fund’s assets tied up in
lower interest debt obligations. Ultimately, any unexpected
behavior in interest rates could increase the volatility of
the fund’s share price and yield and could hurt fund performance.
Prepayments could also create capital gains tax
liability in some instances.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors
of the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Consumer staples sector risk.
To the extent that the fund
invests significantly in the consumer staples sector, the
fund will be sensitive to changes in, and the fund’s performance
may depend to a greater extent on, the overall
condition of the consumer staples sector. Companies in
the consumer staples sector may be adversely affected by
changes in the global economy, consumer spending,
competition, demographics and consumer preferences,
and production spending. Companies in the consumer
staples sector are also affected by changes in government
regulation, global economic, environmental and political
events, economic conditions and the depletion of
resources. In addition, companies in the consumer staples
sector may be subject to risks pertaining to the supply of,
demand for and prices of raw materials. The prices of raw
materials fluctuate in response to a number of factors,
including, without limitation, changes in government agricultural
support programs, exchange rates, import and
export controls, changes in international agricultural and
trading policies, and seasonal and weather conditions.
Financials sector risk.
To the extent that the fund invests
significantly in the financials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
financials sector. The financials sector is subject to extensive
government regulation, can be subject to relatively
rapid change due to increasingly blurred distinctions
between service segments, and can be significantly
affected by availability and cost of capital funds, changes in
interest rates, the rate of corporate and consumer debt
defaults, and price competition.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in a rising interest rate environment or other circumstances
where redemptions from the fund may be higher
than normal.
Prospectus
October 1, 2020
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Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF
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Pricing risk.
If market conditions make it difficult to value
some investments, the fund may value these investments
using more subjective methods, such as fair value pricing.
In such cases, the value determined for an investment
could be different from the value realized upon such investment’s
sale. As a result, you could pay more than the
market value when buying fund shares or receive less than
the market value when selling fund shares.
Issuer-specific risk.
The value of an individual security or
particular type of security may be more volatile than the
market as a whole and may perform differently from the
value of the market as a whole.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
the NAV during periods of market volatility. The Advisor
cannot predict whether shares will trade above, below or
at their NAV. Given the fact that shares can be created and
redeemed in Creation Units (defined below), the Advisor
Prospectus
October 1, 2020
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13
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Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF
|
believes that large discounts or premiums to the NAV of
shares should not be sustained in the long-term. If market
makers exit the business or are unable to continue making
markets in fund shares, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market). Further, while the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in market prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. In addition, the securities held by the fund
may be traded in markets that close at a different time
than the exchange on which the fund’s shares trade.
Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time
when the exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. Further, secondary markets may be subject
to irregular trading activity, wide bid-ask spreads and
extended trade settlement periods, which could cause a
material decline in the fund’s NAV. The fund’s investment
results are measured based upon the daily NAV of the
fund. Investors purchasing and selling shares in the
secondary market may not experience investment results
consistent with those experienced by those APs creating
and redeeming shares directly with the fund.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Prospectus
October 1, 2020
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Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF
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Past Performance
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund’s performance from year to year and by showing how the fund’s average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund’s past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future.
Updated performance information
is available on the fund’s website at
Xtrackers.com
(the website does not form a part of this prospectus).
Prior to May 12, 2020, the fund operated with a different
investment strategy. Performance would have been
different if the fund’s current investment strategy had been
in effect. Returns prior to May 12, 2020 reflect those of
the fund when it was tracking the prior underlying index.
CALENDAR YEAR TOTAL RETURNS(%)
Average Annual Total Returns(For periods ended 12/31/2019 expressed as a %)
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax. Your own actual after-tax returns will depend on your tax situation and may differ from what is shown here. After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts (“IRAs”) or employee-sponsored retirement plans.
|
|
|
|
|
|
|
|
After tax on distribu-
tions
|
|
|
|
After tax on distribu-
tions and sale of fund
shares
|
|
|
|
Bloomberg Barclays
MSCI US Corporate
Sustainability SRI
Sector/Credit/Maturity
Neutral Index
(reflects
no deductions for fees,
expenses or taxes)
|
|
|
|
Solactive USD Invest-
ment Grade Bond –
Interest Rate Hedged
Index
(reflects no deduc-
tions for fees, expenses
or taxes)
|
|
|
|
Bloomberg Barclays
U.S. Aggregate Bond
Index
(reflects no deduc-
tions for fees, expenses
or taxes)
|
|
|
|
Solactive Investment
Grade Bond Index (Long
only component)
(reflects no deductions
for fees, expenses or
taxes)
|
|
|
|
Effective May 12, 2020, the fund changed its underlying index to the Bloomberg Barclays MSCI US Corporate Sustainability SRI Sector/Credit/Maturity Neutral Index from the Solactive USD Investment Grade Bond - Interest Rate Hedged Index. Returns prior to May 12, 2020 reflect performance for the fund when it was seeking investment results of the prior underlying index.
Bloomberg Barclays U.S. Aggregate Bond Index replaced Solactive Investment Grade Bond Index (Long only component) as the fund’s broad market benchmark because the Advisor believes the Bloomberg Barclays U.S. Aggregate Bond Index more accurately reflects the fund’s current investment strategies.
Management
Investment Advisor
DBX Advisors LLC
Portfolio Managers
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
Brandon Matsui, CFA, Director.
Portfolio Manager of the
fund. Began managing the fund in 2016.
Tanuj Dora, Vice President.
Portfolio Manager of the fund.
Began managing the fund in 2016.
Alexander Bridgeforth, Assistant Vice President.
Portfolio
Manager of the fund. Began managing the fund in
2016.
Prospectus
October 1, 2020
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Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF
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Purchase and Sale of Fund Shares
The fund is an exchange-traded fund (commonly referred
to as an
“
ETF
”
). Individual fund shares may only be
purchased and sold through a brokerage firm. The price of
fund shares is based on market price, and because ETF
shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than
NAV (a discount). The fund will only issue or redeem
shares that have been aggregated into blocks of 50,000
shares or multiples thereof (
“
Creation Units
”
) to APs who
have entered into agreements with ALPS Distributors,
Inc., the fund’s distributor. You may incur costs attributable
to the difference between the highest price a buyer is
willing to pay to purchase shares of the fund (bid) and the
lowest price a seller is willing to accept for shares of the
fund (ask) when buying or selling shares (the
“
bid-ask
spread
”
). Information on the fund’s net asset value, market
price, premiums and discounts and bid-ask spreads may
be found at Xtrackers.com.
Tax Information
The fund's distributions are generally taxable to you as
ordinary income or capital gains, except when your investment
is in an IRA, 401(k), or other tax-deferred investment
plan. Any withdrawals you make from such tax- advantaged
investment plans, however, may be taxable to you.
Payments to Broker-Dealers and
Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer
or other financial intermediary (such as a bank), the
Advisor or other related companies may pay the intermediary
for marketing activities and presentations,
educational training programs, the support of technology
platforms and/or reporting systems or other services
related to the sale or promotion of the fund. These
payments may create a conflict of interest by influencing
the broker-dealer or other intermediary and your salesperson
to recommend the fund over another investment.
Ask your salesperson or visit your financial intermediary’s
website for more information.
Prospectus
October 1, 2020
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Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF
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Additional Information About Fund
Strategies, Underlying Index
Information and Risks
Xtrackers J.P. Morgan ESG USD High Yield Corporate
Bond ETF
Investment Objective
Xtrackers J.P. Morgan ESG USD High Yield Corporate Bond
ETF (the
“
fund
”
) seeks investment results that correspond
generally to the performance, before fees and expenses,
of the J.P. Morgan ESG DM Corporate High Yield USD
Index (the
“
Underlying Index
”
).
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which applies environmental, social and
governance (
“
ESG
”
) considerations to a broader parent
index. The Underlying Index generally aims to keep the
broad characteristics of its parent index, the J.P. Morgan
DM High Yield USD Index (a USD denominated high yield
corporate bond index of developed market issuers),
resulting in a broad high yield fixed income market exposure
with ESG aspects.
The Underlying Index uses the J.P. Morgan DM High Yield
USD Index as its parent index before implementing ESG
considerations. Each issuer within the parent index is given
an ESG score, and assigned to a quintile based on that
score. All issuers within the lowest quintile are removed
from consideration for the Underlying Index, and the
remainder are either weighted up or down based on which
quintile they were scored in; with the best performers
being weighted more heavily, and the remaining lower
scoring issuers being weighted more lightly.
The Index Provider obtains ESG factor valuations for each
issuer in the parent index from RepRisk and Sustainalytics,
which are investment research providers dedicated to
responsible investing and ESG research. These ESG factor
valuations are obtained from each provider and translated
by the Index Provider to a range of 0 – 100, with 100 being
the best possible score. The Index Provider’s finalized ESG
score for each issuer incorporates a 3-month rolling
average of the scores from each individual provider. The
Index Provider calculates ESG scores daily.
In addition, if an instrument is categorized as
“
green
”
by
the Climate Bond Initiative (
“
CBI
”
) under the criteria used
by the CBI to certify bonds as being closely linked with
green and climate friendly assets or projects, the security
will be upgraded one quintile from the quintile to which
it originally was assigned. Issuers involved in thermal coal,
tobacco, weapons, or UN Global Compact principle violation
are excluded from the index regardless of their ESG
score.
The Underlying Index consists of fixed rate bonds, floating
rate bonds, hybrid bonds, step-up bonds (securities that
pay an initial interest rate but also have a feature where the
rate increases at periodic intervals), payment-in-kind
(
“
PIK
”
) bonds, toggle bonds (PIK bonds where the issuer
has an option to defer an interest payment by paying an
increased coupon in the future), amortizer bonds (bonds
where the principal on the debt is paid down regularly),
perpetual bonds (a bond with no maturity date), Sukuk
bonds (Islamic financial certificates) and all subordinated
financial bonds excluding AT1 bonds (a category of bonds
issued by banks designed to absorb losses if the bank’s
equity capital dips below a certain threshold), structured
bonds, credit enhanced bonds, and securities issued by
sovereign and quasi-sovereign entities (bonds issued by
entities wholly-owned or guaranteed by the government).
Additional exclusions include bonds with less than two
years to maturity to enter the Underlying Index, less than
13 months to maturity if already part of the Underlying
Index, and have less than $250 million of minimum issue
size. The Underling Index only includes eligible bonds
issued by countries in developed markets which currently
are Australia, Austria, Belgium, Canada, Denmark, Finland,
France, Germany, Greece, Ireland, Italy, Malta, Netherlands,
New Zealand, Norway, Puerto Rico, Spain, Sweden,
the United Kingdom, and the United States.
Inclusion in the Underlying Index is limited to USD denominated
high yield securities of developed market issuers.
Credit rating will be determined based on the following
rules: (i) the middle rating of the S&P Global Ratings
(
“
S&P
”
), Moody’s Investors Services, Inc. (
“
Moody’s
”
) or
Fitch Investors Services, Inc. (
“
Fitch
”
); (ii) the lower rating
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when two ratings are available; and (iii) the sole rating
when only one rating is provided. Under normal circumstances,
the Underlying Index is rebalanced on a monthly
basis. The fund rebalances its portfolio in accordance with
the Underlying Index, and, therefore, any changes to the
Underlying Index’s rebalance schedule will result in corresponding
changes to the fund’s rebalance schedule.
As of July 31, 2020, the Underlying Index was comprised
of 1,832 bonds issued by 769 different issuers, with an
average market capitalization of approximately $455 million
and a minimum market capitalization of approximately $13
million. As of July 31, 2020, a significant percentage of the
Underlying Index was comprised of securities of issuers
from the United States (87.7%). The fund uses a representative
sampling indexing strategy in seeking to track the
Underlying Index, meaning it generally will invest in a
sample of securities in the index whose risk, return and
other characteristics resemble the risk, return and other
characteristics of the Underlying Index as a whole.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in corporate bonds rated high yield by credit
rating agencies (e.g., S&P rating below BBB-). In addition,
the fund will invest at least 80% of its total assets, but
typically far more, in instruments that comprise the Underlying
Index.
The fund will concentrate its investments (i.e., hold 25%
or more of its total assets) in a particular industry or group
of industries to the extent that its Underlying Index is
concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
consumer (19.8%) sector. The consumer sector includes
apparel/textiles, consumer products, diversified services
(consumer/business solutions), food and beverage
producers, food and beverage retail (restaurants), gaming/lodging/leisure,
internet/ecommerce, non-food retail/specialty
retail, supermarkets and retail pharmacy, and
tobacco. To the extent that the fund tracks the Underlying
Index, the fund’s investment in certain sectors or countries
may change over time.
The fund may invest its remaining assets in other securities,
including securities not in the Underlying Index, cash
and cash equivalents, money market instruments, such
as repurchase agreements or money market funds
(including money market funds advised by the Advisor or
its affiliates (subject to applicable limitations under the
Investment Company Act of 1940, as amended (the
“
1940
Act
”
), or exemptions therefrom), convertible securities,
structured notes (notes on which the amount of principal
repayment and interest payments are based on the movement
of one or more specified factors, such as the
movement of a particular stock or stock index) and in
futures contracts, options on futures contracts, other types
of options and swaps related to its Underlying Index. The
fund will not use futures or options for speculative
purposes.
The fund expects to use futures contracts to a limited
extent in seeking performance that corresponds to its
Underlying Index. A futures contract is a standardized
exchange traded agreement to buy or sell a specific quantity
of an underlying instrument at a specific price at a
specific future time.
The fund is not sponsored, endorsed, or promoted by J.P.
Morgan Chase & Co., and J.P. Morgan Chase & Co. bears
no liability with respect to any index on which such funds
are based. The accuracy, completeness or relevance of the
information which has been obtained from external
sources cannot be guaranteed, although it has been
obtained from sources reasonably believed to be reliable.
Subject to any applicable law, J.P. Morgan Chase & Co.
shall not assume any liability in this respect. The index
described herein is a proprietary J.P. Morgan index.
The prospectus contains a detailed description of the
limited relationship that J.P. Morgan Chase & Co. has with
DBX Advisors LLC and the fund.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Underlying Index Information
J.P. Morgan ESG DM Corporate High Yield USD Index
Number of Components: approximately 1,832
Index Description.
The J.P. Morgan ESG DM Corporate
High Yield USD Index applies environmental, social and
governance (
“
ESG
”
) considerations to its broader parent
index, the J.P. Morgan DM High Yield USD Index.
The Underlying Index is calculated and maintained by J.P.
Morgan Chase & Co. (
“
Index Provider
”
or
“
J.P. Morgan
”
).
The Underlying Index is part of the J.P. Morgan ESG suite
of indexes (the
“
JESG Indexes
”
) and integrates ESG
scores with screens for both positive/best-in-class and
negative factors, including the exclusion of controversial
sectors and UN Global Compact (
“
UNGC
”
) violators.
Under the JESG Index methodology, including for the
Underlying Index, the Index Provider obtains ESG factor
valuations for each issuer in the parent index from RepRisk
and Sustainalytics, which are investment research
providers dedicated to responsible investing and ESG
research. These ESG factor valuations are obtained from
each provider and translated by the Index Provider to a
range of 0 – 100, with 100 being the best possible score.
The Index Provider’s finalized ESG score (
“
JESG Score
”
)
for each issuer incorporates a 3-month rolling average of
the scores from each individual provider. The Index
Provider calculates JESG Scores daily.
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All available issuer ESG factor valuations from RepRisk and
Sustainalytics are used in the Underlying Index calculations.
If, however, a corporate issuer in the parent index is
not covered by either of those ESG factor valuation input
providers, then the industry sector average of each
provider is used to calculate an industry sector average
ESG factor valuation to be used as a proxy. If a corporate
issuer in the parent index is only covered by one of those
input ESG factor valuation providers, the Index Provider
uses the factor valuation from the covering data provider is
averaged with the industry sector average value from the
remaining provider to calculate the JESG Score.
Each issuer in the Underlying Index is bucketed into one of
five quintiles (or
“
bands
”
) corresponding to its JESG
Score.
■
Band 1 = JESG Score equal to or greater than 80
■
Band 2 = JESG Score equal to or greater than 60, less
than 80
■
Band 3 = JESG Score equal to or greater than 40, less
than 60
■
Band 4 = JESG Score equal to or greater than 20, less
than 40
■
Band 5 = JESG Score less than 20
Issuers with better overall ESG scores are assigned larger
weights compared to the parent index. Issuers with JESG
scores less than 20 are excluded and are not eligible for 12
months once excluded. Additionally, issuers with derived
revenue from thermal coal, tobacco and weapons sectors
are excluded. Issuers violating UNGC principles are also
excluded.
If an instrument is categorized as
“
green
”
by the Climate
Bond Initiative (
“
CBI
”
) under the criteria used by the CBI to
certify bonds as being closely linked with green and
climate friendly assets or projects, the security will be
upgraded one quintile from the band to which it originally
was assigned. Green bonds from excluded issuers are also
not eligible for inclusion.
Additional Information about the Underlying Index
J.P. Morgan Chase & Co (
“
J.P. Morgan
”
or the
“
Index
Provider
”
). J.P. Morgan serves as the Index Administrator
and Calculation Agent for the Underlying Index.
All instruments which meet the above requirements are
included in the Underlying Index. The composition of the
Underlying Index is ordinarily rebalanced on the last business
day of each month. On rebalance day, new bonds that
settle T-5 business days of rebalance day and meet all
index eligible criteria will enter the index at the close of
business. For new instruments settling after the T-5 business
days of rebalance day, such instruments would be
included during the next month’s rebalancing.
In addition, bonds that fail to comply with the index criteria
will be removed at the rebalancing, and full or partial calls,
taps or buybacks will also be reflected at that time.
If an issuer is eligible for inclusion into or exclusion from
the Underlying Index based on developments relating to
ethical factors, the action will take place on the monthly
rebalancing date, following a one-month lag. Once an
issuer is removed because its score no longer meets the
index score requirement, the issuer is no longer eligible for
inclusion for 12 months.
If an issuer is eligible for a different band than the one it is
currently in, it will be moved to the new band on the
monthly rebalance date, following a one month lag. As per
index rules, the promotion or demotion into or out of each
band will also impact green bonds issued by the respective
issuer.
Issuers with an index rating transitioning from investment
grade to high yield that meet all other index eligibility rules
are added to the index on the last business day of the
month-end following the credit rating bucket change from
investment grade to high yield. Issuers with an index rating
transitioning from high yield to investment grade will exit
the index at the coming month-end rebalance following the
credit rating bucket change up to and including T-1 business
day of the month.
During extraordinary market conditions, the Index Provider
may delay any scheduled rebalancing of the Underlying
Index. During any such delay it is possible that the Underlying
Index will deviate from the Underlying Index’s stated
methodology.
Main Risks
As with any investment, you could lose all or part of your
investment in the fund, and the fund’s performance could
trail that of other investments. The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective.
Fixed income markets risk.
The values of many types of
debt securities have been reduced over a period of many
years since the credit crisis started due to problems
relating to subprime mortgages. These market problems
have also affected debt securities that are not related to
mortgage loans. In addition, broker-dealers and other
market participants have been less willing to make a
market in some types of debt instruments, which has
impacted the liquidity of those instruments. These developments
also have had a negative effect on the broader
economy. There is a risk that a lack of liquidity or other
adverse credit market conditions may hamper the fund’s
ability to sell the debt securities in which it invests or to
find and purchase the debt instruments included in its
Underlying Index.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
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increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
ESG investment strategy risk.
The Underlying Index’s
ESG methodology, and thus the fund’s investment
strategy, limits the types and number of investment opportunities
available to the fund and, as a result, the fund may
underperform other funds that do not have an ESG focus.
The Underlying Index’s ESG methodology may result in the
fund investing in securities or industry sectors that underperform
the market as a whole or underperform other
funds screened for ESG standards. In addition, the index
provider may be unsuccessful in creating an index
composed of companies that exhibit positive ESG characteristics.
Regulatory changes or interpretations regarding
the definitions and/or use of ESG criteria could have a
material adverse effect on the fund’s ability to invest in
accordance with its investment policies and/or achieve its
investment objective, as well as the ability of certain
classes of investors to invest in funds following an ESG
strategy such as the fund.
Fixed income securities risk.
Fixed-income securities are
subject to the risk of the issuer’s inability to meet principal
and interest payments on its obligations (i.e., credit
risk) and are subject to price volatility resulting from,
among other things, interest rate sensitivity, market
perception of the creditworthiness of the issuer and
general market liquidity (i.e., market risk). Lower rated
fixed-income securities have greater volatility because
there is less certainty that principal and interest payments
will be made as scheduled.
Consumer sector risk.
To the extent that the fund invests
significantly in the consumer sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
consumer sector. Companies engaged in the consumer
sector are subject to fluctuations in supply and demand.
These companies may also be adversely affected by
changes in consumer spending as a result of world events,
political and economic conditions, commodity price volatility,
changes in exchange rates, imposition of import
controls, increased competition, depletion of resources
and labor relations.
High yield securities risk.
Exposure to high yield (lower
rated) debt instruments (also known as
“
junk bonds
”
) may
involve greater levels of credit, prepayment, liquidity and
valuation risk than for higher rated instruments. High yield
debt instruments may be more sensitive to economic
changes, political changes, or adverse developments
specific to a company than other fixed income instruments.
High yield debt instruments are considered
speculative with respect to the issuer’s continuing ability
to make principal and interest payments and, therefore,
such instruments generally involve greater risk of default or
price changes than higher rated debt instruments. High-yield
debt securities’ total return and yield may generally
be expected to fluctuate more than the total return and
yield of investment-grade debt securities. A real or
perceived economic downturn or an increase in market
interest rates could cause a decline in the value of high-yield
debt securities, result in increased redemptions
and/or result in increased portfolio turnover, which could
result in a decline in the NAV of the fund, reduce liquidity
for certain investments and/or increase costs. High-yield
debt securities are often thinly traded and can be more
difficult to sell and value accurately than investment-grade
debt securities as there may be no established secondary
market. Even if an established secondary market exists,
less active markets may diminish the fund’s ability to
obtain accurate market quotations when valuing the portfolio
securities and thereby give rise to valuation risk.
Investments in high-yield debt securities could increase
liquidity risk for the fund. In addition, the market for high-yield
debt securities can experience sudden and sharp
volatility, which is generally associated more with investments
in stocks. High yield debt instruments may be more
sensitive to economic changes, political changes, or
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adverse developments specific to a company than other
fixed income instruments. High yield debt instruments
may also present risks based on payment expectations.
For example, these instruments may contain redemption
or call provisions. If an issuer exercises these provisions in
a declining interest rate market, the fund would have to
replace the security with a lower yielding security,
resulting in a decreased return for investors. If the issuer
of a security is in default with respect to interest or principal
payments, the issuer’s security could lose its entire
value. Furthermore, the transaction costs associated with
the purchase and sale of high yield debt instruments may
vary greatly depending upon a number of factors and may
adversely affect the fund’s performance.
Interest rate risk.
When interest rates rise, prices of debt
securities generally decline. The longer the duration of
the fund’s debt securities, the more sensitive the fund will
be to interest rate changes. (As a general rule, a 1% rise
in interest rates means a 1% fall in value for every year of
duration.) Recent and potential future changes in monetary
policy made by central banks or governments are likely to
affect the level of interest rates. Rising interest rates may
prompt redemptions from the fund. Although the fund
primarily seeks to redeem shares of the fund on an in-kind
basis, if the fund is forced to sell underlying investments
at reduced prices or under unfavorable conditions to meet
redemption requests or other cash needs, the fund may
suffer a loss. The fund may be subject to a greater risk of
rising interest rates due to the current period of historically
low rates. Certain countries have experienced negative
interest rates on certain debt securities. Negative or very
low interest rates could magnify the risks associated with
changes in interest rates. In general, changing interest
rates, including rates that fall below zero, could have unpredictable
effects on markets and may expose debt and
related markets to heightened volatility. During periods
when interest rates are low or there are negative interest
rates, the fund's yield (and total return) also may be low or
the fund may be unable to maintain positive returns. In
addition, in response to the COVID-19 pandemic, as with
other serious economic disruptions, governmental authorities
and regulators are enacting significant fiscal and
monetary policy changes, including providing direct capital
infusions into companies, creating new monetary
programs and lowering interest rates considerably. These
actions present heightened risks to debt instruments, and
such risks could be even further heightened if these
actions are unexpectedly or suddenly reversed or are ineffective
in achieving their desired outcomes.
London Interbank Offered Rate (LIBOR), the benchmark
rate for certain floating rate securities, is expected to be
phased out by the end of 2021. The fund or the instruments
in which the fund invests may be adversely affected
by the phase out by, among other things, increased volatility
or illiquidity. There remains uncertainty regarding the
future use of LIBOR and the nature of any replacement
reference rate and, accordingly, it is difficult to predict the
impact to the fund of the transition away from LIBOR.
Credit risk.
The fund’s performance could be hurt if an
issuer of a debt security suffers an adverse change in
financial condition that results in a payment default, security
downgrade or inability to meet a financial obligation.
Credit risk is greater for lower-rated securities. Credit
ratings may not be an accurate assessment of credit risk.
Prepayment and extension risk.
When interest rates fall,
issuers of high interest debt obligations may pay off the
debts earlier than expected (prepayment risk), and the
fund may have to reinvest the proceeds at lower yields.
When interest rates rise, issuers of lower interest debt
obligations may pay off the debts later than expected
(extension risk), thus keeping the fund’s assets tied up in
lower interest debt obligations. Ultimately, any unexpected
behavior in interest rates could increase the volatility of
the fund’s share price and yield and could hurt fund performance.
Prepayments could also create capital gains tax
liability in some instances.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
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Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors
of the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Restricted securities/Rule 144A securities risk.
The fund
may invest a significant portion of its assets in securities
offered pursuant to Rule 144A under the Securities Act of
1933, as amended (the
“
1933 Act
”
), which are restricted
securities. They may be less liquid and more difficult to
value than other investments because such securities may
not be readily marketable in broad public markets. The
fund may not be able to sell a restricted security promptly
or at a reasonable price. Although there is a substantial
institutional market for Rule 144A securities, it is not
possible to predict exactly how the market for Rule 144A
securities will develop. A restricted security that was liquid
at the time of purchase may subsequently become illiquid
and its value may decline as a result. Restricted securities
that are deemed illiquid will count towards the fund’s 15%
limitation on illiquid securities. In addition, transaction
costs may be higher for restricted securities than for more
liquid securities. The fund may have to bear the expense
of registering Rule 144A securities for resale and the risk
of substantial delays in effecting the registration.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in a rising interest rate environment or other circumstances
where redemptions from the fund may be higher
than normal.
Liquidity risk may result from the lack of an active market
and the reduced number and capacity of traditional market
participants to make a market in fixed income securities.
Liquidity risk also may be magnified in a rising interest rate
environment or other circumstances where investor
redemptions from fixed income mutual funds or ETFs may
be higher than normal, causing increased supply in the
market due to selling activity. It may also be the case that
other market participants may be attempting to liquidate
fixed-income holdings at the same time as the fund,
causing increased supply in the market and contributing to
liquidity risk and downward pricing pressure.
Pricing risk.
If market conditions make it difficult to value
some investments, the fund may value these investments
using more subjective methods, such as fair value pricing.
In such cases, the value determined for an investment
could be different from the value realized upon such investment’s
sale. As a result, you could pay more than the
market value when buying fund shares or receive less than
the market value when selling fund shares.
Secondary markets may be subject to irregular trading
activity, wide bid/ask spreads and extended trade settlement
periods, which may prevent the fund from being able
to realize full value and thus sell a security for its full valuation.
This could cause a material decline in the fund’s net
asset value.
Issuer-specific risk.
The value of an individual security or
particular type of security may be more volatile than the
market as a whole and may perform differently from the
value of the market as a whole.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
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on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
The need to comply with the tax diversification and other
requirements of the Internal Revenue Code of 1986, as
amended, may also impact the fund’s ability to replicate
the performance of the Underlying Index. In addition, if the
fund utilizes derivative instruments or holds other instruments
that are not included in the Underlying Index, the
fund’s return may not correlate as well with the returns of
the Underlying Index as would be the case if the fund
purchased all the securities in the Underlying Index
directly. Actions taken in response to proposed corporate
actions could result in increased tracking error.
For purposes of calculating the fund’s net asset value, the
value of assets denominated in non-US currencies is
converted into US dollars using prevailing market rates on
the date of valuation as quoted by one or more data
service providers. This conversion may result in a difference
between the prices used to calculate the fund’s net
asset value and the prices used by the Underlying Index,
which, in turn, could result in a difference between the
fund’s performance and the performance of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
NAV during periods of market volatility. Differences
between secondary market prices and the value of the
fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the
same forces as those influencing prices for securities held
by the fund at a particular time. The Advisor cannot predict
whether shares will trade above, below or at their NAV.
Given the fact that shares can be created and redeemed in
Creation Units, the Advisor believes that large discounts
or premiums to the NAV of shares should not be sustained
in the long-term. In addition, there may be times when
the market price and the value of the fund’s holdings vary
significantly and you may pay more than the value of the
fund’s holdings when buying shares on the secondary
market, and you may receive less than the value of the
fund’s holdings when you sell those shares. While the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in trading prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. If market makers exit the business or are
unable to continue making markets in fund’s shares,
shares may trade at a discount to NAV like closed-end fund
shares and may even face delisting (that is, investors
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would no longer be able to trade shares in the secondary
market). The market price of shares, like the price of any
exchange-traded security, includes a
“
bid-ask spread
”
charged by the exchange specialist, market makers or
other participants that trade the particular security. In times
of severe market disruption, the bid-ask spread often
increases significantly. This means that shares may trade
at a discount to the fund’s NAV, and the discount is likely to
be greatest when the price of shares is falling fastest,
which may be the time that you most want to sell your
shares. There are various methods by which investors can
purchase and sell shares of the funds and various orders
that may be placed. Investors should consult their financial
intermediary before purchasing or selling shares of the
fund.
In addition, the securities held by the fund may be traded
in markets that close at a different time than an exchange.
Liquidity in those securities may be reduced after the applicable
closing times. Accordingly, during the time when an
exchange is open but after the applicable market closing,
fixing or settlement times, bid-ask spreads and the
resulting premium or discount to the shares’ NAV is likely
to widen. More generally, secondary markets may be
subject to irregular trading activity, wide bid-ask spreads
and extended trade settlement periods, which could cause
a material decline in the fund’s NAV. The bid-ask spread
varies over time for shares of the fund based on the fund’s
trading volume and market liquidity, and is generally lower
if the fund has substantial trading volume and market
liquidity, and higher if the fund has little trading volume and
market liquidity (which is often the case for funds that are
newly launched or small in size). The fund’s bid-ask spread
may also be impacted by the liquidity of the underlying
securities held by the fund, particularly for newly launched
or smaller funds or in instances of significant volatility of
the underlying securities. The fund’s investment results are
measured based upon the daily NAV of the fund. Investors
purchasing and selling shares in the secondary market
may not experience investment results consistent with
those experienced by those APs creating and redeeming
shares directly with the fund. In addition, transactions by
large shareholders may account for a large percentage of
the trading volume on an exchange and may, therefore,
have a material effect on the market price of the fund’s
shares.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Cyber-attacks may include unauthorized attempts by third
parties to improperly access, modify, disrupt the operations
of, or prevent access to the systems of the fund’s
service providers or counterparties, issuers of securities
held by the fund or other market participants or data within
them. In addition, power or communications outages, acts
of god, information technology equipment malfunctions,
operational errors, and inaccuracies within software or data
processing systems may also disrupt business operations
or impact critical data.
Cyber-attacks, disruptions, or failures may adversely affect
the fund and its shareholders or cause reputational
damage and subject the fund to regulatory fines, litigation
costs, penalties or financial losses, reimbursement or
other compensation costs, and/or additional compliance
costs. In addition, cyber-attacks, disruptions, or failures
involving a fund counterparty could affect such
counterparty’s ability to meet its obligations to the fund,
which may result in losses to the fund and its shareholders.
Similar types of operational and technology risks
are also present for issuers of securities held by the fund,
which could have material adverse consequences for such
issuers, and may cause the fund’s investments to lose
value. Furthermore, as a result of cyber-attacks, disruptions,
or failures, an exchange or market may close or issue
trading halts on specific securities or the entire market,
which may result in the fund being, among other things,
unable to buy or sell certain securities or financial instruments
or unable to accurately price its investments.
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For example, the fund relies on various sources to calculate
its NAV. Therefore, the fund is subject to certain
operational risks associated with reliance on third party
service providers and data sources. NAV calculation may
be impacted by operational risks arising from factors such
as failures in systems and technology. Such failures may
result in delays in the calculation of a fund’s NAV and/or the
inability to calculate NAV over extended time periods. The
fund may be unable to recover any losses associated with
such failures.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Counterparty risk.
The risk of loss with respect to OTC
swaps generally is limited to the net amount of payments
that the fund is contractually obligated to make. Swap
agreements are subject to the risk that the swap
counterparty will default on its obligations. If such a default
occurs, the fund will have contractual remedies pursuant
to the agreements related to the transaction. However,
such remedies may be subject to bankruptcy and insolvency
laws which could affect such fund’s rights as a
creditor (e.g., the fund may not receive the net amount of
payments that it contractually is entitled to receive).
Cleared swaps are transacted through futures commission
merchants (
“
FCMs
”
) that are members of central clearinghouses
with the clearinghouse serving as a central
counterparty similar to transactions in futures contracts.
Central clearing may decrease counterparty risk and potentially
increase liquidity compared to un-cleared swaps
because central clearing interposes the central clearinghouse
as the counterpart to each participant’s swap.
However, central clearing does not eliminate counterparty
risk or illiquidity risk entirely. In addition depending on the
size of the fund and other factors, the margin required
under the rules of a clearinghouse and by a clearing
member FCM may be in excess of the collateral required
to be posted by the fund to support its obligations under a
similar un-cleared swap. Regulators, however, have begun
adopting rules imposing certain margin requirements,
including minimums, on un-cleared swaps which, for
certain instruments, has reduced the distinction.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Derivatives risk.
Derivatives are financial instruments,
such as futures and swaps, whose values are based on the
value of one or more indicators, such as a security, asset,
currency, interest rate, or index. Derivatives involve risks
different from, and possibly greater than, the risks associated
with investing directly in securities and other more
traditional investments. For example, derivatives involve
the risk of mispricing or improper valuation and the risk
that changes in the value of a derivative may not correlate
perfectly with the underlying indicator. Derivative transactions
can create investment leverage, may be highly
volatile and the fund could lose more than the amount it
invests. Many derivative transactions are entered into
“
over-the-counter
”
(i.e., not on an exchange or contract market);
as a result, the value of such a derivative transaction will
depend on the ability and the willingness of the fund’s
counterparty to perform its obligations under the transaction.
If a counterparty were to default on its obligations,
the fund’s contractual remedies against such counterparty
may be subject to bankruptcy and insolvency laws, which
could affect the fund’s rights as a creditor (e.g., the fund
may not receive the net amount of payments that it is
contractually entitled to receive). A liquid secondary market
may not always exist for the fund’s derivative positions at
any time.
Futures risk.
The value of a futures contract tends to
increase and decrease in tandem with the value of the
underlying instrument. Depending on the terms of the
particular contract, futures contracts are settled through
either physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether,
when and how to use futures involves the exercise of skill
and judgment and even a well-conceived futures transaction
may be unsuccessful because of market behavior or
unexpected events. In addition to the derivatives risks
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discussed above, the prices of futures can be highly volatile,
using futures can lower total return and the potential
loss from futures can exceed the fund’s initial investment
in such contracts.
Xtrackers Bloomberg Barclays US Investment Grade
Corporate ESG ETF
Investment Objective
Xtrackers Bloomberg Barclays US Investment Grade Corporate
ESG ETF (the
“
fund
”
) seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Bloomberg Barclays MSCI US Corporate
Sustainability SRI Sector/Credit/Maturity Neutral Index
(the
“
Underlying Index
”
).
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which applies environmental, social and
governance (
“
ESG
”
) considerations to a broader parent
index. The Underlying Index generally aims to keep the
broad characteristics of its parent index, the Bloomberg
Barclays US Corporate Index (an investment grade corporate
bond universe), resulting in a broad investment grade
fixed income market exposure with ESG aspects. The
Underlying Index uses the Bloomberg Barclays US Corporate
Index as its parent index, and then via the index
methodology the following screens are implemented:
ESG criteria
■
Issuers with ESG scores lower than BBB are excluded
from the Underlying Index, per MSCI’s ESG scoring
methodology which Bloomberg Barclays uses for the
Underlying Index);
Controversies
■
These are controversies regarding the negative ESG
impact of a company’s operations, product and services,
as assessed by MSCI’s ESG Controversies monitoring
system;
Specified business activities
■
These include adult entertainment, alcohol, gambling,
tobacco, nuclear and controversial weapons, civilian firearms,
nuclear power and genetically modified
organisms.
Once all relevant companies are screened out, the
remaining companies are included in the Underlying Index
and are reweighted in a manner designed for the Underlying
Index to approximate the properties of the parent
index across three factors: sector, maturity and rating.
Currently, the bonds eligible for inclusion in the Underlying
Index include US dollar-denominated corporate bonds that:
(i) are rated investment-grade using the middle rating of
Moody’s Investor Services, Inc. (
“
Moody's
”
), S&P Global
Ratings (
“
S&P
”
), and Fitch Investors Services, Inc.
(
“
Fitch
”
); (ii) have at least $300 million minimum par
amount outstanding; and (iii) have at least one year to
maturity. Under normal circumstances, the Underlying
Index is rebalanced on a monthly basis. The fund rebalances
its portfolio in accordance with the Underlying
Index, and, therefore, any changes to the Underlying
Index’s rebalance schedule will result in corresponding
changes to the fund’s rebalance schedule.
As of July 31, 2020, the Underlying Index was comprised
of 3,672 bonds issued by 531 different issuers, with an
average market capitalization of approximately $1.06 billion
and a minimum market capitalization of approximately
$226 million, from issuers in the following countries:
Australia, Bermuda, Canada, Cayman Islands, Chile, China,
Colombia, France, Germany, Guernsey, Ireland, Italy,
Japan, Luxembourg, Mexico, Netherlands, Spain, Sweden,
the United Kingdom, and the United States. As of July
31, 2020, a significant percentage of the Underlying Index
was comprised of securities of issuers from the United
States (81.9%). The fund uses a representative sampling
indexing strategy in seeking to track the Underlying Index,
meaning it generally will invest in a sample of securities
in the index whose risk, return and other characteristics
resemble the risk, return and other characteristics of the
Underlying Index as a whole.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in corporate bonds rated investment grade by
credit rating agencies (e.g., S&P rating of BBB- or above).
In addition, the fund will invest at least 80% of its total
assets, but typically far more, in instruments that comprise
the Underlying Index.
The fund will concentrate its investments (i.e., hold 25%
or more of its total assets) in a particular industry or group
of industries to the extent that its Underlying Index is
concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
financials sector (27.9%) and the consumer staples sector
(18.2%). The financials sector includes companies involved
in banking, consumer finance, asset management and
custody banks, as well as investment banking and
brokerage and insurance. The consumer staples sector
includes companies whose businesses are less sensitive
to economic cycles, such as manufacturers and distributors
of food, beverages and producers of non-durable
household goods and personal products. To the extent that
the fund tracks the Underlying Index, the fund’s investment
in certain sectors or countries may change over time.
The fund may invest its remaining assets in other securities,
including securities not in the Underlying Index, cash
and cash equivalents, money market instruments, such
as repurchase agreements or money market funds
(including money market funds advised by the Advisor or
its affiliates (subject to applicable limitations under the
Investment Company Act of 1940, as amended (the
“
1940
Act
”
), or exemptions therefrom), convertible securities,
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structured notes (notes on which the amount of principal
repayment and interest payments are based on the movement
of one or more specified factors, such as the
movement of a particular stock or stock index) and in
futures contracts, options on futures contracts, other types
of options and swaps related to its Underlying Index. The
fund will not use futures or options for speculative
purposes.
The fund expects to use futures contracts to a limited
extent in seeking performance that corresponds to its
Underlying Index. A futures contract is a standardized
exchange traded agreement to buy or sell a specific quantity
of an underlying instrument at a specific price at a
specific future time.
BLOOMBERG
®
is a trademark and service mark of
Bloomberg Finance L.P. and its affiliates (collectively
“
Bloomberg
”
). BARCLAYS
®
is a trademark and service
mark of Barclays Bank Plc (collectively with its affiliates,
“
Barclays
”
), used under license. Bloomberg or
Bloomberg’s licensors, including Barclays, own all proprietary
rights in the Bloomberg Barclays Indices. Neither
Bloomberg nor Barclays is affiliated with DBX Advisors
LLC, and neither approves, endorses, reviews or recommends
Xtrackers Bloomberg Barclays US Investment
Grade Corporate ESG ETF. Neither Bloomberg nor Barclays
guarantees the timeliness, accurateness or completeness
of any data or information relating to Bloomberg Barclays
MSCI US Corporate Sustainability SRI Sector/Credit/Maturity
Neutral Index, and neither shall be liable in any
way to DBX Advisors LLC, investors in Xtrackers
Bloomberg Barclays US Investment Grade Corporate ESG
ETF or other third parties in respect of the use or accuracy
of the Bloomberg Barclays MSCI US Corporate
Sustainability SRI Sector/Credit/Maturity Neutral Index or
any data included therein.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Underlying Index Information
Bloomberg Barclays MSCI US Corporate Sustainability
SRI Sector/Credit/Maturity Neutral Index
Number of Components: approximately 3,672
Index Description.
The Bloomberg Barclays MSCI US
Corporate Sustainability SRI Sector/Credit/Maturity Neutral
Index is a US dollar-denominated benchmark index that
measures the investment grade, fixed-rate, taxable corporate
bond market while maintaining similar sector, credit
and maturity profiles to the Bloomberg Barclays US Corporate
Index.
The Underlying Index is calculated and maintained by
Bloomberg Index Services Limited (
“
Bloomberg
”
) in partnership
with MSCI ESG Research. The Underlying Index
includes only issuers with at least a BBB ESG rating, as
defined by MSCI ESG Ratings, and excludes issuers with
substantial revenue derived from sectors with lower ESG
scores, such as adult entertainment, alcohol, gambling,
tobacco, controversial military weapons, civilian firearms,
nuclear power, and genetically modified organisms
(GMOs).
The Underlying Index includes only USD-denominated
securities publicly issued by US and non-US industrial,
utility and financial issuers. Bloomberg conducts its negative
business involvement screening for the Underlying
Index according to the following criteria:
■
Adult Entertainment.
All issuers classified as adult
entertainment producers that earn more than 5% in
revenue, or more than $500 million in revenue, from
adult entertainment materials are excluded from the
Underlying Index.
■
Alcohol.
All issuers that are classified as alcohol
producers that earn more than 5% in revenue, or more
than $500 million in revenue, from alcohol-related products
are excluded from the Underlying Index.
■
Gambling.
All issuers that are classified as involved in
gambling operations or support that earn more than 5%
in revenue, or more than $500 million in revenue, from
gambling-related activities are excluded from the Underlying
Index.
■
Tobacco.
All issuers that are classified as tobacco
producers or distributors, retailers, or suppliers that
derive 15% or more of their revenue from tobacco-
related products are excluded from the Underlying
Index.
■
Military Weapons.
All issuers that either i) are classified
as involved in manufacturing of nuclear weapons,
nuclear weapons components, chemical and biological
weapons components, or depleted uranium weapons or
ii) earn more than 5% in revenue, or more than $500
million, from manufacturing conventional weapons,
conventional weapons components, or conventional
weapons support systems and services are excluded
from the Underlying Index.
■
Civilian Firearms.
All issuers that are classified as
civilian firearms producers or retailers that derive 5% or
more of their revenue, or more than $20 million in
revenue, from civilian firearms-related products are
excluded from the Underlying Index.
■
Nuclear Power.
All issuers that either i) are classified as
nuclear utilities or involved in uranium mining, designing
nuclear reactors, or enrichment of fuel for nuclear reactors
or ii) earn 15% or more revenues as a supplier to
the nuclear power industry are excluded from the Underlying
Index.
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■
Genetically Modified Organisms.
All companies that
derive any revenue from activities like genetically modifying
plants, such as seeds and crops, and other
organisms intended for agricultural use or human
consumption (but not companies only involved in GMO
Research & Development activities) are excluded from
the Underlying Index.
The Underlying Index also excludes all issuers involved in
one or more severe ESG Controversies. MSCI’s ESG
Controversies monitoring system provides assessments of
controversies concerning the negative ESG impact of
company operations, products and services, using an
evaluation framework designed to be consistent with international
norms represented by the UN Declaration of
Human Rights, the ILO Declaration on Fundamental Principles
and Rights at Work, and the UN Global Compact.
Additional Information about the Underlying Index
Bloomberg serves as the Index Administrator and Calculation
Agent for the Underlying Index.
The composition of the Underlying Index is rebalanced on
the last business day of each month. For each Bloomberg
index, Bloomberg maintains two
“
universes
”
of securities:
the Returns (Backward) and the Projected (Forward)
Universes. The composition of the Returns Universe is
rebalanced at each month-end and represents the fixed set
of bonds on which index returns are calculated for the next
month. The Projected Universe is a forward-looking projection
that changes daily to reflect issues dropping out of
and entering the index but is not used for return calculations.
On the rebalancing date, the composition of the
latest Projected Universe becomes the Returns Universe
for the following month.
Over the course of a month, indicative changes to securities
(such as credit rating change, sector reclassification,
amount outstanding changes, corporate actions, and ticker
changes) are reflected daily in both the Projected and
Returns Universe of the index. Such changes may cause
bonds to enter or fall out of the Projected Universe of the
index on a daily basis, but any such changes would only
affect the composition of the Returns Universe at month-end,
when the index is next rebalanced.
At each rebalancing, cash is effectively reinvested into the
Returns Universe for the following month so that index
results over two or more months reflect monthly
compounding. Intra-month cash flows from interest and
principal payments contribute to monthly index returns but
are not reinvested at a short-term reinvestment rate
between rebalance dates.
With respect to new issues, qualifying securities issued,
but not necessarily settled on or before the month-end
rebalancing date, qualify for inclusion in the following
month’s index if the required security reference information
and pricing are readily available.
During extraordinary market conditions, the Index Provider
may delay any scheduled rebalancing of the Underlying
Index. During any such delay it is possible that the Underlying
Index will deviate from the Underlying Index’s stated
methodology.
Main Risks
As with any investment, you could lose all or part of your
investment in the fund, and the fund’s performance could
trail that of other investments. The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective.
Fixed income markets risk.
The values of many types of
debt securities have been reduced over a period of many
years since the credit crisis started due to problems
relating to subprime mortgages. These market problems
have also affected debt securities that are not related to
mortgage loans. In addition, broker-dealers and other
market participants have been less willing to make a
market in some types of debt instruments, which has
impacted the liquidity of those instruments. These developments
also have had a negative effect on the broader
economy. There is a risk that a lack of liquidity or other
adverse credit market conditions may hamper the fund’s
ability to sell the debt securities in which it invests or to
find and purchase the debt instruments included in its
Underlying Index.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
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impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
ESG investment strategy risk.
The Underlying Index’s
ESG methodology, and thus the fund’s investment
strategy, limits the types and number of investment opportunities
available to the fund and, as a result, the fund may
underperform other funds that do not have an ESG focus.
The Underlying Index’s ESG methodology may result in the
fund investing in securities or industry sectors that underperform
the market as a whole or underperform other
funds screened for ESG standards. In addition, the index
provider may be unsuccessful in creating an index
composed of companies that exhibit positive ESG characteristics.
Regulatory changes or interpretations regarding
the definitions and/or use of ESG criteria could have a
material adverse effect on the fund’s ability to invest in
accordance with its investment policies and/or achieve its
investment objective, as well as the ability of certain
classes of investors to invest in funds following an ESG
strategy such as the fund.
Fixed income securities risk.
Fixed-income securities are
subject to the risk of the issuer’s inability to meet principal
and interest payments on its obligations (i.e., credit
risk) and are subject to price volatility resulting from,
among other things, interest rate sensitivity, market
perception of the creditworthiness of the issuer and
general market liquidity (i.e., market risk). Lower rated
fixed-income securities have greater volatility because
there is less certainty that principal and interest payments
will be made as scheduled.
Interest rate risk.
When interest rates rise, prices of debt
securities generally decline. The longer the duration of
the fund’s debt securities, the more sensitive the fund will
be to interest rate changes. (As a general rule, a 1% rise
in interest rates means a 1% fall in value for every year of
duration.) Recent and potential future changes in monetary
policy made by central banks or governments are likely to
affect the level of interest rates. Rising interest rates may
prompt redemptions from the fund. Although the fund
primarily seeks to redeem shares of the fund on an in-kind
basis, if the fund is forced to sell underlying investments
at reduced prices or under unfavorable conditions to meet
redemption requests or other cash needs, the fund may
suffer a loss. The fund may be subject to a greater risk of
rising interest rates due to the current period of historically
low rates. Certain countries have experienced negative
interest rates on certain debt securities. Negative or very
low interest rates could magnify the risks associated with
changes in interest rates. In general, changing interest
rates, including rates that fall below zero, could have unpredictable
effects on markets and may expose debt and
related markets to heightened volatility. During periods
when interest rates are low or there are negative interest
rates, the fund's yield (and total return) also may be low or
the fund may be unable to maintain positive returns. In
addition, in response to the COVID-19 pandemic, as with
other serious economic disruptions, governmental authorities
and regulators are enacting significant fiscal and
monetary policy changes, including providing direct capital
infusions into companies, creating new monetary
programs and lowering interest rates considerably. These
actions present heightened risks to debt instruments, and
such risks could be even further heightened if these
actions are unexpectedly or suddenly reversed or are ineffective
in achieving their desired outcomes.
London Interbank Offered Rate (LIBOR), the benchmark
rate for certain floating rate securities, is expected to be
phased out by the end of 2021. The fund or the instruments
in which the fund invests may be adversely affected
by the phase out by, among other things, increased volatility
or illiquidity. There remains uncertainty regarding the
future use of LIBOR and the nature of any replacement
reference rate and, accordingly, it is difficult to predict the
impact to the fund of the transition away from LIBOR.
Credit risk.
The fund’s performance could be hurt if an
issuer of a debt security suffers an adverse change in
financial condition that results in a payment default, security
downgrade or inability to meet a financial obligation.
Credit risk is greater for lower-rated securities. Credit
ratings may not be an accurate assessment of credit risk.
Prepayment and extension risk.
When interest rates fall,
issuers of high interest debt obligations may pay off the
debts earlier than expected (prepayment risk), and the
fund may have to reinvest the proceeds at lower yields.
When interest rates rise, issuers of lower interest debt
obligations may pay off the debts later than expected
(extension risk), thus keeping the fund’s assets tied up in
lower interest debt obligations. Ultimately, any unexpected
behavior in interest rates could increase the volatility of
the fund’s share price and yield and could hurt fund performance.
Prepayments could also create capital gains tax
liability in some instances.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors
of the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
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Consumer staples sector risk.
To the extent that the fund
invests significantly in the consumer staples sector, the
fund will be sensitive to changes in, and the fund’s performance
may depend to a greater extent on, the overall
condition of the consumer staples sector. Companies in
the consumer staples sector may be adversely affected by
changes in the global economy, consumer spending,
competition, demographics and consumer preferences,
and production spending. Companies in the consumer
staples sector are also affected by changes in government
regulation, global economic, environmental and political
events, economic conditions and the depletion of
resources. In addition, companies in the consumer staples
sector may be subject to risks pertaining to the supply of,
demand for and prices of raw materials. The prices of raw
materials fluctuate in response to a number of factors,
including, without limitation, changes in government agricultural
support programs, exchange rates, import and
export controls, changes in international agricultural and
trading policies, and seasonal and weather conditions.
Financials sector risk.
To the extent that the fund invests
significantly in the financials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
financials sector. The financials sector is subject to extensive
government regulation, can be subject to relatively
rapid change due to increasingly blurred distinctions
between service segments, and can be significantly
affected by availability and cost of capital funds, changes in
interest rates, the rate of corporate and consumer debt
defaults, and price competition.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in a rising interest rate environment or other circumstances
where redemptions from the fund may be higher
than normal.
Liquidity risk may result from the lack of an active market
and the reduced number and capacity of traditional market
participants to make a market in fixed income securities.
Liquidity risk also may be magnified in a rising interest rate
environment or other circumstances where investor
redemptions from fixed income mutual funds or ETFs may
be higher than normal, causing increased supply in the
market due to selling activity. It may also be the case that
other market participants may be attempting to liquidate
fixed-income holdings at the same time as the fund,
causing increased supply in the market and contributing to
liquidity risk and downward pricing pressure.
Pricing risk.
If market conditions make it difficult to value
some investments, the fund may value these investments
using more subjective methods, such as fair value pricing.
In such cases, the value determined for an investment
could be different from the value realized upon such investment’s
sale. As a result, you could pay more than the
market value when buying fund shares or receive less than
the market value when selling fund shares.
Secondary markets may be subject to irregular trading
activity, wide bid/ask spreads and extended trade settlement
periods, which may prevent the fund from being able
to realize full value and thus sell a security for its full valuation.
This could cause a material decline in the fund’s net
asset value.
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Issuer-specific risk.
The value of an individual security or
particular type of security may be more volatile than the
market as a whole and may perform differently from the
value of the market as a whole.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
The need to comply with the tax diversification and other
requirements of the Internal Revenue Code of 1986, as
amended, may also impact the fund’s ability to replicate
the performance of the Underlying Index. In addition, if the
fund utilizes derivative instruments or holds other instruments
that are not included in the Underlying Index, the
fund’s return may not correlate as well with the returns of
the Underlying Index as would be the case if the fund
purchased all the securities in the Underlying Index
directly. Actions taken in response to proposed corporate
actions could result in increased tracking error.
For purposes of calculating the fund’s net asset value, the
value of assets denominated in non-US currencies is
converted into US dollars using prevailing market rates on
the date of valuation as quoted by one or more data
service providers. This conversion may result in a difference
between the prices used to calculate the fund’s net
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asset value and the prices used by the Underlying Index,
which, in turn, could result in a difference between the
fund’s performance and the performance of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
NAV during periods of market volatility. Differences
between secondary market prices and the value of the
fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the
same forces as those influencing prices for securities held
by the fund at a particular time. The Advisor cannot predict
whether shares will trade above, below or at their NAV.
Given the fact that shares can be created and redeemed in
Creation Units, the Advisor believes that large discounts
or premiums to the NAV of shares should not be sustained
in the long-term. In addition, there may be times when
the market price and the value of the fund’s holdings vary
significantly and you may pay more than the value of the
fund’s holdings when buying shares on the secondary
market, and you may receive less than the value of the
fund’s holdings when you sell those shares. While the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in trading prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. If market makers exit the business or are
unable to continue making markets in fund’s shares,
shares may trade at a discount to NAV like closed-end fund
shares and may even face delisting (that is, investors
would no longer be able to trade shares in the secondary
market). The market price of shares, like the price of any
exchange-traded security, includes a
“
bid-ask spread
”
charged by the exchange specialist, market makers or
other participants that trade the particular security. In times
of severe market disruption, the bid-ask spread often
increases significantly. This means that shares may trade
at a discount to the fund’s NAV, and the discount is likely to
be greatest when the price of shares is falling fastest,
which may be the time that you most want to sell your
shares. There are various methods by which investors can
purchase and sell shares of the funds and various orders
that may be placed. Investors should consult their financial
intermediary before purchasing or selling shares of the
fund.
In addition, the securities held by the fund may be traded
in markets that close at a different time than an exchange.
Liquidity in those securities may be reduced after the applicable
closing times. Accordingly, during the time when an
exchange is open but after the applicable market closing,
fixing or settlement times, bid-ask spreads and the
resulting premium or discount to the shares’ NAV is likely
to widen. More generally, secondary markets may be
subject to irregular trading activity, wide bid-ask spreads
and extended trade settlement periods, which could cause
a material decline in the fund’s NAV. The bid-ask spread
varies over time for shares of the fund based on the fund’s
trading volume and market liquidity, and is generally lower
if the fund has substantial trading volume and market
liquidity, and higher if the fund has little trading volume and
market liquidity (which is often the case for funds that are
newly launched or small in size). The fund’s bid-ask spread
may also be impacted by the liquidity of the underlying
securities held by the fund, particularly for newly launched
or smaller funds or in instances of significant volatility of
the underlying securities. The fund’s investment results are
measured based upon the daily NAV of the fund. Investors
purchasing and selling shares in the secondary market
may not experience investment results consistent with
those experienced by those APs creating and redeeming
shares directly with the fund. In addition, transactions by
large shareholders may account for a large percentage of
the trading volume on an exchange and may, therefore,
have a material effect on the market price of the fund’s
shares.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
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emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Cyber-attacks may include unauthorized attempts by third
parties to improperly access, modify, disrupt the operations
of, or prevent access to the systems of the fund’s
service providers or counterparties, issuers of securities
held by the fund or other market participants or data within
them. In addition, power or communications outages, acts
of god, information technology equipment malfunctions,
operational errors, and inaccuracies within software or data
processing systems may also disrupt business operations
or impact critical data.
Cyber-attacks, disruptions, or failures may adversely affect
the fund and its shareholders or cause reputational
damage and subject the fund to regulatory fines, litigation
costs, penalties or financial losses, reimbursement or
other compensation costs, and/or additional compliance
costs. In addition, cyber-attacks, disruptions, or failures
involving a fund counterparty could affect such
counterparty’s ability to meet its obligations to the fund,
which may result in losses to the fund and its shareholders.
Similar types of operational and technology risks
are also present for issuers of securities held by the fund,
which could have material adverse consequences for such
issuers, and may cause the fund’s investments to lose
value. Furthermore, as a result of cyber-attacks, disruptions,
or failures, an exchange or market may close or issue
trading halts on specific securities or the entire market,
which may result in the fund being, among other things,
unable to buy or sell certain securities or financial instruments
or unable to accurately price its investments.
For example, the fund relies on various sources to calculate
its NAV. Therefore, the fund is subject to certain
operational risks associated with reliance on third party
service providers and data sources. NAV calculation may
be impacted by operational risks arising from factors such
as failures in systems and technology. Such failures may
result in delays in the calculation of a fund’s NAV and/or the
inability to calculate NAV over extended time periods. The
fund may be unable to recover any losses associated with
such failures.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Counterparty risk.
The risk of loss with respect to OTC
swaps generally is limited to the net amount of payments
that the fund is contractually obligated to make. Swap
agreements are subject to the risk that the swap
counterparty will default on its obligations. If such a default
occurs, the fund will have contractual remedies pursuant
to the agreements related to the transaction. However,
such remedies may be subject to bankruptcy and insolvency
laws which could affect such fund’s rights as a
creditor (e.g., the fund may not receive the net amount of
payments that it contractually is entitled to receive).
Cleared swaps are transacted through futures commission
merchants (
“
FCMs
”
) that are members of central clearinghouses
with the clearinghouse serving as a central
counterparty similar to transactions in futures contracts.
Central clearing may decrease counterparty risk and potentially
increase liquidity compared to un-cleared swaps
because central clearing interposes the central clearinghouse
as the counterpart to each participant’s swap.
However, central clearing does not eliminate counterparty
risk or illiquidity risk entirely. In addition depending on the
size of the fund and other factors, the margin required
under the rules of a clearinghouse and by a clearing
member FCM may be in excess of the collateral required
to be posted by the fund to support its obligations under a
similar un-cleared swap. Regulators, however, have begun
adopting rules imposing certain margin requirements,
including minimums, on un-cleared swaps which, for
certain instruments, has reduced the distinction.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
political, regulatory and other risks. Market swings in such
a targeted country, countries or regions are likely to have
a greater effect on fund performance than they would in a
more geographically diversified fund.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
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Derivatives risk.
Derivatives are financial instruments,
such as futures and swaps, whose values are based on the
value of one or more indicators, such as a security, asset,
currency, interest rate, or index. Derivatives involve risks
different from, and possibly greater than, the risks associated
with investing directly in securities and other more
traditional investments. For example, derivatives involve
the risk of mispricing or improper valuation and the risk
that changes in the value of a derivative may not correlate
perfectly with the underlying indicator. Derivative transactions
can create investment leverage, may be highly
volatile and the fund could lose more than the amount it
invests. Many derivative transactions are entered into
“
over-the-counter
”
(i.e., not on an exchange or contract market);
as a result, the value of such a derivative transaction will
depend on the ability and the willingness of the fund’s
counterparty to perform its obligations under the transaction.
If a counterparty were to default on its obligations,
the fund’s contractual remedies against such counterparty
may be subject to bankruptcy and insolvency laws, which
could affect the fund’s rights as a creditor (e.g., the fund
may not receive the net amount of payments that it is
contractually entitled to receive). A liquid secondary market
may not always exist for the fund’s derivative positions at
any time.
Futures risk.
The value of a futures contract tends to
increase and decrease in tandem with the value of the
underlying instrument. Depending on the terms of the
particular contract, futures contracts are settled through
either physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether,
when and how to use futures involves the exercise of skill
and judgment and even a well-conceived futures transaction
may be unsuccessful because of market behavior or
unexpected events. In addition to the derivatives risks
discussed above, the prices of futures can be highly volatile,
using futures can lower total return and the potential
loss from futures can exceed the fund’s initial investment
in such contracts.
Other Policies and Risks
While the previous pages describe the main points of each
fund’s strategy and risks, there are a few other matters
to know about:
■
Each of the policies described herein, including the
investment objective and 80% investment policies of
each fund, constitutes a non-fundamental policy that
may be changed by the Board without shareholder
approval. Each fund’s 80% investment policies require
60 days’ prior written notice to shareholders before they
can be changed. Certain fundamental policies of each
fund are set forth in the SAI.
■
Because each fund seeks to track its Underlying Index,
no fund invests defensively and each fund will not invest
in money market instruments or other short-term investments
as part of a temporary defensive strategy to
protect against potential market declines.
■
Each fund may borrow money from a bank up to a limit
of 10% of the value of its assets, but only for temporary
or emergency purposes.
■
Xtrackers Bloomberg Barclays US Investment Grade
Corporate ESG ETF may borrow money under a credit
facility to the extent necessary for temporary or emergency
purposes, including the funding of shareholder
redemption requests, trade settlements, and as necessary
to distribute to shareholders any income necessary
to maintain a fund’s status as a regulated investment
company (
“
RIC
”
).
■
From time to time a third party, the Advisor and/or its
affiliates may invest in a fund and hold its investment for
a specific period of time in order for a fund to achieve
size or scale. There can be no assurance that any such
entity would not redeem its investment or that the size
of a fund would be maintained at such levels. In order to
comply with applicable law, it is possible that the
Advisor or its affiliates, to the extent they are invested in
a fund, may be required to redeem some or all of their
ownership interests in a fund prematurely or at an inopportune
time.
■
Secondary market trading in fund shares may be halted
by a stock exchange because of market conditions or
other reasons. In addition, trading in fund shares on a
stock exchange or in any market may be subject to
trading halts caused by extraordinary market volatility
pursuant to
“
circuit breaker
”
rules on the exchange or
market. If a trading halt or unanticipated early closing of
a stock exchange occurs, a shareholder may be unable
to purchase or sell shares of each fund. There can be no
assurance that the requirements necessary to maintain
the listing or trading of fund shares will continue to
be met or will remain unchanged or that shares will
trade with any volume, or at all, in any secondary
market. As with all other exchange traded securities,
shares may be sold short and may experience increased
volatility and price decreases associated with such
trading activity.
■
From time to time, a fund may have a concentration of
shareholder accounts holding a significant percentage of
shares outstanding. Investment activities of these shareholders
could have a material impact on a fund. For
example, a fund may be used as an underlying investment
for other registered investment companies.
Portfolio Holdings Information
A description of DBX ETF Trust’s (
“
Trust
”
) policies and
procedures with respect to the disclosure of each fund’s
portfolio securities is available in each fund’s SAI. The top
holdings of each fund can be found at Xtrackers.com. Fund
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Fund Details
|
fact sheets provide information regarding each fund’s top
holdings and may be requested by calling 1-855-329-3837
(1-855-DBX-ETFS).
Who Manages and Oversees the Funds
The Investment Advisor
DBX Advisors LLC (
“
Advisor
”
), with headquarters at 875
Third Avenue, New York, NY 10022, is the investment
advisor for the fund. Under the oversight of the Board, the
Advisor makes the investment decisions, buys and sells
securities for the fund and conducts research that leads to
these purchase and sale decisions.
The Advisor is an indirect, wholly-owned subsidiary of
DWS Group GmbH & Co. KGaA (
“
DWS Group
”
), a separate,
publicly-listed financial services firm that is an
indirect, majority-owned subsidiary of Deutsche Bank AG.
Founded in 2010, the Advisor managed approximately
$17.3 billion in 33 operational exchange-traded funds, as of
August 31, 2020.
DWS represents the asset management activities
conducted by DWS Group or any of its subsidiaries,
including the Advisor and other affiliated investment
advisors.
DWS is a global organization that offers a wide range of
investing expertise and resources, including hundreds of
portfolio managers and analysts and an office network that
reaches the world’s major investment centers. This well-
resourced global investment platform brings together a
wide variety of experience and investment insight across
industries, regions, asset classes and investing styles.
The Advisor may utilize the resources of its global investment
platform to provide investment management
services through branch offices or affiliates located outside
the US. In some cases, the Advisor may also utilize its
branch offices or affiliates located in the US or outside the
US to perform certain services, such as trade execution,
trade matching and settlement, or various administrative,
back-office or other services. To the extent services are
performed outside the US, such activity may be subject to
both US and foreign regulation. It is possible that the jurisdiction
in which the Advisor or its affiliate performs such
services may impose restrictions or limitations on portfolio
transactions that are different from, and in addition to,
those in the US.
Management Fee.
Under the Investment Advisory Agreement,
the Advisor is responsible for substantially all
expenses of each fund, including the cost of transfer
agency, custody, fund administration, compensation paid
to the Independent Board Members, legal, audit and other
services, except for the fee payments to the Advisor under
the Investment Advisory Agreement (also known as a
“
unitary advisory fee
”
), interest expense, acquired fund
fees and expenses, taxes, brokerage expenses, distribution
fees or expenses (if any), litigation expenses and other
extraordinary expenses.
For its services to each fund, during the most recent fiscal
year, the Advisor received aggregate unitary advisory fees
at the following annual rates as a percentage of each
fund’s average daily net assets.
|
|
Xtrackers J.P. Morgan ESG
USD High Yield Corporate
Bond ETF
|
|
Xtrackers Bloomberg Barclays
US Investment Grade Corpo-
rate ESG ETF
|
|
*
Reflecting the effect of expense limitations and/or fee waivers then in
effect.
For Xtrackers J.P. Morgan ESG USD High Yield Corporate
Bond ETF, effective May 12, 2020, the Advisor receives
a unitary advisory fee at an annual rate equal to 0.20% of
the fund’s average daily net assets. Prior to May 12, 2020,
the Advisor received a unitary management fee at an
annual rate equal to 0.35% of the fund’s average daily net
assets.
For Xtrackers Bloomberg Barclays US Investment Grade
Corporate ESG ETF, effective May 12, 2020, the Advisor
receives a unitary advisory fee at an annual rate equal to
0.15% of the fund’s average daily net assets. Prior to May
12, 2020, the Advisor received a unitary management fee
at an annual rate equal to 0.25% of the fund’s average daily
net assets.
A discussion regarding the basis for the Board's approval
of each fund’s Investment Advisory Agreement is
contained in each fund's annual report for the annual
period ended May 31, 2020. For information on how to
obtain shareholder reports, see the back cover.
Multi-Manager Structure.
The Advisor and the Trust may
rely on an exemptive order (the
“
Order
”
) from the SEC that
permits the Advisor to enter into investment sub-advisory
agreements with unaffiliated and affiliated subadvisors
without obtaining shareholder approval. The Advisor,
subject to the review and approval of the Board, selects
subadvisors for each fund and supervises, monitors and
evaluates the performance of the subadvisor.
The Order also permits the Advisor, subject to the approval
of the Board, to replace subadvisors and amend investment
subadvisory agreements, including fees, without
shareholder approval whenever the Advisor and the Board
believe such action will benefit a fund and its shareholders.
The Advisor thus has the ultimate responsibility
(subject to the ultimate oversight of the Board) to recommend
the hiring and replacement of subadvisors as well as
the discretion to terminate any subadvisor and reallocate
a fund’s assets for management among any other
subadvisor(s) and itself. This means that the Advisor is able
to reduce the subadvisory fees and retain a larger portion
of the management fee, or increase the subadvisory fees
and retain a smaller portion of the management fee.
Pursuant to the Order, the Advisor is not required to
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|
Fund Details
|
disclose its contractual fee arrangements with any
subadvisor. The Advisor compensates a subadvisor out of
its management fee.
Management
Xtrackers J.P. Morgan ESG USD High Yield Corporate
Bond ETF
The following Portfolio Managers are primarily responsible
for the day-to-day management of the fund. Each Portfolio
Manager functions as a member of a portfolio
management team.
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
■
Joined DWS in 2011 with 11 years of industry experience.
Prior to joining DWS, he worked in ETF
management at XShares Advisors, an ETF issuer based
in New York, and before that he served as an equity
analyst for Fairhaven Capital LLC, a long/short equity
fund.
■
Head of Passive Portfolio Management, Americas: New
York.
■
BS in Finance, Boston College.
Brandon Matsui, CFA, Director.
Portfolio Manager of the
fund. Began managing the fund in 2016.
■
Joined DWS in 2011 with 12 years of industry experience.
Prior to joining DWS, he was a relationship
manager in the Portfolio Analytics Group at BlackRock
Solutions. Previously, he managed overlay accounts at
BNY Mellon Beta Management, and was a senior portfolio
manager for fixed income ETFs and mutual funds at
Charles Schwab Investment Management.
■
Fixed Income Portfolio Manager, Passive Asset Management:
New York.
■
BS in History, University of California, Irvine; MBA in
Finance, University of Hawaii; Financial Risk Certification
holder.
Tanuj Dora, Vice President.
Portfolio Manager of the fund.
Began managing the fund in 2016.
■
Joined DWS in 2010. Prior to his current role, he was
responsible for trading and market making of European
fixed income ETFs, structured funds, index swaps and
options within the Fixed Income Derivatives Group in
Corporate Banking & Securities, based out of London.
■
Fixed Income Portfolio Manager, Passive Asset Management:
New York.
■
BTech and MTech (dual degree) in Industrial Engineering
& Management, Indian Institute of Technology
Kharagnur.
Alexander Bridgeforth, Assistant Vice President.
Portfolio
Manager of the fund. Began managing the fund in
2016.
■
Joined DWS in 2016, with 5 years of industry experience.
Prior to joining DWS, he was responsible for
management of fixed income mutual funds and ETFs at
Charles Schwab Investment Management, where he
previously supported portfolio managers and middle
office duties.
■
Fixed Income Portfolio Manager, Passive Asset Management:
New York.
■
BSBA in Finance, University of Arizona.
Xtrackers Bloomberg Barclays US Investment Grade
Corporate ESG ETF
The following Portfolio Managers are primarily responsible
for the day-to-day management of the fund. Each Portfolio
Manager functions as a member of a portfolio
management team.
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
■
Joined DWS in 2011 with 11 years of industry experience.
Prior to joining DWS, he worked in ETF
management at XShares Advisors, an ETF issuer based
in New York, and before that he served as an equity
analyst for Fairhaven Capital LLC, a long/short equity
fund.
■
Head of Passive Portfolio Management, Americas: New
York.
■
BS in Finance, Boston College.
Brandon Matsui, CFA, Director.
Portfolio Manager of the
fund. Began managing the fund in 2016.
■
Joined DWS in 2011 with 12 years of industry experience.
Prior to joining DWS, he was a relationship
manager in the Portfolio Analytics Group at BlackRock
Solutions. Previously, he managed overlay accounts at
BNY Mellon Beta Management, and was a senior portfolio
manager for fixed income ETFs and mutual funds at
Charles Schwab Investment Management.
■
Fixed Income Portfolio Manager, Passive Asset Management:
New York.
■
BS in History, University of California, Irvine; MBA in
Finance, University of Hawaii; Financial Risk Certification
holder.
Tanuj Dora, Vice President.
Portfolio Manager of the fund.
Began managing the fund in 2016.
■
Joined DWS in 2010. Prior to his current role, he was
responsible for trading and market making of European
fixed income ETFs, structured funds, index swaps and
options within the Fixed Income Derivatives Group in
Corporate Banking & Securities, based out of London.
■
Fixed Income Portfolio Manager, Passive Asset Management:
New York.
■
BTech and MTech (dual degree) in Industrial Engineering
& Management, Indian Institute of Technology
Kharagnur.
Alexander Bridgeforth, Assistant Vice President.
Portfolio
Manager of the fund. Began managing the fund in
2016.
Prospectus
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36
|
Fund Details
|
■
Joined DWS in 2016, with 5 years of industry experience.
Prior to joining DWS, he was responsible for
management of fixed income mutual funds and ETFs at
Charles Schwab Investment Management, where he
previously supported portfolio managers and middle
office duties.
■
Fixed Income Portfolio Manager, Passive Asset Management:
New York.
■
BSBA in Finance, University of Arizona.
Each fund’s Statement of Additional Information provides
additional information about a portfolio manager’s investments
in each fund, a description of the portfolio
management compensation structure and information
regarding other accounts managed.
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|
Fund Details
|
Additional shareholder information, including how to buy
and sell shares of a fund, is available free of charge by
calling toll-free: 1-855-329-3837 (1-855-DBX-ETFS) or
visiting our website at Xtrackers.com.
Buying and Selling Shares
Shares of a fund are listed for trading on a national securities
exchange during the trading day. Shares can be
bought and sold throughout the trading day at market
prices like shares of other publicly-traded companies. The
Trust does not impose any minimum investment for shares
of a fund purchased on an exchange. Buying or selling
fund shares involves two types of costs that may apply to
all securities transactions. When buying or selling shares
of a fund through a broker, you will likely incur a brokerage
commission or other charges determined by your broker.
In addition, you may incur the cost of the
“
spread
”
– that
is, any difference between the bid price and the ask price.
The commission is frequently a fixed amount and may be
a significant proportional cost for investors seeking to buy
or sell small amounts of shares. The spread varies over
time for shares of a fund based on its trading volume and
market liquidity, and is generally lower if a fund has a lot of
trading volume and market liquidity and higher if a fund
has little trading volume and market liquidity.
Shares of a fund may be acquired or redeemed directly
from a fund only in Creation Units or multiples thereof, as
discussed in the section of this Prospectus entitled
“
Creations and Redemptions.
”
Only an AP may engage in
creation or redemption transactions directly with a fund.
Once created, shares of a fund generally trade in the
secondary market in amounts less than a Creation Unit.
The Board has evaluated the risks of market timing activities
by a fund’s shareholders. The Board noted that shares
of a fund can only be purchased and redeemed directly
from the fund in Creation Units by APs and that the vast
majority of trading in a fund’s shares occurs on the
secondary market. Because the secondary market trades
do not involve a fund directly, it is unlikely those trades
would cause many of the harmful effects of market timing,
including dilution, disruption of portfolio management,
increases in a fund’s trading costs and the realization of
capital gains. With regard to the purchase or redemption of
Creation Units directly with a fund, to the extent effected
in-kind (i.e., for securities), such trades do not cause any of
the harmful effects (as previously noted) that may result
from frequent cash trades. To the extent trades are
effected in whole or in part in cash, the Board noted that
such trades could result in dilution to a fund and increased
transaction costs, which could negatively impact a fund’s
ability to achieve its investment objective. However, the
Board noted that direct trading by APs is critical to ensuring
that a fund’s shares trade at or close to NAV. In addition,
a fund imposes both fixed and variable transaction fees on
purchases and redemptions of fund shares to cover the
custodial and other costs incurred by a fund in effecting
trades. These fees increase if an investor substitutes cash
in part or in whole for securities, reflecting the fact that
a fund’s trading costs increase in those circumstances.
Given this structure, the Board determined that with
respect to a fund it is not necessary to adopt policies and
procedures to detect and deter market timing of a fund’s
shares.
The 1940 Act imposes certain restrictions on investments
by registered investment companies in the securities of
other investment companies, such as the funds. Registered
investment companies, except as noted below, are
permitted to invest in a fund beyond applicable 1940 Act
limitations, subject to certain terms and conditions set
forth in an SEC exemptive order issued to the Trust,
including that such investment companies enter into an
agreement with the Trust.
Shares of a fund trade on the exchange and under the
ticker symbol as shown in the table below.
|
|
|
Xtrackers J.P. Morgan
ESG USD High
Yield Corporate Bond
ETF
|
|
|
Xtrackers Bloomberg
Barclays US Invest-
ment
Grade Corporate ESG
ETF
|
|
|
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38
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|
Book Entry
Shares of a fund are held in book-entry form, which means
that no stock certificates are issued. The Depository Trust
Company (
“
DTC
”
) or its nominee is the record owner of all
outstanding shares of a fund and is recognized as the
owner of all shares for all purposes.
Investors owning shares of a fund are beneficial owners as
shown on the records of DTC or its participants. DTC
serves as the securities depository for shares of a fund.
DTC participants include securities brokers and dealers,
banks, trust companies, clearing corporations and other
institutions that directly or indirectly maintain a custodial
relationship with DTC. As a beneficial owner of shares, you
are not entitled to receive physical delivery of stock certificates
or to have shares registered in your name, and you
are not considered a registered owner of shares. Therefore,
to exercise any right as an owner of shares, you must
rely upon the procedures of DTC and its participants.
These procedures are the same as those that apply to any
other securities that you hold in book-entry or
“
street
name
”
form.
Share Prices
The trading prices of a fund’s shares in the secondary
market generally differ from a fund’s daily NAV per share
and are affected by market forces such as supply and
demand, economic conditions and other factors. Information
regarding the intraday value of shares of a fund, also
known as the
“
indicative optimized portfolio value
”
(
“
IOPV
”
), is disseminated every 15 seconds throughout
the trading day by the national securities exchange on
which a fund’s shares are listed or by market data vendors
or other information providers. The IOPV is based on the
current market value of the securities and/or cash required
to be deposited in exchange for a Creation Unit. The IOPV
does not necessarily reflect the precise composition of the
current portfolio of securities held by a fund at a particular
point in time nor the best possible valuation of the current
portfolio. Therefore, the IOPV should not be viewed as a
“
real-time
”
update of the NAV, which is computed only
once a day. The IOPV is generally determined by using both
current market quotations and/or price quotations obtained
from broker-dealers that may trade in the portfolio securities
held by a fund. The quotations of certain fund holdings
may not be updated during US trading hours if such holdings
do not trade in the US. Each fund is not involved in, or
responsible for, the calculation or dissemination of the
IOPV and makes no representation or warranty as to its
accuracy.
Determination of Net Asset Value
The NAV of each fund is generally determined once daily
Monday through Friday as of the regularly scheduled close
of business of the New York Stock Exchange (
“
NYSE
”
)
(normally 4:00 p.m., Eastern time) on each day that the
NYSE is open for trading. NAV is calculated by deducting
all of a fund’s liabilities from the total value of its assets
and dividing the result by the number of shares
outstanding, rounding to the nearest cent. All valuations
are subject to review by the Trust’s Board or its delegate.
In determining NAV, expenses are accrued and applied
daily and securities and other assets for which market
quotations are available are valued at market value. Debt
securities’ values are based on price quotations or other
equivalent indications of value provided by a third-party
pricing service. Any such third-party pricing service may
use a variety of methodologies to value some or all of a
fund’s debt securities to determine the market price. For
example, the prices of securities with characteristics
similar to those held by a fund may be used to assist with
the pricing process. In addition, the pricing service may
use proprietary pricing models. In certain cases, some of a
fund’s debt securities may be valued at the mean between
the last available bid and ask prices for such securities or, if
such prices are not available, at prices for securities of
comparable maturity, quality, and type. Short-term securities
for which market quotations are not readily available
and money market securities maturing in 60 days or less
are valued at amortized cost. The approximate value of
shares of the applicable fund, an amount representing on
a per share basis the sum of the current value of the
deposit securities based on their then current market price
and the estimated cash component will be disseminated
every 15 seconds throughout the trading day through the
facilities of the Consolidated Tape Association. Generally,
trading in non-U.S. securities, U.S. government securities,
money market instruments and certain fixed-income securities
is substantially completed each day at various times
prior to the close of business on the NYSE. The values
of such securities used in computing the NAV of each fund
are determined as of such earlier times. The value of each
Underlying Index will not be calculated and disseminated
intra-day. The value and return of each Underlying Index is
calculated once each trading day by the Index Provider
based on prices received from the respective
markets
(including the respective international local
markets).
If a security’s market price is not readily available or does
not otherwise accurately reflect the fair value of the security,
the security will be valued by another method that
the Advisor believes will better reflect fair value in accordance
with the Trust’s valuation policies and procedures
approved by the Board. Each fund may use fair value
pricing in a variety of circumstances, including but not
limited to, situations when the value of a security in a
fund’s portfolio has been materially affected by events
occurring after the close of the market on which the security
is principally traded (such as a corporate action or other
news that may materially affect the price of a security) or
trading in a security has been suspended or halted. Fair
value pricing involves subjective judgments and it is
possible that a fair value determination for a security is
materially different from the value that could be realized
upon the sale of the security. In addition, fair value pricing
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Investing in the Funds
|
could result in a difference between the prices used to
calculate a fund’s NAV and the prices used by the fund’s
Underlying Index. This may adversely affect a fund’s ability
to track its Underlying Index. With respect to securities
that are primarily listed on foreign exchanges, the value of
a fund’s portfolio securities may change on days when
you will not be able to purchase or sell your shares.
Creations and Redemptions
Prior to trading in the secondary market, shares of the
funds are
“
created
”
at NAV by market makers, large investors
and institutions only in block-size Creation Units of
50,000 shares or multiples thereof (
“
Creation Units
”
). The
size of a Creation Unit will be subject to change. Each
“
creator
”
or AP (which must be a DTC participant) enters
into an authorized participant agreement (
“
Authorized
Participant Agreement
”
) with the fund’s distributor, ALPS
Distributors, Inc. (the
“
Distributor
”
), subject to acceptance
by the Transfer Agent. Only an AP may create or redeem
Creation Units. Creation Units generally are issued and
redeemed in exchange for a specific basket of securities
approximating the holdings of a fund and a designated
amount of cash. Each fund may pay out a portion of its
redemption proceeds in cash rather than through the
in-kind delivery of portfolio securities. Except when aggregated
in Creation Units, shares are not redeemable by
the fund. The prices at which creations and redemptions
occur are based on the next calculation of NAV after an
order is received in a form described in the Authorized
Participant Agreement.
Additional information about the procedures regarding
creation and redemption of Creation Units (including the
cut-off times for receipt of creation and redemption orders)
is included in the SAI.
Each fund intends to comply with the US federal securities
laws in accepting securities for deposits and satisfying
redemptions with redemption securities, including that the
securities accepted for deposits and the securities used
to satisfy redemption requests will be sold in transactions
that would be exempt from registration under the Securities
Act of 1933, as amended (
“
1933 Act
”
). Further, an AP
that is not a
“
qualified institutional buyer,
”
as such term is
defined under Rule 144A under the 1933 Act, will not be
able to receive fund securities that are restricted securities
eligible for resale under Rule 144A.
Dividends and Distributions
General Policies.
Dividends from net investment income, if
any, are generally declared and paid monthly by each fund.
Distributions of net realized capital gains, if any, generally
are declared and paid once a year, but the Trust may make
distributions on a more frequent basis for a fund. The Trust
reserves the right to declare special distributions if, in its
reasonable discretion, such action is necessary or advisable
to preserve its status as a regulated investment
company or to avoid imposition of income or excise taxes
on undistributed income or realized gains.
Dividends and other distributions on shares of a fund are
distributed on a pro rata basis to beneficial owners of such
shares. Dividend payments are made through DTC participants
and indirect participants to beneficial owners as of
the record date with proceeds received from a fund.
Dividend Reinvestment Service.
No dividend reinvestment
service is provided by the Trust. Broker-dealers may make
available the DTC book-entry Dividend Reinvestment
Service for use by beneficial owners of a fund for reinvestment
of their dividend distributions. Beneficial owners
should contact their broker to determine the availability
and costs of the service and the details of participation
therein. Brokers may require beneficial owners to adhere
to specific procedures and timetables. If this service is
available and used, dividend distributions of both income
and realized gains will be automatically reinvested in additional
whole shares of a fund purchased in the secondary
market.
Taxes
As with any investment, you should consider how your
investment in shares of a fund will be taxed. The tax information
in this Prospectus is provided as general
information. You should consult your own tax professional
about the tax consequences of an investment in shares
of a fund.
Unless your investment in fund shares is made through a
tax-exempt entity or tax-deferred retirement account, such
as an IRA, you need to be aware of the possible tax consequences
when a fund makes distributions or you sell fund
shares.
Taxes on Distributions
Distributions from a fund’s net investment income (other
than qualified dividend income), including distributions
of income from securities lending and distributions out of
the fund’s net short-term capital gains, if any, are taxable to
you as ordinary income. Distributions by a fund of net long-term
capital gains in excess of net short-term capital
losses (capital gain dividends) are taxable to you as long-
term capital gains, regardless of how long you have held
such fund’s shares. Distributions by a fund that qualify as
qualified dividend income are taxable to you at long-term
capital gain rates. The maximum individual rate applicable
to
“
qualified dividend income
”
and long-term capital gains
is generally either 15% or 20%, depending on whether
the individual’s income exceeds certain threshold
amounts.
Dividends are eligible to be qualified dividend income to
you, if you meet certain holding period requirements
discussed below, if they are attributable to qualified dividend
income received by a fund. Generally, qualified
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40
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Investing in the Funds
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dividend income includes dividend income from taxable
US corporations and qualified non-US corporations,
provided that a fund satisfies certain holding period
requirements in respect of the stock of such corporations
and has not hedged its position in the stock in certain
ways. For this purpose, a qualified non-US corporation
means any non-US corporation that is eligible for benefits
under a comprehensive income tax treaty with the United
States which includes an exchange of information program
or if the stock with respect to which the dividend was paid
is readily tradable on an established United States security
market. The term excludes a corporation that is a passive
foreign investment company.
For a dividend to be treated as qualified dividend income,
the dividend must be received with respect to a share
of stock held without being hedged by a fund, and to a
share of the fund held without being hedged by you, for 61
days during the 121-day period beginning at the date
which is 60 days before the date on which such share
becomes ex-dividend with respect to such dividend or in
the case of certain preferred stock 91 days during the
181-day period beginning 90 days before such date.
Given the investment strategies of the funds, it is not anticipated
that a significant portion of the dividends paid by the
funds will be eligible to be reported as qualified dividend
income (with respect to an individual shareholder) or for
the corporate dividends received deduction (with respect
to a corporate shareholder).
In general, your distributions are subject to US federal
income tax for the year when they are paid. Certain distributions
paid in January, however, may be treated as paid
on December 31 of the prior year.
If a fund’s distributions exceed current and accumulated
earnings and profits, all or a portion of the distributions
made in the taxable year may be re-characterized as a
return of capital to shareholders. A return of capital distribution
generally will not be taxable but will reduce the
shareholder’s cost basis and result in a higher capital gain
or lower capital loss when those shares on which the distribution
was received are sold.
If you are neither a resident nor a citizen of the United
States or if you are a non-US entity, a fund’s ordinary
income dividends (which include distributions of net short-
term capital gains) will generally be subject to a 30% US
withholding tax, unless a lower treaty rate applies,
provided that withholding tax will generally not apply to
any gain or income realized by a non- US shareholder in
respect of any distributions of long-term capital gains or
upon the sale or other disposition of shares of a fund.
Dividends and interest received by a fund with respect to
non-US securities may give rise to withholding and other
taxes imposed by non-US countries. Tax conventions
between certain countries and the United States may
reduce or eliminate such taxes. If more than 50% of the
total assets of a fund at the close of a year consist of
non-US stocks or securities, the fund may
“
pass through
”
to you certain non-US income taxes (including withholding
taxes) paid by the fund. This means that you would be
considered to have received as additional gross income
your share of such non-US taxes, but you may, in such
case, be entitled to either a corresponding tax deduction in
calculating your taxable income, or, subject to certain limitations,
a credit in calculating your US federal income tax.
If you are a resident or a citizen of the United States, by
law, back-up withholding (currently at a rate of 24%) will
apply to your distributions and proceeds if you have not
provided a taxpayer identification number or social security
number and made other required certifications.
Taxes when Shares are Sold
Currently, any capital gain or loss realized upon a sale of
fund shares is generally treated as a long-term gain or loss
if the shares have been held for more than one year. Any
capital gain or loss realized upon a sale of fund shares held
for one year or less is generally treated as short-term gain
or loss, except that any capital loss on the sale of shares
held for six months or less is treated as long-term capital
loss to the extent that capital gain dividends were paid
with respect to such shares.
Medicare Tax
An additional 3.8% Medicare tax is imposed on certain net
investment income (including ordinary dividends and
capital gain distributions received from a fund and net
gains from redemptions or other taxable dispositions of
fund shares) of US individuals, estates and trusts to the
extent that such person’s
“
modified adjusted gross
income
”
(in the case of an individual) or
“
adjusted gross
income
”
(in the case of an estate or trust) exceeds certain
threshold amounts.
The foregoing discussion summarizes some of the consequences
under current US federal tax law of an
investment in a fund. It is not a substitute for personal tax
advice. You may also be subject to state and local taxation
on fund distributions and sales of shares. Consult your
personal tax advisor about the potential tax consequences
of an investment in shares of a fund under all applicable
tax laws.
Authorized Participants and the Continuous Offering of
Shares
Because new shares may be created and issued on an
ongoing basis, at any point during the life of a fund a
“
distribution,
”
as such term is used in the 1933 Act, may be
occurring. Broker-dealers and other persons are cautioned
that some activities on their part may, depending on the
circumstances, result in their being deemed participants in
a distribution in a manner that could render them statutory
underwriters and subject to the prospectus delivery
Prospectus
October 1, 2020
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41
|
Investing in the Funds
|
and liability provisions of the 1933 Act. Any determination
of whether one is an underwriter must take into account
all the relevant facts and circumstances of each particular
case.
Broker-dealers should also note that dealers who are not
“
underwriters
”
but are participating in a distribution (as
contrasted to ordinary secondary transactions), and thus
dealing with shares that are part of an
“
unsold allotment
”
within the meaning of Section 4(3)(C) of the 1933 Act,
would be unable to take advantage of the prospectus
delivery exemption provided by Section 4(3) of the 1933
Act. For delivery of prospectuses to exchange members,
the prospectus delivery mechanism of Rule 153 under the
1933 Act is available only with respect to transactions on
a national securities exchange.
Certain affiliates of a fund and the Advisor may purchase
and resell fund shares pursuant to this Prospectus.
Transaction Fees
APs are charged standard creation and redemption transaction
fees to offset transfer and other transaction costs
associated with the issuance and redemption of Creation
Units. Purchasers and redeemers of Creation Units for
cash are required to pay an additional variable charge (up
to a maximum of 2% for redemptions, including the standard
redemption fee) to compensate for brokerage and
market impact expenses. The standard creation and
redemption transaction fee for each fund is set forth in the
table below. The maximum redemption fee, as a
percentage of the amount redeemed, is 2%.
|
|
Xtrackers J.P. Morgan ESG
USD High Yield Corporate
Bond ETF
|
|
Xtrackers Bloomberg Barclays
US Investment Grade Corpo-
rate ESG ETF
|
|
Distribution
The Distributor distributes Creation Units for each fund on
an agency basis. The Distributor does not maintain a
secondary market in shares of a fund. The Distributor has
no role in determining the policies of a fund or the securities
that are purchased or sold by a fund. The Distributor’s
principal address is 1290 Broadway, Suite 1000, Denver,
Colorado 80203.
The Advisor and/or its affiliates may pay additional compensation,
out of their own assets and not as an additional
charge to a fund, to selected affiliated and unaffiliated
brokers, dealers, participating insurance companies or
other financial intermediaries (
“
financial representatives
”
)
in connection with the sale and/or distribution of fund
shares or the retention and/or servicing of fund investors
and fund shares (
“
revenue sharing
”
). For example, the
Advisor and/or its affiliates may compensate financial representatives
for providing a fund with
“
shelf space
”
or
access to a third party platform or fund offering list or other
marketing programs, including, without limitation, inclusion
of a fund on preferred or recommended sales lists,
fund
“
supermarket
”
platforms and other formal sales
programs; granting the Advisor and/ or its affiliates access
to the financial representative’s sales force; granting the
Advisor and/or its affiliates access to the financial representative’s
conferences and meetings; assistance in training
and educating the financial representative’s personnel; and
obtaining other forms of marketing support.
The level of revenue sharing payments made to financial
representatives may be a fixed fee or based upon one
or more of the following factors: gross sales, current
assets and/or number of accounts of a fund attributable to
the financial representative, the particular fund or fund
type or other measures as agreed to by the Advisor and/or
its affiliates and the financial representatives or any combination
thereof. The amount of these revenue sharing
payments is determined at the discretion of the Advisor
and/or its affiliates from time to time, may be substantial,
and may be different for different financial representatives
based on, for example, the nature of the services provided
by the financial representative.
Receipt of, or the prospect of receiving, additional compensation
may influence your financial representative’s
recommendation of a fund. You should review your financial
representative’s compensation disclosure and/or talk to
your financial representative to obtain more information
on how this compensation may have influenced your financial
representative’s recommendation of the fund.
Additional information regarding these revenue sharing
payments is included in a fund’s Statement of Additional
Information, which is available to you on request at no
charge (see the back cover of this Prospectus for more
information on how to request a copy of the Statement of
Additional Information).
It is possible that broker-dealers that execute portfolio transactions
for a fund will also sell shares of a fund to their
customers. However, the Advisor will not consider the sale
of fund shares as a factor in the selection of broker-dealers
to execute portfolio transactions for a fund. Accordingly,
the Advisor has implemented policies and procedures
reasonably designed to prevent its traders from considering
sales of fund shares as a factor in the selection of
broker-dealers to execute portfolio transactions for a fund.
In addition, the Advisor and/or its affiliates will not use
fund brokerage to pay for their obligation to provide additional
compensation to financial representatives as
described above.
Premium/Discount Information
Information regarding how often shares of each fund
traded on Cboe at a price above (i.e., at a premium) or
below (i.e., at a discount) the NAV of each fund during the
past calendar year can be found at Xtrackers.com.
Prospectus
October 1, 2020
|
42
|
Investing in the Funds
|
The financial highlights are designed to help you understand recent financial performance. The figures in the first part of
each table are for a single share. The total return figures represent the percentage that an investor in a fund would have
earned (or lost), assuming all dividends and distributions were reinvested. This information has been audited by Ernst &
Young LLP, independent registered public accounting firm, whose report, along with each fund’s financial statements, is
included in each fund’s Annual Report as of May 31, 2020 and for the fiscal period then ended
(see
“
For More Information
”
on the back cover).
Effective May 12, 2020, Xtrackers High Yield Corporate Bond – Interest Rate Hedged ETF changed its name to Xtrackers
J.P. Morgan ESG USD High Yield Corporate Bond ETF.
Effective May 12, 2020, Xtrackers Investment Grade Bond – Interest Rate Hedged ETF changed its name to Xtrackers
Bloomberg Barclays US Investment Grade Corporate ETF.
Xtrackers J.P. Morgan ESG USD High Yield Corporate Bond ETF
|
|
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|
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Net Asset Value, beginning of year
|
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Income (loss) from investment operations:
|
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|
Net investment income (loss)
a
|
|
|
|
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Net realized and unrealized gain (loss)
|
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Total from investment operations
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Net Asset Value, end of year
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Ratios to Average Net Assets and Supplemental Data
|
Net Assets, end of year ($ millions)
|
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Ratio of expenses before fee waiver (%)
|
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|
Ratio of expenses after fee waiver (%)
|
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Ratio of net investment income (loss) (%)
|
|
|
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|
Portfolio turnover rate (%)
d
|
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a
Based on average shares outstanding during the period.
b
Total Return would have been lower if certain expenses had not been reimbursed by the Advisor.
c
The Fund invested in other ETFs and indirectly bore its proportionate shares of fees and expenses incurred by the Underlying Funds in which the
Fund had invested. This ratio does not included these indirect fees and expenses.
d
Portfolio turnover rate does not include securities received or delivered from processing creations or redemptions.
Prospectus
October 1, 2020
|
43
|
Financial Highlights
|
Xtrackers Bloomberg Barclays US Investment Grade Corporate — ESG ETF
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|
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|
Net Asset Value, beginning of year
|
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|
Income (loss) from investment operations:
|
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|
Net investment income (loss)
a
|
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|
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|
Net realized and unrealized gain (loss)
|
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Total from investment operations
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Net Asset Value, end of year
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Ratios to Average Net Assets and Supplemental Data
|
Net Assets, end of year ($ millions)
|
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Ratio of expenses before fee waiver (%)
|
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Ratio of expenses after fee waiver (%)
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Ratio of net investment income (loss) (%)
|
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Portfolio turnover rate (%)
d
|
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a
Based on average shares outstanding during the period.
b
Because of the timing of subscriptions and redemptions in relation to fluctuating markets at value, the amount shown may not agree with the change
in aggregate gains and losses.
c
Total Return would have been lower if certain expenses had not been reimbursed by the Advisor.
d
Portfolio turnover rate does not include securities received or delivered from processing creations or redemptions.
Prospectus
October 1, 2020
|
44
|
Financial Highlights
|
Index Providers and Licenses
Bloomberg Barclays is the Index Provider for the Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF.
Bloomberg Barclays is not affiliated with the Trust, the Advisor, The Bank of New York Mellon, the Distributor or any of
their respective affiliates.
J.P. Morgan Chase & Co. is the Index Provider for Xtrackers J.P. Morgan ESG USD High Yield Corporate Bond ETF. J.P.
Morgan Chase & Co. is not affiliated with the Trust, the Advisor, The Bank of New York Mellon, the Distributor or any of
their respective affiliates.
The Advisor has entered into a license agreement with Bloomberg Barclays and J.P. Morgan Chase & Co. to use each
Underlying Index. The Advisor sublicenses rights in an Underlying Index to the Trust at no charge. All license fees are paid
by the Advisor out of its own resources and not the assets of a fund.
Disclaimers
BLOOMBERG
®
is a trademark and service mark of Bloomberg Finance L.P. BARCLAYS
®
is a trademark and service mark
of Barclays Bank Plc, used under license. Bloomberg Finance L.P. and its affiliates, including Bloomberg Index Services
Limited (
“
BISL
”
) (collectively,
“
Bloomberg
”
), or Bloomberg’s licensors own all proprietary rights in the
“
Bloomberg
Barclays MSCI US Corporate Sustainability SRI Sector/Credit/Maturity Neutral Index
SM
.
”
Neither Barclays Bank PLC, Barclays Capital Inc., nor any affiliate (collectively
“
Barclays
”
) nor Bloomberg is the issuer or
producer of Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF and neither Bloomberg nor Barclays
has any responsibilities, obligations or duties to investors in Xtrackers Bloomberg Barclays US Investment Grade Corporate
ESG ETF. The Bloomberg Barclays MSCI US Corporate Sustainability SRI Sector/Credit/Maturity Neutral Index is
licensed for use by DBX Advisors LLC as the Advisor to Xtrackers Bloomberg Barclays US Investment Grade Corporate
ESG ETF. The only relationship of Bloomberg and Barclays with the Issuer in respect of Bloomberg Barclays MSCI US Corporate
Sustainability SRI Sector/Credit/Maturity Neutral Index is the licensing of the Bloomberg Barclays MSCI US Corporate
Sustainability SRI Sector/Credit/Maturity Neutral Index, which is determined, composed and calculated by BISL, or any
successor thereto, without regard to DBX Advisors LLC or the Xtrackers Bloomberg Barclays US Investment Grade Corporate
ESG ETF or the owners of the Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF.
Additionally, Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF may for itself execute transaction(s)
with Barclays in or relating to the Bloomberg Barclays MSCI US Corporate Sustainability SRI Sector/Credit/Maturity
Neutral Index in connection with Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF. Investors
acquire Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF from a financial services firm and investors
neither acquire any interest in Bloomberg Barclays MSCI US Corporate Sustainability SRI Sector/Credit/Maturity
Neutral Index nor enter into any relationship of any kind whatsoever with Bloomberg or Barclays upon making an investment
in Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF. The Xtrackers Bloomberg Barclays US
Investment Grade Corporate ESG ETF is not sponsored, endorsed, sold or promoted by Bloomberg or Barclays. Neither
Bloomberg nor Barclays makes any representation or warranty, express or implied, regarding the advisability of investing
in the Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF or the advisability of investing in securities
generally or the ability of the Bloomberg Barclays MSCI US Corporate Sustainability SRI Sector/Credit/Maturity Neutral
Index to track corresponding or relative market performance. Neither Bloomberg nor Barclays has passed on the legality
or suitability of the Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF with respect to any person or
entity. Neither Bloomberg nor Barclays is responsible for or has participated in the determination of the timing of, prices
at, or quantities of the Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF to be issued. Neither
Bloomberg nor Barclays has any obligation to take the needs of DBX Advisors LLC or the owners of the Xtrackers
Bloomberg Barclays US Investment Grade Corporate ESG ETF or any other third party into consideration in determining,
Prospectus
October 1, 2020
|
45
|
Appendix
|
composing or calculating the Bloomberg Barclays MSCI US Corporate Sustainability SRI Sector/Credit/Maturity Neutral
Index. Neither Bloomberg nor Barclays has any obligation or liability in connection with administration, marketing or trading
of the Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF.
The licensing agreement between Bloomberg and Barclays is solely for the benefit of Bloomberg and Barclays and not for
the benefit of the owners of the Xtrackers Bloomberg Barclays US Investment Grade Corporate ESG ETF, investors or
other third parties. In addition, the licensing agreement between DBX Advisors LLC and Bloomberg is solely for the
benefit of DBX Advisors LLC and Bloomberg and not for the benefit of the owners of the Xtrackers Bloomberg Barclays
US Investment Grade Corporate ESG ETF, investors or other third parties.
NEITHER BLOOMBERG NOR BARCLAYS SHALL HAVE ANY LIABILITY TO THE ISSUER, INVESTORS OR OTHER THIRD
PARTIES FOR THE QUALITY, ACCURACY AND/OR COMPLETENESS OF THE BLOOMBERG BARCLAYS MSCI US CORPORATE
SUSTAINABILITY SRI SECTOR/CREDIT/MATURITY NEUTRAL INDEX OR ANY DATA INCLUDED THEREIN OR FOR
INTERRUPTIONS IN THE DELIVERY OF THE BLOOMBERG BARCLAYS MSCI US CORPORATE SUSTAINABILITY SRI
SECTOR/CREDIT/MATURITY NEUTRAL INDEX. NEITHER BLOOMBERG NOR BARCLAYS MAKES ANY WARRANTY,
EXPRESS OR IMPLIED, AS TO RESULTS TO BE OBTAINED BY DBX ADVISORS LLC, THE INVESTORS OR ANY OTHER
PERSON OR ENTITY FROM THE USE OF THE BLOOMBERG BARCLAYS MSCI US CORPORATE SUSTAINABILITY SRI
SECTOR/CREDIT/MATURITY NEUTRAL INDEX OR ANY DATA INCLUDED THEREIN. NEITHER BLOOMBERG NOR
BARCLAYS MAKES ANY EXPRESS OR IMPLIED WARRANTIES, AND EACH HEREBY EXPRESSLY DISCLAIMS ALL
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE WITH RESPECT TO THE
BLOOMBERG BARCLAYS MSCI US CORPORATE SUSTAINABILITY SRI SECTOR/CREDIT/MATURITY NEUTRAL INDEX
OR ANY DATA INCLUDED THEREIN. BLOOMBERG RESERVES THE RIGHT TO CHANGE THE METHODS OF CALCULATION
OR PUBLICATION, OR TO CEASE THE CALCULATION OR PUBLICATION OF THE BLOOMBERG BARCLAYS
MSCI US CORPORATE SUSTAINABILITY SRI SECTOR/CREDIT/MATURITY NEUTRAL INDEX, AND NEITHER
BLOOMBERG NOR BARCLAYS SHALL BE LIABLE FOR ANY MISCALCULATION OF OR ANY INCORRECT, DELAYED OR
INTERRUPTED PUBLICATION WITH RESPECT TO ANY OF THE BLOOMBERG BARCLAYS MSCI US CORPORATE
SUSTAINABILITY SRI SECTOR/CREDIT/MATURITY NEUTRAL INDEX. NEITHER BLOOMBERG NOR BARCLAYS SHALL
BE LIABLE FOR ANY DAMAGES, INCLUDING, WITHOUT LIMITATION, ANY SPECIAL, INDIRECT OR CONSEQUENTIAL
DAMAGES, OR ANY LOST PROFITS, EVEN IF ADVISED OF THE POSSIBLITY OF SUCH, RESULTING FROM THE USE OF
THE BLOOMBERG BARCLAYS MSCI US CORPORATE SUSTAINABILITY SRI SECTOR/CREDIT/MATURITY NEUTRAL
INDEX OR ANY DATA INCLUDED THEREIN OR WITH RESPECT TO THE XTRACKERS BLOOMBERG BARCLAYS US
INVESTMENT GRADE CORPORATE ESG ETF.
None of the information supplied by Bloomberg or Barclays and used in this publication may be reproduced in any manner
without the prior written permission of both Bloomberg and Barclays Capital, the investment banking division of Barclays
Bank PLC. Barclays Bank PLC is registered in England No. 1026167, registered office 1 Churchill Place London E14 5HP.
The Xtrackers J.P. Morgan ESG USD High Yield Corporate Bond ETF (the
“
Financial Product
”
) is not in any way sponsored,
sold or promoted by J.P. Morgan Chase & Co and/or any of its affiliates (collectively
“
J.P. Morgan
”
). The index described
herein is a proprietary J.P. Morgan index. J.P. Morgan is not responsible for, nor has it participated in, any aspect of the
structuring of any attribute of the Financial Product, the determination of the timing of the offering of the Financial Product,
the pricing of the Financial Product, or in the manner of operation of the Financial Product. J.P. Morgan has no obligation
or liability in connection with the administration, marketing or trading of the Financial Product. All information provided
herein regarding the J.P. Morgan index (the
“
Index
”
), including without limitation, the levels of the Index, is provided for
informational purposes only. J.P. Morgan does not warrant the completeness or accuracy of the Index and/or the completeness
or accuracy or any other information furnished in connection with the Index. The Index is the exclusive property of
J.P. Morgan and J.P. Morgan retains all property rights therein. Nothing herein constitutes, or forms part of, an offer or
solicitation for the purchase or sale of any financial instrument, including of the Financial Product, or as an official confirmation
of any transaction, or a valuation or price for the Index or the Financial Product. Nothing contained herein shall be
construed as a J.P. Morgan recommendation to adopt any investment strategy or as legal, tax or accounting advice. J.P.
Morgan makes no express or implied representations or warranties with respect to the Index and/or the Financial Product,
including but not limited to regarding the advisability of investing in securities or financial products generally and/or the
Financial Products specifically, or the advisability of the Index to track investment opportunities in the financial markets or
otherwise achieve its objective. J.P. Morgan hereby expressly disclaims all warranties of merchantability or fitness for a
particular purpose with respect to the Index and the Financial Product. J.P. Morgan has no obligation to take the needs of
the issuer or sponsor of any Financial Product, any investor, counterparty or any other party into consideration in determining,
composing or calculating the J.P. Morgan indexes. J.P. Morgan is not responsible for nor has participated in the
determination of the timing of, prices at, or quantities of this Financial Product or in the determination or calculation of the
equation by or the consideration into which this Financial Product is redeemable. Without limiting any of the foregoing,
in no event shall J.P. Morgan have any liability for any direct, indirect, special, punitive, consequential or any other damages
Prospectus
October 1, 2020
|
46
|
Appendix
|
(including lost profits) to any person, including but not limited to, for any statements contained in any offering document
or any other materials used to describe the Index and/or the Financial Product, any error in the pricing or otherwise, of the
Index and/or the Financial Product and J.P. Morgan shall not be under any obligation to advise any person of any error
therein.
The Index may not be copied, used, or distributed without J.P. Morgan’s prior written approval. J.P. Morgan and the J.P.
Morgan index names are service mark(s) of J.P. Morgan or its affiliates and have been licensed for use for certain purposes
by DBX Advisors LLC. No purchaser, seller or holder of this security, product or fund, or any other person or entity, should
use or refer to any J.P. Morgan trade name, trademark or service mark to sponsor, endorse, market or promote this Financial
Product or any other financial product without first contacting J.P. Morgan to determine whether J.P. Morgan’s
permission is required. Under no circumstances may any person or entity claim any affiliation with J.P. Morgan without
the prior written permission of J.P. Morgan. Information has been obtained from sources believed to be reliable but J.P.
Morgan does not warrant its completeness or accuracy. Copyright 2020, J.P. Morgan Chase & Co. All rights reserved.
Shares of the funds are not sponsored, endorsed or promoted by Cboe BZX Exchange, Inc. (
“
Cboe
”
). Cboe makes no
representation or warranty, express or implied, to the owners of the shares of the funds or any member of the public
regarding the ability of the funds to track the total return performance of the J.P. Morgan ESG DM Corporate High Yield
USD Index and the Bloomberg Barclays MSCI US Corporate Sustainability SRI Sector/Credit/Maturity Neutral Index, respectively
(an
“
Underlying Index
”
) or the ability of the Underlying Index to track stock market performance. Cboe is not
responsible for, nor has it participated in, the determination of the compilation or the calculation of the Underlying Index,
nor in the determination of the timing of, prices of, or quantities of shares of the funds to be issued, nor in the determination
or calculation of the equation by which the shares are redeemable. Cboe has no obligation or liability to owners of
the shares of the funds in connection with the administration, marketing or trading of the shares of the funds.
Cboe does not guarantee the accuracy and/ or the completeness of the Underlying Index or any data included therein.
Cboe makes no warranty, express or implied, as to results to be obtained by the Trust on behalf of the funds as licensee,
licensee’s customers and counterparties, owners of the shares of the funds, or any other person or entity from the use of
the subject index or any data included therein in connection with the rights licensed as described herein or for any other
use. Cboe makes no express or implied warranties and hereby expressly disclaims all warranties of merchantability or
fitness for a particular purpose with respect to the Underlying Index or any data included therein. Without limiting any of
the foregoing, in no event shall Cboe have any liability for any direct, indirect, special, punitive, consequential or any other
damages (including lost profits) even if notified of the possibility of such damages.
The Advisor does not guarantee the accuracy or the completeness of the Underlying Index or any data included therein
and the Advisor shall have no liability for any errors, omissions or interruptions therein.
The Advisor makes no warranty, express or implied, to the owners of shares of the fund or to any other person or entity,
as to results to be obtained by the fund from the use of the Underlying Index or any data included therein. The Advisor
makes no express or implied warranties and expressly disclaims all warranties of merchantability or fitness for a particular
purpose or use with respect to the Underlying Index or any data included therein. Without limiting any of the foregoing,
in no event shall the Advisor have any liability for any special, punitive, direct, indirect or consequential damages (including
lost profits), even if notified of the possibility of such damages.
Prospectus
October 1, 2020
|
47
|
Appendix
|
FOR MORE INFORMATION:
XTRACKERS.COM
1-855-329-3837 (1-855-DBX-ETFS)
Copies of the prospectus, SAI and recent shareholder
reports, when available, can be found on our website at
Xtrackers.com. For more information about a fund, you
may request a copy of the SAI. The SAI provides detailed
information about a fund and is incorporated by reference
into this prospectus. This means that the SAI, for legal
purposes, is a part of this prospectus.
If you have any questions about the Trust or shares of a
fund or you wish to obtain the SAI or shareholder report
free of charge, please:
|
1-855-329-3837 or 1-855-DBX-ETFS
(toll free) Monday through Friday
8:30 a.m. to 6:30 p.m. (Eastern time)
E-mail: dbxquestions@list.db.com
|
|
DBX ETF Trust
c/o ALPS Distributors, Inc.
1290 Broadway, Suite 1000
Denver, Colorado 80203
|
Information about a fund (including the SAI), reports and
other information about a fund are available on the EDGAR
Database on the SEC’s website at sec.gov, and copies of
this information may be obtained, after paying a duplicating
fee, by electronic request at the following e-mail address:
publicinfo@sec.gov.
Householding is an option available to certain fund investors.
Householding is a method of delivery, based on the
preference of the individual investor, in which a single copy
of certain shareholder documents can be delivered to investors
who share the same address, even if their accounts
are registered under different names. Please contact your
broker-dealer if you are interested in enrolling in
householding and receiving a single copy of prospectuses
and other shareholder documents, or if you are currently
enrolled in householding and wish to change your
householding status.
No person is authorized to give any information or to make
any representations about a fund and their shares not
contained in this prospectus and you should not rely on
any other information. Read and keep the prospectus for
future reference.
Investment Company Act File No.: 811-22487
Prospectus
October 1, 2020
Xtrackers J.P. Morgan ESG Emerging Markets Sovereign ETF
|
Cboe BZX Exchange, Inc.: ESEB
|
The Securities and Exchange Commission (
“
SEC
”
) has not approved or disapproved these securities or passed
upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
Your investment in the fund is not a bank deposit and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency, entity or person.
Xtrackers J.P. Morgan ESG Emerging Markets Sovereign ETF
|
Stock Exchange: Cboe BZX Exchange, Inc.
|
Investment Objective
Xtrackers J.P. Morgan ESG Emerging Markets Sovereign
ETF (the
“
fund
”
) seeks investment results that correspond
generally to the performance, before fees and expenses,
of the J.P. Morgan ESG EMBI Global Diversified Sovereign
Index (the
“
Underlying Index
”
).
Fees and Expenses
These are the fees and expenses that you will pay when
you buy, hold and sell shares.
You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below.
ANNUAL FUND OPERATING EXPENSES(expenses that you pay each year as a % of the value of your investment)
|
|
|
|
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Total annual fund operating expenses
|
|
1
Effective May 12, 2020, the fund’s management fee was reduced from 0.45% to 0.35% of the fund’s average daily net assets.
EXAMPLE
This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then sell 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 operating expenses remain the same. The Example does not take into account brokerage commissions that you may pay on your purchases and sales of shares of the fund. It also does not include the transaction fees on purchases and redemptions of Creation Units (defined herein), because those fees will not be imposed on retail investors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
PORTFOLIO TURNOVER
The fund pays transaction costs, such as commissions,
when it buys and sells securities (or
“
turns over
”
its portfolio).
A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are
investing in a taxable account. These costs are not
reflected in annual fund operating expenses or in the
expense example, and can affect the fund's performance.
During the most recent fiscal year, the fund’s portfolio turnover
rate was
26
% of the average value of its portfolio.
Prior to May 12, 2020, the fund tracked its prior underlying
index, the Solactive USD Emerging Markets Bond -
Interest Rate Hedged Index.
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which applies environmental, social and
governance (
“
ESG
”
) considerations to a broader parent
index. The Underlying Index generally aims to keep the
broad characteristics of its parent index, the J.P. Morgan
EMBI Global Diversified Sovereign Index, resulting in a
broad emerging markets sovereign debt market exposure
with ESG aspects. Each issuer within the parent index is
given an ESG score, and assigned to a quintile based on
that score. All issuers within the lowest quintile are
removed from consideration for the Underlying Index, and
the remainder are either weighted up or down based on
which quintile they were scored in; with the best
performers being weighted more heavily, and the
remaining lower scoring issuers being weighted more
lightly. In addition, if an instrument is categorized as
“
green
”
by the Climate Bond Initiative (
“
CBI
”
) under the
criteria used by the CBI to certify bonds as being closely
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linked with green and climate friendly assets or projects,
the security will be upgraded one quintile from the quintile
to which it originally was assigned.
The Index Provider obtains ESG factor valuations for each
issuer in the parent index from RepRisk and Sustainalytics,
which are investment research providers dedicated to
responsible investing and ESG research. These ESG factor
valuations are obtained from each provider and translated
by the Index Provider to a range of 0 – 100, with 100 being
the best possible score. The Index Provider’s finalized ESG
score for each issuer incorporates a 3-month rolling
average of the scores from each individual provider. The
Index Provider calculates ESG scores daily.
The ESG criteria used to score each issuer in the parent
index reflect their application to sovereign issuers,
including environmental (e.g., access to water, energy
sources and pollution) governance (e.g., corruption and
political liberties), and social (e.g., education access and
life expectancy). Sovereign issuers involved (defined as the
government receiving revenue from direct involvement in
those activities) in thermal coal, tobacco, weapons or UN
Global Compact principle violations are excluded from the
index regardless of their ESG score.
The Underlying Index consists of fixed and floating rate
securities and capitalizing/amortizing bonds, excluding
convertible and inflation-linked instruments, issued by
emerging markets sovereign entities that (i) are denominated
in US dollars; and (ii) have more than thirteen
months to maturity if already part of the Underlying Index
and two and half years to maturity upon entering the Underlying
Index. The eligible countries are Argentina, Armenia,
Azerbaijan, Bahrain, Barbados, Belarus, Belize, Bolivia,
Brazil, Chile, China, Colombia, Costa Rica, Cote D'Ivoire,
Croatia, Dominican Republic, Ecuador, Egypt, El Salvador,
Gabon, Ghana, Guatemala, Honduras, Hungary, Indonesia,
Jamaica, Jordan, Kazakhstan, Kenya, Kuwait, Lebanon,
Lithuania, Malaysia, Mexico, Mongolia, Morocco, Mozambique,
Namibia, Oman, Pakistan, Panama, Papua New
Guinea, Paraguay, Peru, Philippines, Poland, Qatar,
Romania, Russia, Saudi Arabia, Senegal, Serbia, Slovak
Republic, South Africa, Sri Lanka, Suriname, Tajikistan,
Trinidad And Tobago, Turkey, Ukraine, the United Arab Emirates,
Uruguay, Uzbekistan, Vietnam, and Zambia; however,
this universe of countries may change in accordance with
the index provider’s determination of eligible emerging
market countries as follows: countries whose gross
national income (
“
GNI
”
) per capita is below the J.P.
Morgan Index Income Ceiling (
“
IIC
”
) for three consecutive
years or if the country’s purchasing power parity (
“
PPP
”
)
is below the Index Provider’s Index PPP Ratio (
“
IPR
”
)
threshold for three consecutive years, and there is no
assurance that a particular country will be represented in
the Underlying Index at any given time. The instruments
included in the Underlying Index may be rated investment
grade or below investment grade (commonly referred to
as
“
junk bonds
”
). The ratings assigned in the Underlying
Index use the middle of three ratings from Moody’s Investors
Services, Inc., Standard & Poor’s Ratings Services
and Fitch, Inc.; the lower of two ratings; or the single rating
available. Under normal circumstances, the Underlying
Index is rebalanced on a monthly basis. The fund rebalances
its portfolio in accordance with the Underlying
Index, and, therefore, any changes to the Underlying
Index’s rebalance schedule will result in corresponding
changes to the fund’s rebalance schedule.
As of July 31, 2020, the Underlying Index was comprised
of 504 bonds issued by 65 different countries, with an
average market capitalization of approximately $657
million. The fund uses a representative sampling indexing
strategy in seeking to track the Underlying Index, meaning
it generally will invest in a sample of securities in the index
whose risk, return and other characteristics resemble the
risk, return and other characteristics of the Underlying
Index as a whole.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in emerging markets sovereign bonds. In addition,
the fund will invest at least 80% of its total assets,
but typically far more, in instruments that comprise the
Underlying Index.
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated.
To the extent that the fund tracks the Underlying
Index, the fund’s investment in certain sectors or
countries may change over time.
The fund is not sponsored, endorsed, or promoted by J.P.
Morgan Chase & Co., and J.P. Morgan Chase & Co. bears
no liability with respect to any index on which the fund is
based.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Main Risks
As with any investment, you could lose all or part of your investment in the fund, and the fund’s performance could trail that of other investments.
The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective, as
well as numerous other risks that are described in greater
detail in the section of this Prospectus entitled
“
Additional
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Information About Fund Strategies, Underlying Index Information
and Risks
”
and in the Statement of Additional
Information (
“
SAI
”
).
Fixed income markets risk.
The values of many types of
debt securities have been reduced over a period of many
years since the credit crisis started due to problems
relating to subprime mortgages. These market problems
have also affected debt securities that are not related to
mortgage loans. In addition, broker-dealers and other
market participants have been less willing to make a
market in some types of debt instruments, which has
impacted the liquidity of those instruments. These developments
also have had a negative effect on the broader
economy.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
ESG investment strategy risk.
The Underlying Index’s
ESG methodology, and thus the fund’s investment
strategy, limits the types and number of investment opportunities
available to the fund and, as a result, the fund may
underperform other funds that do not have an ESG focus.
The Underlying Index’s ESG methodology may result in the
fund investing in securities that underperform the market
as a whole or underperform other funds screened for ESG
standards. In addition, the index provider may be unsuccessful
in creating an index composed of companies that
exhibit positive ESG characteristics. Regulatory changes or
interpretations regarding the definitions and/or use of ESG
criteria could have a material adverse effect on the fund’s
ability to invest in accordance with its investment policies
and/or achieve its investment objective, as well as the
ability of certain classes of investors to invest in funds
following an ESG strategy such as the fund.
Fixed income securities risk.
Fixed-income securities are
subject to the risk of the issuer’s inability to meet principal
and interest payments on its obligations (i.e., credit
risk) and are subject to price volatility resulting from,
among other things, interest rate sensitivity, market
perception of the creditworthiness of the issuer and
general market liquidity (i.e., market risk). Lower rated
fixed-income securities have greater volatility because
there is less certainty that principal and interest payments
will be made as scheduled. There is a risk that a lack of
liquidity or other adverse credit market conditions may
hamper the fund’s ability to sell the debt securities in
which it invests or to find and purchase debt instruments
included in the Underlying Index.
Sovereign debt risk.
A sovereign debtor’s willingness or
ability to repay principal and pay interest in a timely manner
may be affected by a variety of factors, including its cash
flow situation, the extent of its reserves, the availability of
sufficient foreign exchange on the date a payment is due,
the relative size of the debt service burden to the economy
as a whole, the sovereign debtor’s policy toward international
lenders, and the political constraints to which a
sovereign debtor may be subject.
With respect to sovereign debt of emerging market
issuers, investors should be aware that certain emerging
market countries are among the largest debtors to commercial
banks and foreign governments. At times, certain
emerging market countries have declared moratoria on the
payment of principal and interest on external debt. Certain
emerging market countries have experienced difficulty in
servicing their sovereign debt on a timely basis and that
has led to defaults and the restructuring of certain indebtedness
to the detriment of debt holders. Sovereign debt
risk is increased for emerging market issuers.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
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companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
Emerging market securities risk.
The securities of
issuers located in emerging markets tend to be more volatile
and less liquid than securities of issuers located in
more mature economies, and emerging markets generally
have less diverse and less mature economic structures
and less stable political systems than those of developed
countries. The securities of issuers located or doing
substantial business in emerging markets are often subject
to rapid and large changes in price.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
currency, political, regulatory and other risks. Market
swings in such a targeted country, countries or regions are
likely to have a greater effect on fund performance than
they would in a more geographically diversified fund.
Interest rate risk.
When interest rates rise, prices of debt
securities generally decline. The longer the duration of
the fund’s debt securities, the more sensitive the fund will
be to interest rate changes. (As a general rule, a 1% rise
in interest rates means a 1% fall in value for every year of
duration.) Recent and potential future changes in monetary
policy made by central banks or governments are likely to
affect the level of interest rates. Rising interest rates may
prompt redemptions from the fund. Although the fund
primarily seeks to redeem shares of the fund on an in-kind
basis, if the fund is forced to sell underlying investments
at reduced prices or under unfavorable conditions to meet
redemption requests or other cash needs, the fund may
suffer a loss. The fund may be subject to a greater risk of
rising interest rates due to the current period of historically
low rates. Certain countries have experienced negative
interest rates on certain debt securities. Negative or very
low interest rates could magnify the risks associated with
changes in interest rates. In general, changing interest
rates, including rates that fall below zero, could have unpredictable
effects on markets and may expose debt and
related markets to heightened volatility. During periods
when interest rates are low or there are negative interest
rates, the fund's yield (and total return) also may be low or
the fund may be unable to maintain positive returns. In
addition, in response to the COVID-19 pandemic, as with
other serious economic disruptions, governmental authorities
and regulators are enacting significant fiscal and
monetary policy changes, including providing direct capital
infusions into companies, creating new monetary
programs and lowering interest rates considerably. These
actions present heightened risks to debt instruments, and
such risks could be even further heightened if these
actions are unexpectedly or suddenly reversed or are ineffective
in achieving their desired outcomes.
Credit risk.
The fund’s performance could be hurt if an
issuer of a debt security suffers an adverse change in financial
condition that results in a payment default, security
downgrade or inability to meet a financial obligation. Credit
risk is greater for lower-rated securities. Because the
issuers of junk bonds may be in uncertain financial health,
the prices of their debt securities could be more vulnerable
to bad economic news, or even the expectation of
bad news, than investment-grade debt securities. Credit
ratings may not be an accurate assessment of credit risk.
Prepayment and extension risk.
When interest rates fall,
issuers of high interest debt obligations may pay off the
debts earlier than expected (prepayment risk), and the
fund may have to reinvest the proceeds at lower yields.
When interest rates rise, issuers of lower interest debt
obligations may pay off the debts later than expected
(extension risk), thus keeping the fund’s assets tied up in
lower interest debt obligations. Ultimately, any unexpected
behavior in interest rates could increase the volatility of
the fund’s share price and yield and could hurt fund performance.
Prepayments could also create capital gains tax
liability in some instances.
High yield securities risk.
Securities that are rated below
investment-grade (commonly referred to as
“
junk bonds,
”
including those bonds rated lower than
“
BBB-
”
by Standard
& Poor’s Ratings Services and Fitch, Inc. or
“
Baa3
”
by
Moody’s Investors Services, Inc.), or are unrated, may be
deemed speculative and may be more volatile than higher
rated securities of similar maturity with respect to the
issuer’s continuing ability to meet principal and interest
payments. High-yield debt securities’ total return and yield
may generally be expected to fluctuate more than the total
return and yield of investment-grade debt securities. A real
or perceived economic downturn or an increase in market
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interest rates could cause a decline in the value of high-yield
debt securities, result in increased redemptions
and/or result in increased portfolio turnover, which could
result in a decline in the NAV of the fund, reduce liquidity
for certain investments and/or increase costs. High-yield
debt securities are often thinly traded and can be more
difficult to sell and value accurately than investment-grade
debt securities because there may be no established
secondary market. Investments in high-yield debt securities
could increase liquidity risk for the fund. In addition,
the market for high-yield debt securities could experience
sudden and sharp volatility, which is generally associated
more with investments in stocks.
Restricted securities/Rule 144A securities risk.
The fund
may invest a significant portion of its assets in securities
offered pursuant to Rule 144A under the Securities Act of
1933, as amended (the
“
1933 Act
”
), which are restricted
securities. They may be less liquid and more difficult to
value than other investments because such securities may
not be readily marketable in broad public markets. The
fund may not be able to sell a restricted security promptly
or at a reasonable price. Although there is a substantial
institutional market for Rule 144A securities, it is not
possible to predict exactly how the market for Rule 144A
securities will develop. A restricted security that was liquid
at the time of purchase may subsequently become illiquid
and its value may decline as a result. Restricted securities
that are deemed illiquid will count towards the fund’s 15%
limitation on illiquid securities. In addition, transaction
costs may be higher for restricted securities than for more
liquid securities. The fund may have to bear the expense
of registering Rule 144A securities for resale and the risk
of substantial delays in effecting the registration.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in a rising interest rate environment or other circumstances
where redemptions from the fund may be higher
than normal.
Pricing risk.
If market conditions make it difficult to value
some investments, the fund may value these investments
using more subjective methods, such as fair value pricing.
In such cases, the value determined for an investment
could be different from the value realized upon such investment’s
sale. As a result, you could pay more than the
market value when buying fund shares or receive less than
the market value when selling fund shares.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors
of the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Issuer-specific risk.
The value of an individual security
or particular type of security may be more volatile than the
market as a whole and may perform differently from the
value of the market as a whole.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
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Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
the NAV during periods of market volatility. The Advisor
cannot predict whether shares will trade above, below or
at their NAV. Given the fact that shares can be created and
redeemed in Creation Units (defined below), the Advisor
believes that large discounts or premiums to the NAV of
shares should not be sustained in the long-term. If market
makers exit the business or are unable to continue making
markets in fund shares, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market). Further, while the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in market prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. In addition, the securities held by the fund
may be traded in markets that close at a different time
than the exchange on which the fund’s shares trade.
Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time
when the exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. Further, secondary markets may be subject
to irregular trading activity, wide bid-ask spreads and
extended trade settlement periods, which could cause a
material decline in the fund’s NAV. The fund’s investment
results are measured based upon the daily NAV of the
fund. Investors purchasing and selling shares in the
secondary market may not experience investment results
consistent with those experienced by those APs creating
and redeeming shares directly with the fund.
Non-diversification risk. The fund is classified as non-diversified under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
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Xtrackers J.P. Morgan ESG Emerging Markets Sovereign ETF
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of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Past Performance
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund’s performance from year to year and by showing how the fund’s average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund’s past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future.
Updated performance information
is available on the fund’s website at
Xtrackers.com
(the website does not form a part of this prospectus).
Prior to May 12, 2020, the fund operated with a different
investment strategy. Performance would have been
different if the fund’s current investment strategy had been
in effect. Returns prior to May 12, 2020 reflect those of
the fund when it was tracking the prior underlying index.
CALENDAR YEAR TOTAL RETURNS(%)
Average Annual Total Returns(For periods ended 12/31/2019 expressed as a %)
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax. Your own actual after-tax returns will depend on your tax situation and may differ from what is shown here. After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts (“IRAs”) or employee-sponsored retirement plans.
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Xtrackers J.P. Morgan ESG Emerging Markets Sovereign ETF
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After tax on distribu-
tions
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After tax on distribu-
tions and sale of fund
shares
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J.P. Morgan ESG EMBI
Global Diversified
Sovereign Index
(reflects no deductions
for fees, expenses or
taxes)
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Solactive USD
Emerging Markets Bond
– Interest Rate Hedged
Index
(reflects no deduc-
tions for fees, expenses
or taxes)
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J.P. Morgan EMBI
Global Diversified
Sovereign Index
(reflects no deductions
for fees, expenses or
taxes)
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Solactive Emerging
Markets Bond Index
(Long only component)
(reflects no deductions
for fees, expenses or
taxes)
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Effective May 12, 2020, the fund changed its underlying index to the J.P. Morgan ESG EMBI Global Diversified Sovereign Index from the Solactive USD Emerging Markets Bond - Interest Rate Hedged Index. Returns prior to May 12, 2020 reflect performance for the fund when it was seeking investment results of the prior underlying index.
J.P. Morgan EMBI Global Diversified Sovereign Index replaced Solactive Emerging Markets Bond Index (Long only component) as the fund’s broad market benchmark index because the Advisor believes the J.P. Morgan EMBI Global Diversified Sovereign Index more accurately reflects the fund’s current investment strategies.
Management
Investment Advisor
DBX Advisors LLC
Portfolio Managers
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
Brandon Matsui, CFA, Director.
Portfolio Manager of the
fund. Began managing the fund in 2016.
Tanuj Dora, Vice President.
Portfolio Manager of the fund.
Began managing the fund in 2016.
Alexander Bridgeforth, Assistant Vice President.
Portfolio
Manager of the fund. Began managing the fund in
2016.
Purchase and Sale of Fund Shares
The fund is an exchange-traded fund (commonly referred
to as an
“
ETF
”
). Individual fund shares may only be
purchased and sold through a brokerage firm. The price of
fund shares is based on market price, and because ETF
shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than
NAV (a discount). The fund will only issue or redeem
shares that have been aggregated into blocks of 50,000
shares or multiples thereof (
“
Creation Units
”
) to APs who
have entered into agreements with ALPS Distributors,
Inc., the fund’s distributor. You may incur costs attributable
to the difference between the highest price a buyer is
willing to pay to purchase shares of the fund (bid) and the
lowest price a seller is willing to accept for shares of the
fund (ask) when buying or selling shares (the
“
bid-ask
spread
”
). Information on the fund’s net asset value, market
price, premiums and discounts and bid-ask spreads may
be found at Xtrackers.com.
Tax Information
The fund's distributions are generally taxable to you as
ordinary income or capital gains, except when your investment
is in an IRA, 401(k), or other tax-deferred investment
plan. Any withdrawals you make from such tax- advantaged
investment plans, however, may be taxable to you.
Payments to Broker-Dealers and
Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer
or other financial intermediary (such as a bank), the
Advisor or other related companies may pay the intermediary
for marketing activities and presentations,
educational training programs, the support of technology
platforms and/or reporting systems or other services
related to the sale or promotion of the fund. These
payments may create a conflict of interest by influencing
the broker-dealer or other intermediary and your salesperson
to recommend the fund over another investment.
Ask your salesperson or visit your financial intermediary’s
website for more information.
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Xtrackers J.P. Morgan ESG Emerging Markets Sovereign ETF
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Additional Information About Fund
Strategies, Underlying Index
Information and Risks
Investment Objective
Xtrackers J.P. Morgan ESG Emerging Markets Sovereign
ETF (the
“
fund
”
) seeks investment results that correspond
generally to the performance, before fees and expenses,
of the J.P. Morgan ESG EMBI Global Diversified Sovereign
Index (the
“
Underlying Index
”
).
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which applies environmental, social and
governance (
“
ESG
”
) considerations to a broader parent
index. The Underlying Index generally aims to keep the
broad characteristics of its parent index, the J.P. Morgan
EMBI Global Diversified Sovereign Index, resulting in a
broad emerging markets sovereign debt market exposure
with ESG aspects. Each issuer within the parent index is
given an ESG score, and assigned to a quintile based on
that score. All issuers within the lowest quintile are
removed from consideration for the Underlying Index, and
the remainder are either weighted up or down based on
which quintile they were scored in; with the best
performers being weighted more heavily, and the
remaining lower scoring issuers being weighted more
lightly. In addition, if an instrument is categorized as
“
green
”
by the Climate Bond Initiative (
“
CBI
”
) under the
criteria used by the CBI to certify bonds as being closely
linked with green and climate friendly assets or projects,
the security will be upgraded one quintile from the quintile
to which it originally was assigned.
The Index Provider obtains ESG factor valuations for each
issuer in the parent index from RepRisk and Sustainalytics,
which are investment research providers dedicated to
responsible investing and ESG research. These ESG factor
valuations are obtained from each provider and translated
by the Index Provider to a range of 0 – 100, with 100 being
the best possible score. The Index Provider’s finalized ESG
score for each issuer incorporates a 3-month rolling
average of the scores from each individual provider. The
Index Provider calculates ESG scores daily.
The ESG criteria used to score each issuer in the parent
index reflect their application to sovereign issuers,
including environmental (e.g., access to water, energy
sources and pollution) governance (e.g., corruption and
political liberties), and social (e.g., education access and
life expectancy). Sovereign issuers involved (defined as the
government receiving revenue from direct involvement in
those activities) in thermal coal, tobacco, weapons or UN
Global Compact principle violations are excluded from the
index regardless of their ESG score.
The Underlying Index consists of fixed and floating rate
securities and capitalizing/amortizing bonds, excluding
convertible and inflation-linked instruments, issued by
emerging markets sovereign entities that (i) are denominated
in US dollars; and (ii) have more than thirteen
months to maturity if already part of the Underlying Index
and two and half years to maturity upon entering the Underlying
Index. The eligible countries are Argentina, Armenia,
Azerbaijan, Bahrain, Barbados, Belarus, Belize, Bolivia,
Brazil, Chile, China, Colombia, Costa Rica, Cote D'Ivoire,
Croatia, Dominican Republic, Ecuador, Egypt, El Salvador,
Gabon, Ghana, Guatemala, Honduras, Hungary, Indonesia,
Jamaica, Jordan, Kazakhstan, Kenya, Kuwait, Lebanon,
Lithuania, Malaysia, Mexico, Mongolia, Morocco, Mozambique,
Namibia, Oman, Pakistan, Panama, Papua New
Guinea, Paraguay, Peru, Philippines, Poland, Qatar,
Romania, Russia, Saudi Arabia, Senegal, Serbia, Slovak
Republic, South Africa, Sri Lanka, Suriname, Tajikistan,
Trinidad And Tobago, Turkey, Ukraine, the United Arab Emirates,
Uruguay, Uzbekistan, Vietnam, and Zambia; however,
this universe of countries may change in accordance with
the index provider’s determination of eligible emerging
market countries as follows: countries whose gross
national income (
“
GNI
”
) per capita is below the J.P.
Morgan Index Income Ceiling (
“
IIC
”
) for three consecutive
years or if the country’s purchasing power parity (
“
PPP
”
)
is below the Index Provider’s Index PPP Ratio (
“
IPR
”
)
threshold for three consecutive years, and there is no
assurance that a particular country will be represented in
the Underlying Index at any given time. The instruments
included in the Underlying Index may be rated investment
grade or below investment grade (commonly referred to
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Fund Details
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as
“
junk bonds
”
). The ratings assigned in the Underlying
Index use the middle of three ratings from Moody’s Investors
Services, Inc., Standard & Poor’s Ratings Services
and Fitch, Inc.; the lower of two ratings; or the single rating
available. Under normal circumstances, the Underlying
Index is rebalanced on a monthly basis. The fund rebalances
its portfolio in accordance with the Underlying
Index, and, therefore, any changes to the Underlying
Index’s rebalance schedule will result in corresponding
changes to the fund’s rebalance schedule.
As of July 31, 2020, the Underlying Index was comprised
of 504 bonds issued by 65 different countries, with an
average market capitalization of approximately $657
million. The fund uses a representative sampling indexing
strategy in seeking to track the Underlying Index, meaning
it generally will invest in a sample of securities in the index
whose risk, return and other characteristics resemble the
risk, return and other characteristics of the Underlying
Index as a whole.
The fund will normally invest at least 80% of its net assets,
plus the amount of any borrowings for investment
purposes, in emerging markets sovereign bonds. In addition,
the fund will invest at least 80% of its total assets,
but typically far more, in instruments that comprise the
Underlying Index.
The fund will concentrate its investments (i.e., hold 25%
or more of its total assets) in a particular industry or group
of industries to the extent that its Underlying Index is
concentrated.
To the extent that the fund tracks the Underlying
Index, the fund’s investment in certain sectors or
countries may change over time.
The fund may invest its remaining assets in other securities,
including securities not in the Underlying Index, cash
and cash equivalents, money market instruments, such
as repurchase agreements or money market funds
(including money market funds advised by the Advisor or
its affiliates (subject to applicable limitations under the
Investment Company Act of 1940, as amended (the
“
1940
Act
”
), or exemptions therefrom), convertible securities,
structured notes (notes on which the amount of principal
repayment and interest payments are based on the movement
of one or more specified factors, such as the
movement of a particular stock or stock index) and in
futures contracts, options on futures contracts, other types
of options and swaps related to its Underlying Index. The
fund will not use futures or options for speculative
purposes.
The fund expects to use futures contracts to a limited
extent in seeking performance that corresponds to its
Underlying Index. A futures contract is a standardized
exchange traded agreement to buy or sell a specific quantity
of an underlying instrument at a specific price at a
specific future time.
The fund is not sponsored, endorsed, or promoted by J.P.
Morgan Chase & Co., and J.P. Morgan Chase & Co. bears
no liability with respect to any index on which such funds
are based. The accuracy, completeness or relevance of the
information which has been obtained from external
sources cannot be guaranteed, although it has been
obtained from sources reasonably believed to be reliable.
Subject to any applicable law, J.P. Morgan Chase & Co.
shall not assume any liability in this respect. The index
described herein is a proprietary J.P. Morgan index.
The prospectus contains a detailed description of the
limited relationship that J.P. Morgan Chase & Co. has with
DBX Advisors LLC and the fund.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Underlying Index Information
J.P. Morgan ESG EMBI Global Diversified Sovereign
Index
Number of Components: approximately 504
Index Description.
The J.P. Morgan ESG EMBI Global
Diversified Sovereign Index applies environmental, social
and governance (
“
ESG
”
) considerations to its broader
parent index, the J.P. Morgan EMBI Global Diversified
Sovereign Index.
The Underlying Index is calculated and maintained by J.P.
Morgan Chase & Co. (
“
Index Provider
”
or
“
J.P. Morgan
”
).
The Underlying Index is part of the J.P. Morgan ESG suite
of indexes (the
“
JESG Indexes
”
) and integrates ESG
scores with screens for both positive/best-in-class and
negative factors, including the exclusion of controversial
sectors and UN Global Compact (
“
UNGC
”
) violators.
Under the JESG Index methodology, including for the
Underlying Index, the Index Provider obtains ESG factor
valuations for each sovereign issuer in the parent index
from RepRisk and Sustainalytics, which are investment
research providers dedicated to responsible investing and
ESG research. These ESG factor valuations are obtained
from each provider and translated by the Index Provider to
a range of 0 – 100, with 100 being the best possible score.
The Index Provider’s finalized ESG score (
“
JESG Score
”
)
for each sovereign issuer incorporates a 3-month rolling
average of the scores from each individual provider. The
Index Provider calculates JESG Scores daily.
All available sovereign issuer ESG factor valuations from
RepRisk and Sustainalytics are used in the Underlying
Index calculations. If, however, a sovereign issuer in the
parent index is not covered by either of those input ESG
factor valuation providers, then the regional average of
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each provider is used to calculate a regional average ESG
factor valuation to be used as a proxy. If a sovereign issuer
in the parent index is only covered by one of those ESG
factor valuation input providers, the Index Provider uses
the factor valuation from the covering data provider is averaged
with the regional average value from the remaining
provider to calculate the JESG Score. Only sovereign
bonds are eligible for inclusion in the Underlying Index.
Each issuer in the Underlying Index is bucketed into one of
five quintiles (or
“
bands
”
) corresponding to its JESG
Score.
■
Band 1 = JESG Score equal to or greater than 80
■
Band 2 = JESG Score equal to or greater than 60, less
than 80
■
Band 3 = JESG Score equal to or greater than 40, less
than 60
■
Band 4 = JESG Score equal to or greater than 20, less
than 40
■
Band 5 = JESG Score less than 20
Issuers with better overall ESG scores are assigned larger
weights compared to the parent index. Issuers with JESG
scores less than 20 are excluded and are not eligible for 12
months once excluded. Additionally, issuers with derived
revenue from thermal coal, tobacco and weapons sectors
are excluded. Issuers violating UNGC principles are also
excluded.
If an instrument is categorized as
“
green
”
by the Climate
Bond Initiative (CBI), under the criteria used by the CBI
to certify bonds as being closely linked with green and
climate friendly assets or projects, the security will be
upgraded one quintile from the band to which it originally
was assigned. Green bonds from excluded issuers are also
not eligible for inclusion.
Additional Information about the Underlying Index
JPMorgan Chase & Co (
“
J.P. Morgan
”
or the
“
Index
Provider
”
). J.P. Morgan serves as the Index Administrator
and Calculation Agent for the Underlying Index.
All instruments which meet the above requirements are
included in the Underlying Index.
The composition of the Underlying Index is ordinarily rebalanced
on the last business day of each month. If an issuer
is eligible for inclusion into or exclusion from the Underlying
Index, the action will take place on the monthly
rebalancing date, following a one-month lag. Once an
issuer is removed because its score no longer meets the
index score requirement, the issuer is no longer eligible for
inclusion for 12 months. New instruments which meet
the eligibility requirements are generally added to the
Underlying Index at that month’s rebalancing if the settlement
date of such instruments falls before the 15th of the
month. For new instruments settling after the 15th of the
month, such instruments would be included during the
next month’s rebalancing.
If an issuer is eligible for a different band than the one it is
currently in, it will be moved to the new quintile on the
monthly rebalance date, following a one month lag. As per
index rules, the promotion or demotion into or out of each
quintile will also impact green bonds issued by the respective
issuer.
During each rebalancing, each index component is
weighted pro rata according to its market capitalization.
During extraordinary market conditions, the Index Provider
may delay any scheduled rebalancing of the Underlying
Index. During any such delay it is possible that the Underlying
Index will deviate from the Underlying Index’s stated
methodology.
Main Risks
As with any investment, you could lose all or part of your
investment in the fund, and the fund’s performance could
trail that of other investments. The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective.
Fixed income markets risk.
The values of many types of
debt securities have been reduced over a period of many
years since the credit crisis started due to problems
relating to subprime mortgages. These market problems
have also affected debt securities that are not related to
mortgage loans. In addition, broker-dealers and other
market participants have been less willing to make a
market in some types of debt instruments, which has
impacted the liquidity of those instruments. These developments
also have had a negative effect on the broader
economy. There is a risk that a lack of liquidity or other
adverse credit market conditions may hamper the fund’s
ability to sell the debt securities in which it invests or to
find and purchase the debt instruments included in its
Underlying Index.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
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and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
ESG investment strategy risk.
The Underlying Index’s
ESG methodology, and thus the fund’s investment
strategy, limits the types and number of investment opportunities
available to the fund and, as a result, the fund may
underperform other funds that do not have an ESG focus.
The Underlying Index’s ESG methodology may result in the
fund investing in securities that underperform the market
as a whole or underperform other funds screened for ESG
standards. In addition, the index provider may be unsuccessful
in creating an index composed of companies that
exhibit positive ESG characteristics. Regulatory changes or
interpretations regarding the definitions and/or use of ESG
criteria could have a material adverse effect on the fund’s
ability to invest in accordance with its investment policies
and/or achieve its investment objective, as well as the
ability of certain classes of investors to invest in funds
following an ESG strategy such as the fund.
Fixed income securities risk.
Fixed-income securities are
subject to the risk of the issuer’s inability to meet principal
and interest payments on its obligations (i.e., credit
risk) and are subject to price volatility resulting from,
among other things, interest rate sensitivity, market
perception of the creditworthiness of the issuer and
general market liquidity (i.e., market risk). Lower rated
fixed-income securities have greater volatility because
there is less certainty that principal and interest payments
will be made as scheduled.
Sovereign debt risk.
Investments in sovereign debt securities
involve special risks, including the availability of
sufficient foreign exchange on the date a payment is due,
the relative size of the debt service burden to the economy
as a whole, and the government debtor’s policy towards
the International Monetary Fund and the political
constraints to which a government debtor may be subject.
The governmental authority that controls the repayment of
sovereign debt may be unwilling or unable to repay the
principal and/or interest when due in accordance with the
terms of such securities due to the extent of its foreign
reserves. If an issuer of sovereign debt defaults on
payments of principal and/or interest, the fund may have
limited legal recourse against the issuer and/or guarantor.
In certain cases, remedies must be pursued in the courts
of the defaulting party itself, and the fund’s ability to obtain
recourse may be limited.
Certain issuers of sovereign debt may be dependent on
disbursements from foreign governments, multilateral
agencies and others abroad to reduce principal and interest
arrearages on their debt. Such disbursements may be
conditioned upon a debtor’s implementation of economic
reforms and/or economic performance and the timely
service of such debtor’s obligations. A failure on the part of
the debtor to implement such reforms, achieve such levels
of economic performance or repay principal or interest
when due may result in the cancellation of such third
parties’ commitments to lend funds to the government
debtor, which may impair the debtor’s ability to service its
debts on a timely basis. As a holder of government debt,
the fund may be requested to participate in the rescheduling
of such debt and to extend further loans to
government debtors.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
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Fund Details
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of the securities in the fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the
fund’s shares.
Emerging market securities risk.
Investment in emerging
markets subjects the fund to a greater risk of loss than
investments in a developed market. This is due to, among
other things, (i) greater market volatility,
(ii) lower trading
volume, (iii) political and economic instability, (iv) high
levels of inflation, deflation or currency devaluation, (v)
greater risk of market shut down, (vi) more governmental
limitations on foreign investments and limitations on repatriation
of invested capital than those typically found in a
developed market, and (vii) the risk that companies may be
held to lower disclosure, corporate governance, auditing
and financial reporting standards than companies in more
developed markets.
The financial stability of issuers (including governments) in
emerging market countries may be more precarious than
in other countries. As a result, there will tend to be an
increased risk of price volatility in the fund’s investments
in emerging market countries.
Settlement practices for transactions in foreign markets
may differ from those in US markets. Such differences
include delays beyond periods customary in the United
States and practices, such as delivery of securities prior to
receipt of payment, which increase the likelihood of a
“
failed settlement.
”
Failed settlements can result in losses
to the fund. Low trading volumes and volatile prices in
less developed markets make trades harder to complete
and settle, and governments or trade groups may compel
local agents to hold securities in designated depositories
that are not subject to independent evaluation. Local
agents are held only to the standards of care of their local
markets.
Geographic focus risk.
Focusing investments in a single
country or few countries, or regions, involves increased
currency, political, regulatory and other risks. Market
swings in such a targeted country, countries or regions are
likely to have a greater effect on fund performance than
they would in a more geographically diversified fund.
Interest rate risk.
When interest rates rise, prices of debt
securities generally decline. The longer the duration of
the fund’s debt securities, the more sensitive the fund will
be to interest rate changes. (As a general rule, a 1% rise
in interest rates means a 1% fall in value for every year of
duration.) Recent and potential future changes in monetary
policy made by central banks or governments are likely to
affect the level of interest rates. Rising interest rates may
prompt redemptions from the fund. Although the fund
primarily seeks to redeem shares of the fund on an in-kind
basis, if the fund is forced to sell underlying investments
at reduced prices or under unfavorable conditions to meet
redemption requests or other cash needs, the fund may
suffer a loss. The fund may be subject to a greater risk of
rising interest rates due to the current period of historically
low rates. Certain countries have experienced negative
interest rates on certain debt securities. Negative or very
low interest rates could magnify the risks associated with
changes in interest rates. In general, changing interest
rates, including rates that fall below zero, could have unpredictable
effects on markets and may expose debt and
related markets to heightened volatility. During periods
when interest rates are low or there are negative interest
rates, the fund's yield (and total return) also may be low or
the fund may be unable to maintain positive returns. In
addition, in response to the COVID-19 pandemic, as with
other serious economic disruptions, governmental authorities
and regulators are enacting significant fiscal and
monetary policy changes, including providing direct capital
infusions into companies, creating new monetary
programs and lowering interest rates considerably. These
actions present heightened risks to debt instruments, and
such risks could be even further heightened if these
actions are unexpectedly or suddenly reversed or are ineffective
in achieving their desired outcomes.
Credit risk.
The fund’s performance could be hurt if an
issuer of a debt security suffers an adverse change in financial
condition that results in a payment default, security
downgrade or inability to meet a financial obligation. Credit
risk is greater for lower-rated securities. Credit ratings may
not be an accurate assessment of credit risk.
Prepayment and extension risk.
When interest rates fall,
issuers of high interest debt obligations may pay off the
debts earlier than expected (prepayment risk), and the
fund may have to reinvest the proceeds at lower yields.
When interest rates rise, issuers of lower interest debt
obligations may pay off the debts later than expected
(extension risk), thus keeping the fund’s assets tied up in
lower interest debt obligations. Ultimately, any unexpected
behavior in interest rates could increase the volatility of
the fund’s share price and yield and could hurt fund performance.
Prepayments could also create capital gains tax
liability in some instances.
High yield securities risk.
Exposure to high yield (lower
rated) debt instruments (also known as
“
junk bonds
”
) may
involve greater levels of credit, prepayment, liquidity and
valuation risk than for higher rated instruments. High yield
debt instruments may be more sensitive to economic
changes, political changes, or adverse developments
specific to a company than other fixed income instruments.
High yield debt instruments are considered
speculative with respect to the issuer’s continuing ability
to make principal and interest payments and, therefore,
such instruments generally involve greater risk of default or
price changes than higher rated debt instruments. High-yield
debt securities’ total return and yield may generally
be expected to fluctuate more than the total return and
yield of investment-grade debt securities. A real or
perceived economic downturn or an increase in market
interest rates could cause a decline in the value of high-yield
debt securities, result in increased redemptions
and/or result in increased portfolio turnover, which could
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result in a decline in the NAV of the fund, reduce liquidity
for certain investments and/or increase costs. High-yield
debt securities are often thinly traded and can be more
difficult to sell and value accurately than investment-grade
debt securities as there may be no established secondary
market. Even if an established secondary market exists,
less active markets may diminish the fund’s ability to
obtain accurate market quotations when valuing the portfolio
securities and thereby give rise to valuation risk.
Investments in high-yield debt securities could increase
liquidity risk for the fund. In addition, the market for high-yield
debt securities can experience sudden and sharp
volatility, which is generally associated more with investments
in stocks. High yield debt instruments may be more
sensitive to economic changes, political changes, or
adverse developments specific to a company than other
fixed income instruments. High yield debt instruments
may also present risks based on payment expectations.
For example, these instruments may contain redemption
or call provisions. If an issuer exercises these provisions in
a declining interest rate market, the fund would have to
replace the security with a lower yielding security,
resulting in a decreased return for investors. If the issuer
of a security is in default with respect to interest or principal
payments, the issuer’s security could lose its entire
value. Furthermore, the transaction costs associated with
the purchase and sale of high yield debt instruments may
vary greatly depending upon a number of factors and may
adversely affect the fund’s performance.
Restricted securities/Rule 144A securities risk.
The fund
may invest a significant portion of its assets in securities
offered pursuant to Rule 144A under the Securities Act of
1933, as amended (the
“
1933 Act
”
), which are restricted
securities. They may be less liquid and more difficult to
value than other investments because such securities may
not be readily marketable in broad public markets. The
fund may not be able to sell a restricted security promptly
or at a reasonable price. Although there is a substantial
institutional market for Rule 144A securities, it is not
possible to predict exactly how the market for Rule 144A
securities will develop. A restricted security that was liquid
at the time of purchase may subsequently become illiquid
and its value may decline as a result. Restricted securities
that are deemed illiquid will count towards the fund’s 15%
limitation on illiquid securities. In addition, transaction
costs may be higher for restricted securities than for more
liquid securities. The fund may have to bear the expense
of registering Rule 144A securities for resale and the risk
of substantial delays in effecting the registration.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in a rising interest rate environment or other circumstances
where redemptions from the fund may be higher
than normal.
Liquidity risk may result from the lack of an active market
and the reduced number and capacity of traditional market
participants to make a market in fixed income securities.
Liquidity risk also may be magnified in a rising interest rate
environment or other circumstances where investor
redemptions from fixed income mutual funds or ETFs may
be higher than normal, causing increased supply in the
market due to selling activity. It may also be the case that
other market participants may be attempting to liquidate
fixed-income holdings at the same time as the fund,
causing increased supply in the market and contributing to
liquidity risk and downward pricing pressure.
Pricing risk.
If market conditions make it difficult to value
some investments, the fund may value these investments
using more subjective methods, such as fair value pricing.
In such cases, the value determined for an investment
could be different from the value realized upon such investment’s
sale. As a result, you could pay more than the
market value when buying fund shares or receive less than
the market value when selling fund shares.
Secondary markets may be subject to irregular trading
activity, wide bid/ask spreads and extended trade settlement
periods, which may prevent the fund from being able
to realize full value and thus sell a security for its full valuation.
This could cause a material decline in the fund’s net
asset value.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors
of the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Issuer-specific risk.
The value of an individual security
or particular type of security may be more volatile than the
market as a whole and may perform differently from the
value of the market as a whole.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
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generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
The need to comply with the tax diversification and other
requirements of the Internal Revenue Code of 1986, as
amended, may also impact the fund’s ability to replicate
the performance of the Underlying Index. In addition, if the
fund utilizes derivative instruments or holds other instruments
that are not included in the Underlying Index, the
fund’s return may not correlate as well with the returns of
the Underlying Index as would be the case if the fund
purchased all the securities in the Underlying Index
directly. Actions taken in response to proposed corporate
actions could result in increased tracking error.
For purposes of calculating the fund’s net asset value, the
value of assets denominated in non-US currencies is
converted into US dollars using prevailing market rates on
the date of valuation as quoted by one or more data
service providers. This conversion may result in a difference
between the prices used to calculate the fund’s net
asset value and the prices used by the Underlying Index,
which, in turn, could result in a difference between the
fund’s performance and the performance of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
NAV during periods of market volatility. Differences
between secondary market prices and the value of the
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fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the
same forces as those influencing prices for securities held
by the fund at a particular time. The Advisor cannot predict
whether shares will trade above, below or at their NAV.
Given the fact that shares can be created and redeemed in
Creation Units, the Advisor believes that large discounts
or premiums to the NAV of shares should not be sustained
in the long-term. In addition, there may be times when
the market price and the value of the fund’s holdings vary
significantly and you may pay more than the value of the
fund’s holdings when buying shares on the secondary
market, and you may receive less than the value of the
fund’s holdings when you sell those shares. While the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in trading prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. If market makers exit the business or are
unable to continue making markets in fund’s shares,
shares may trade at a discount to NAV like closed-end fund
shares and may even face delisting (that is, investors
would no longer be able to trade shares in the secondary
market). The market price of shares, like the price of any
exchange-traded security, includes a
“
bid-ask spread
”
charged by the exchange specialist, market makers or
other participants that trade the particular security. In times
of severe market disruption, the bid-ask spread often
increases significantly. This means that shares may trade
at a discount to the fund’s NAV, and the discount is likely to
be greatest when the price of shares is falling fastest,
which may be the time that you most want to sell your
shares. There are various methods by which investors can
purchase and sell shares of the funds and various orders
that may be placed. Investors should consult their financial
intermediary before purchasing or selling shares of the
fund.
In addition, the securities held by the fund may be traded
in markets that close at a different time than an exchange.
Liquidity in those securities may be reduced after the applicable
closing times. Accordingly, during the time when an
exchange is open but after the applicable market closing,
fixing or settlement times, bid-ask spreads and the
resulting premium or discount to the shares’ NAV is likely
to widen. More generally, secondary markets may be
subject to irregular trading activity, wide bid-ask spreads
and extended trade settlement periods, which could cause
a material decline in the fund’s NAV. The bid-ask spread
varies over time for shares of the fund based on the fund’s
trading volume and market liquidity, and is generally lower
if the fund has substantial trading volume and market
liquidity, and higher if the fund has little trading volume and
market liquidity (which is often the case for funds that are
newly launched or small in size). The fund’s bid-ask spread
may also be impacted by the liquidity of the underlying
securities held by the fund, particularly for newly launched
or smaller funds or in instances of significant volatility of
the underlying securities. The fund’s investment results are
measured based upon the daily NAV of the fund. Investors
purchasing and selling shares in the secondary market
may not experience investment results consistent with
those experienced by those APs creating and redeeming
shares directly with the fund. In addition, transactions by
large shareholders may account for a large percentage of
the trading volume on an exchange and may, therefore,
have a material effect on the market price of the fund’s
shares.
Non-diversification risk.
The fund is classified as
non-diversified under the Investment Company Act of
1940, as amended. This means that the fund may invest in
securities of relatively few issuers. Thus, the performance
of one or a small number of portfolio holdings can affect
overall performance.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
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cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Cyber-attacks may include unauthorized attempts by third
parties to improperly access, modify, disrupt the operations
of, or prevent access to the systems of the fund’s
service providers or counterparties, issuers of securities
held by the fund or other market participants or data within
them. In addition, power or communications outages, acts
of god, information technology equipment malfunctions,
operational errors, and inaccuracies within software or data
processing systems may also disrupt business operations
or impact critical data.
Cyber-attacks, disruptions, or failures may adversely affect
the fund and its shareholders or cause reputational
damage and subject the fund to regulatory fines, litigation
costs, penalties or financial losses, reimbursement or
other compensation costs, and/or additional compliance
costs. In addition, cyber-attacks, disruptions, or failures
involving a fund counterparty could affect such
counterparty’s ability to meet its obligations to the fund,
which may result in losses to the fund and its shareholders.
Similar types of operational and technology risks
are also present for issuers of securities held by the fund,
which could have material adverse consequences for such
issuers, and may cause the fund’s investments to lose
value. Furthermore, as a result of cyber-attacks, disruptions,
or failures, an exchange or market may close or issue
trading halts on specific securities or the entire market,
which may result in the fund being, among other things,
unable to buy or sell certain securities or financial instruments
or unable to accurately price its investments.
For example, the fund relies on various sources to calculate
its NAV. Therefore, the fund is subject to certain
operational risks associated with reliance on third party
service providers and data sources. NAV calculation may
be impacted by operational risks arising from factors such
as failures in systems and technology. Such failures may
result in delays in the calculation of the fund’s NAV and/or
the inability to calculate NAV over extended time periods.
The fund may be unable to recover any losses associated
with such failures.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Emerging markets sovereign debt risk.
Government obligors
in emerging market countries are among the world’s
largest debtors to commercial banks, other governments,
international financial organizations and other financial
institutions. Historically, certain issuers of the government
debt securities in which the fund may invest have experienced
substantial difficulties in meeting their external debt
obligations, resulting in defaults on certain obligations and
the restructuring of certain indebtedness. Such restructuring
arrangements have included obtaining additional
credit to finance outstanding obligations and the reduction
and rescheduling of payments of interest and principal
through the negotiation of new or amended credit agreements.
As a holder of government debt securities, the
fund may be asked to participate in the restructuring of
such obligations and to extend further loans to their
issuers. There can be no assurance that the securities in
which the fund will invest will not be subject to restructuring
arrangements or to requests for additional credit. In
addition, certain participants in the secondary market for
such debt may be directly involved in negotiating the terms
of these arrangements and may therefore have access to
information not available to other market participants, such
as the fund.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Derivatives risk.
Derivatives are financial instruments,
such as futures and swaps, whose values are based on the
value of one or more indicators, such as a security, asset,
currency, interest rate, or index. Derivatives involve risks
different from, and possibly greater than, the risks associated
with investing directly in securities and other more
traditional investments. For example, derivatives involve
the risk of mispricing or improper valuation and the risk
that changes in the value of a derivative may not correlate
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perfectly with the underlying indicator. Derivative transactions
can create investment leverage, may be highly
volatile and the fund could lose more than the amount it
invests. Many derivative transactions are entered into
“
over-the-counter
”
(i.e., not on an exchange or contract market);
as a result, the value of such a derivative transaction will
depend on the ability and the willingness of the fund’s
counterparty to perform its obligations under the transaction.
If a counterparty were to default on its obligations,
the fund’s contractual remedies against such counterparty
may be subject to bankruptcy and insolvency laws, which
could affect the fund’s rights as a creditor (e.g., the fund
may not receive the net amount of payments that it is
contractually entitled to receive). A liquid secondary market
may not always exist for the fund’s derivative positions at
any time.
Futures risk.
The value of a futures contract tends to
increase and decrease in tandem with the value of the
underlying instrument. Depending on the terms of the
particular contract, futures contracts are settled through
either physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether,
when and how to use futures involves the exercise of skill
and judgment and even a well-conceived futures transaction
may be unsuccessful because of market behavior or
unexpected events. In addition to the derivatives risks
discussed above, the prices of futures can be highly volatile,
using futures can lower total return and the potential
loss from futures can exceed the fund’s initial investment
in such contracts.
Other Policies and Risks
While the previous pages describe the main points of the
fund’s strategy and risks, there are a few other matters
to know about:
■
Each of the policies described herein, including the
investment objective and 80% investment policies of
the fund, constitutes a non-fundamental policy that may
be changed by the Board without shareholder approval.
The fund’s 80% investment policies require 60 days’
prior written notice to shareholders before they can be
changed. Certain fundamental policies of the fund are
set forth in the SAI.
■
Because the fund seeks to track its Underlying Index,
the fund does not invest defensively and the fund will
not invest in money market instruments or other short-
term investments as part of a temporary defensive
strategy to protect against potential market declines.
■
The fund may borrow money from a bank up to a limit of
10% of the value of its assets, but only for temporary
or emergency purposes.
■
The fund may borrow money under a credit facility to
the extent necessary for temporary or emergency
purposes, including the funding of shareholder redemption
requests, trade settlements, and as necessary to
distribute to shareholders any income necessary to maintain
the fund’s status as a regulated investment
company (
“
RIC
”
).
■
From time to time a third party, the Advisor and/or its
affiliates may invest in the fund and hold its investment
for a specific period of time in order for the fund to
achieve size or scale. There can be no assurance that
any such entity would not redeem its investment or that
the size of the fund would be maintained at such levels.
In order to comply with applicable law, it is possible that
the Advisor or its affiliates, to the extent they are
invested in the fund, may be required to redeem some
or all of their ownership interests in the fund prematurely
or at an inopportune time.
■
Secondary market trading in fund shares may be halted
by a stock exchange because of market conditions or
other reasons. In addition, trading in fund shares on a
stock exchange or in any market may be subject to
trading halts caused by extraordinary market volatility
pursuant to
“
circuit breaker
”
rules on the exchange or
market. If a trading halt or unanticipated early closing of
a stock exchange occurs, a shareholder may be unable
to purchase or sell shares of the fund. There can be no
assurance that the requirements necessary to maintain
the listing or trading of fund shares will continue to be
met or will remain unchanged or that shares will trade
with any volume, or at all, in any secondary market. As
with all other exchange traded securities, shares may be
sold short and may experience increased volatility and
price decreases associated with such trading activity.
■
From time to time, the fund may have a concentration of
shareholder accounts holding a significant percentage
of shares outstanding. Investment activities of these
shareholders could have a material impact on the fund.
For example, the fund may be used as an underlying
investment for other registered investment companies.
Portfolio Holdings Information
A description of DBX ETF Trust’s (
“
Trust
”
) policies and
procedures with respect to the disclosure of the fund’s
portfolio securities is available in the fund’s SAI. The top
holdings of the fund can be found at Xtrackers.com. Fund
fact sheets provide information regarding the fund’s top
holdings and may be requested by calling 1-855-329-3837
(1-855-DBX-ETFS).
Who Manages and Oversees the Fund
The Investment Advisor
DBX Advisors LLC (
“
Advisor
”
), with headquarters at 875
Third Avenue, New York, NY 10022, is the investment
advisor for the fund. Under the oversight of the Board, the
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October 1, 2020
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Fund Details
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Advisor makes the investment decisions, buys and sells
securities for the fund and conducts research that leads to
these purchase and sale decisions.
The Advisor is an indirect, wholly-owned subsidiary of
DWS Group GmbH & Co. KGaA (
“
DWS Group
”
), a separate,
publicly-listed financial services firm that is an
indirect, majority-owned subsidiary of Deutsche Bank AG.
Founded in 2010, the Advisor managed approximately
$17.3 billion in 33 operational exchange-traded funds, as of
August 31, 2020.
DWS represents the asset management activities
conducted by DWS Group or any of its subsidiaries,
including the Advisor and other affiliated investment
advisors.
DWS is a global organization that offers a wide range of
investing expertise and resources, including hundreds of
portfolio managers and analysts and an office network that
reaches the world’s major investment centers. This well-
resourced global investment platform brings together a
wide variety of experience and investment insight across
industries, regions, asset classes and investing styles.
The Advisor may utilize the resources of its global investment
platform to provide investment management
services through branch offices or affiliates located outside
the US. In some cases, the Advisor may also utilize its
branch offices or affiliates located in the US or outside the
US to perform certain services, such as trade execution,
trade matching and settlement, or various administrative,
back-office or other services. To the extent services are
performed outside the US, such activity may be subject to
both US and foreign regulation. It is possible that the jurisdiction
in which the Advisor or its affiliate performs such
services may impose restrictions or limitations on portfolio
transactions that are different from, and in addition to,
those in the US.
Management Fee.
Under the Investment Advisory Agreement,
the Advisor is responsible for substantially all
expenses of the fund, including the cost of transfer
agency, custody, fund administration, compensation paid
to the Independent Board Members, legal, audit and other
services, except for the fee payments to the Advisor under
the Investment Advisory Agreement (also known as a
“
unitary advisory fee
”
), interest expense, acquired fund
fees and expenses, taxes, brokerage expenses, distribution
fees or expenses (if any), litigation expenses and other
extraordinary expenses.
For its services to the fund, during the most recent fiscal
year, the Advisor received aggregate unitary advisory fees
at the following annual rates as a percentage of the fund’s
average daily net assets.
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Xtrackers J.P. Morgan ESG
Emerging Markets Sovereign
ETF
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Effective May 12, 2020, the Advisor receives a unitary advisory
fee at an annual rate equal to 0.35% of the fund’s
average daily net assets. Prior to May 12, 2020, the
Advisor received a unitary management fee at an annual
rate equal to 0.45% of the fund’s average daily net assets.
A discussion regarding the basis for the Board's approval
of the fund’s Investment Advisory Agreement will be
contained in the fund's annual report for the annual period
ended May 31, 2020. For information on how to obtain
shareholder reports, see the back cover.
Multi-Manager Structure.
The Advisor and the Trust may
rely on an exemptive order (the
“
Order
”
) from the SEC that
permits the Advisor to enter into investment sub-advisory
agreements with unaffiliated and affiliated subadvisors
without obtaining shareholder approval. The Advisor,
subject to the review and approval of the Board, selects
subadvisors for the fund and supervises, monitors and
evaluates the performance of the subadvisor.
The Order also permits the Advisor, subject to the approval
of the Board, to replace subadvisors and amend investment
subadvisory agreements, including fees, without
shareholder approval whenever the Advisor and the Board
believe such action will benefit the fund and its shareholders.
The Advisor thus has the ultimate responsibility
(subject to the ultimate oversight of the Board) to recommend
the hiring and replacement of subadvisors as well as
the discretion to terminate any subadvisor and reallocate
the fund’s assets for management among any other
subadvisor(s) and itself. This means that the Advisor is able
to reduce the subadvisory fees and retain a larger portion
of the management fee, or increase the subadvisory fees
and retain a smaller portion of the management fee.
Pursuant to the Order, the Advisor is not required to
disclose its contractual fee arrangements with any
subadvisor. The Advisor compensates the subadvisor out
of its management fee.
Management
The following Portfolio Managers are primarily responsible
for the day-to-day management of the fund. Each Portfolio
Manager functions as a member of a portfolio
management team.
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2016.
■
Joined DWS in 2011 with 11 years of industry experience.
Prior to joining DWS, he worked in ETF
management at XShares Advisors, an ETF issuer based
in New York, and before that he served as an equity
analyst for Fairhaven Capital LLC, a long/short equity
fund.
■
Head of Passive Portfolio Management, Americas: New
York.
■
BS in Finance, Boston College.
Brandon Matsui, CFA, Director.
Portfolio Manager of the
fund. Began managing the fund in 2016.
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Fund Details
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■
Joined DWS in 2011 with 12 years of industry experience.
Prior to joining DWS, he was a relationship
manager in the Portfolio Analytics Group at BlackRock
Solutions. Previously, he managed overlay accounts at
BNY Mellon Beta Management, and was a senior portfolio
manager for fixed income ETFs and mutual funds at
Charles Schwab Investment Management.
■
Fixed Income Portfolio Manager, Passive Asset Management:
New York.
■
BS in History, University of California, Irvine; MBA in
Finance, University of Hawaii; Financial Risk Certification
holder.
Tanuj Dora, Vice President.
Portfolio Manager of the fund.
Began managing the fund in 2016.
■
Joined DWS in 2010. Prior to his current role, he was
responsible for trading and market making of European
fixed income ETFs, structured funds, index swaps and
options within the Fixed Income Derivatives Group in
Corporate Banking & Securities, based out of London.
■
Fixed Income Portfolio Manager, Passive Asset Management:
New York.
■
BTech and MTech (dual degree) in Industrial Engineering
& Management, Indian Institute of Technology
Kharagnur.
Alexander Bridgeforth, Assistant Vice President.
Portfolio
Manager of the fund. Began managing the fund in
2016.
■
Joined DWS in 2016, with 5 years of industry experience.
Prior to joining DWS, he was responsible for
management of fixed income mutual funds and ETFs at
Charles Schwab Investment Management, where he
previously supported portfolio managers and middle
office duties.
■
Fixed Income Portfolio Manager, Passive Asset Management:
New York.
■
BSBA in Finance, University of Arizona.
The fund’s Statement of Additional Information provides
additional information about a portfolio manager’s investments
in the fund, a description of the portfolio
management compensation structure and information
regarding other accounts managed.
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Fund Details
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Additional shareholder information, including how to buy
and sell shares of the fund, is available free of charge by
calling toll-free: 1-855-329-3837 (1-855-DBX-ETFS) or
visiting our website at Xtrackers.com.
Buying and Selling Shares
Shares of the fund are listed for trading on a national securities
exchange during the trading day. Shares can be
bought and sold throughout the trading day at market
prices like shares of other publicly-traded companies. The
Trust does not impose any minimum investment for shares
of the fund purchased on an exchange. Buying or selling
fund shares involves two types of costs that may apply to
all securities transactions. When buying or selling shares
of the fund through a broker, you will likely incur a
brokerage commission or other charges determined by
your broker. In addition, you may incur the cost of the
“
spread
”
– that is, any difference between the bid price
and the ask price. The commission is frequently a fixed
amount and may be a significant proportional cost for
investors seeking to buy or sell small amounts of shares.
The spread varies over time for shares of the fund based
on its trading volume and market liquidity, and is generally
lower if the fund has a lot of trading volume and market
liquidity and higher if the fund has little trading volume and
market liquidity.
Shares of the fund may be acquired or redeemed directly
from the fund only in Creation Units or multiples thereof,
as discussed in the section of this Prospectus entitled
“
Creations and Redemptions.
”
Only an AP may engage in
creation or redemption transactions directly with the fund.
Once created, shares of the fund generally trade in the
secondary market in amounts less than a Creation Unit.
The Board has evaluated the risks of market timing activities
by the fund’s shareholders. The Board noted that
shares of the fund can only be purchased and redeemed
directly from the fund in Creation Units by APs and that the
vast majority of trading in the fund’s shares occurs on the
secondary market. Because the secondary market trades
do not involve the fund directly, it is unlikely those trades
would cause many of the harmful effects of market timing,
including dilution, disruption of portfolio management,
increases in the fund’s trading costs and the realization of
capital gains. With regard to the purchase or redemption of
Creation Units directly with the fund, to the extent effected
in-kind (i.e., for securities), such trades do not cause any
of the harmful effects (as previously noted) that may result
from frequent cash trades. To the extent trades are
effected in whole or in part in cash, the Board noted that
such trades could result in dilution to the fund and
increased transaction costs, which could negatively impact
the fund’s ability to achieve its investment objective.
However, the Board noted that direct trading by APs is
critical to ensuring that the fund’s shares trade at or close
to NAV. In addition, the fund imposes both fixed and variable
transaction fees on purchases and redemptions of
fund shares to cover the custodial and other costs incurred
by the fund in effecting trades. These fees increase if an
investor substitutes cash in part or in whole for securities,
reflecting the fact that the fund’s trading costs increase
in those circumstances. Given this structure, the Board
determined that with respect to the fund it is not necessary
to adopt policies and procedures to detect and deter
market timing of the fund’s shares.
The 1940 Act imposes certain restrictions on investments
by registered investment companies in the securities of
other investment companies, such as the fund. Registered
investment companies are permitted to invest in the fund
beyond applicable 1940 Act limitations, subject to certain
terms and conditions set forth in an SEC exemptive order
issued to the Trust, including that such investment companies
enter into an agreement with the Trust.
Shares of the fund trade on the exchange and under the
ticker symbol as shown in the table below.
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Xtrackers J.P. Morgan
ESG Emerging –
Markets Sovereign ETF
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Book Entry
Shares of the fund are held in book-entry form, which
means that no stock certificates are issued. The Depository
Trust Company (
“
DTC
”
) or its nominee is the record
owner of all outstanding shares of the fund and is recognized
as the owner of all shares for all purposes.
Investors owning shares of the fund are beneficial owners
as shown on the records of DTC or its participants. DTC
serves as the securities depository for shares of the fund.
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October 1, 2020
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Investing in the Fund
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DTC participants include securities brokers and dealers,
banks, trust companies, clearing corporations and other
institutions that directly or indirectly maintain a custodial
relationship with DTC. As a beneficial owner of shares, you
are not entitled to receive physical delivery of stock certificates
or to have shares registered in your name, and you
are not considered a registered owner of shares. Therefore,
to exercise any right as an owner of shares, you must
rely upon the procedures of DTC and its participants.
These procedures are the same as those that apply to any
other securities that you hold in book-entry or
“
street
name
”
form.
Share Prices
The trading prices of the fund’s shares in the secondary
market generally differ from the fund’s daily NAV per share
and are affected by market forces such as supply and
demand, economic conditions and other factors. Information
regarding the intraday value of shares of the fund, also
known as the
“
indicative optimized portfolio value
”
(
“
IOPV
”
), is disseminated every 15 seconds throughout
the trading day by the national securities exchange on
which the fund’s shares are listed or by market data
vendors or other information providers. The IOPV is based
on the current market value of the securities and/or cash
required to be deposited in exchange for a Creation Unit.
The IOPV does not necessarily reflect the precise composition
of the current portfolio of securities held by the fund
at a particular point in time nor the best possible valuation
of the current portfolio. Therefore, the IOPV should not
be viewed as a
“
real-time
”
update of the NAV, which is
computed only once a day. The IOPV is generally determined
by using both current market quotations and/or
price quotations obtained from broker-dealers that may
trade in the portfolio securities held by the fund. The
quotations of certain fund holdings may not be updated
during US trading hours if such holdings do not trade in the
US. The fund is not involved in, or responsible for, the calculation
or dissemination of the IOPV and makes no
representation or warranty as to its accuracy.
Determination of Net Asset Value
The NAV of the fund is generally determined once daily
Monday through Friday as of the regularly scheduled close
of business of the New York Stock Exchange (
“
NYSE
”
)
(normally 4:00 p.m., Eastern time) on each day that the
NYSE is open for trading. NAV is calculated by deducting
all of the fund’s liabilities from the total value of its assets
and dividing the result by the number of shares
outstanding, rounding to the nearest cent. All valuations
are subject to review by the Trust’s Board or its delegate.
In determining NAV, expenses are accrued and applied
daily and securities and other assets for which market
quotations are available are valued at market value. Debt
securities’ values are based on price quotations or other
equivalent indications of value provided by a third-party
pricing service. Any such third-party pricing service may
use a variety of methodologies to value some or all of the
fund’s debt securities to determine the market price. For
example, the prices of securities with characteristics
similar to those held by the fund may be used to assist
with the pricing process. In addition, the pricing service
may use proprietary pricing models. In certain cases, some
of the fund’s debt securities may be valued at the mean
between the last available bid and ask prices for such securities
or, if such prices are not available, at prices for
securities of comparable maturity, quality, and type. Short-term
securities for which market quotations are not readily
available and money market securities maturing in 60 days
or less are valued at amortized cost. The approximate
value of shares of the applicable fund, an amount representing
on a per share basis the sum of the current value
of the deposit securities based on their then current
market price and the estimated cash component will be
disseminated every 15 seconds throughout the trading day
through the facilities of the Consolidated Tape Association.
Generally, trading in non-U.S. securities, U.S.
government securities, money market instruments and
certain fixed-income securities is substantially completed
each day at various times prior to the close of business on
the NYSE. The values of such securities used in computing
the NAV of the fund are determined as of such earlier
times. The value of the Underlying Index will not be calculated
and disseminated intra-day. The value and return of
the Underlying Index is calculated once each trading day by
the Index Provider based on prices received from the
respective markets
(including the respective international
local markets).
If a security’s market price is not readily available or does
not otherwise accurately reflect the fair value of the security,
the security will be valued by another method that
the Advisor believes will better reflect fair value in accordance
with the Trust’s valuation policies and procedures
approved by the Board. The fund may use fair value pricing
in a variety of circumstances, including but not limited to,
situations when the value of a security in the fund’s portfolio
has been materially affected by events occurring after
the close of the market on which the security is principally
traded (such as a corporate action or other news that
may materially affect the price of a security) or trading in
a security has been suspended or halted. Fair value pricing
involves subjective judgments and it is possible that a fair
value determination for a security is materially different
from the value that could be realized upon the sale of the
security. In addition, fair value pricing could result in a difference
between the prices used to calculate the fund’s NAV
and the prices used by the fund’s Underlying Index. This
may adversely affect the fund’s ability to track its Underlying
Index. With respect to securities that are primarily
listed on foreign exchanges, the value of the fund’s portfolio
securities may change on days when you will not be
able to purchase or sell your shares.
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Creations and Redemptions
Prior to trading in the secondary market, shares of the fund
are
“
created
”
at NAV by market makers, large investors
and institutions only in block-size Creation Units of 50,000
shares or multiples thereof (
“
Creation Units
”
). The size
of a Creation Unit will be subject to change. Each
“
creator
”
or AP (which must be a DTC participant) enters into an
authorized participant agreement (
“
Authorized Participant
Agreement
”
) with the fund’s distributor, ALPS Distributors,
Inc. (the
“
Distributor
”
), subject to acceptance by the
Transfer Agent. Only an AP may create or redeem Creation
Units. Creation Units generally are issued and redeemed
in exchange for a specific basket of securities approximating
the holdings of the fund and a designated amount
of cash. The fund may pay out a portion of its redemption
proceeds in cash rather than through the in-kind
delivery of portfolio securities. Except when aggregated in
Creation Units, shares are not redeemable by the fund.
The prices at which creations and redemptions occur are
based on the next calculation of NAV after an order is
received in a form described in the Authorized Participant
Agreement.
Additional information about the procedures regarding
creation and redemption of Creation Units (including the
cut-off times for receipt of creation and redemption orders)
is included in the SAI.
The fund intends to comply with the US federal securities
laws in accepting securities for deposits and satisfying
redemptions with redemption securities, including that the
securities accepted for deposits and the securities used
to satisfy redemption requests will be sold in transactions
that would be exempt from registration under the Securities
Act of 1933, as amended (
“
1933 Act
”
). Further, an AP
that is not a
“
qualified institutional buyer,
”
as such term is
defined under Rule 144A under the 1933 Act, will not be
able to receive fund securities that are restricted securities
eligible for resale under Rule 144A.
Dividends and Distributions
General Policies.
Dividends from net investment income, if
any, are generally declared and paid monthly by the fund.
Distributions of net realized capital gains, if any, generally
are declared and paid once a year, but the Trust may
make distributions on a more frequent basis for the fund.
The Trust reserves the right to declare special distributions
if, in its reasonable discretion, such action is necessary or
advisable to preserve its status as a regulated investment
company or to avoid imposition of income or excise taxes
on undistributed income or realized gains.
Dividends and other distributions on shares of the fund are
distributed on a pro rata basis to beneficial owners of such
shares. Dividend payments are made through DTC participants
and indirect participants to beneficial owners as of
the record date with proceeds received from the fund.
Dividend Reinvestment Service.
No dividend reinvestment
service is provided by the Trust. Broker-dealers may make
available the DTC book-entry Dividend Reinvestment
Service for use by beneficial owners of the fund for reinvestment
of their dividend distributions. Beneficial owners
should contact their broker to determine the availability
and costs of the service and the details of participation
therein. Brokers may require beneficial owners to adhere
to specific procedures and timetables. If this service is
available and used, dividend distributions of both income
and realized gains will be automatically reinvested in additional
whole shares of the fund purchased in the
secondary market.
Taxes
As with any investment, you should consider how your
investment in shares of the fund will be taxed. The tax information
in this Prospectus is provided as general
information. You should consult your own tax professional
about the tax consequences of an investment in shares
of the fund.
Unless your investment in fund shares is made through a
tax-exempt entity or tax-deferred retirement account, such
as an IRA, you need to be aware of the possible tax consequences
when the fund makes distributions or you sell
fund shares.
Taxes on Distributions
Distributions from the fund’s net investment income (other
than qualified dividend income), including distributions of
income from securities lending and distributions out of the
fund’s net short-term capital gains, if any, are taxable to
you as ordinary income. Distributions by the fund of net
long-term capital gains in excess of net short-term capital
losses (capital gain dividends) are taxable to you as long-
term capital gains, regardless of how long you have held
such fund’s shares. Distributions by the fund that qualify as
qualified dividend income are taxable to you at long-term
capital gain rates. The maximum individual rate applicable
to
“
qualified dividend income
”
and long-term capital gains
is generally either 15% or 20%, depending on whether the
individual’s income exceeds certain threshold amounts.
Dividends are eligible to be qualified dividend income to
you, if you meet certain holding period requirements
discussed below, if they are attributable to qualified dividend
income received by the fund. Generally, qualified
dividend income includes dividend income from taxable
US corporations and qualified non-US corporations,
provided that the fund satisfies certain holding period
requirements in respect of the stock of such corporations
and has not hedged its position in the stock in certain
ways. For this purpose, a qualified non-US corporation
means any non-US corporation that is eligible for benefits
under a comprehensive income tax treaty with the United
States which includes an exchange of information program
or if the stock with respect to which the dividend was paid
Prospectus
October 1, 2020
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Investing in the Fund
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is readily tradable on an established United States security
market. The term excludes a corporation that is a passive
foreign investment company.
For a dividend to be treated as qualified dividend income,
the dividend must be received with respect to a share
of stock held without being hedged by the fund, and to a
share of the fund held without being hedged by you, for 61
days during the 121-day period beginning at the date
which is 60 days before the date on which such share
becomes ex-dividend with respect to such dividend or in
the case of certain preferred stock 91 days during the
181-day period beginning 90 days before such date.
Given the investment strategies of the fund, it is not anticipated
that a significant portion of the dividends paid by
the fund will be eligible to be reported as qualified dividend
income (with respect to an individual shareholder) or for
the corporate dividends received deduction (with respect
to a corporate shareholder).
In general, your distributions are subject to US federal
income tax for the year when they are paid. Certain distributions
paid in January, however, may be treated as paid
on December 31 of the prior year.
If the fund’s distributions exceed current and accumulated
earnings and profits, all or a portion of the distributions
made in the taxable year may be re-characterized as a
return of capital to shareholders. A return of capital distribution
generally will not be taxable but will reduce the
shareholder’s cost basis and result in a higher capital gain
or lower capital loss when those shares on which the distribution
was received are sold.
If you are neither a resident nor a citizen of the United
States or if you are a non-US entity, the fund’s ordinary
income dividends (which include distributions of net short-
term capital gains) will generally be subject to a 30% US
withholding tax, unless a lower treaty rate applies,
provided that withholding tax will generally not apply to
any gain or income realized by a non- US shareholder in
respect of any distributions of long-term capital gains or
upon the sale or other disposition of shares of the fund.
Dividends and interest received by the fund with respect
to non-US securities may give rise to withholding and other
taxes imposed by non-US countries. Tax conventions
between certain countries and the United States may
reduce or eliminate such taxes. If more than 50% of the
total assets of the fund at the close of a year consist of
non-US stocks or securities, the fund may
“
pass through
”
to you certain non-US income taxes (including withholding
taxes) paid by the fund. This means that you would be
considered to have received as additional gross income
your share of such non-US taxes, but you may, in such
case, be entitled to either a corresponding tax deduction in
calculating your taxable income, or, subject to certain limitations,
a credit in calculating your US federal income tax.
If you are a resident or a citizen of the United States, by
law, back-up withholding (currently at a rate of 24%) will
apply to your distributions and proceeds if you have not
provided a taxpayer identification number or social security
number and made other required certifications.
Taxes when Shares are Sold
Currently, any capital gain or loss realized upon a sale of
fund shares is generally treated as a long-term gain or loss
if the shares have been held for more than one year. Any
capital gain or loss realized upon a sale of fund shares held
for one year or less is generally treated as short-term gain
or loss, except that any capital loss on the sale of shares
held for six months or less is treated as long-term capital
loss to the extent that capital gain dividends were paid
with respect to such shares.
Medicare Tax
An additional 3.8% Medicare tax is imposed on certain net
investment income (including ordinary dividends and
capital gain distributions received from the fund and net
gains from redemptions or other taxable dispositions of
fund shares) of US individuals, estates and trusts to the
extent that such person’s
“
modified adjusted gross
income
”
(in the case of an individual) or
“
adjusted gross
income
”
(in the case of an estate or trust) exceeds certain
threshold amounts.
The foregoing discussion summarizes some of the consequences
under current US federal tax law of an
investment in the fund. It is not a substitute for personal
tax advice. You may also be subject to state and local taxation
on fund distributions and sales of shares. Consult your
personal tax advisor about the potential tax consequences
of an investment in shares of the fund under all applicable
tax laws.
Authorized Participants and the Continuous Offering of
Shares
Because new shares may be created and issued on an
ongoing basis, at any point during the life of the fund a
“
distribution,
”
as such term is used in the 1933 Act, may
be occurring. Broker-dealers and other persons are
cautioned that some activities on their part may,
depending on the circumstances, result in their being
deemed participants in a distribution in a manner that
could render them statutory underwriters and subject to
the prospectus delivery and liability provisions of the 1933
Act. Any determination of whether one is an underwriter
must take into account all the relevant facts and circumstances
of each particular case.
Broker-dealers should also note that dealers who are not
“
underwriters
”
but are participating in a distribution (as
contrasted to ordinary secondary transactions), and thus
dealing with shares that are part of an
“
unsold allotment
”
within the meaning of Section 4(3)(C) of the 1933 Act,
would be unable to take advantage of the prospectus
delivery exemption provided by Section 4(3) of the 1933
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October 1, 2020
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Investing in the Fund
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Act. For delivery of prospectuses to exchange members,
the prospectus delivery mechanism of Rule 153 under the
1933 Act is available only with respect to transactions on
a national securities exchange.
Certain affiliates of the fund and the Advisor may purchase
and resell fund shares pursuant to this Prospectus.
Transaction Fees
APs are charged standard creation and redemption transaction
fees to offset transfer and other transaction costs
associated with the issuance and redemption of Creation
Units. Purchasers and redeemers of Creation Units for
cash are required to pay an additional variable charge (up
to a maximum of 2% for redemptions, including the standard
redemption fee) to compensate for brokerage and
market impact expenses. The standard creation and
redemption transaction fee for the fund is set forth in the
table below. The maximum redemption fee, as a
percentage of the amount redeemed, is 2%.
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Xtrackers J.P. Morgan ESG
Emerging Markets Sovereign
ETF
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Distribution
The Distributor distributes Creation Units for the fund on
an agency basis. The Distributor does not maintain a
secondary market in shares of the fund. The Distributor
has no role in determining the policies of the fund or the
securities that are purchased or sold by the fund. The
Distributor’s principal address is 1290 Broadway, Suite
1000, Denver, Colorado 80203.
The Advisor and/or its affiliates may pay additional compensation,
out of their own assets and not as an additional
charge to the fund, to selected affiliated and unaffiliated
brokers, dealers, participating insurance companies or
other financial intermediaries (
“
financial representatives
”
)
in connection with the sale and/or distribution of fund
shares or the retention and/or servicing of fund investors
and fund shares (
“
revenue sharing
”
). For example, the
Advisor and/or its affiliates may compensate financial representatives
for providing the fund with
“
shelf space
”
or
access to a third party platform or fund offering list or other
marketing programs, including, without limitation, inclusion
of the fund on preferred or recommended sales lists,
fund
“
supermarket
”
platforms and other formal sales
programs; granting the Advisor and/ or its affiliates access
to the financial representative’s sales force; granting the
Advisor and/or its affiliates access to the financial representative’s
conferences and meetings; assistance in training
and educating the financial representative’s personnel; and
obtaining other forms of marketing support.
The level of revenue sharing payments made to financial
representatives may be a fixed fee or based upon one
or more of the following factors: gross sales, current
assets and/or number of accounts of the fund attributable
to the financial representative, the particular fund or fund
type or other measures as agreed to by the Advisor and/or
its affiliates and the financial representatives or any combination
thereof. The amount of these revenue sharing
payments is determined at the discretion of the Advisor
and/or its affiliates from time to time, may be substantial,
and may be different for different financial representatives
based on, for example, the nature of the services provided
by the financial representative.
Receipt of, or the prospect of receiving, additional compensation
may influence your financial representative’s
recommendation of the fund. You should review your
financial representative’s compensation disclosure and/or
talk to your financial representative to obtain more information
on how this compensation may have influenced your
financial representative’s recommendation of the fund.
Additional information regarding these revenue sharing
payments is included in the fund’s Statement of Additional
Information, which is available to you on request at no
charge (see the back cover of this Prospectus for more
information on how to request a copy of the Statement of
Additional Information).
It is possible that broker-dealers that execute portfolio transactions
for the fund will also sell shares of the fund to their
customers. However, the Advisor will not consider the
sale of fund shares as a factor in the selection of broker-dealers
to execute portfolio transactions for the fund.
Accordingly, the Advisor has implemented policies and
procedures reasonably designed to prevent its traders
from considering sales of fund shares as a factor in the
selection of broker-dealers to execute portfolio transactions
for the fund. In addition, the Advisor and/or its
affiliates will not use fund brokerage to pay for their obligation
to provide additional compensation to financial
representatives as described above.
Premium/Discount Information
Information regarding how often shares of the fund traded
on Cboe at a price above (i.e., at a premium) or below (i.e.,
at a discount) the NAV of the fund during the past calendar
year can be found at Xtrackers.com.
Prospectus
October 1, 2020
|
25
|
Investing in the Fund
|
The financial highlights are designed to help you understand recent financial performance. The figures in the first part of
the table are for a single share. The total return figures represent the percentage that an investor in the fund would have
earned (or lost), assuming all dividends and distributions were reinvested. This information has been audited by Ernst &
Young LLP, independent registered public accounting firm, whose report, along with the fund’s financial statements, is
included in the fund’s Annual Report as of May 31, 2020 and for the fiscal period then ended
(see
“
For More Information
”
on the back cover).
Effective May 12, 2020, Xtrackers Emerging Markets Bond - Interest Rate Hedged ETF changed its name to Xtrackers J.P.
Morgan ESG Emerging Markets Sovereign ETF.
Xtrackers J.P. Morgan ESG Emerging Markets Sovereign ETF
|
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Net Asset Value, beginning of year
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Income (loss) from investment operations:
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Net investment income (loss)
a
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Net realized and unrealized gain (loss)
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Total from investment operations
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Net Asset Value, end of year
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Ratios to Average Net Assets and Supplemental Data
|
Net Assets, end of year ($ millions)
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Ratio of expenses before fee waiver (%)
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Ratio of expenses after fee waiver (%)
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Ratio of net investment income (loss) (%)
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Portfolio turnover rate (%)
c
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a
Based on average shares outstanding during the period.
b
Total Return would have been lower if certain expenses had not been reimbursed by the Advisor.
c
Portfolio turnover rate does not include securities received or delivered from processing creations or redemptions.
Prospectus
October 1, 2020
|
26
|
Financial Highlights
|
Index Providers and Licenses
J.P. Morgan Chase & Co. is the Index Provider for the fund. J.P. Morgan Chase & Co. is not affiliated with the Trust, the
Advisor, The Bank of New York Mellon, the Distributor or any of their respective affiliates.
The Advisor has entered into a license agreement with J.P. Morgan Chase & Co. to use the Underlying Index. The Advisor
sublicenses rights in the Underlying Index to the Trust at no charge. All license fees are paid by the Advisor out of its own
resources and not the assets of the fund.
Disclaimers
The Xtrackers J.P. Morgan ESG Emerging Markets Sovereign ETF (the
“
Financial Product
”
) is not in any way sponsored,
sold or promoted by J.P. Morgan Chase & Co and/or any of its affiliates (collectively
“
J.P. Morgan
”
). The index described
herein is a proprietary J.P. Morgan index. J.P. Morgan is not responsible for, nor has it participated in, any aspect of the
structuring of any attribute of the Financial Product, the determination of the timing of the offering of the Financial Product,
the pricing of the Financial Product, or in the manner of operation of the Financial Product. J.P. Morgan has no obligation
or liability in connection with the administration, marketing or trading of the Financial Product. All information provided
herein regarding the J.P. Morgan index (the
“
Index
”
), including without limitation, the levels of the Index, is provided for
informational purposes only. J.P. Morgan does not warrant the completeness or accuracy of the Index and/or the completeness
or accuracy or any other information furnished in connection with the Index. The Index is the exclusive property of
J.P. Morgan and J.P. Morgan retains all property rights therein. Nothing herein constitutes, or forms part of, an offer or
solicitation for the purchase or sale of any financial instrument, including of the Financial Product, or as an official confirmation
of any transaction, or a valuation or price for the Index or the Financial Product. Nothing contained herein shall be
construed as a J.P. Morgan recommendation to adopt any investment strategy or as legal, tax or accounting advice. J.P.
Morgan makes no express or implied representations or warranties with respect to the Index and/or the Financial Product,
including but not limited to regarding the advisability of investing in securities or financial products generally and/or the
Financial Products specifically, or the advisability of the Index to track investment opportunities in the financial markets or
otherwise achieve its objective. J.P. Morgan hereby expressly disclaims all warranties of merchantability or fitness for a
particular purpose with respect to the Index and the Financial Product. J.P. Morgan has no obligation to take the needs of
the issuer or sponsor of any Financial Product, any investor, counterparty or any other party into consideration in determining,
composing or calculating the J.P. Morgan indexes. J.P. Morgan is not responsible for nor has participated in the
determination of the timing of, prices at, or quantities of this Financial Product or in the determination or calculation of the
equation by or the consideration into which this Financial Product is redeemable. Without limiting any of the foregoing,
in no event shall J.P. Morgan have any liability for any direct, indirect, special, punitive, consequential or any other damages
(including lost profits) to any person, including but not limited to, for any statements contained in any offering document
or any other materials used to describe the Index and/or the Financial Product, any error in the pricing or otherwise, of the
Index and/or the Financial Product and J.P. Morgan shall not be under any obligation to advise any person of any error
therein.
The Index may not be copied, used, or distributed without J.P. Morgan’s prior written approval. J.P. Morgan and the J.P.
Morgan index names are service mark(s) of J.P. Morgan or its affiliates and have been licensed for use for certain purposes
by DBX Advisors LLC. No purchaser, seller or holder of this security, product or fund, or any other person or entity, should
use or refer to any J.P. Morgan trade name, trademark or service mark to sponsor, endorse, market or promote this Financial
Product or any other financial product without first contacting J.P. Morgan to determine whether J.P. Morgan’s
permission is required. Under no circumstances may any person or entity claim any affiliation with J.P. Morgan without
the prior written permission of J.P. Morgan. Information has been obtained from sources believed to be reliable but J.P.
Morgan does not warrant its completeness or accuracy. Copyright 2020, J.P. Morgan Chase & Co. All rights reserved.
Prospectus
October 1, 2020
|
27
|
Appendix
|
Shares of the fund are not sponsored, endorsed or promoted by Cboe BZX Exchange, Inc. (
“
Cboe
”
). Cboe makes no representation
or warranty, express or implied, to the owners of the shares of the fund or any member of the public regarding
the ability of the fund to track the total return performance of the J.P. Morgan ESG EMBI Global Diversified Sovereign
Index (an
“
Underlying Index
”
) or the ability of the Underlying Index to track stock market performance. Cboe is not responsible
for, nor has it participated in, the determination of the compilation or the calculation of the Underlying Index, nor in
the determination of the timing of, prices of, or quantities of shares of the fund to be issued, nor in the determination or
calculation of the equation by which the shares are redeemable. Cboe has no obligation or liability to owners of the shares
of the fund in connection with the administration, marketing or trading of the shares of the fund.
Cboe does not guarantee the accuracy and/ or the completeness of the Underlying Index or any data included therein.
Cboe makes no warranty, express or implied, as to results to be obtained by the Trust on behalf of the fund as licensee,
licensee’s customers and counterparties, owners of the shares of the fund, or any other person or entity from the use of
the subject index or any data included therein in connection with the rights licensed as described herein or for any other
use. Cboe makes no express or implied warranties and hereby expressly disclaims all warranties of merchantability or
fitness for a particular purpose with respect to the Underlying Index or any data included therein. Without limiting any of
the foregoing, in no event shall Cboe have any liability for any direct, indirect, special, punitive, consequential or any other
damages (including lost profits) even if notified of the possibility of such damages.
The Advisor does not guarantee the accuracy or the completeness of the Underlying Index or any data included therein
and the Advisor shall have no liability for any errors, omissions or interruptions therein.
The Advisor makes no warranty, express or implied, to the owners of shares of the fund or to any other person or entity,
as to results to be obtained by the fund from the use of the Underlying Index or any data included therein. The Advisor
makes no express or implied warranties and expressly disclaims all warranties of merchantability or fitness for a particular
purpose or use with respect to the Underlying Index or any data included therein. Without limiting any of the foregoing,
in no event shall the Advisor have any liability for any special, punitive, direct, indirect or consequential damages (including
lost profits), even if notified of the possibility of such damages.
Prospectus
October 1, 2020
|
28
|
Appendix
|
FOR MORE INFORMATION:
XTRACKERS.COM
1-855-329-3837 (1-855-DBX-ETFS)
Copies of the prospectus, SAI and recent shareholder
reports, when available, can be found on our website at
Xtrackers.com. For more information about the fund, you
may request a copy of the SAI. The SAI provides detailed
information about the fund and is incorporated by reference
into this prospectus. This means that the SAI, for
legal purposes, is a part of this prospectus.
If you have any questions about the Trust or shares of the
fund or you wish to obtain the SAI or shareholder report
free of charge, please:
|
1-855-329-3837 or 1-855-DBX-ETFS
(toll free) Monday through Friday
8:30 a.m. to 6:30 p.m. (Eastern time)
E-mail: dbxquestions@list.db.com
|
|
DBX ETF Trust
c/o ALPS Distributors, Inc.
1290 Broadway, Suite 1000
Denver, Colorado 80203
|
Information about the fund (including the SAI), reports and
other information about the fund are available on the
EDGAR Database on the SEC’s website at sec.gov, and
copies of this information may be obtained, after paying a
duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov.
Householding is an option available to certain fund investors.
Householding is a method of delivery, based on the
preference of the individual investor, in which a single copy
of certain shareholder documents can be delivered to investors
who share the same address, even if their accounts
are registered under different names. Please contact your
broker-dealer if you are interested in enrolling in
householding and receiving a single copy of prospectuses
and other shareholder documents, or if you are currently
enrolled in householding and wish to change your
householding status.
No person is authorized to give any information or to make
any representations about the fund and their shares not
contained in this prospectus and you should not rely on
any other information. Read and keep the prospectus for
future reference.
Investment Company Act File No.: 811-22487
Prospectus
October 1, 2020
Xtrackers Municipal Infrastructure Revenue Bond ETF
|
|
The Securities and Exchange Commission (
“
SEC
”
) has not approved or disapproved these securities or passed
upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
Your investment in the fund is not a bank deposit and is not insured or guaranteed by the
Federal Deposit Insurance Corporation or any other government agency, entity or person.
Xtrackers Municipal Infrastructure Revenue Bond ETF
|
Stock Exchange: NYSE Arca, Inc.
|
Investment Objective
The Xtrackers Municipal Infrastructure Revenue Bond ETF
(the
“
fund
”
) seeks investment results that correspond
generally to the performance, before fees and expenses,
of the Solactive Municipal Infrastructure Revenue Bond
Index (the
“
Underlying Index
”
).
Fees and Expenses
These are the fees and expenses that you will pay when
you buy, hold and sell shares.
You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below.
ANNUAL FUND OPERATING EXPENSES(expenses that you pay each year as a % of the value of your investment)
|
|
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Total annual fund operating expenses
|
|
EXAMPLE
This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then sell 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 operating expenses remain the same. The Example does not take into account brokerage commissions that you may pay on your purchases and sales of shares of the fund. It also does not include the transaction fees on purchases and redemptions of Creation Units (defined herein), because those fees will not be imposed on retail investors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
PORTFOLIO TURNOVER
The fund pays transaction costs, such as commissions,
when it buys and sells securities (or
“
turns over
”
its portfolio).
A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are
investing in a taxable account. These costs are not
reflected in annual fund operating expenses or in the
expense example, and can affect the fund's performance.
During the most recent fiscal year, the fund’s portfolio turnover
rate was
12
% of the average value of its portfolio.
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track the performance
of the US long-term tax exempt bond market,
consisting of infrastructure revenue bonds. The fund uses
a representative sampling indexing strategy in seeking
to track the Underlying Index, meaning that it will generally
invest in a sample of securities in the index whose risk,
return and other characteristics resemble the risk, return
and other characteristics of the Underlying Index as a
whole. The fund will invest at least 80% of its total assets
(but typically far more) in instruments that comprise the
Underlying Index.
The Underlying Index is comprised of tax-exempt municipal
securities issued by states, cities, counties, districts, their
respective agencies, and other tax-exempt issuers. The
Underlying Index is intended to track bonds that have been
issued with the intention of funding federal, state and local
infrastructure projects, such as water and sewer systems,
public sewer systems, toll roads, bridges, tunnels and
many other public use projects.
Prospectus
October 1, 2020
|
1
|
Xtrackers Municipal Infrastructure Revenue Bond ETF
|
As of July 31, 2020, the Underlying Index consisted of 867
securities with an average amount outstanding of approximately
$104 million and a minimum amount outstanding
of approximately $43 million. The Underlying Index is a
total return index, which assumes that any cash distributions
are reinvested back into the Underlying Index.
The Underlying Index is designed to only hold those bonds
issued by state and local municipalities where the interest
and principal repayments are generated from dedicated
revenue streams or double-barreled entities (whose bonds
are backed by both a dedicated revenue stream and a
general obligation pledge).
The Underlying Index may include private activity bonds,
industrial development bonds, special tax bonds and transportation
bonds.
Private activity bonds are issued by municipalities and
other public authorities to finance development of industrial
facilities for use by a private enterprise. The private
enterprise pays the principal and interest on the bond, and
the issuer does not pledge its full faith, credit and taxing
power for repayment.
Industrial development bonds are a specific type of
revenue bond backed by the credit and security of a private
user and therefore have more potential risk. The interest
from industrial development bonds, when distributed by
the fund as
“
exempt-interest dividends
”
to shareholders,
may be subject to the alternative minimum tax (
“
AMT
”
).
Special tax bonds are payable for and secured by the
revenues derived by a municipality from a particular tax
(e.g., tax on the rental of a hotel room, on the purchase of
food and beverages, on the rental of automobiles or on
the consumption of liquor). Special tax bonds are not
secured by the general tax revenues of the municipality,
and they do not represent general obligations of the
municipality.
Transportation bonds are obligations of issuers that own
and operate public transit systems, ports, highways, turnpikes,
bridges and other transportation systems.
In order to be eligible for inclusion in the Underlying Index,
the municipal securities must be offered publicly; meet a
minimum amount outstanding and deal amount; are
investment-grade; have a fixed-rate coupon payment; and
are not prefunded/escrowed to maturity. Municipal bonds
which are subject to the AMT and state and local taxes are
eligible for inclusion in the Underlying Index. The Underlying
Index does not attempt to achieve a particular
duration (which is a measure of a bond’s sensitivity to
interest rates), but the Underlying Index limits eligibility for
inclusion to municipal securities which have a stated final
maturity of 10 years or longer and are not callable for at
least the next 5 years. Under normal circumstances, the
Underlying Index is reconstituted and rebalanced on a
monthly basis. The fund reconstitutes and rebalances its
portfolio in accordance with the Underlying Index, and,
therefore, any changes to the Underlying Index’s reconstitution
and rebalance schedule will result in corresponding
changes to the fund’s reconstitution and rebalance
schedule.
Under normal circumstances, the fund invests at least
80% of net assets, plus the amount of any borrowings for
investment purposes, in securities issued by municipalities
across the United States and its territories which are
classified as
“
municipal infrastructure revenue
”
bonds
based on the Underlying Index’s criteria summarized
above, whose income is free from regular federal income
tax. Because municipal securities that pay interest subject
to the AMT may be included in the Underlying Index
without limit, the fund may invest an unlimited amount of
its net assets in municipal securities whose income is
subject to the AMT. In addition, the fund will invest at least
80% of its total assets (but typically far more) in instruments
that comprise the Underlying Index.
As of July 31, 2020, the Underlying Index was wholly
comprised of securities of issuers in the United States
(and as of the fund’s fiscal year end, a significant
percentage of the Underlying Index was comprised of
municipal securities of issuers in New York (22.38%) and
California (16.49%).
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated.
To the extent that the fund tracks the Underlying
Index, the fund’s investment in certain sectors may
change over time.
The fund is not sponsored, endorsed, sold or promoted by
Solactive.
Main Risks
As with any investment, you could lose all or part of your investment in the fund, and the fund’s performance could trail that of other investments.
The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective, as
well as numerous other risks that are described in greater
detail in the section of this Prospectus entitled
“
Additional
Information About Fund Strategies, Underlying Index Information
and Risks
”
and in the Statement of Additional
Information (
“
SAI
”
).
Municipal securities risk.
Municipal instruments may be
susceptible to periods of economic stress, which could
affect the market values and marketability of many or all
municipal obligations of issuers in a state, U.S. territory, or
possession. For example, the COVID-19 pandemic has
significantly stressed the financial resources of many
municipal issuers, which may impair a municipal issuer’s
ability to meet its financial obligations when due and could
adversely impact the value of its bonds, which could negatively
impact the performance of the fund. Municipal
Prospectus
October 1, 2020
|
2
|
Xtrackers Municipal Infrastructure Revenue Bond ETF
|
securities are subject to the risk that litigation, legislation
or other political events, local business or economic conditions
or the bankruptcy of the issuer could have a
significant effect on an issuer’s ability to make payments
of principal and/or interest. Certain municipalities may have
difficulty meeting their obligations due to, among other
reasons, changes in underlying demographics. Municipal
securities can be significantly affected by political changes
as well as uncertainties in the municipal market related
to taxation, legislative changes or the rights of municipal
security holders. Because many municipal securities are
issued to finance similar projects, especially those relating
to education, health care, transportation, utilities and
water and sewer, conditions in those sectors can affect
the overall municipal market. In addition, changes in the
financial condition of an individual municipal issuer can
affect the overall municipal market. Municipal securities
may include revenue bonds, which are generally backed by
revenue from a specific project or tax. The issuer of a
revenue bond makes interest and principal payments from
revenues generated from a particular source or facility,
such as a tax on particular property or revenues generated
from a municipal water or sewer utility or an airport.
Revenue bonds generally are not backed by the full faith
and credit and general taxing power of the issuer. The
market for municipal bonds may be less liquid than for
taxable bonds. The value and liquidity of many municipal
securities have decreased as a result of the most recent
financial crisis, which has also adversely affected many
municipal securities issuers and may continue to do so.
There may be less information available on the financial
condition of issuers of municipal securities than for public
corporations.
Fixed income markets risk.
The values of many types of
debt securities have been reduced over a period of many
years since the credit crisis started due to problems
relating to subprime mortgages. These market problems
have also affected debt securities that are not related to
mortgage loans. In addition, broker-dealers and other
market participants have been less willing to make a
market in some types of debt instruments, which has
impacted the liquidity of those instruments. These developments
also have had a negative effect on the broader
economy.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Fixed income securities risk.
Fixed-income securities are
subject to the risk of the issuer’s inability to meet principal
and interest payments on its obligations (i.e., credit
risk) and are subject to price volatility resulting from,
among other things, interest rate sensitivity, market
perception of the creditworthiness of the issuer and
general market liquidity (i.e., market risk). Lower rated
fixed-income securities have greater volatility because
there is less certainty that principal and interest payments
will be made as scheduled. There is a risk that a lack of
liquidity or other adverse credit market conditions may
hamper the fund’s ability to sell the debt securities in
which it invests or to find and purchase debt instruments
included in the Underlying Index.
Private activity bonds risk.
The issuers of private activity
bonds in which the fund may invest may be negatively
impacted by conditions affecting either the general credit
of the user of the private activity project or the project
itself. The fund’s private activity bond holdings also may
pay interest subject to the AMT. See
“
Dividends and Distributions
”
for more details.
Industrial development bond risk.
These revenue bonds
are issued by or on behalf of public authorities to obtain
funds to finance various public and/or privately operated
facilities, including those for business and manufacturing,
housing, sports, pollution control, airport, mass transit,
port and parking facilities. These bonds are normally
Prospectus
October 1, 2020
|
3
|
Xtrackers Municipal Infrastructure Revenue Bond ETF
|
secured only by the revenues from the project and not by
state or local government tax payments. Consequently, the
credit quality of these securities is dependent upon the
ability of the user of the facilities financed by the bonds
and any guarantor to meet its financial obligations.
Payment of interest on and repayment of principal on such
bonds are the responsibility of the user and/or any guarantor.
These bonds are subject to a wide variety of risks,
many of which relate to the nature of the specific project.
Generally, the value and credit quality of these bonds are
sensitive to the risks related to an economic slowdown.
Special tax bond risk.
Special tax bonds are usually
backed and payable through a single tax, or series of
special taxes such as incremental property taxes. The
failure of the tax levy to generate adequate revenue to pay
the debt service on the bonds may cause the value of
the bonds to decline. Adverse conditions and developments
affecting a particular project may result in lower
revenues to the issuer of the municipal securities, which
may adversely affect the value of the fund’s portfolio.
Transportation bond risk.
Transportation bonds may be
issued to finance the construction of airports, toll roads,
highways or other transit facilities. Airport bonds are
dependent on the general stability of the airline industry
and on the stability of a specific carrier who uses the
airport as a hub. Air traffic generally follows broader
economic trends and is also affected by the price and availability
of fuel. Toll road bonds are also affected by the cost
and availability of fuel as well as toll levels, the presence of
competing roads and the general economic health of an
area. Fuel costs and availability also affect other transportation
related securities, as do the presence of alternate
forms of transportation, such as public transportation.
Municipal securities that are issued to finance a particular
transportation project often depend solely on revenues
from that project to make principal and interest payments.
Adverse conditions and developments affecting a
particular project may result in lower revenues to the
issuer of the municipal securities.
Water and sewer bond risk.
Water and sewer revenue
bonds are often considered to have relatively secure credit
as a result of their issuer’s importance, monopoly status
and generally unimpeded ability to raise rates. Despite
this, lack of water supply due to insufficient rain, run off or
snow pack is a concern that has led to past defaults.
Further, public resistance to rate increases, costly environmental
litigation and federal environmental mandates are
challenges faced by issuers of water and sewer bonds.
Interest rate risk.
When interest rates rise, prices of debt
securities generally decline. The longer the duration of
the fund’s debt securities, the more sensitive the fund will
be to interest rate changes. (As a general rule, a 1% rise
in interest rates means a 1% fall in value for every year of
duration.) Recent and potential future changes in monetary
policy made by central banks or governments are likely to
affect the level of interest rates. Rising interest rates may
prompt redemptions from the fund. Although the fund
primarily seeks to redeem shares of the fund on an in-kind
basis, if the fund is forced to sell underlying investments
at reduced prices or under unfavorable conditions to meet
redemption requests or other cash needs, the fund may
suffer a loss. The fund may be subject to a greater risk of
rising interest rates due to the current period of historically
low rates. Certain countries have experienced negative
interest rates on certain debt securities. Negative or very
low interest rates could magnify the risks associated with
changes in interest rates. In general, changing interest
rates, including rates that fall below zero, could have unpredictable
effects on markets and may expose debt and
related markets to heightened volatility. During periods
when interest rates are low or there are negative interest
rates, the fund's yield (and total return) also may be low or
the fund may be unable to maintain positive returns. In
addition, in response to the COVID-19 pandemic, as with
other serious economic disruptions, governmental authorities
and regulators are enacting significant fiscal and
monetary policy changes, including providing direct capital
infusions into companies, creating new monetary
programs and lowering interest rates considerably. These
actions present heightened risks to debt instruments, and
such risks could be even further heightened if these
actions are unexpectedly or suddenly reversed or are ineffective
in achieving their desired outcomes.
Credit risk.
The fund’s performance could be hurt if an
issuer of a debt security suffers an adverse change in financial
condition that results in a payment default, security
downgrade or inability to meet a financial obligation. Credit
risk is greater for lower-rated securities. Because the
issuers of junk bonds may be in uncertain financial health,
the prices of their debt securities could be more vulnerable
to bad economic news, or even the expectation of
bad news, than investment-grade debt securities. Credit
ratings may not be an accurate assessment of credit risk.
Geographic focus risk.
To the extent that the Underlying
Index and the fund are significantly comprised of issuers in
a single state, region or sector of the municipal securities
market, performance can be more volatile than that of a
fund that invests more broadly. As an example, factors
affecting a state, region or sector, such as severe fiscal
difficulties, an economic downturn, court rulings, increased
expenditures on domestic security or reduced monetary
support from the federal government, could over time
impair the ability of a state, region or sector to repay its
obligations.
Risks related to investing in New York.
The fund may
invest a significant portion of its assets in municipal obligations
of issuers located in the State of New York and,
therefore, will have greater exposure to negative political,
economic, regulatory or other factors within the State of
New York, including the financial condition of its public
authorities and political subdivisions, than a fund that
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October 1, 2020
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Xtrackers Municipal Infrastructure Revenue Bond ETF
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invests in a broader base of securities. Unfavorable developments
in any economic sector may have a substantial
impact on the overall New York municipal market. Certain
issuers of New York municipal bonds have experienced
serious financial difficulties in the past and reoccurrence of
these difficulties may impair the ability of certain New York
issuers to pay principal or interest on their obligations.
Risks related to investing in California.
The fund may
invest a significant portion of its assets in municipal obligations
of issuers located in the State of California. While
California’s economy is broad, it does have major concentrations
in high technology, manufacturing, entertainment,
agriculture, tourism, construction and services, and may
be sensitive to economic problems affecting those industries.
Consequently, the fund may be affected by political,
economic, regulatory and other developments within California
and by the financial condition of California’s political
subdivisions, agencies, instrumentalities and public
authorities.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors
of the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Prepayment and extension risk.
When interest rates fall,
issuers of high interest debt obligations may pay off the
debts earlier than expected (prepayment risk), and the
fund may have to reinvest the proceeds at lower yields.
When interest rates rise, issuers of lower interest debt
obligations may pay off the debts later than expected
(extension risk), thus keeping the fund’s assets tied up in
lower interest debt obligations. Ultimately, any unexpected
behavior in interest rates could increase the volatility of
the fund’s share price and yield and could hurt fund performance.
Prepayments could also create capital gains tax
liability in some instances.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in a rising interest rate environment or other circumstances
where redemptions from the fund may be higher
than normal.
Tax risk.
Income from municipal securities held by the
fund could be declared taxable because of unfavorable
changes in tax laws, adverse interpretations by the Internal
Revenue Service or state tax authorities, or noncompliant
conduct of a securities issuer. In addition, because
municipal securities that pay interest subject to the AMT
may be included in the Underlying Index without limit, the
fund may invest an unlimited amount of its net assets in
municipal securities whose income is subject to the AMT.
Further, a portion of the fund’s otherwise exempt-interest
distributions may be taxable to those shareholders subject
to the federal AMT.
Pricing risk.
If market conditions make it difficult to value
some investments, the fund may value these investments
using more subjective methods, such as fair value pricing.
In such cases, the value determined for an investment
could be different from the value realized upon such investment’s
sale. As a result, you could pay more than the
market value when buying fund shares or receive less than
the market value when selling fund shares.
Issuer-specific risk.
The value of an individual security or
particular type of security may be more volatile than the
market as a whole and may perform differently from the
value of the market as a whole.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
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October 1, 2020
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Xtrackers Municipal Infrastructure Revenue Bond ETF
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stated methodology may occur from time to time and may
not be identified and corrected by the index provider for
a period of time or at all, which may have an adverse
impact on the fund and its shareholders. The Advisor and
its affiliates do not provide any warranty or guarantee
against such errors. Therefore, the gains, losses or costs
associated with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
the NAV during periods of market volatility. The Advisor
cannot predict whether shares will trade above, below or
at their NAV. Given the fact that shares can be created and
redeemed in Creation Units (defined below), the Advisor
believes that large discounts or premiums to the NAV of
shares should not be sustained in the long-term. If market
makers exit the business or are unable to continue making
markets in fund shares, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market). Further, while the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in market prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. In addition, the securities held by the fund
may be traded in markets that close at a different time
than the exchange on which the fund’s shares trade.
Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time
when the exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. Further, secondary markets may be subject
to irregular trading activity, wide bid-ask spreads and
extended trade settlement periods, which could cause a
material decline in the fund’s NAV. The fund’s investment
results are measured based upon the daily NAV of the
fund. Investors purchasing and selling shares in the
secondary market may not experience investment results
consistent with those experienced by those APs creating
and redeeming shares directly with the fund.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
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October 1, 2020
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Xtrackers Municipal Infrastructure Revenue Bond ETF
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cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Past Performance
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund’s performance from year to year and by showing how the fund’s average annual returns compare with those
of the Underlying Index and a broad measure of market performance.
The fund’s past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future.
Updated performance information
is available on the fund’s website at
Xtrackers.com
(the website does not form a part of this prospectus).
CALENDAR YEAR TOTAL RETURNS(%)
Average Annual Total Returns(For periods ended 12/31/2019 expressed as a %)
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax. Your own actual after-tax returns will depend on your tax situation and may differ from what is shown here. After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts (“IRAs”) or employee-sponsored retirement plans.
|
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After tax on distribu-
tions
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After tax on distribu-
tions and sale of fund
shares
|
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Solactive Municipal
Infrastructure Revenue
Bond Index
(reflects no
deductions for fees,
expenses or taxes)
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S&P Municipal Bond
Revenue Index
(reflects
no deductions for fees,
expenses or taxes)
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Management
Investment Advisor
DBX Advisors LLC
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October 1, 2020
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Xtrackers Municipal Infrastructure Revenue Bond ETF
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Portfolio Managers
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2017.
Brandon Matsui, CFA, Director.
Portfolio Manager of the
fund. Began managing the fund in 2017.
Tanuj Dora, Vice President.
Portfolio Manager of the fund.
Began managing the fund in 2017.
Alexander Bridgeforth, Assistant Vice President.
Portfolio
Manager of the fund. Began managing the fund in
2017.
Purchase and Sale of Fund Shares
The fund is an exchange-traded fund (commonly referred
to as an
“
ETF
”
). Individual fund shares may only be
purchased and sold through a brokerage firm. The price of
fund shares is based on market price, and because ETF
shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than
NAV (a discount). The fund will only issue or redeem
shares that have been aggregated into blocks of 50,000
shares or multiples thereof (
“
Creation Units
”
) to APs who
have entered into agreements with ALPS Distributors,
Inc., the fund’s distributor. You may incur costs attributable
to the difference between the highest price a buyer is
willing to pay to purchase shares of the fund (bid) and the
lowest price a seller is willing to accept for shares of the
fund (ask) when buying or selling shares (the
“
bid-ask
spread
”
). Information on the fund’s net asset value, market
price, premiums and discounts and bid-ask spreads may
be found at Xtrackers.com.
Tax Information
The fund intends to meet certain federal income tax
requirements so that distributions of tax-exempt interest
income will be treated as
“
exempt-interest dividends.
”
These dividends are not subject to regular federal income
tax. The fund may invest an unlimited amount of its net
assets in municipal securities that generate interest
income subject to the AMT for individuals. All exempt
interest dividends may increase certain shareholders’ AMT.
The fund expects that its distributions will consist primarily
of exempt-interest dividends. The fund’s exempt-interest
dividends may be subject to state and local taxes.
For more information regarding the tax consequences that
may be associated with investing in the fund, please refer
to the section of this Prospectus entitled
“
Taxes.
”
Payments to Broker-Dealers and
Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer
or other financial intermediary (such as a bank), the
Advisor or other related companies may pay the intermediary
for marketing activities and presentations,
educational training programs, the support of technology
platforms and/or reporting systems or other services
related to the sale or promotion of the fund. These
payments may create a conflict of interest by influencing
the broker-dealer or other intermediary and your salesperson
to recommend the fund over another investment.
Ask your salesperson or visit your financial intermediary’s
website for more information.
Prospectus
October 1, 2020
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Xtrackers Municipal Infrastructure Revenue Bond ETF
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Additional Information About Fund
Strategies, Underlying Index
Information and Risks
Investment Objective
The Xtrackers Municipal Infrastructure Revenue Bond ETF
(the
“
fund
”
) seeks investment results that correspond
generally to the performance, before fees and expenses,
of the Solactive Municipal Infrastructure Revenue Bond
Index (the
“
Underlying Index
”
).
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track the performance
of the US long-term tax exempt bond market,
consisting of infrastructure revenue bonds. The fund uses
a representative sampling indexing strategy in seeking
to track the Underlying Index, meaning that it will generally
invest in a sample of securities in the index whose risk,
return and other characteristics resemble the risk, return
and other characteristics of the Underlying Index as a
whole. The fund will invest at least 80% of its total assets
(but typically far more) in instruments that comprise the
Underlying Index.
The Underlying Index is comprised of tax-exempt municipal
securities issued by states, cities, counties, districts, their
respective agencies, and other tax-exempt issuers. The
Underlying Index is intended to track bonds that have been
issued with the intention of funding federal, state and local
infrastructure projects, such as water and sewer systems,
public sewer systems, toll roads, bridges, tunnels and
many other public use projects.
As of July 31, 2020, the Underlying Index consisted of 867
securities with an average amount outstanding of approximately
$104 million and a minimum amount outstanding
of approximately $43 million. The Underlying Index is a
total return index, which assumes that any cash distributions
are reinvested back into the Underlying Index.
The Underlying Index is designed to only hold those bonds
issued by state and local municipalities where the interest
and principal repayments are generated from dedicated
revenue streams or double-barreled entities (whose bonds
are backed by both a dedicated revenue stream and a
general obligation pledge).
The Underlying Index may include private activity bonds,
industrial development bonds, special tax bonds and transportation
bonds.
Private activity bonds are issued by municipalities and
other public authorities to finance development of industrial
facilities for use by a private enterprise. The private
enterprise pays the principal and interest on the bond, and
the issuer does not pledge its full faith, credit and taxing
power for repayment.
Industrial development bonds are a specific type of
revenue bond backed by the credit and security of a private
user and therefore have more potential risk. The interest
from industrial development bonds, when distributed by
the fund as
“
exempt-interest dividends
”
to shareholders,
may be subject to the alternative minimum tax (
“
AMT
”
).
Special tax bonds are payable for and secured by the
revenues derived by a municipality from a particular tax
(e.g., tax on the rental of a hotel room, on the purchase of
food and beverages, on the rental of automobiles or on
the consumption of liquor). Special tax bonds are not
secured by the general tax revenues of the municipality,
and they do not represent general obligations of the
municipality.
Transportation bonds are obligations of issuers that own
and operate public transit systems, ports, highways, turnpikes,
bridges and other transportation systems.
In order to be eligible for inclusion in the Underlying Index,
the municipal securities must be offered publicly; meet a
minimum amount outstanding and deal amount; are
investment-grade; have a fixed-rate coupon payment; and
are not prefunded/escrowed to maturity. Municipal bonds
which are subject to the AMT and state and local taxes are
eligible for inclusion in the Underlying Index. The Underlying
Index does not attempt to achieve a particular
duration (which is a measure of a bond’s sensitivity to
interest rates), but the Underlying Index limits eligibility for
inclusion to municipal securities which have a stated final
maturity of 10 years or longer and are not callable for at
least the next 5 years. Under normal circumstances, the
Underlying Index is reconstituted and rebalanced on a
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October 1, 2020
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Fund Details
|
monthly basis. The fund reconstitutes and rebalances its
portfolio in accordance with the Underlying Index, and,
therefore, any changes to the Underlying Index’s reconstitution
and rebalance schedule will result in corresponding
changes to the fund’s reconstitution and rebalance
schedule.
Under normal circumstances, the fund invests at least
80% of net assets, plus the amount of any borrowings for
investment purposes, in securities issued by municipalities
across the United States and its territories which are
classified as
“
municipal infrastructure revenue
”
bonds
based on the Underlying Index’s criteria summarized
above, whose income is free from regular federal income
tax. Because municipal securities that pay interest subject
to the AMT may be included in the Underlying Index
without limit, the fund may invest an unlimited amount of
its net assets in municipal securities whose income is
subject to the AMT. In addition, the fund will invest at least
80% of its total assets (but typically far more) in instruments
that comprise the Underlying Index.
As of July 31, 2020, the Underlying Index was wholly
comprised of securities of issuers in the United States
(and as of the fund’s fiscal year end, a significant
percentage of the Underlying Index was comprised of
municipal securities of issuers in New York (22.38%) and
California (16.49%).
The fund will concentrate its investments (i.e., hold 25%
or more of its total assets) in a particular industry or group
of industries to the extent that its Underlying Index is
concentrated.
To the extent that the fund tracks the Underlying
Index, the fund’s investment in certain sectors may
change over time.
The fund is not sponsored, endorsed, sold or promoted by
Solactive.
Underlying Index Information
Solactive Municipal Infrastructure Revenue Bond Index
The Solactive Municipal Infrastructure Revenue Bond
Index is maintained by Solactive and is administered and
calculated by Solactive.
Index Description.
The Solactive Municipal Infrastructure
Revenue Bond Index is designed to track the returns of the
segment of the U.S. long term tax-exempt bond market,
consisting of infrastructure revenue bonds. The Solactive
Municipal Infrastructure Revenue Bond Index is comprised
of tax-exempt municipal securities issued by states, cities,
counties, districts, their respective agencies and other
tax-exempt issuers. The Solactive Municipal Infrastructure
Revenue Bond Index is intended to track bonds that have
been issued with the intention of funding federal, state
and local infrastructure projects such as water and sewer
systems, public power systems, toll roads, bridges,
tunnels, and many other public use projects.
As of July 31, 2020, the Solactive Municipal Infrastructure
Revenue Bond Index consisted of 867 securities with an
average amount outstanding of approximately $104 million
and a minimum amount outstanding of approximately $43
million. The Solactive Municipal Infrastructure Revenue
Bond Index is designed to hold only those bonds issued by
state and local municipalities where the interest and principal
repayments are generated from dedicated revenue
streams or double-barreled entities (whose bonds are
backed by both a dedicated revenue stream and a general
obligation pledge).
The universe of municipal securities eligible for inclusion in
the Solactive Municipal Infrastructure Revenue Bond Index
are those municipal bonds that fulfill the following
conditions:
■
Subject to a public offering;
■
Amount outstanding of each bond must be at least $40
million where, subject to the following additional conditions:
■
Bonds with an amount outstanding of less than $100
million may only be included if they are issued after
January 1, 2012.
■
Bonds with an amount outstanding of more than $100
million may be included regardless of issue date.
■
Deal size of at least $100 million;
■
Federal tax free (bonds subject to the AMT and state
and local taxes) may be included in the Solactive
Municipal Infrastructure Revenue Bond Index without
limit;
■
Investment-grade rating by either Standard & Poor’s
Ratings Group or Moody’s Investors Service, Inc.;
■
Fixed-rate coupon payment (zero coupon bonds may not
be included in the Solactive Municipal Infrastructure
Revenue Bond Index);
■
Bonds must not be pre-refunded / escrowed to maturity;
■
Time to maturity must be at least 10 years or longer;
■
Callable securities must not be callable within the next 5
years (the next call date must not lie in the next 5 years);
■
Purpose of the bond proceeds must be for one of the
following areas:
■
Transportation (airports, seaports, bridges, toll roads,
tunnels, parking facilities, or similar)
■
Recreation (convention centers, stadiums, sports
complexes, or similar)
■
Utility (electric public power, water/sewer, sanitation, or
similar)
■
Industrial Economic Development (solid waste recovery,
malls, shopping centers, or similar)
■
The following industries are excluded: higher education,
pollution control, housing, healthcare and tobacco;
■
Proceeds of debt must be used for infrastructure
purposes and principal and interest repayment must
come from a pledged revenue source (e.g. tolls, sales
tax, registration fees, user fees) or a double-barreled
revenue stream (pledged revenue stream and a general
obligation pledge);
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■
Municipal bonds, which are paid back solely using a
general obligation pledge or an appropriation, may not
be included;
■
Municipal bonds from Puerto Rico which are classified
as
“
Sales Tax
”
may not be included; and
■
Municipal bonds where the obligor is a corporation may
not be included.
All municipal bonds which meet the above requirements
are included in the Underlying Index. The Underlying Index
is rebalanced on the last business day of each month.
Newly issued municipal bonds which meet the requirements
are generally added to the Underlying Index on the
first business day of each month.
Additionally, on the first business day of each month, any
Underlying Index components which no longer meet the
above requirements are removed from the Underlying
Index.
During extraordinary market conditions, the Index Provider
may delay any scheduled reconstitution and rebalancing
of the Underlying Index. During any such delay it is
possible that the Underlying Index will deviate from the
Underlying Index’s stated methodology.
Main Risks
As with any investment, you could lose all or part of your
investment in the fund, and the fund’s performance could
trail that of other investments. The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective.
Municipal securities risk.
Municipal instruments may be
susceptible to periods of economic stress, which could
affect the market values and marketability of many or all
municipal obligations of issuers in a state, U.S. territory, or
possession. For example, the COVID-19 pandemic has
significantly stressed the financial resources of many
municipal issuers, which may impair a municipal issuer’s
ability to meet its financial obligations when due and could
adversely impact the value of its bonds, which could negatively
impact the performance of the fund. Municipal
securities are subject to the risk that litigation, legislation
or other political events, local business or economic conditions
or the bankruptcy of the issuer could have a
significant effect on an issuer’s ability to make payments
of principal and/or interest. In addition, there is a risk that,
as a result of the current economic crisis, the ability of any
issuer to pay, when due, the principal or interest on its
municipal bonds may be materially affected. Certain municipalities
may have difficulty meeting their obligations due
to, among other reasons, changes in underlying demographics.
Municipal securities can be significantly affected
by political changes as well as uncertainties in the
municipal market related to taxation, legislative changes or
the rights of municipal security holders. Because many
municipal securities are issued to finance similar projects,
especially those relating to education, health care, transportation,
utilities and water and sewer, conditions in those
sectors can affect the overall municipal market. A number
of municipalities have had significant financial problems
recently, and these and other municipalities could, potentially,
continue to experience significant financial problems
resulting from lower tax revenues and/or decreased aid
from state and local governments in the event of an
economic downturn. This could potentially decrease the
Fund’s income or hurt its ability to preserve capital and
liquidity. In addition, changes in the financial condition of
an individual municipal issuer can affect the overall
municipal market. Municipal securities may include
revenue bonds, which are generally backed by revenue
from a specific project or tax. The issuer of a revenue bond
makes interest and principal payments from revenues
generated from a particular source or facility, such as a tax
on particular property or revenues generated from a
municipal water or sewer utility or an airport. Revenue
bonds generally are not backed by the full faith and credit
and general taxing power of the issuer. Municipal securities
backed by current or anticipated revenues from a
specific project or specific assets can be negatively
affected by the discontinuance of the taxation supporting
the project or assets or the inability to collect revenues for
the project or from the assets due to factors such as lower
property tax collections as a result of lower home values,
lower sales tax revenues as a result of consumers cutting
back spending and lower income tax revenues as a result
of a higher unemployment rate. In addition, since some
municipal obligations may be secured or guaranteed by
banks and other institutions, the risk to the Fund could
increase if the banking or financial sector suffers an
economic downturn and/or if the credit ratings of the institutions
issuing the guarantee are downgraded or at risk
of being downgraded by a national rating organization.
If the Internal Revenue Service (
“
IRS
”
) determines that an
issuer of a municipal security has not complied with applicable
tax requirements, interest from the security could
become taxable and the security could decline significantly
in value. The market for municipal bonds may be less liquid
than for taxable bonds. There may also be less information
available on the financial condition of issuers of municipal
securities than for public corporations. This means that it
may be harder to buy and sell municipal securities, especially
on short notice, and municipal securities may be
more difficult for the Fund to value accurately than securities
of public corporations. Since the Fund invests a
significant portion of its portfolio in municipal securities,
the Fund’s portfolio may have greater exposure to liquidity
risk than a fund that invests in non-municipal securities.
In addition, the value and liquidity of many municipal securities
decreased as a result of the financial crisis, which
has also adversely affected many municipal securities
issuers and may continue to do so. The markets for many
credit instruments, including municipal securities, have
experienced periods of illiquidity and extreme volatility
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since the latter half of 2007. In response to the COVID-19
pandemic and resulting global economic downturn, governmental
cost burdens may be reallocated among federal,
state and local governments. In addition, issuers of
municipal securities may seek protection under the bankruptcy
laws. Many state and local governments that issue
municipal securities are currently under significant
economic and financial stress and may not be able to
satisfy their obligations. The taxing power of any governmental
entity may be limited and an entity’s credit may
depend on factors which are beyond the entity’s control.
Fixed income markets risk.
The values of many types of
debt securities have been reduced over a period of many
years since the credit crisis started due to problems
relating to subprime mortgages. These market problems
have also affected debt securities that are not related to
mortgage loans. In addition, broker-dealers and other
market participants have been less willing to make a
market in some types of debt instruments, which has
impacted the liquidity of those instruments. These developments
also have had a negative effect on the broader
economy. There is a risk that a lack of liquidity or other
adverse credit market conditions may hamper the fund’s
ability to sell the debt securities in which it invests or to
find and purchase the debt instruments included in its
Underlying Index.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Fixed income securities risk.
Fixed-income securities are
subject to the risk of the issuer’s inability to meet principal
and interest payments on its obligations (i.e., credit
risk) and are subject to price volatility resulting from,
among other things, interest rate sensitivity, market
perception of the creditworthiness of the issuer and
general market liquidity (i.e., market risk). Lower rated
fixed-income securities have greater volatility because
there is less certainty that principal and interest payments
will be made as scheduled.
Private activity bonds risk.
The issuers of private activity
bonds in which the fund may invest may be negatively
impacted by conditions affecting either the general credit
of the user of the private activity project or the project
itself. Conditions such as regulatory and environmental
restrictions and economic downturns may lower the need
for these facilities and the ability of users of the project
to pay for the facilities. This could cause a decline in the
fund’s NAV. The fund’s private activity bond holdings also
may pay interest subject to the AMT. See
“
Dividends and
Distributions
”
for more details.
Industrial development bond risk.
These revenue bonds
are issued by or on behalf of public authorities to obtain
funds to finance various public and/or privately operated
facilities, including those for business and manufacturing,
housing, sports, pollution control, airport, mass transit,
port and parking facilities. These bonds are normally
secured only by the revenues from the project and not by
state or local government tax payments. Consequently, the
credit quality of these securities is dependent upon the
ability of the user of the facilities financed by the bonds
and any guarantor to meet its financial obligations.
Payment of interest on and repayment of principal on such
bonds are the responsibility of the user and/or any guarantor.
These bonds are subject to a wide variety of risks,
many of which relate to the nature of the specific project.
Generally, the value and credit quality of these bonds are
sensitive to the risks related to an economic slowdown.
Special tax bond risk.
Special tax bonds are usually
backed and payable through a single tax, or series of
special taxes such as incremental property taxes. The
failure of the tax levy to generate adequate revenue to pay
the debt service on the bonds may cause the value of
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the bonds to decline. Adverse conditions and developments
affecting a particular project may result in lower
revenues to the issuer of the municipal securities, which
may adversely affect the value of the fund’s portfolio.
Transportation bond risk.
Transportation bonds may be
issued to finance the construction of airports, toll roads,
highways or other transit facilities. Airport bonds are
dependent on the general stability of the airline industry
and on the stability of a specific carrier who uses the
airport as a hub. Air traffic generally follows broader
economic trends and is also affected by the price and availability
of fuel. Toll road bonds are also affected by the cost
and availability of fuel as well as toll levels, the presence of
competing roads and the general economic health of an
area. Fuel costs and availability also affect other transportation
related securities, as do the presence of alternate
forms of transportation, such as public transportation.
Municipal securities that are issued to finance a particular
transportation project often depend solely on revenues
from that project to make principal and interest payments.
Adverse conditions and developments affecting a
particular project may result in lower revenues to the
issuer of the municipal securities.
Water and sewer bond risk.
Water and sewer revenue
bonds are often considered to have relatively secure credit
as a result of their issuer’s importance, monopoly status
and generally unimpeded ability to raise rates. Despite
this, lack of water supply due to insufficient rain, run off or
snow pack is a concern that has led to past defaults.
Further, public resistance to rate increases, costly environmental
litigation and federal environmental mandates are
challenges faced by issuers of water and sewer bonds.
Interest rate risk.
When interest rates rise, prices of debt
securities generally decline. The longer the duration of
the fund’s debt securities, the more sensitive the fund will
be to interest rate changes. (As a general rule, a 1% rise
in interest rates means a 1% fall in value for every year of
duration.) Recent and potential future changes in monetary
policy made by central banks or governments are likely to
affect the level of interest rates. Rising interest rates may
prompt redemptions from the fund. Although the fund
primarily seeks to redeem shares of the fund on an in-kind
basis, if the fund is forced to sell underlying investments
at reduced prices or under unfavorable conditions to meet
redemption requests or other cash needs, the fund may
suffer a loss. The fund may be subject to a greater risk of
rising interest rates due to the current period of historically
low rates. Certain countries have experienced negative
interest rates on certain debt securities. Negative or very
low interest rates could magnify the risks associated with
changes in interest rates. In general, changing interest
rates, including rates that fall below zero, could have unpredictable
effects on markets and may expose debt and
related markets to heightened volatility. During periods
when interest rates are low or there are negative interest
rates, the fund's yield (and total return) also may be low or
the fund may be unable to maintain positive returns. In
addition, in response to the COVID-19 pandemic, as with
other serious economic disruptions, governmental authorities
and regulators are enacting significant fiscal and
monetary policy changes, including providing direct capital
infusions into companies, creating new monetary
programs and lowering interest rates considerably. These
actions present heightened risks to debt instruments, and
such risks could be even further heightened if these
actions are unexpectedly or suddenly reversed or are ineffective
in achieving their desired outcomes.
Credit risk.
The fund’s performance could be hurt if an
issuer of a debt security suffers an adverse change in financial
condition that results in a payment default, security
downgrade or inability to meet a financial obligation. Credit
risk is greater for lower-rated securities. Credit ratings may
not be an accurate assessment of credit risk.
Some securities issued by US government agencies or
instrumentalities are backed by the full faith and credit of
the US government. Other securities that are supported
only by the credit of the issuing agency or instrumentality
are subject to greater credit risk than securities backed
by the full faith and credit of the US government. This is
because the US government might provide financial
support, but has no obligation to do so, if there is a potential
or actual loss of principal or failure to make interest
payments.
Because of the rising US government debt burden, it is
possible that the US government may not be able to meet
its financial obligations or that securities issued by the
US government may experience credit downgrades. Such
a credit event may also adversely impact the financial
markets.
For securities that rely on third-party guarantors to support
their credit quality, the same risks may apply if the financial
condition of the guarantor deteriorates or the guarantor
ceases insuring municipal bonds. Because guarantors may
insure many types of bonds, including subprime mortgage
bonds and other high-risk bonds, their financial condition
could deteriorate as a result of events that have little or no
connection to securities owned by the fund.
Geographic focus risk.
To the extent that the Underlying
Index and the fund are significantly comprised of issuers in
a single state, region or sector of the municipal securities
market, performance can be more volatile than that of a
fund that invests more broadly. As an example, factors
affecting a state, region or sector, such as severe fiscal
difficulties, an economic downturn, court rulings, increased
expenditures on domestic security or reduced monetary
support from the federal government, could over time
impair the ability of a state, region or sector to repay its
obligations.
Risks related to investing in New York.
The fund may
invest a significant portion of its assets in New York
municipal bonds and, therefore, will have greater exposure
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to negative political, economic, regulatory or other developments
within the State of New York, including the
financial condition of its public authorities and political
subdivisions, than a fund that invests in a broader base of
securities. Unfavorable developments in any economic
sector may have a substantial impact on the overall New
York municipal market. As the nation’s financial capital,
New York’s and New York City’s economy is heavily dependent
on the financial sector and may be sensitive to
economic problems affecting the sector. New York and
New York City also face a particularly large degree of uncertainty
from interest rate risk and equity market volatility.
The New York and New York City economy tends to be
more sensitive to monetary policy actions and to movements
in the national and world economies than the
economies of other states. Certain issuers of New York
municipal bonds have experienced serious financial difficulties
in the past and reoccurrence of these difficulties may
impair the ability of certain New York issuers to pay principal
or interest on their obligations.
Risks related to investing in California.
The fund may
invest a significant portion of its assets in municipal obligations
of issuers located in the State of California.
Provisions of the California Constitution and state statutes
that limit the taxing and spending authority of California’s
governmental entities may impair the ability of California
issuers to pay principal and/or interest on their obligations.
While California’s economy is broad, it does have major
concentrations in high technology, manufacturing, entertainment,
agriculture, tourism, construction and services,
and may be sensitive to economic problems affecting
those industries. Consequently, the fund may be affected
by political, economic, regulatory and other developments
within California and by the financial condition of California’s
political subdivisions, agencies, instrumentalities and
public authorities.
Any deterioration of California’s fiscal situation could
increase the risk of investing in California municipal securities,
including the risk of potential issuer default, and could
heighten the risk that the prices of California municipal
securities will experience greater volatility. Furthermore,
any such deterioration could result in a downgrade of the
credit rating of an issuer of California municipal securities.
Future downgrades could reduce the market value of the
securities held by the fund.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors
of the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Certain other examples of focus risk in the municipal bond
market are set forth below:
■
Electric utilities bond risk.
The electric utilities industry
has been experiencing, and may continue to experience,
increased competitive pressures. Federal legislation may
open transmission access to any electricity supplier,
although it is not presently known to what extent competition
will evolve. Other risks include: (a) the availability
and cost of fuel; (b) the availability and cost of capital; (c)
the effects of conservation on energy demand; (d) the
effects of rapidly changing environmental, safety and
licensing requirements, and other federal, state and local
regulations; (e) timely and sufficient rate increases and
governmental limitations on rates charged to customers;
(f) the effects of opposition to nuclear power; (g)
increases in operating costs; and (h) obsolescence of
existing equipment, facilities and products.
■
Resource recovery bond risk.
Resource recovery
bonds are a type of revenue bond issued to build facilities
such as solid waste incinerators or waste-to-energy
plants. Typically, a private corporation is involved, at least
during the construction phase, and the revenue stream
is secured by fees or rents paid by municipalities for use
of the facilities. These bonds are normally secured only
by the revenues from the project and not by state or
local government tax receipts. Consequently, the credit
quality of these securities is dependent upon the ability
of the user of the facilities financed by the bonds and
any guarantor to meet its financial obligations. The
viability of a resource recovery project, environmental
protection regulations, and project operator tax incentives
may affect the value and credit quality of resource
recovery bonds.
■
Lease obligations risk.
Lease obligations may have
risks not normally associated with general obligation or
other revenue bonds. Leases and installment purchase
or conditional sale contracts (which may provide for title
to the leased asset to pass eventually to the issuer)
have developed as a means for governmental issuers to
acquire property and equipment without the necessity
of complying with the constitutional statutory requirements
generally applicable for the issuance of debt.
Certain lease obligations contain
“
non-appropriation
”
clauses that provide that the governmental issuer has no
obligation to make future payments under the lease or
contract unless money is appropriated for that purpose
by the appropriate legislative body on an annual or other
periodic basis. Consequently, continued lease payments
on those lease obligations containing
“
non-appropriation
”
clauses are dependent on future
legislative actions. If these legislative actions do not
occur, the holders of the lease obligation may experience
difficulty in exercising their rights, including
disposition of the property.
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■
Municipal bond market risk.
Deteriorating market
conditions might cause a general weakness in the
market that reduces the prices of securities in that
market. Developments in a particular class of debt securities
or the stock market could also adversely affect
the fund by reducing the relative attractiveness of debt
securities as an investment. Also, to the extent that the
fund emphasizes debt securities from any given state
or region, it could be hurt if that state or region does not
do well.
Prepayment and extension risk.
When interest rates fall,
issuers of high interest debt obligations may pay off the
debts earlier than expected (prepayment risk), and the
fund may have to reinvest the proceeds at lower yields.
When interest rates rise, issuers of lower interest debt
obligations may pay off the debts later than expected
(extension risk), thus keeping the fund’s assets tied up in
lower interest debt obligations. Ultimately, any unexpected
behavior in interest rates could increase the volatility of
the fund’s share price and yield and could hurt fund performance.
Prepayments could also create capital gains tax
liability in some instances.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in a rising interest rate environment or other circumstances
where redemptions from the fund may be higher
than normal.
Liquidity risk may result from the lack of an active market
and the reduced number and capacity of traditional market
participants to make a market in fixed income securities.
Liquidity risk also may be magnified in a rising interest rate
environment or other circumstances where investor
redemptions from fixed income mutual funds or ETFs may
be higher than normal, causing increased supply in the
market due to selling activity. It may also be the case that
other market participants may be attempting to liquidate
fixed-income holdings at the same time as the fund,
causing increased supply in the market and contributing to
liquidity risk and downward pricing pressure.
Tax risk.
Income from municipal securities held by the
fund could be declared taxable because of unfavorable
changes in tax laws, adverse interpretations by the Internal
Revenue Service or state tax authorities, or noncompliant
conduct of a securities issuer. In addition, because
municipal securities that pay interest subject to the AMT
may be included in the Underlying Index without limit, the
fund may invest an unlimited amount of its net assets in
municipal securities whose income is subject to the AMT.
Further, a portion of the fund’s otherwise exempt-interest
distributions may be taxable to those shareholders subject
to the federal AMT.
Pricing risk.
If market conditions make it difficult to value
some investments, the fund may value these investments
using more subjective methods, such as fair value pricing.
In such cases, the value determined for an investment
could be different from the value realized upon such investment’s
sale. As a result, you could pay more than the
market value when buying fund shares or receive less than
the market value when selling fund shares.
Secondary markets may be subject to irregular trading
activity, wide bid/ask spreads and extended trade settlement
periods, which may prevent the fund from being able
to realize full value and thus sell a security for its full valuation.
This could cause a material decline in the fund’s net
asset value.
Issuer-specific risk.
The value of an individual security or
particular type of security may be more volatile than the
market as a whole and may perform differently from the
value of the market as a whole.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
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line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Tracking error risk.
The fund may be subject to tracking
error, which is the divergence of the fund’s performance
from that of the Underlying Index. The performance of the
fund may diverge from that of the Underlying Index for a
number of reasons, including operating expenses, transaction
costs, cash flows and operational inefficiencies. The
fund’s return also may diverge from the return of the Underlying
Index because the fund bears the costs and risks
associated with buying and selling securities (especially
when rebalancing the fund’s securities holdings to reflect
changes in the Underlying Index) while such costs and
risks are not factored into the return of the Underlying
Index. Transaction costs, including brokerage costs, will
decrease the fund’s NAV to the extent not offset by the
transaction fee payable by an
“
Authorized Participant
”
(
“
AP
”
). Market disruptions and regulatory restrictions could
have an adverse effect on the fund’s ability to adjust its
exposure in order to track the Underlying Index. To the
extent that portfolio management uses a representative
sampling approach (investing in a representative selection
of securities included in the Underlying Index rather than
all securities in the Underlying Index), such approach may
cause the fund’s return to not be as well correlated with
the return of the Underlying Index as would be the case if
the fund purchased all of the securities in the Underlying
Index in the proportions represented in the Underlying
Index. In addition, the fund may not be able to invest in
certain securities included in the Underlying Index, or
invest in them in the exact proportions in which they are
represented in the Underlying Index, due to government
imposed legal restrictions or limitations, a lack of liquidity
in the markets in which such securities trade, potential
adverse tax consequences or other regulatory reasons. To
the extent the fund calculates its net asset value based
on fair value prices and the value of the Underlying Index
is based on market prices (i.e., the value of the Underlying
Index is not based on fair value prices), the fund’s ability
to track the Underlying Index may be adversely affected.
Tracking error risk may be higher for funds that track a
foreign index, or an index that includes foreign securities,
because regulatory and reporting requirements may differ
from those in the US, and there is a heightened risk associated
with limited availability and reliability of data used to
construct the index. Tracking error risk may also be heightened
during times of increased market volatility or other
unusual market conditions. For tax efficiency purposes, the
fund may sell certain securities, and such sale may cause
the fund to realize a loss and deviate from the performance
of the Underlying Index. In light of the factors discussed
above, the fund’s return may deviate significantly from the
return of the Underlying Index.
The need to comply with the tax diversification and other
requirements of the Internal Revenue Code of 1986, as
amended, may also impact the fund’s ability to replicate
the performance of the Underlying Index. In addition, if the
fund utilizes derivative instruments or holds other instruments
that are not included in the Underlying Index, the
fund’s return may not correlate as well with the returns of
the Underlying Index as would be the case if the fund
purchased all the securities in the Underlying Index
directly. Actions taken in response to proposed corporate
actions could result in increased tracking error.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
NAV during periods of market volatility. Differences
between secondary market prices and the value of the
fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the
same forces as those influencing prices for securities held
by the fund at a particular time. The Advisor cannot predict
whether shares will trade above, below or at their NAV.
Given the fact that shares can be created and redeemed in
Creation Units, the Advisor believes that large discounts
or premiums to the NAV of shares should not be sustained
in the long-term. In addition, there may be times when
the market price and the value of the fund’s holdings vary
significantly and you may pay more than the value of the
fund’s holdings when buying shares on the secondary
market, and you may receive less than the value of the
fund’s holdings when you sell those shares. While the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in trading prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. If market makers exit the business or are
unable to continue making markets in fund’s shares,
shares may trade at a discount to NAV like closed-end fund
shares and may even face delisting (that is, investors
would no longer be able to trade shares in the secondary
market). The market price of shares, like the price of any
exchange-traded security, includes a
“
bid-ask spread
”
charged by the exchange specialist, market makers or
other participants that trade the particular security. In times
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of severe market disruption, the bid-ask spread often
increases significantly. This means that shares may trade
at a discount to the fund’s NAV, and the discount is likely to
be greatest when the price of shares is falling fastest,
which may be the time that you most want to sell your
shares. There are various methods by which investors can
purchase and sell shares of the funds and various orders
that may be placed. Investors should consult their financial
intermediary before purchasing or selling shares of the
fund.
In addition, the securities held by the fund may be traded
in markets that close at a different time than an exchange.
Liquidity in those securities may be reduced after the applicable
closing times. Accordingly, during the time when an
exchange is open but after the applicable market closing,
fixing or settlement times, bid-ask spreads and the
resulting premium or discount to the shares’ NAV is likely
to widen. More generally, secondary markets may be
subject to irregular trading activity, wide bid-ask spreads
and extended trade settlement periods, which could cause
a material decline in the fund’s NAV. The bid-ask spread
varies over time for shares of the fund based on the fund’s
trading volume and market liquidity, and is generally lower
if the fund has substantial trading volume and market
liquidity, and higher if the fund has little trading volume and
market liquidity (which is often the case for funds that are
newly launched or small in size). The fund’s bid-ask spread
may also be impacted by the liquidity of the underlying
securities held by the fund, particularly for newly launched
or smaller funds or in instances of significant volatility of
the underlying securities. The fund’s investment results are
measured based upon the daily NAV of the fund. Investors
purchasing and selling shares in the secondary market
may not experience investment results consistent with
those experienced by those APs creating and redeeming
shares directly with the fund. In addition, transactions by
large shareholders may account for a large percentage of
the trading volume on an exchange and may, therefore,
have a material effect on the market price of the fund’s
shares.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Cyber-attacks may include unauthorized attempts by third
parties to improperly access, modify, disrupt the operations
of, or prevent access to the systems of the fund’s
service providers or counterparties, issuers of securities
held by the fund or other market participants or data within
them. In addition, power or communications outages, acts
of god, information technology equipment malfunctions,
operational errors, and inaccuracies within software or data
processing systems may also disrupt business operations
or impact critical data.
Cyber-attacks, disruptions, or failures may adversely affect
the fund and its shareholders or cause reputational
damage and subject the fund to regulatory fines, litigation
costs, penalties or financial losses, reimbursement or
other compensation costs, and/or additional compliance
costs. In addition, cyber-attacks, disruptions, or failures
involving a fund counterparty could affect such
counterparty’s ability to meet its obligations to the fund,
which may result in losses to the fund and its shareholders.
Similar types of operational and technology risks
are also present for issuers of securities held by the fund,
which could have material adverse consequences for such
issuers, and may cause the fund’s investments to lose
value. Furthermore, as a result of cyber-attacks, disruptions,
or failures, an exchange or market may close or issue
trading halts on specific securities or the entire market,
which may result in the fund being, among other things,
unable to buy or sell certain securities or financial instruments
or unable to accurately price its investments.
For example, the fund relies on various sources to calculate
its NAV. Therefore, the fund is subject to certain
operational risks associated with reliance on third party
service providers and data sources. NAV calculation may
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be impacted by operational risks arising from factors such
as failures in systems and technology. Such failures may
result in delays in the calculation of the fund’s NAV and/or
the inability to calculate NAV over extended time periods.
The fund may be unable to recover any losses associated
with such failures.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Other Policies and Risks
While the previous pages describe the main points of the
fund’s strategy and risks, there are a few other matters
to know about:
■
The policy of investing at least 80% of net assets, plus
the amount of any borrowings for investment purposes,
in securities issued by municipalities across the United
States and its territories which are classified as
“
municipal infrastructure revenue
”
bonds based on the
Underlying Index’s criteria, whose income is free from
regular federal income tax, is a fundamental policy and
cannot be changed without shareholder approval.
Certain other fundamental policies of the fund are set
forth in the SAI. Each of the fund’s other policies
described herein, including the investment objective,
constitutes a non-fundamental policy that may be
changed by the Board without shareholder approval.
■
Because the fund seeks to track its Underlying Index,
the fund does not invest defensively and the fund will
not invest in money market instruments or other short-
term investments as part of a temporary defensive
strategy to protect against potential market declines.
■
The fund may borrow money from a bank up to a limit of
10% of the value of its assets, but only for temporary
or emergency purposes.
■
From time to time a third party, the Advisor and/or its
affiliates may invest in the fund and hold its investment
for a specific period of time in order for the fund to
achieve size or scale. There can be no assurance that
any such entity would not redeem its investment or that
the size of the fund would be maintained at such levels.
In order to comply with applicable law, it is possible that
the Advisor or its affiliates, to the extent they are
invested in the fund, may be required to redeem some
or all of their ownership interests in the fund prematurely
or at an inopportune time.
■
Secondary market trading in fund shares may be halted
by a stock exchange because of market conditions or
other reasons. In addition, trading in fund shares on a
stock exchange or in any market may be subject to
trading halts caused by extraordinary market volatility
pursuant to
“
circuit breaker
”
rules on the exchange or
market. If a trading halt or unanticipated early closing of
a stock exchange occurs, a shareholder may be unable
to purchase or sell shares of the fund. There can be no
assurance that the requirements necessary to maintain
the listing or trading of fund shares will continue to be
met or will remain unchanged or that shares will trade
with any volume, or at all, in any secondary market. As
with all other exchange traded securities, shares may be
sold short and may experience increased volatility and
price decreases associated with such trading activity.
■
From time to time, the fund may have a concentration of
shareholder accounts holding a significant percentage
of shares outstanding. Investment activities of these
shareholders could have a material impact on the fund.
For example, the fund may be used as an underlying
investment for other registered investment companies.
Portfolio Holdings Information
A description of DBX ETF Trust’s (
“
Trust
”
) policies and
procedures with respect to the disclosure of the fund’s
portfolio securities is available in the fund’s SAI. The top
holdings of the fund can be found at Xtrackers.com. Fund
fact sheets provide information regarding the fund’s top
holdings and may be requested by calling 1-855-329-3837
(1-855-DBX-ETFS).
Who Manages and Oversees the Fund
The Investment Advisor
DBX Advisors LLC (
“
Advisor
”
), with headquarters at 875
Third Avenue, New York, NY 10022, is the investment
advisor for the fund. Under the oversight of the Board, the
Advisor makes the investment decisions, buys and sells
securities for the fund and conducts research that leads to
these purchase and sale decisions.
The Advisor is an indirect, wholly-owned subsidiary of
DWS Group GmbH & Co. KGaA (
“
DWS Group
”
), a separate,
publicly-listed financial services firm that is an
indirect, majority-owned subsidiary of Deutsche Bank AG.
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Founded in 2010, the Advisor managed approximately
$17.3 billion in 33 operational exchange-traded funds, as of
August 31, 2020.
DWS represents the asset management activities
conducted by DWS Group or any of its subsidiaries,
including the Advisor and other affiliated investment
advisors.
DWS is a global organization that offers a wide range of
investing expertise and resources, including hundreds of
portfolio managers and analysts and an office network that
reaches the world’s major investment centers. This well-
resourced global investment platform brings together a
wide variety of experience and investment insight across
industries, regions, asset classes and investing styles.
The Advisor may utilize the resources of its global investment
platform to provide investment management
services through branch offices or affiliates located outside
the US. In some cases, the Advisor may also utilize its
branch offices or affiliates located in the US or outside the
US to perform certain services, such as trade execution,
trade matching and settlement, or various administrative,
back-office or other services. To the extent services are
performed outside the US, such activity may be subject to
both US and foreign regulation. It is possible that the jurisdiction
in which the Advisor or its affiliate performs such
services may impose restrictions or limitations on portfolio
transactions that are different from, and in addition to,
those in the US.
Management Fee.
Under the Investment Advisory Agreement,
the Advisor is responsible for substantially all
expenses of the fund, including the cost of transfer
agency, custody, fund administration, compensation paid
to the Independent Board Members, legal, audit and other
services, except for the fee payments to the Advisor under
the Investment Advisory Agreement (also known as a
“
unitary advisory fee
”
), interest expense, acquired fund
fees and expenses, taxes, brokerage expenses, distribution
fees or expenses (if any), litigation expenses and other
extraordinary expenses.
For its services to the fund, during the most recent fiscal
year, the Advisor received aggregate unitary advisory fees
at the following annual rates as a percentage of the fund’s
average daily net assets.
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Xtrackers Municipal Infrastruc-
ture Revenue Bond ETF
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A discussion regarding the basis for the Board's approval
of the fund’s Investment Advisory Agreement is contained
in the most recent annual report for the annual period
ended May 31. For information on how to obtain shareholder
reports, see the back cover.
Multi-Manager Structure.
The Advisor and the Trust may
rely on an exemptive order (the
“
Order
”
) from the SEC that
permits the Advisor to enter into investment sub-advisory
agreements with unaffiliated and affiliated subadvisors
without obtaining shareholder approval. The Advisor,
subject to the review and approval of the Board, selects
subadvisors for the fund and supervises, monitors and
evaluates the performance of the subadvisor.
The Order also permits the Advisor, subject to the approval
of the Board, to replace subadvisors and amend investment
subadvisory agreements, including fees, without
shareholder approval whenever the Advisor and the Board
believe such action will benefit the fund and its shareholders.
The Advisor thus has the ultimate responsibility
(subject to the ultimate oversight of the Board) to recommend
the hiring and replacement of subadvisors as well as
the discretion to terminate any subadvisor and reallocate
the fund’s assets for management among any other
subadvisor(s) and itself. This means that the Advisor is able
to reduce the subadvisory fees and retain a larger portion
of the management fee, or increase the subadvisory fees
and retain a smaller portion of the management fee.
Pursuant to the Order, the Advisor is not required to
disclose its contractual fee arrangements with any
subadvisor. The Advisor compensates the subadvisor out
of its management fee.
Management
The following Portfolio Managers are primarily responsible
for the day-to-day management of the fund. Each Portfolio
Manager functions as a member of a portfolio
management team.
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2017.
■
Joined DWS in 2011 with 11 years of industry experience.
Prior to joining DWS, he worked in ETF
management at XShares Advisors, an ETF issuer based
in New York, and before that he served as an equity
analyst for Fairhaven Capital LLC, a long/short equity
fund.
■
Head of Passive Portfolio Management, Americas: New
York.
■
BS in Finance, Boston College.
Brandon Matsui, CFA, Director.
Portfolio Manager of the
fund. Began managing the fund in 2017.
■
Joined DWS in 2011 with 12 years of industry experience.
Prior to joining DWS, he was a relationship
manager in the Portfolio Analytics Group at BlackRock
Solutions. Previously, he managed overlay accounts at
BNY Mellon Beta Management, and was a senior portfolio
manager for fixed income ETFs and mutual funds at
Charles Schwab Investment Management.
■
Fixed Income Portfolio Manager, Passive Asset Management:
New York.
■
BS in History, University of California, Irvine; MBA in
Finance, University of Hawaii; Financial Risk Certification
holder.
Tanuj Dora, Vice President.
Portfolio Manager of the fund.
Began managing the fund in 2017.
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■
Joined DWS in 2010. Prior to his current role, he was
responsible for trading and market making of European
fixed income ETFs, structured funds, index swaps and
options within the Fixed Income Derivatives Group in
Corporate Banking & Securities, based out of London.
■
Fixed Income Portfolio Manager, Passive Asset Management:
New York.
■
BTech and MTech (dual degree) in Industrial Engineering
& Management, Indian Institute of Technology
Kharagnur.
Alexander Bridgeforth, Assistant Vice President.
Portfolio
Manager of the fund. Began managing the fund in
2017.
■
Joined DWS in 2016, with 5 years of industry experience.
Prior to joining DWS, he was responsible for
management of fixed income mutual funds and ETFs at
Charles Schwab Investment Management, where he
previously supported portfolio managers and middle
office duties.
■
Fixed Income Portfolio Manager, Passive Asset Management:
New York.
■
BSBA in Finance, University of Arizona.
The fund’s Statement of Additional Information provides
additional information about a portfolio manager’s investments
in the fund, a description of the portfolio
management compensation structure and information
regarding other accounts managed.
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Additional shareholder information, including how to buy
and sell shares of the fund, is available free of charge by
calling toll-free: 1-855-329-3837 (1-855-DBX-ETFS) or
visiting our website at Xtrackers.com.
Buying and Selling Shares
Shares of the fund are listed for trading on a national securities
exchange during the trading day. Shares can be
bought and sold throughout the trading day at market
prices like shares of other publicly-traded companies. The
Trust does not impose any minimum investment for shares
of the fund purchased on an exchange. Buying or selling
fund shares involves two types of costs that may apply to
all securities transactions. When buying or selling shares
of the fund through a broker, you will likely incur a
brokerage commission or other charges determined by
your broker. In addition, you may incur the cost of the
“
spread
”
– that is, any difference between the bid price
and the ask price. The commission is frequently a fixed
amount and may be a significant proportional cost for
investors seeking to buy or sell small amounts of shares.
The spread varies over time for shares of the fund based
on its trading volume and market liquidity, and is generally
lower if the fund has a lot of trading volume and market
liquidity and higher if the fund has little trading volume and
market liquidity.
Shares of the fund may be acquired or redeemed directly
from the fund only in Creation Units or multiples thereof,
as discussed in the section of this Prospectus entitled
“
Creations and Redemptions.
”
Only an AP may engage in
creation or redemption transactions directly with the fund.
Once created, shares of the fund generally trade in the
secondary market in amounts less than a Creation Unit.
The Board has evaluated the risks of market timing activities
by the fund’s shareholders. The Board noted that
shares of the fund can only be purchased and redeemed
directly from the fund in Creation Units by APs and that the
vast majority of trading in the fund’s shares occurs on the
secondary market. Because the secondary market trades
do not involve the fund directly, it is unlikely those trades
would cause many of the harmful effects of market timing,
including dilution, disruption of portfolio management,
increases in the fund’s trading costs and the realization of
capital gains. With regard to the purchase or redemption of
Creation Units directly with the fund, to the extent effected
in-kind (i.e., for securities), such trades do not cause any
of the harmful effects (as previously noted) that may result
from frequent cash trades. To the extent trades are
effected in whole or in part in cash, the Board noted that
such trades could result in dilution to the fund and
increased transaction costs, which could negatively impact
the fund’s ability to achieve its investment objective.
However, the Board noted that direct trading by APs is
critical to ensuring that the fund’s shares trade at or close
to NAV. In addition, the fund imposes both fixed and variable
transaction fees on purchases and redemptions of
fund shares to cover the custodial and other costs incurred
by the fund in effecting trades. These fees increase if an
investor substitutes cash in part or in whole for securities,
reflecting the fact that the fund’s trading costs increase
in those circumstances. Given this structure, the Board
determined that with respect to the fund it is not necessary
to adopt policies and procedures to detect and deter
market timing of the fund’s shares.
The 1940 Act imposes certain restrictions on investments
by registered investment companies in the securities of
other investment companies, such as the fund. Registered
investment companies are permitted to invest in the fund
beyond applicable 1940 Act limitations, subject to certain
terms and conditions set forth in an SEC exemptive order
issued to the Trust, including that such investment companies
enter into an agreement with the Trust.
Shares of the fund trade on the exchange and under the
ticker symbol as shown in the table below.
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Xtrackers Municipal
Infrastructure
Revenue Bond ETF
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Book Entry
Shares of the fund are held in book-entry form, which
means that no stock certificates are issued. The Depository
Trust Company (
“
DTC
”
) or its nominee is the record
owner of all outstanding shares of the fund and is recognized
as the owner of all shares for all purposes.
Investors owning shares of the fund are beneficial owners
as shown on the records of DTC or its participants. DTC
serves as the securities depository for shares of the fund.
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DTC participants include securities brokers and dealers,
banks, trust companies, clearing corporations and other
institutions that directly or indirectly maintain a custodial
relationship with DTC. As a beneficial owner of shares, you
are not entitled to receive physical delivery of stock certificates
or to have shares registered in your name, and you
are not considered a registered owner of shares. Therefore,
to exercise any right as an owner of shares, you must
rely upon the procedures of DTC and its participants.
These procedures are the same as those that apply to any
other securities that you hold in book-entry or
“
street
name
”
form.
Share Prices
The trading prices of the fund’s shares in the secondary
market generally differ from the fund’s daily NAV per share
and are affected by market forces such as supply and
demand, economic conditions and other factors. Information
regarding the intraday value of shares of the fund, also
known as the
“
indicative optimized portfolio value
”
(
“
IOPV
”
), is disseminated every 15 seconds throughout
the trading day by the national securities exchange on
which the fund’s shares are listed or by market data
vendors or other information providers. The IOPV is based
on the current market value of the securities and/or cash
required to be deposited in exchange for a Creation Unit.
The IOPV does not necessarily reflect the precise composition
of the current portfolio of securities held by the fund
at a particular point in time nor the best possible valuation
of the current portfolio. Therefore, the IOPV should not
be viewed as a
“
real-time
”
update of the NAV, which is
computed only once a day. The IOPV is generally determined
by using both current market quotations and/or
price quotations obtained from broker-dealers that may
trade in the portfolio securities held by the fund. The
quotations of certain fund holdings may not be updated
during US trading hours if such holdings do not trade in the
US. The fund is not involved in, or responsible for, the calculation
or dissemination of the IOPV and makes no
representation or warranty as to its accuracy.
Determination of Net Asset Value
The NAV of the fund is generally determined once daily
Monday through Friday as of the regularly scheduled close
of business of the New York Stock Exchange (
“
NYSE
”
)
(normally 4:00 p.m., Eastern time) on each day that the
NYSE is open for trading. NAV is calculated by deducting
all of the fund’s liabilities from the total value of its assets
and dividing the result by the number of shares
outstanding, rounding to the nearest cent. All valuations
are subject to review by the Trust’s Board or its delegate.
In determining NAV, expenses are accrued and applied
daily and securities and other assets for which market
quotations are available are valued at market value. Debt
securities’ values are based on price quotations or other
equivalent indications of value provided by a third-party
pricing service. Any such third-party pricing service may
use a variety of methodologies to value some or all of the
fund’s debt securities to determine the market price. For
example, the prices of securities with characteristics
similar to those held by the fund may be used to assist
with the pricing process. In addition, the pricing service
may use proprietary pricing models. In certain cases, some
of the fund’s debt securities may be valued at the mean
between the last available bid and ask prices for such securities
or, if such prices are not available, at prices for
securities of comparable maturity, quality, and type. Short-term
securities for which market quotations are not readily
available and money market securities maturing in 60 days
or less are valued at amortized cost. The approximate
value of shares of the applicable fund, an amount representing
on a per share basis the sum of the current value
of the deposit securities based on their then current
market price and the estimated cash component will be
disseminated every 15 seconds throughout the trading day
through the facilities of the Consolidated Tape Association.
Generally, trading in non-U.S. securities, U.S.
government securities, money market instruments and
certain fixed-income securities is substantially completed
each day at various times prior to the close of business on
the NYSE. The values of such securities used in computing
the NAV of the fund are determined as of such earlier
times. The value of the Underlying Index will not be calculated
and disseminated intra-day. The value and return of
the Underlying Index is calculated once each trading day by
the Index Provider based on prices received from the
respective markets.
If a security’s market price is not readily available or does
not otherwise accurately reflect the fair value of the security,
the security will be valued by another method that
the Advisor believes will better reflect fair value in accordance
with the Trust’s valuation policies and procedures
approved by the Board. The fund may use fair value pricing
in a variety of circumstances, including but not limited to,
situations when the value of a security in the fund’s portfolio
has been materially affected by events occurring after
the close of the market on which the security is principally
traded (such as a corporate action or other news that
may materially affect the price of a security) or trading in
a security has been suspended or halted. Fair value pricing
involves subjective judgments and it is possible that a fair
value determination for a security is materially different
from the value that could be realized upon the sale of the
security. In addition, fair value pricing could result in a difference
between the prices used to calculate the fund’s NAV
and the prices used by the fund’s Underlying Index. This
may adversely affect the fund’s ability to track its Underlying
Index. With respect to securities that are primarily
listed on foreign exchanges, the value of the fund’s portfolio
securities may change on days when you will not be
able to purchase or sell your shares.
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Creations and Redemptions
Prior to trading in the secondary market, shares of the fund
are
“
created
”
at NAV by market makers, large investors
and institutions only in block-size Creation Units of 50,000
shares or multiples thereof (
“
Creation Units
”
). The size
of a Creation Unit will be subject to change. Each
“
creator
”
or AP (which must be a DTC participant) enters into an
authorized participant agreement (
“
Authorized Participant
Agreement
”
) with the fund’s distributor, ALPS Distributors,
Inc. (the
“
Distributor
”
), subject to acceptance by the
Transfer Agent. Only an AP may create or redeem Creation
Units. Creation Units generally are issued and redeemed
in exchange for a specific basket of securities approximating
the holdings of the fund and a designated amount
of cash. The fund may pay out a portion of its redemption
proceeds in cash rather than through the in-kind
delivery of portfolio securities. Except when aggregated in
Creation Units, shares are not redeemable by the fund.
The prices at which creations and redemptions occur are
based on the next calculation of NAV after an order is
received in a form described in the Authorized Participant
Agreement.
Additional information about the procedures regarding
creation and redemption of Creation Units (including the
cut-off times for receipt of creation and redemption orders)
is included in the SAI.
The fund intends to comply with the US federal securities
laws in accepting securities for deposits and satisfying
redemptions with redemption securities, including that the
securities accepted for deposits and the securities used
to satisfy redemption requests will be sold in transactions
that would be exempt from registration under the Securities
Act of 1933, as amended (
“
1933 Act
”
). Further, an AP
that is not a
“
qualified institutional buyer,
”
as such term is
defined under Rule 144A under the 1933 Act, will not be
able to receive fund securities that are restricted securities
eligible for resale under Rule 144A.
Dividends and Distributions
General Policies.
Dividends from net investment income, if
any, are generally declared and paid monthly by the fund.
Distributions of net realized capital gains, if any, generally
are declared and paid once a year, but the Trust may
make distributions on a more frequent basis for the fund.
The Trust reserves the right to declare special distributions
if, in its reasonable discretion, such action is necessary or
advisable to preserve its status as a regulated investment
company or to avoid imposition of income or excise taxes
on undistributed income or realized gains.
Dividends and other distributions on shares of the fund are
distributed on a pro rata basis to beneficial owners of such
shares. Dividend payments are made through DTC participants
and indirect participants to beneficial owners as of
the record date with proceeds received from the fund.
Dividend Reinvestment Service.
No dividend reinvestment
service is provided by the Trust. Broker-dealers may make
available the DTC book-entry Dividend Reinvestment
Service for use by beneficial owners of the fund for reinvestment
of their dividend distributions. Beneficial owners
should contact their broker to determine the availability
and costs of the service and the details of participation
therein. Brokers may require beneficial owners to adhere
to specific procedures and timetables. If this service is
available and used, dividend distributions of both income
and realized gains will be automatically reinvested in additional
whole shares of the fund purchased in the
secondary market.
Taxes
As with any investment, you should consider how your
investment in shares of the fund will be taxed. The tax information
in this Prospectus is provided as general
information. You should consult your own tax professional
about the tax consequences of an investment in shares
of the fund.
Unless your investment in fund shares is made through a
tax-exempt entity or tax-deferred retirement account, such
as an IRA, you need to be aware of the possible tax consequences
when the fund makes distributions or you sell
fund shares.
Taxes on Distributions
Distributions from the fund’s net investment income (other
than qualified dividend income), including distributions of
income from securities lending and distributions out of the
fund’s net short-term capital gains, if any, are taxable to
you as ordinary income. Distributions by the fund of net
long-term capital gains in excess of net short-term capital
losses (capital gain dividends) are taxable to you as long-
term capital gains, regardless of how long you have held
such fund’s shares. Distributions by the fund that qualify as
qualified dividend income are taxable to you at long-term
capital gain rates. The maximum individual rate applicable
to
“
qualified dividend income
”
and long-term capital gains
is generally either 15% or 20%, depending on whether the
individual’s income exceeds certain threshold amounts.
Dividends paid by the fund that are properly reported as
exempt- interest dividends will not be subject to regular
US federal income tax. The fund intends to invest its
assets in a manner such that a significant portion of its
dividend distributions to shareholders will generally be
exempt from US federal income taxes. However, the fund
may invest an unlimited amount of its net assets in
municipal securities that generate interest income subject
to the AMT for individuals. As a result, a portion of the
exempt- interest dividends paid by the fund may be an
item of tax preference to shareholders subject to the AMT.
Depending on a shareholder’s state of residence, exempt-interest
dividends from interest earned on municipal
securities of a state or its political subdivisions may be
exempt in the hands of such shareholder from income tax
Prospectus
October 1, 2020
|
23
|
Investing in the Fund
|
in that state. However, income from municipal securities
of states other than the shareholder’s state of residence
generally will not qualify for tax-free treatment for such
shareholder.
Dividends are eligible to be qualified dividend income to
you, if you meet certain holding period requirements
discussed below, if they are attributable to qualified dividend
income received by the fund. Generally, qualified
dividend income includes dividend income from taxable
US corporations and qualified non-US corporations,
provided that the fund satisfies certain holding period
requirements in respect of the stock of such corporations
and has not hedged its position in the stock in certain
ways. For this purpose, a qualified non-US corporation
means any non-US corporation that is eligible for benefits
under a comprehensive income tax treaty with the United
States which includes an exchange of information program
or if the stock with respect to which the dividend was paid
is readily tradable on an established United States security
market. The term excludes a corporation that is a passive
foreign investment company.
For a dividend to be treated as qualified dividend income,
the dividend must be received with respect to a share
of stock held without being hedged by the fund, and to a
share of the fund held without being hedged by you, for 61
days during the 121-day period beginning at the date
which is 60 days before the date on which such share
becomes ex-dividend with respect to such dividend or in
the case of certain preferred stock 91 days during the
181-day period beginning 90 days before such date.
Given the investment strategies of the fund, it is not anticipated
that a significant portion of the dividends paid by
the fund will be eligible to be reported as qualified dividend
income (with respect to an individual shareholder) or for
the corporate dividends received deduction (with respect
to a corporate shareholder).
In general, your distributions are subject to US federal
income tax for the year when they are paid. Certain distributions
paid in January, however, may be treated as paid
on December 31 of the prior year.
If the fund’s distributions exceed current and accumulated
earnings and profits, all or a portion of the distributions
made in the taxable year may be re-characterized as a
return of capital to shareholders. A return of capital distribution
generally will not be taxable but will reduce the
shareholder’s cost basis and result in a higher capital gain
or lower capital loss when those shares on which the distribution
was received are sold.
If you are neither a resident nor a citizen of the United
States or if you are a non-US entity, the fund’s ordinary
income dividends (which include distributions of net short-
term capital gains) will generally be subject to a 30% US
withholding tax, unless a lower treaty rate applies,
provided that withholding tax will generally not apply to
any gain or income realized by a non- US shareholder in
respect of any distributions of long-term capital gains or
upon the sale or other disposition of shares of the fund.
Dividends and interest received by the fund with respect
to non-US securities may give rise to withholding and other
taxes imposed by non-US countries. Tax conventions
between certain countries and the United States may
reduce or eliminate such taxes. If more than 50% of the
total assets of the fund at the close of a year consist of
non-US stocks or securities, the fund may
“
pass through
”
to you certain non-US income taxes (including withholding
taxes) paid by the fund. This means that you would be
considered to have received as additional gross income
your share of such non-US taxes, but you may, in such
case, be entitled to either a corresponding tax deduction in
calculating your taxable income, or, subject to certain limitations,
a credit in calculating your US federal income tax.
If you are a resident or a citizen of the United States, by
law, back-up withholding (currently at a rate of 24%) will
apply to your distributions and proceeds if you have not
provided a taxpayer identification number or social security
number and made other required certifications.
Taxes when Shares are Sold
Currently, any capital gain or loss realized upon a sale of
fund shares is generally treated as a long-term gain or loss
if the shares have been held for more than one year. Any
capital gain or loss realized upon a sale of fund shares held
for one year or less is generally treated as short-term gain
or loss, except that any capital loss on the sale of shares
held for six months or less is treated as long-term capital
loss to the extent that capital gain dividends were paid
with respect to such shares.
Medicare Tax
An additional 3.8% Medicare tax is imposed on certain net
investment income (including ordinary dividends and
capital gain distributions received from the fund and net
gains from redemptions or other taxable dispositions of
fund shares) of US individuals, estates and trusts to the
extent that such person’s
“
modified adjusted gross
income
”
(in the case of an individual) or
“
adjusted gross
income
”
(in the case of an estate or trust) exceeds certain
threshold amounts.
The foregoing discussion summarizes some of the consequences
under current US federal tax law of an
investment in the fund. It is not a substitute for personal
tax advice. You may also be subject to state and local taxation
on fund distributions and sales of shares. Consult your
personal tax advisor about the potential tax consequences
of an investment in shares of the fund under all applicable
tax laws.
Prospectus
October 1, 2020
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24
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Investing in the Fund
|
Authorized Participants and the Continuous Offering of
Shares
Because new shares may be created and issued on an
ongoing basis, at any point during the life of the fund a
“
distribution,
”
as such term is used in the 1933 Act, may
be occurring. Broker-dealers and other persons are
cautioned that some activities on their part may,
depending on the circumstances, result in their being
deemed participants in a distribution in a manner that
could render them statutory underwriters and subject to
the prospectus delivery and liability provisions of the 1933
Act. Any determination of whether one is an underwriter
must take into account all the relevant facts and circumstances
of each particular case.
Broker-dealers should also note that dealers who are not
“
underwriters
”
but are participating in a distribution (as
contrasted to ordinary secondary transactions), and thus
dealing with shares that are part of an
“
unsold allotment
”
within the meaning of Section 4(3)(C) of the 1933 Act,
would be unable to take advantage of the prospectus
delivery exemption provided by Section 4(3) of the 1933
Act. For delivery of prospectuses to exchange members,
the prospectus delivery mechanism of Rule 153 under the
1933 Act is available only with respect to transactions on
a national securities exchange.
Certain affiliates of the fund and the Advisor may purchase
and resell fund shares pursuant to this Prospectus.
Transaction Fees
APs are charged standard creation and redemption transaction
fees to offset transfer and other transaction costs
associated with the issuance and redemption of Creation
Units. Purchasers and redeemers of Creation Units for
cash are required to pay an additional variable charge (up
to a maximum of 2% for redemptions, including the standard
redemption fee) to compensate for brokerage and
market impact expenses. The standard creation and
redemption transaction fee for the fund is set forth in the
table below. The maximum redemption fee, as a
percentage of the amount redeemed, is 2%.
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Xtrackers Municipal Infrastruc-
ture Revenue Bond ETF
|
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Distribution
The Distributor distributes Creation Units for the fund on
an agency basis. The Distributor does not maintain a
secondary market in shares of the fund. The Distributor
has no role in determining the policies of the fund or the
securities that are purchased or sold by the fund. The
Distributor’s principal address is 1290 Broadway, Suite
1000, Denver, Colorado 80203.
The Advisor and/or its affiliates may pay additional compensation,
out of their own assets and not as an additional
charge to the fund, to selected affiliated and unaffiliated
brokers, dealers, participating insurance companies or
other financial intermediaries (
“
financial representatives
”
)
in connection with the sale and/or distribution of fund
shares or the retention and/or servicing of fund investors
and fund shares (
“
revenue sharing
”
). For example, the
Advisor and/or its affiliates may compensate financial representatives
for providing the fund with
“
shelf space
”
or
access to a third party platform or fund offering list or other
marketing programs, including, without limitation, inclusion
of the fund on preferred or recommended sales lists,
fund
“
supermarket
”
platforms and other formal sales
programs; granting the Advisor and/ or its affiliates access
to the financial representative’s sales force; granting the
Advisor and/or its affiliates access to the financial representative’s
conferences and meetings; assistance in training
and educating the financial representative’s personnel; and
obtaining other forms of marketing support.
The level of revenue sharing payments made to financial
representatives may be a fixed fee or based upon one
or more of the following factors: gross sales, current
assets and/or number of accounts of the fund attributable
to the financial representative, the particular fund or fund
type or other measures as agreed to by the Advisor and/or
its affiliates and the financial representatives or any combination
thereof. The amount of these revenue sharing
payments is determined at the discretion of the Advisor
and/or its affiliates from time to time, may be substantial,
and may be different for different financial representatives
based on, for example, the nature of the services provided
by the financial representative.
Receipt of, or the prospect of receiving, additional compensation
may influence your financial representative’s
recommendation of the fund. You should review your
financial representative’s compensation disclosure and/or
talk to your financial representative to obtain more information
on how this compensation may have influenced your
financial representative’s recommendation of the fund.
Additional information regarding these revenue sharing
payments is included in the fund’s Statement of Additional
Information, which is available to you on request at no
charge (see the back cover of this Prospectus for more
information on how to request a copy of the Statement of
Additional Information).
It is possible that broker-dealers that execute portfolio transactions
for the fund will also sell shares of the fund to their
customers. However, the Advisor will not consider the
sale of fund shares as a factor in the selection of broker-dealers
to execute portfolio transactions for the fund.
Accordingly, the Advisor has implemented policies and
procedures reasonably designed to prevent its traders
from considering sales of fund shares as a factor in the
selection of broker-dealers to execute portfolio transactions
for the fund. In addition, the Advisor and/or its
affiliates will not use fund brokerage to pay for their obligation
to provide additional compensation to financial
representatives as described above.
Prospectus
October 1, 2020
|
25
|
Investing in the Fund
|
Premium/Discount Information
Information regarding how often shares of the fund traded
on NYSE Arca at a price above (i.e., at a premium) or
below (i.e., at a discount) the NAV of the fund during the
past calendar year can be found at Xtrackers.com.
Prospectus
October 1, 2020
|
26
|
Investing in the Fund
|
The financial highlights are designed to help you understand recent financial performance. The figures in the first part of
the table are for a single share. The total return figures represent the percentage that an investor in the fund would have
earned (or lost), assuming all dividends and distributions were reinvested. This information has been audited by Ernst &
Young LLP, independent registered public accounting firm, whose report, along with the fund’s financial statements, is
included in the fund’s Annual Report (see
“
For More Information
”
on the back cover).
Xtrackers Municipal Infrastructure Revenue Bond ETF
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Net Asset Value, beginning of year
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Income (loss) from investment operations:
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|
|
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|
Net investment income (loss)
a
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|
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Net realized and unrealized gain (loss)
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Total from investment operations
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Net Asset Value, end of year
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Ratios to Average Net Assets and Supplemental Data
|
Net Assets, end of year ($ millions)
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Ratio of expenses before fee waiver (%)
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Ratio of net investment income (loss) (%)
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Portfolio turnover rate (%)
c
|
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a
Based on average shares outstanding during the period.
b
Total Return would have been lower if certain expenses had not been reimbursed by the Advisor.
c
Portfolio turnover rate does not include securities received or delivered from processing creations or redemptions.
Prospectus
October 1, 2020
|
27
|
Financial Highlights
|
Index Providers and Licenses
Solactive, which is not an affiliate of the Advisor, is responsible for the rules-based methodology of the Solactive Indexes.
Solactive is not affiliated with the Trust, the Advisor, The Bank of New York Mellon, the Distributor or any of their respective
affiliates.
Solactive is responsible for administration and calculation of the Solactive Indexes. Solactive is responsible for implementing
the methodology for the composition of the Underlying Index.
The Advisor has entered into a license agreement with Solactive to use the Underlying Index. The Advisor sublicenses
rights in the Underlying Index to the Trust at no charge. All license fees are paid by the Advisor out of its own resources
and not the assets of the fund.
Disclaimers
Xtrackers Municipal Infrastructure Revenue Bond ETF is not sponsored, endorsed, sold or promoted by Solactive. Neither
Solactive nor any other party makes any representation or warranty, express or implied, to the owners of the fund or any
member of the public regarding advisability of investing in funds generally or in this fund particularly or the ability of the
Solactive Municipal Infrastructure Revenue Bond Index (the
“
Underlying Index
”
) to track general stock market performance.
Solactive is the licensor of certain trademarks, service marks and trade names of Solactive and of the Underlying
Index that are determined, composed and calculated by Solactive without regard to the Trust, the Advisor or the fund.
Solactive has no obligation to take the needs of the Advisor or the owners of the fund into consideration in determining,
composing or calculating the Underlying Index. Solactive is not responsible for and has not participated in the determination
of the timing of, prices at, or quantities of the fund to be issued or in the determination or calculation of the equation
by which the fund are redeemable for cash. Neither Solactive nor any other party has any obligation or liability to owners
of the fund in connection with the administration, marketing or trading of the fund.
Although Solactive shall obtain information for inclusion in or for use in the calculation of the index from sources that
Solactive considers reliable, neither Solactive nor any other party guarantees the accuracy and/or the completeness of the
index or any data included therein. Solactive is not responsible for informing third parties, including but not limited to,
investors and/or financial intermediaries of the fund, of errors in the index. Neither Solactive nor any other party makes
any warranty, express or implied, as to results to be obtained by licensee, licensee’s customers and counterparties,
owners of the fund, or any other person or entity from the use of the index or any data included hereunder or for any other
use. Neither Solactive nor any other party makes any express or implied warranties, and Solactive hereby expressly
disclaims all warranties of merchantability or fitness for a particular purpose with respect to the index or any data included
therein. Without limiting any of the foregoing, in no event shall Solactive or any other party have any liability for direct,
indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of
such damages.
Shares of the fund are not sponsored, endorsed or promoted by NYSE Arca, Inc. (
“
NYSE Arca
”
). NYSE Arca makes no
representation or warranty, express or implied, to the owners of the shares of the fund or any member of the public
regarding the ability of the fund to track the total return performance of its Underlying Index or the ability of the Underlying
Index to track stock market performance. NYSE Arca is not responsible for, nor has it participated in, the
determination of the compilation or the calculation of the Underlying Index, nor in the determination of the timing of,
prices of, or quantities of shares of the fund to be issued, nor in the determination or calculation of the equation by which
the shares are redeemable. NYSE Arca has no obligation or liability to owners of the shares of the fund in connection
with the administration, marketing or trading of the shares of the fund.
Prospectus
October 1, 2020
|
28
|
Appendix
|
NYSE Arca does not guarantee the accuracy and/or the completeness of the Underlying Index or any data included
therein. NYSE Arca makes no warranty, express or implied, as to results to be obtained by the Trust on behalf of the fund
as licensee, licensee’s customers and counterparties, owners of the shares of the fund, or any other person or entity from
the use of the Underlying Index or any data included therein in connection with the rights licensed as described herein
or for any other use. NYSE Arca makes no express or implied warranties and hereby expressly disclaims all warranties of
merchantability or fitness for a particular purpose with respect to the Underlying Index or any data included therein.
Without limiting any of the foregoing, in no event shall NYSE Arca have any liability for any direct, indirect, special, punitive,
consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
The Advisor does not guarantee the accuracy or the completeness of the Underlying Index or any data included therein
and the Advisor shall have no liability for any errors, omissions or interruptions therein.
The Advisor makes no warranty, express or implied, to the owners of shares of the fund or to any other person or entity,
as to results to be obtained by the fund from the use of the Underlying Index or any data included therein. The Advisor
makes no express or implied warranties and expressly disclaims all warranties of merchantability or fitness for a particular
purpose or use with respect to the Underlying Index or any data included therein. Without limiting any of the foregoing,
in no event shall the Advisor have any liability for any special, punitive, direct, indirect or consequential damages (including
lost profits), even if notified of the possibility of such damages.
Prospectus
October 1, 2020
|
29
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Appendix
|
FOR MORE INFORMATION:
XTRACKERS.COM
1-855-329-3837 (1-855-DBX-ETFS)
Copies of the prospectus, SAI and recent shareholder
reports, when available, can be found on our website at
Xtrackers.com. For more information about the fund, you
may request a copy of the SAI. The SAI provides detailed
information about the fund and is incorporated by reference
into this prospectus. This means that the SAI, for
legal purposes, is a part of this prospectus.
If you have any questions about the Trust or shares of the
fund or you wish to obtain the SAI or shareholder report
free of charge, please:
|
1-855-329-3837 or 1-855-DBX-ETFS
(toll free) Monday through Friday
8:30 a.m. to 6:30 p.m. (Eastern time)
E-mail: dbxquestions@list.db.com
|
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DBX ETF Trust
c/o ALPS Distributors, Inc.
1290 Broadway, Suite 1000
Denver, Colorado 80203
|
Information about the fund (including the SAI), reports and
other information about the fund are available on the
EDGAR Database on the SEC’s website at sec.gov, and
copies of this information may be obtained, after paying a
duplicating fee, by electronic request at the following
e-mail address: publicinfo@sec.gov.
Householding is an option available to certain fund investors.
Householding is a method of delivery, based on the
preference of the individual investor, in which a single copy
of certain shareholder documents can be delivered to investors
who share the same address, even if their accounts
are registered under different names. Please contact your
broker-dealer if you are interested in enrolling in
householding and receiving a single copy of prospectuses
and other shareholder documents, or if you are currently
enrolled in householding and wish to change your
householding status.
No person is authorized to give any information or to make
any representations about the fund and their shares not
contained in this prospectus and you should not rely on
any other information. Read and keep the prospectus for
future reference.
Investment Company Act File No.: 811-22487
Prospectus
October 1, 2020
Xtrackers Harvest CSI 300 China A-Shares ETF
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Xtrackers MSCI China A Inclusion Equity ETF
|
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Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF
|
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Xtrackers MSCI All China Equity ETF
|
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The Securities and Exchange Commission (
“
SEC
”
) has not approved or disapproved these securities or passed
upon the adequacy of this Prospectus. Any representation to the contrary is a criminal offense.
Your investment in a fund is not a bank deposit and is not insured or guaranteed by the Federal
Deposit Insurance Corporation or any other government agency, entity or person.
Xtrackers Harvest CSI 300 China A-Shares ETF
|
Stock Exchange: NYSE Arca, Inc.
|
Investment Objective
The Xtrackers Harvest CSI 300 China A-Shares ETF (the
“
fund
”
) seeks investment results that correspond generally
to the performance, before fees and expenses, of the
CSI 300 Index (the
“
Underlying Index
”
).
Fees and Expenses
These are the fees and expenses that you will pay when
you buy, hold and sell shares.
You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below.
ANNUAL FUND OPERATING EXPENSES(expenses that you pay each year as a % of the value of your investment)
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Total annual fund operating expenses
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EXAMPLE
This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then sell 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 operating expenses remain the same. The Example does not take into account brokerage commissions that you may pay on your purchases and sales of shares of the fund. It also does not include the transaction fees on purchases and redemptions of Creation Units (defined herein), because those fees will not be imposed on retail investors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
PORTFOLIO TURNOVER
The fund pays transaction costs, such as commissions,
when it buys and sells securities (or
“
turns over
”
its portfolio).
A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are
investing in a taxable account. These costs are not
reflected in annual fund operating expenses or in the
expense example, and can affect the fund's performance.
During the most recent fiscal year, the fund’s portfolio turnover
rate was
115
% of the average value of its portfolio.
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investments results that correspond
generally to the performance, before fees and expense, of
the Underlying Index, which is designed to reflect the
price fluctuation and performance of the China A-Share
market and is composed of the 300 largest and most liquid
stocks in the China A-Share market. The Underlying Index
includes small-cap, mid-cap, and large-cap stocks. DBX
Advisors LLC (the
“
Advisor
”
) expects that, over time, the
correlation between the fund’s performance and that of
the Underlying Index, before fees and expenses, will be
95% or better. A figure of 100% would indicate perfect
correlation.
A-Shares are equity securities issued by companies incorporated
in mainland China and are denominated and traded
in renminbi (
“
RMB
”
) on the Shenzhen and Shanghai Stock
Exchanges. Under current regulations in the People’s
Republic of China (
“
China
”
or the
“
PRC
”
), foreign investors
can invest in the domestic PRC securities markets
through certain market-access programs. These programs
include the Qualified Foreign Institutional Investor (
“
QFII
”
)
or a Renminbi Qualified Foreign Institutional Investor
(
“
RQFII
”
) licenses obtained from the China Securities
Prospectus
October 1, 2020
|
1
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Xtrackers Harvest CSI 300 China A-Shares ETF
|
Regulatory Commission (
“
CSRC
”
). QFII and RQFII investors
have also registered with China’s State Administration
of Foreign Exchange (
“
SAFE
”
) to invest foreign freely
convertible currencies (in the case of a QFII) and RMB (in
the case of an RQFII) in the PRC for the purpose of
investing in the PRC’s domestic securities markets.
Harvest Global Investments Limited (the
“
Subadvisor
”
or
“
HGI
”
) is a licensed RQFII and the fund may therefore
invest in A-Shares via HGI’s RQFII license. The Subadvisor,
on behalf of the fund, may invest in A-Shares and other
permitted China securities listed on the Shanghai and
Shenzhen Stock Exchanges. The fund may also invest in
A-Shares listed and traded on the Shanghai Stock
Exchange and Shenzhen Stock Exchange through the
Shanghai – Hong Kong and Shenzhen – Hong Kong Stock
Connect programs (
“
Stock Connect
”
). Stock Connect is
a securities trading and clearing program between either
the Shanghai Stock Exchange or Shenzhen Stock Exchange
and The Stock Exchange of Hong Kong Limited (
“
SEHK
”
),
China Securities Depository and Clearing Corporation
Limited and Hong Kong Securities Clearing Company
Limited. Stock Connect is designed to permit mutual stock
market access between mainland China and Hong Kong
by allowing investors to trade and settle shares on each
market via their local exchanges. Trading through Stock
Connect is subject to a daily quota (
“
Daily Quota
”
), which
limits the maximum daily net purchases on any particular
day by Hong Kong investors (and foreign investors trading
through Hong Kong) trading PRC listed securities and PRC
investors trading Hong Kong listed securities trading
through the relevant Stock Connect. Accordingly, the
fund’s direct investments in A-Shares will be limited in part
by the Daily Quota that limits total purchases through
Stock Connect. Investment companies are not currently
within the types of entities that are eligible for an RQFII or
QFII license.
The Subadvisor expects to use a full replication indexing
strategy to seek to track the Underlying Index. As such, the
Subadvisor expects to invest directly in the component
securities (or a substantial number of the component securities)
of the Underlying Index in substantially the same
weightings in which they are represented in the Underlying
Index. If it is not possible for the Subadvisor to acquire
component securities due to limited availability or regulatory
restrictions, the Sub- Advisor may use a
representative sampling indexing strategy to seek to track
the Underlying Index instead of a full replication indexing
strategy.
“
Representative sampling
”
is an indexing
strategy that involves investing in a representative sample
of securities that collectively has an investment profile
similar to the Underlying Index. The securities selected are
expected to have, in the aggregate, investment characteristics
(based on factors such as market capitalization
and industry weightings), fundamental characteristics
(such as return variability and yield), and liquidity measures
similar to those of the Underlying Index. The fund may or
may not hold all of the securities in the Underlying Index
when the Subadvisor is using a representative sampling
indexing strategy.
The fund will normally invest at least 80% of its total
assets in securities of issuers that comprise the Underlying
Index. The fund will seek to achieve its investment
objective by primarily investing directly in A-Shares.
Because the fund does not satisfy the criteria to qualify as
an RQFII or QFII itself, the fund intends to invest directly
in A-Shares via the RQFII license granted to the Subadvisor
and may also invest through Stock Connect. While the
fund intends to invest primarily and directly in A-Shares,
the fund also may invest in securities of issuers not
included in the Underlying Index, futures contracts, stock
index futures, swap contracts and other types of derivative
instruments, and other pooled investment vehicles,
including affiliated and/or foreign investment companies,
that the Advisor and/or Subadvisor believes will help the
fund to achieve its investment objective. The remainder of
the fund’s assets will be invested primarily in money
market instruments and cash equivalents. Under normal
circumstances, the fund invests at least 80% of its net
assets, plus the amount of any borrowings for investment
purposes, in A-Shares of Chinese issuers or in derivative
instruments and other securities that provide investment
exposure to A-Shares of Chinese issuers. The fund may
invest in depositary receipts.
As of July 31, 2020, the Underlying Index consisted of 300
securities with an average market capitalization of approximately
$20.34 billion and a minimum market capitalization
of approximately $3.05 billion. Under normal circumstances,
the Underlying Index is rebalanced semi-annually
every June and December. The fund rebalances its portfolio
in accordance with the Underlying Index, and,
therefore, any changes to the Underlying Index’s rebalance
schedule will result in corresponding changes to the fund’s
rebalance schedule.
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that the Underlying Index is concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
financials (27.5%) sector. The financials sector includes
companies involved in banking, consumer finance, asset
management and custody banks, as well as investment
banking and brokerage and insurance. To the extent that
the fund tracks the Underlying Index, the fund’s investment
in certain sectors may change over time.
The fund may become
“
non-diversified,
”
as defined under
the Investment Company Act of 1940, as amended, solely
as a result of a change in relative market capitalization or
index weighting of one or more constituents of the index
that the fund is designed to track. Shareholder approval will
not be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
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Shares of the fund are not sponsored, endorsed, sold or
promoted by CSI or any affiliate of CSI and CSI bears no
liability with respect to the fund or any security.
Main Risks
As with any investment, you could lose all or part of your investment in the fund, and the fund’s performance could trail that of other investments.
The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective, as
well as numerous other risks that are described in greater
detail in the section of this Prospectus entitled
“
Additional
Information About Fund Strategies, Underlying Index Information
and Risks
”
and in the Statement of Additional
Information (
“
SAI
”
).
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Special risk considerations relating to the RQFII regime
and investments in A-Shares.
The Advisor’s ability to
achieve the fund’s investment objective by investing in the
component securities of the Underlying Index is dependent
on the continuous availability of A-Shares. Because
the fund will not be able to invest directly in A-Shares
beyond the limits that may be imposed by Stock Connect,
the size of the fund’s direct investment in A-Shares may
be limited. If the Subadvisor is unable to maintain its RQFII
status, the Subadvisor may seek to gain exposure to the
A-Share market by investing in securities not included in
the Underlying Index, futures contracts, swaps and other
derivative instruments, and other pooled investment
vehicles, including foreign and/or affiliated funds, that
provide exposure to the A-Share market until access via a
RQFII license can be re-obtained. A revocation or elimination
of the RQFII license may not only adversely affect
the ability of the fund to invest directly in A-Shares, but
also the willingness of swap counterparties to engage in
swaps and the performance of pooled investment vehicles
linked to the performance of A-Shares. Therefore, any such
revocation or elimination may have a material adverse
effect on the ability of the fund to achieve its investment
objective. These risks are compounded by the fact that
at present there are only a limited number of firms and
counterparties that have QFII or RQFII status. In addition,
the RQFII license may be revoked by Chinese regulators if,
among other things, the Subadvisor fails to observe SAFE
and other applicable Chinese regulations, which could also
lead to other adverse consequences, including the requirement
that the fund dispose of its A-Shares holdings. There
can be no guarantee that the fund will be able to invest
in appropriate futures contracts, swaps and other derivative
instruments, and the PRC government may at times
restrict the ability of firms regulated in the PRC to make
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such instruments available. In addition, there are custody
risks associated with investing through an RQFII, where,
due to requirements regarding establishing a custody
account in the joint names of the fund and the
Subadvisor’s creditors than if the fund had an account in
its name only. If the fund is unable to obtain sufficient exposure
to the performance of the Underlying Index due to
the unavailability of RQFII license or other investments that
provide exposure to the performance of A-Shares, the
fund could, among other actions, limit or suspend
creations until the Subadvisor determines that the requisite
exposure to the Underlying Index is obtainable. During
the period that creations are limited or suspended, the
fund could trade at a significant premium or discount to
the NAV and could experience substantial redemptions.
Alternatively, the fund could change its investment objective
by, for example, seeking to track an alternative index
that does not include A-Shares as its component securities,
or decide to liquidate the fund.
On May 7, 2020, the People’s Bank of China (
“
PBOC
”
) and
SAFE jointly issued the Regulations on Funds of Securities
and Futures Investment by Foreign Institutional
Investors (PBOC & SAFE Announcement [2020] No. 2)
(the
“
Regulations
”
) which came into effect on June 6,
2020. The Regulations supersede certain post-registration
rules applicable to QFII and RQFII regimes. One of the
key changes of the Regulations is the removal of quota
restrictions on investment. However, as of the date of this
prospectus, this is a relatively new development, and
there is no guarantee that the quotas will continue to be
relaxed.
Special risk considerations of investing in China.
Investing in securities of Chinese issuers involves certain
risks and considerations not typically associated with
investing in securities of US issuers, including, among
others, (i) more frequent (and potentially widespread)
trading suspensions and government interventions with
respect to Chinese issuers, resulting in lack of liquidity and
in price volatility, (ii) currency revaluations and other
currency exchange rate fluctuations or blockage, (iii) the
nature and extent of intervention by the Chinese government
in the Chinese securities markets (including both
direct and indirect market stabilization efforts, which may
affect valuations of Chinese issuers), whether such intervention
will continue and the impact of such intervention
or its discontinuation, (iv) the risk of nationalization or expropriation
of assets, (v) the risk that the Chinese government
may decide not to continue to support economic reform
programs, (vi) limitations on the use of brokers (or action
by the Chinese government that discourages brokers from
serving international clients), (vii) higher rates of inflation,
(viii) greater political, economic and social uncertainty, (ix)
higher market volatility caused by any potential regional
territorial conflicts or natural disasters, (x) the risk of
increased trade tariffs, embargoes and other trade or regulatory
limitations, (xi) restrictions on foreign ownership,
(xii) custody risks associated with investing through Stock
Connect, an RQFII or other programs to access the
Chinese securities markets, (xiii) both interim and permanent
market regulations which may affect the ability of
certain stockholders to sell Chinese securities when it
would otherwise be advisable, and (xiv) different and less
stringent financial reporting standards.
From time to time, and as recently as early 2020 with the
coronavirus known as COVID-19, China has experienced
outbreaks of infectious illnesses, and the country may be
subject to other infectious illnesses, diseases or other
public health emergencies in the future. Any public health
emergency could reduce consumer demand or economic
output, result in market closures, travel restrictions or
quarantines, and generally have a significant impact on the
Chinese economy, which in turn could adversely affect
the fund’s investments.
A-Shares tax risk.
Uncertainties in the Chinese tax rules
governing taxation of income and gains from investments
in A-Shares could result in unexpected tax liabilities for the
fund or Underlying Fund. China generally imposes withholding
tax at a rate of 10% on dividends and interest
derived by nonresident enterprises (including QFIIs and
RQFIIs) from issuers resident in China. China also imposes
withholding tax at a rate of 10% on capital gains derived
by nonresident enterprises from investments in an issuer
resident in China, subject to an exemption or reduction
pursuant to domestic law or a double taxation agreement
or arrangement.
Since the respective inception of the Shanghai – Hong
Kong and Shenzhen – Hong Kong Stock Connect
programs, foreign investors (including the fund) investing
in A-Shares through Stock Connect would be temporarily
exempt from the PRC corporate income tax and value-
added tax on the gains on disposal of such A-Shares. Dividends
would be subject to PRC corporate income tax on
a withholding basis at 10%, unless reduced under a double
tax treaty with China upon application to and obtaining
approval from the competent tax authority. Since
November 17, 2014, the corporate income tax for QFIIs
and RQFIIs, with respect to capital gains, has been temporarily
lifted. The withholding tax relating to the realized
gains from shares in land-rich companies prior to
November 17, 2014 has been paid by the fund, while realized
gains from shares in non-land-rich companies prior
to November 17, 2014 were granted by treaty relief
pursuant to the PRC-US Double Taxation Agreement.
During 2015, revenue authorities in the PRC made
arrangements for the collection of capital gains taxes for
investments realized between November 17, 2009 and
November 16, 2014. The fund could be subject to tax
liability for any tax payments for which reserves have not
been made or that were not previously withheld. The
impact of any such tax liability on the fund’s return could
be substantial. The fund may also be liable to the Advisor
or Subadvisor for any tax that is imposed on the Advisor or
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Subadvisor by the PRC with respect to the fund’s investments.
If the fund’s direct investments in A-Shares through
the Advisor’s or Subadvisor’s RQFII license become
subject to repatriation restrictions or delays, the fund may
be unable to satisfy distribution requirements applicable
to RICs under the Internal Revenue Code, and be subject
to tax at the fund level. The current PRC tax laws and regulations
and interpretations thereof may be revised or
amended in the future, potentially retroactively, including
with respect to the possible liability of the fund for the
taxation of income and gains from investments in A-Shares
through Stock Connect or obligations of an RQFII. The withholding
taxes on dividends, interest and capital gains may
in principle be subject to a reduced rate under an applicable
tax treaty, but the application of such treaties in the
case of an RQFII acting for a foreign investor such as the
fund is also uncertain. Finally, it is also unclear whether an
RQFII would also be eligible for PRC Business Tax (
“
BT
”
)
exemption, which has been granted to QFIIs, with respect
to gains derived prior to May 1, 2016. In practice, the BT
has not been collected. However, the imposition of such
taxes on the fund could have a material adverse effect on
the fund’s returns. Since May 1, 2016, RQFIIs are exempt
from PRC value-added tax, which replaced the BT with
respect to gains realized from the disposal of securities,
including A-Shares.
The PRC rules for taxation of RQFIIs (and QFIIs) are
evolving and certain tax regulations to be issued by the
PRC State Administration of Taxation and/or PRC Ministry
of Finance to clarify the subject matter may apply retrospectively,
even if such rules are adverse to the fund and
its shareholders.
If the PRC begins applying tax rules regarding the taxation
of income from A-Shares investments to RQFIIs and/or
begins collecting capital gains taxes on such investments
(whether made through Stock Connect or an RQFII), the
fund or Underlying Fund could be subject to withholding
tax liability in excess of the amount reserved (if any). The
impact of any such tax liability on the fund’s or Underlying
Fund’s return could be substantial. The fund will be liable
to the Advisor or Subadvisor for any Chinese tax that is
imposed on the Advisor or Subadvisor with respect to the
fund’s investments.
As described below under
“
Taxes – Taxes on Distributions,
”
the fund may elect, for US federal income tax purposes,
to treat Chinese taxes (including withholding taxes) paid by
the fund as paid by its shareholders. Even if the fund is
qualified to make that election and does so, however, your
ability to claim a credit for certain Chinese taxes may be
limited under general US tax principles.
In addition, to the extent the fund invests in swaps and
other derivative instruments, such investments may be
less tax-efficient from a US tax perspective than direct
investment in A-Shares and may be subject to special US
federal income tax rules that could adversely affect the
fund. Also the fund may be required to periodically adjust
its positions in those instruments to comply with certain
regulatory requirements which may further cause these
investments to be less efficient than a direct investment in
A-Shares.
Should the Chinese government impose restrictions on
the fund’s ability to repatriate funds associated with direct
investment in A-Shares, the fund may be unable to satisfy
distribution requirements applicable to regulated investment
companies (
“
RICs
”
) under the Internal Revenue
Code of 1986, as amended (the
“
Internal Revenue Code
”
),
and the fund may therefore be subject to fund-level US
federal taxes.
Risks of investing through Stock Connect.
Trading
through Stock Connect is subject to a number of restrictions
that may affect the fund’s investments and returns.
For example, trading through Stock Connect is subject to
the Daily Quota, which may restrict or preclude the fund’s
ability to invest in A-Shares through Stock Connect (
“
Stock
Connect A-Shares
”
). In addition, investments made
through Stock Connect are subject to trading, clearance
and settlement procedures that are relatively untested in
the PRC, which could pose risks to the fund. Moreover,
Stock Connect A-Shares generally may not be sold,
purchased or otherwise transferred other than through
Stock Connect in accordance with applicable rules. A
primary feature of Stock Connect is the application of the
home market’s laws and rules applicable to investors in
A-Shares. Therefore, the fund’s investments in Stock
Connect A-Shares are generally subject to PRC securities
regulations and listing rules, among other restrictions.
Finally, while foreign investors currently are exempted
from paying capital gains or value-added taxes on income
and gains from investments in Stock Connect A-Shares,
these PRC tax rules could be changed, which could result
in unexpected tax liabilities for the fund.
Stock Connect will only operate on days when both the
Chinese and Hong Kong markets are open for trading and
when banking services are available in both markets on the
corresponding settlement days. Therefore, an investment
in A-Shares through Stock Connect may subject the fund
to the risk of price fluctuations on days when the Chinese
markets are open, but Stock Connect is not trading.
The Stock Connect program is a relatively new program.
Further developments are likely and there can be no assurance
as to the program’s continued existence or whether
future developments regarding the program may restrict or
adversely affect the fund’s investments or returns. In addition,
the application and interpretation of the laws and
regulations of Hong Kong and the PRC, and the rules, policies
or guidelines published or applied by relevant
regulators and exchanges in respect of the Stock Connect
program are uncertain, and they may have a detrimental
effect on the fund’s investments and returns.
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Depositary receipt risk.
Depositary receipts involve
similar risks to those associated with investments in securities
of non-US issuers. Depositary receipts also may be
less liquid than the underlying shares in their primary
trading market.
Derivatives risk.
Risks associated with derivatives include
the risk that the derivative is not well correlated with the
security, index or currency to which it relates; the risk that
derivatives may result in losses or missed opportunities;
the risk that the fund will be unable to sell the derivative
because of an illiquid secondary market; the risk that a
counterparty is unwilling or unable to meet its obligation;
and the risk that the derivative transaction could expose
the fund to the effects of leverage, which could increase
the fund’s exposure to the market and magnify potential
losses. There is no guarantee that derivatives, to the extent
employed, will have the intended effect, and their use
could cause lower returns or even losses to the fund. The
use of derivatives by the fund to hedge risk may reduce
the opportunity for gain by offsetting the positive effect of
favorable price movements.
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Currency and repatriation risk.
The Underlying Index is
calculated in onshore RMB (CNY), whereas the fund’s reference
currency is the US dollar. As a result, the fund’s
return may be adversely affected by currency exchange
rates. Further, although offshore RMB and onshore RMB
are the same currency, they trade at different rates. To the
extent the fund needs to exchange offshore RMB and
onshore RMB, any divergence between offshore RMB and
onshore RMB may adversely impact shareholders. The
value of the US dollar measured against other currencies
is influenced by a variety of factors. These factors include:
interest rates, national debt levels and trade deficits,
changes in balances of payments and trade, domestic and
foreign interest and inflation rates, global or regional
political, economic or financial events, monetary policies
of governments, actual or potential government intervention,
global energy prices, political instability and
government monetary policies and the buying or selling of
currencies by a country’s government.
In addition, the Chinese government heavily regulates the
domestic exchange of foreign currencies within China.
Chinese law requires that all domestic transactions must
be settled in RMB, places significant restrictions on the
remittance of foreign currencies, and strictly regulates
currency exchange from RMB. There is no assurance that
there will always be sufficient amounts of RMB for the
fund to remain fully invested. Repatriations by RQFIIs are
currently permitted daily and are not subject to repatriation
restrictions or prior regulatory approval. However, there
is no assurance that Chinese rules and regulations will not
change or that repatriation restrictions will not be imposed
in the future. Further, such changes to the Chinese rules
and regulations may be applied retroactively. Any restrictions
on repatriation of the fund’s portfolio investments
may have an adverse effect on the fund’s ability to meet
redemption requests.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors
of the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Financials sector risk.
To the extent that the fund invests
significantly in the financials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
financials sector. The financials sector is subject to extensive
government regulation, can be subject to relatively
rapid change due to increasingly blurred distinctions
between service segments, and can be significantly
affected by availability and cost of capital funds, changes in
interest rates, the rate of corporate and consumer debt
defaults, and price competition.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
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Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
If the fund is forced to sell underlying investments at
reduced prices or under unfavorable conditions to meet
redemption requests or other cash needs, the fund may
suffer a loss.
Pricing risk.
If market conditions make it difficult to value
some investments
(including China A-Shares), the fund
may value these investments using more subjective
methods, such as fair value pricing. In such cases, the
value determined for an investment could be different from
the value realized upon such investment’s sale. As a result,
you could pay more than the market value when buying
fund shares or receive less than the market value when
selling fund shares.
Tracking error risk.
The performance of the fund may
diverge from that of its Underlying Index for a number of
reasons, including operating expenses, transaction costs,
cash flows and operational inefficiencies. The fund’s return
also may diverge from the return of the Underlying Index
because the fund bears the costs and risks associated
with buying and selling securities (especially when rebalancing
the fund’s securities holdings to reflect changes
in the Underlying Index) while such costs and risks are not
factored into the return of the Underlying Index. Transaction
costs, including brokerage costs, will decrease the
fund’s NAV to the extent not offset by the transaction fee
payable by an
“
Authorized Participant
”
(
“
AP
”
). Market
disruptions and regulatory restrictions could have an
adverse effect on the fund’s ability to adjust its exposure
to the required levels in order to track the Underlying
Index. In addition, to the extent that portfolio management
uses a representative sampling approach (investing in a
representative selection of securities included in the Underlying
Index rather than all securities in the Underlying
Index) it may cause the fund to not be as well correlated
with the return of the Underlying Index as would be the
case if the fund purchased all of the securities in the Underlying
Index in the proportions represented in the
Underlying Index. Errors in the Underlying Index data, the
Underlying Index computations and/or the construction
of the Underlying Index in accordance with its methodology
may occur from time to time and may not be
identified and corrected by the index provider for a period
of time or at all, which may have an adverse impact on the
fund and its shareholders. In addition, the fund may not
be able to invest in certain securities included in the Underlying
Index, or invest in them in the exact proportions in
which they are represented in the Underlying Index, due to
legal restrictions or limitations imposed by the governments
of certain countries, a lack of liquidity in the markets
in which such securities trade, potential adverse tax consequences
or other regulatory reasons. To the extent the
fund calculates its NAV based on fair value prices and the
value of the Underlying Index is based on securities’
closing prices (i.e., the value of the Underlying Index is not
based on fair value prices), the fund’s ability to track the
Underlying Index may be adversely affected. The performance
of the fund also may diverge from that of the
Underlying Index if the Advisor and/or Subadvisor seek to
gain exposure to A-Shares by investing in securities not
included in the Underlying Index, derivative instruments,
and other pooled investment vehicles because the
Subadvisor is unable to maintain its RQFII status, or the
Stock Connect Daily Quota has been exhausted. For tax
efficiency purposes, the fund may sell certain securities,
and such sale may cause the fund to realize a loss and
deviate from the performance of the Underlying Index. In
light of the factors discussed above, the fund’s return may
deviate significantly from the return of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
the NAV during periods of market volatility. The Advisor
cannot predict whether shares will trade above, below or
at their NAV. Given the fact that shares can be created and
redeemed in Creation Units (defined below), the Advisor
believes that large discounts or premiums to the NAV of
shares should not be sustained in the long-term. If market
makers exit the business or are unable to continue making
markets in fund shares, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market). Further, while the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in market prices that differ significantly
Prospectus
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Xtrackers Harvest CSI 300 China A-Shares ETF
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from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. In addition, the securities held by the fund
may be traded in markets that close at a different time
than the exchange on which the fund’s shares trade.
Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time
when the exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. The bid/ask spread of the fund may be
wider in comparison to the bid/ask spread of other ETFs,
due to the Fund’s exposure to A-Shares. Further,
secondary markets may be subject to irregular trading
activity, wide bid-ask spreads and extended trade settlement
periods, which could cause a material decline in the
fund’s NAV. The fund’s investment results are measured
based upon the daily NAV of the fund. Investors purchasing
and selling shares in the secondary market may not experience
investment results consistent with those
experienced by those APs creating and redeeming shares
directly with the fund.
Valuation risk.
Because non-US markets may be open on
days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the
fund’s shares.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
At any given time, due to the
composition of the Underlying Index, the fund may be classified
as
“
non-diversified
”
under the Investment Company
Act of 1940, as amended. This means that the fund may
invest in securities of relatively few issuers. Thus, the
performance of one or a small number of portfolio holdings
can affect overall performance.
Cash transactions risk.
Unlike most other ETFs, the fund
expects to effect its creations and redemptions principally
for cash, rather than in-kind securities. Paying redemption
proceeds in cash rather than through in-kind delivery of
portfolio securities may require the fund to dispose of or
sell portfolio investments to obtain the cash needed to
distribute redemption proceeds at an inopportune time.
This may cause the fund to recognize gains or losses that
it might not have incurred if it had made a redemption
in- kind. As a result, the fund may pay out higher or lower
annual capital gains distributions than ETFs that redeem in
kind. Only APs who have entered into an agreement with
the fund’s distributor may redeem shares from the fund
directly; all other investors buy and sell shares at market
prices on an exchange.
Country concentration risk.
To the extent that the fund
invests significantly in a single country, it is more likely to
be impacted by events or conditions affecting that country.
For example, political and economic conditions and
changes in regulatory, tax or economic policy in a country
could significantly affect the market in that country and
in surrounding or related countries and have a negative
impact on the fund’s performance.
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October 1, 2020
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Xtrackers Harvest CSI 300 China A-Shares ETF
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Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Portfolio turnover risk.
The fund may experience frequent
portfolio turnover due to the reconstituting and rebalancing
of the Underlying Index. A portfolio turnover rate of 200%,
for example, is equivalent to the fund buying and selling
all of its securities two times during the course of the year.
A high portfolio turnover rate could result in high brokerage
costs.
Past Performance
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund’s performance from year to year and by showing how the fund’s average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund’s past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future.
Updated performance information
is available on the fund’s website at
Xtrackers.com
(the website does not form a part of this prospectus).
CALENDAR YEAR TOTAL RETURNS(%)
Average Annual Total Returns(For periods ended 12/31/2019 expressed as a %)
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax. Your own actual after-tax returns will depend on your tax situation and may differ from what is shown here. After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts (“IRAs”) or employee-sponsored retirement plans.
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After tax on distribu-
tions
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After tax on distribu-
tions and sale of fund
shares
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CSI 300 Index
(reflects
no deductions for fees,
expenses or taxes)
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MSCI ACWI ex USA
Index
(reflects no deduc-
tions for fees, expenses
or taxes)
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Management
Investment Advisor
DBX Advisors LLC
Subadvisor
Harvest Global Investments Limited
Portfolio Managers
Kevin Sung, CFA,
employee of HGI. Portfolio Manager of
the fund. Began managing the fund in 2018.
Tom Chan, CFA,
employee of HGI. Portfolio Manager of
the fund. Began managing the fund in 2018.
Hubert Shek
,
employee of HGI. Portfolio Manager of the
fund. Began managing the fund in 2020.
Purchase and Sale of Fund Shares
The fund is an exchange-traded fund (commonly referred
to as an
“
ETF
”
). Individual fund shares may only be
purchased and sold through a brokerage firm. The price of
fund shares is based on market price, and because ETF
shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than
NAV (a discount). The fund will only issue or redeem
shares that have been aggregated into blocks of 50,000
shares or multiples thereof (
“
Creation Units
”
) to APs who
have entered into agreements with ALPS Distributors,
Inc., the fund’s distributor. You may incur costs attributable
to the difference between the highest price a buyer is
willing to pay to purchase shares of the fund (bid) and the
lowest price a seller is willing to accept for shares of the
fund (ask) when buying or selling shares (the
“
bid-ask
spread
”
). Information on the fund’s net asset value, market
price, premiums and discounts and bid-ask spreads may
be found at Xtrackers.com.
Tax Information
The fund's distributions are generally taxable to you as
ordinary income or capital gains, except when your investment
is in an IRA, 401(k), or other tax-deferred investment
plan. Any withdrawals you make from such tax- advantaged
investment plans, however, may be taxable to you.
Prospectus
October 1, 2020
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Xtrackers Harvest CSI 300 China A-Shares ETF
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Payments to Broker-Dealers and
Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer
or other financial intermediary (such as a bank), the
Advisor or other related companies may pay the intermediary
for marketing activities and presentations,
educational training programs, the support of technology
platforms and/or reporting systems or other services
related to the sale or promotion of the fund. These
payments may create a conflict of interest by influencing
the broker-dealer or other intermediary and your salesperson
to recommend the fund over another investment.
Ask your salesperson or visit your financial intermediary’s
website for more information.
Prospectus
October 1, 2020
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Xtrackers Harvest CSI 300 China A-Shares ETF
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Xtrackers MSCI China A Inclusion Equity ETF
|
Stock Exchange: NYSE Arca, Inc.
|
Investment Objective
The Xtrackers MSCI China A Inclusion Equity ETF (the
“
fund
”
) seeks investment results that correspond generally
to the performance, before fees and expenses, of the
MSCI China A Inclusion Index (the
“
Underlying Index
”
).
Fees and Expenses
These are the fees and expenses that you will pay when
you buy, hold and sell shares.
You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below.
ANNUAL FUND OPERATING EXPENSES(expenses that you pay each year as a % of the value of your investment)
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Total annual fund operating expenses
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EXAMPLE
This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then sell 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 operating expenses remain the same. The Example does not take into account brokerage commissions that you may pay on your purchases and sales of shares of the fund. It also does not include the transaction fees on purchases and redemptions of Creation Units (defined herein), because those fees will not be imposed on retail investors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
PORTFOLIO TURNOVER
The fund pays transaction costs, such as commissions,
when it buys and sells securities (or
“
turns over
”
its portfolio).
A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are
investing in a taxable account. These costs are not
reflected in annual fund operating expenses or in the
expense example, and can affect the fund's performance.
During the most recent fiscal year, the fund’s portfolio turnover
rate was
27
% of the average value of its portfolio.
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track the equity
market performance of China A-Shares that are accessible
through the Shanghai-Hong Kong Stock Connect program
(
“
Shanghai Connect
”
) or the Shenzhen- Hong Kong Stock
Connect program (
“
Shenzhen Connect,
”
and together with
Shanghai Connect,
“
Stock Connect
”
).
“
A-Shares
”
are
equity securities issued by companies incorporated in
mainland China and are denominated in renminbi (
“
RMB
”
).
Certain eligible A-Shares are traded on the Shanghai Stock
Exchange (
“
SSE
”
) or Shenzhen Stock Exchange (
“
SZSE
”
).
The Underlying Index is designed to track the inclusion
of A-Shares in the MSCI Emerging Markets Index over
time and is constructed by MSCI, Inc. (the
“
Index
Provider
”
or
“
MSCI
”
) by applying eligibility criteria for the
MSCI Global Investable Market Indexes (
“
GIMI
”
), and then
excluding small-capitalization A-Shares (as determined by
MSCI), A-Shares suspended for trading for more than 50
days in the past 12 months and A-Shares that are not
accessible through Stock Connect. The Underlying Index is
weighted by each issuer’s free float-adjusted market capitalization
(i.e., includes only shares that are readily available
Prospectus
October 1, 2020
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Xtrackers MSCI China A Inclusion Equity ETF
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for trading in the market) available to foreign investors and
includes only large-capitalization companies, as determined
by MSCI. The fund intends to invest in A-Shares
included in the Underlying Index primarily through Stock
Connect. Stock Connect is a securities trading and clearing
program with an aim to achieve mutual stock market
access between the People’s Republic of China (
“
China
”
or the
“
PRC
”
) and Hong Kong. Stock Connect was developed
by Hong Kong Exchanges and Clearing Limited, the
SSE (in the case of Shanghai Connect) or the SZSE (in the
case of Shenzhen Connect), and China Securities Depository
and Clearing Corporation Limited (
“
CSDCC
”
). Under
Stock Connect, the fund’s trading of eligible A-Shares listed
on the SSE or the SZSE, as applicable, would be effectuated
through DBX Advisors LLC (the
“
Advisor
”
). Trading
through Stock Connect is subject to a daily quota (
“
Daily
Quota
”
), which limits the maximum net purchases on any
particular day by Hong Kong investors (and foreign investors
trading through Hong Kong) trading PRC listed
securities and PRC investors trading Hong Kong listed
securities trading through the relevant Stock Connect, and
as such, buy orders for A-Shares would be rejected once
the Daily Quota is exceeded (although the fund will be
permitted to sell A-Shares regardless of the Daily Quota
balance). The Daily Quota is not specific to the fund, but to
all investors investing through the Stock Connect. From
time to time, other stock exchanges in China may participate
in Stock Connect, and A-Shares listed and traded on
such other stock exchanges and accessible through Stock
Connect may be added to the Underlying Index, as determined
by MSCI.
Under current regulations in China, foreign investors can
also invest in the PRC’s domestic securities markets
through certain market-access programs. These programs
include the Qualified Foreign Institutional Investor (
“
QFII
”
)
program and the Renminbi Qualified Foreign Institutional
Investor (
“
RQFII
”
) program, where investors will be
required to obtain a license from the China Securities
Regulatory Commission (
“
CSRC
”
) in order to participate in
these programs. QFII and RQFII investors will also need
to register with China’s State Administration of Foreign
Exchange (
“
SAFE
”
) to invest foreign freely convertible
currencies (in the case of a QFII) and RMB (in the case of
an RQFII) in the PRC for the purpose of investing in the
PRC’s domestic securities markets.
The fund intends to invest directly in A-Shares through
Stock Connect, but, in the future, may also utilize an RQFII
license applied for by and granted to the Advisor and/or a
subadvisor subsequently appointed for the fund. In the
event the Advisor obtains an RQFII license, or appoints a
subadvisor that has such license, under certain circumstances,
including when the fund’s ability to invest in
A-Shares through Stock Connect is restricted as a result of
the Daily Quota or otherwise, the Advisor and/or a
subadvisor, on behalf of the fund, may invest in A-Shares
and other permitted China securities listed on the SSE and
SZSE through the QFII or RQFII license. Accordingly, the
fund’s direct investments in A-Shares will be limited in part
by the Daily Quota of Stock Connect through the QFII or
RQFII license. Investment companies are not currently
within the types of entities that are eligible for an RQFII or
QFII license.
The Advisor expects to use a full replication indexing
strategy to seek to track the Underlying Index. As such,
the Advisor expects to invest directly in the component
securities (or a substantial number of the component
securities) of the Underlying Index in substantially the
same weightings in which they are represented in the
Underlying Index. If it is not possible for the Advisor to
acquire component securities due to limited availability or
regulatory restrictions, the Advisor may use a representative
sampling indexing strategy to seek to track the
Underlying Index instead of a full replication indexing
strategy.
“
Representative sampling
”
is an indexing
strategy that involves investing in a representative sample
of securities that collectively has an investment profile
similar to the Underlying Index. The securities selected are
expected to have, in the aggregate, investment characteristics
(based on factors such as market capitalization
and industry weightings), fundamental characteristics
(such as return variability and yield), and liquidity measures
similar to those of the Underlying Index. The fund may or
may not hold all of the securities in the Underlying Index
when the Advisor is using a representative sampling
indexing strategy.
The fund will normally invest at least 80% of its total
assets in securities (including depositary receipts in
respect of such securities) of issuers that comprise the
Underlying Index. The fund will seek to achieve its investment
objective by primarily investing directly in A-Shares.
Because the fund does not satisfy the criteria to qualify as
an RQFII or QFII itself, the fund intends to invest directly
in A-Shares via Stock Connect and, in the future, may also
utilize any QFII or RQFII license applied for by and granted
to the Advisor and/or a subadvisor. While the fund intends
to invest primarily and directly in A-Shares, the fund also
may invest in securities of issuers not included in the
Underlying Index, futures contracts, stock index futures,
swap contracts and other types of derivative instruments,
and other pooled investment vehicles, including exchange-traded
funds (
“
ETFs
”
), whether or not managed by the
Advisor, as well as foreign investment companies, that the
Advisor believes will help the fund to achieve its investment
objective. The remainder of the fund’s assets will be
invested primarily in money market instruments and cash
equivalents. Under normal circumstances, the fund invests
at least 80% of its net assets, plus the amount of any
borrowings for investment purposes, in A-Shares of
Chinese issuers or in derivative instruments and other
securities that provide investment exposure to A-Shares of
Chinese issuers.
Prospectus
October 1, 2020
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12
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Xtrackers MSCI China A Inclusion Equity ETF
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As of July 31, 2020, the Underlying Index consisted of 473
securities with an average market capitalization of approximately
$3.29 billion and a minimum market capitalization
of approximately $613 million. Under normal circumstances,
the Underlying Index is rebalanced quarterly in
February, May, August and November. The fund rebalances
its portfolio in accordance with the Underlying Index, and,
therefore, any changes to the Underlying Index’s rebalance
schedule will result in corresponding changes to the fund’s
rebalance schedule.
The fund is classified as a non-diversified fund under the
Investment Company Act of 1940, as amended (the
“
1940
Act
”
).
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that the Underlying Index is concentrated.
As of July 31, 2020, a significant
percentage of the Underlying Index was comprised of
issuers in the financials (21.1%) and consumer staples
(17.1%) sectors. The financials sector includes companies
involved in banking, consumer finance, asset management
and custody banks, as well as investment banking
and brokerage and insurance. The consumer staples sector
includes companies whose businesses are less sensitive
to economic cycles, such as manufacturers and distributors
of food, beverages and producers of non-durable
household goods and personal products. To the extent that
the fund tracks the Underlying Index, the fund’s investment
in certain sectors may change over time.
While the fund is currently classified as
“
non-diversified
”
under the Investment Company Act of 1940, it may
operate as or become classified as
“
diversified
”
over time.
The fund could again become non-diversified solely as a
result of a change in relative market capitalization or index
weighting of one or more constituents of the index that
the fund is designed to track. Shareholder approval will not
be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Main Risks
As with any investment, you could lose all or part of your investment in the fund, and the fund’s performance could trail that of other investments.
The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective, as
well as numerous other risks that are described in greater
detail in the section of this Prospectus entitled
“
Additional
Information About Fund Strategies, Underlying Index Information
and Risks
”
and in the Statement of Additional
Information (
“
SAI
”
).
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
Prospectus
October 1, 2020
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Xtrackers MSCI China A Inclusion Equity ETF
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the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Special risk considerations relating to investments in
A-Shares.
The Advisor’s ability to achieve its investment
objective by investing in the component securities of the
Underlying Index is dependent on the continuous availability
of A-Shares. The fund intends to invest directly in
A-Shares through Stock Connect, but, in the future, may
also utilize an RQFII license applied for by and granted to
the Advisor and/or a subadvisor. Because the fund will not
be able to invest directly in A-Shares beyond the Daily
Quota to which Stock Connect is subject, the size of the
fund’s direct investment in A-Shares may be limited. If the
Daily Quota and/or RQFII license is or becomes inadequate
to meet the investment needs of the fund or if the
Advisor and/or subadvisor becomes unable to maintain
its RQFII status, the Advisor may seek to gain exposure to
the A-Share market by investing in securities not included
in the Underlying Index, futures contracts, swaps and
other derivative instruments, and other pooled investment
vehicles, including foreign and/or affiliated funds, that
provide exposure to the A-Share market until the Daily
Quota accommodates the fund’s investment needs. A revocation
in or elimination of the RQFII license, or constraints
of the Daily Quota, may not only adversely affect the
ability of the fund to invest directly in A-Shares, but also
the willingness of swap counterparties to engage in swaps
and the performance of pooled investment vehicles linked
to the performance of A-Shares. Therefore, any such revocation
or elimination of the RQFII license or the
constraints of the Daily Quota may have a material adverse
effect on the ability of the fund to achieve its investment
objective.
These risks are compounded by the fact that at present
there are only a limited number of firms and counterparties
that have QFII or RQFII status. In addition, an RQFII
license may be revoked by Chinese regulators if, among
other things, the Advisor and/or a subadvisor fails to
observe SAFE and other applicable Chinese regulations,
which could also lead to other adverse consequences,
including the requirement that the fund dispose of its
A-Shares holdings. There can be no guarantee that the
fund will be able to invest in appropriate futures contracts,
swaps and other derivative instruments, and the PRC
government may at times restrict the ability of firms regulated
in the PRC to make such instruments available. In
addition, there are custody risks associated with investing
through an RQFII, where, due to requirements regarding
establishing a custody account in the joint names of the
fund and the RQFII, the fund’s assets may not be as well
protected from the claims of the RQFII’s creditors than
if the fund had an account in its name only.
If the fund is unable to obtain sufficient exposure to the
performance of the Underlying Index due to the limited
availability of the Daily Quota or other investments that
provide exposure to the performance of A-Shares, the fund
could, among other actions, limit or suspend creations
until the Advisor determines that the requisite exposure to
the Underlying Index is obtainable. During the period that
creations are limited or suspended, the fund could trade at
a significant premium or discount to the NAV and could
experience substantial redemptions. Alternatively, the fund
could change its investment objective by, for example,
seeking to track an alternative index that does not include
A-Shares as its component securities, or decide to liquidate
the fund.
On May 7, 2020, the People’s Bank of China (
“
PBOC
”
) and
SAFE jointly issued the Regulations on Funds of Securities
and Futures Investment by Foreign Institutional
Investors (PBOC & SAFE Announcement [2020] No. 2)
(the
“
Regulations
”
) which came into effect on June 6,
2020. The Regulations supersede certain post-registration
rules applicable to QFII and RQFII regimes. One of the
key changes of the Regulations is the removal of quota
restrictions on investment. However, as of the date of this
prospectus, this is a relatively new development, and
there is no guarantee that the quotas will continue to be
relaxed.
Risks of investing through Stock Connect.
Trading
through Stock Connect is subject to a number of restrictions
that may affect the fund’s investments and returns.
For example, trading through Stock Connect is subject to
the Daily Quota, which may restrict or preclude the fund’s
ability to invest in A-Shares through Stock Connect (
“
Stock
Connect A-Shares
”
). In addition, investments made
through Stock Connect are subject to trading, clearance
and settlement procedures that are relatively untested in
the PRC, which could pose risks to the fund. Moreover,
Stock Connect A-Shares generally may not be sold,
purchased or otherwise transferred other than through
Stock Connect in accordance with applicable rules. A
primary feature of Stock Connect is the application of the
home market’s laws and rules applicable to investors in
A-Shares. Therefore, the fund’s investments in Stock
Connect A-Shares are generally subject to PRC securities
regulations and listing rules, among other restrictions.
Finally, while foreign investors currently are exempted
from paying capital gains or value-added taxes on income
and gains from investments in Stock Connect A-Shares,
these PRC tax rules could be changed, which could result
in unexpected tax liabilities for the fund.
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Stock Connect will only operate on days when both the
Chinese and Hong Kong markets are open for trading and
when banking services are available in both markets on the
corresponding settlement days. Therefore, an investment
in A-Shares through Stock Connect may subject the fund
to the risk of price fluctuations on days when the Chinese
markets are open, but Stock Connect is not trading.
The Stock Connect program is a relatively new program.
Further developments are likely and there can be no assurance
as to the program’s continued existence or whether
future developments regarding the program may restrict or
adversely affect the fund’s investments or returns. In addition,
the application and interpretation of the laws and
regulations of Hong Kong and the PRC, and the rules, policies
or guidelines published or applied by relevant
regulators and exchanges in respect of the Stock Connect
program are uncertain, and they may have a detrimental
effect on the fund’s investments and returns.
Special risk considerations of investing in China.
Investing in securities of Chinese issuers involves certain
risks and considerations not typically associated with
investing in securities of US issuers, including, among
others, (i) more frequent (and potentially widespread)
trading suspensions and government interventions with
respect to Chinese issuers, resulting in lack of liquidity and
in price volatility, (ii) currency revaluations and other
currency exchange rate fluctuations or blockage, (iii) the
nature and extent of intervention by the Chinese government
in the Chinese securities markets (including both
direct and indirect market stabilization efforts, which may
affect valuations of Chinese issuers), whether such intervention
will continue and the impact of such intervention
or its discontinuation, (iv) the risk of nationalization or expropriation
of assets, (v) the risk that the Chinese government
may decide not to continue to support economic reform
programs, (vi) limitations on the use of brokers (or action
by the Chinese government that discourages brokers from
serving international clients), (vii) higher rates of inflation,
(viii) greater political, economic and social uncertainty, (ix)
higher market volatility caused by any potential regional
territorial conflicts or natural disasters, (x) the risk of
increased trade tariffs, embargoes and other trade or regulatory
limitations, (xi) restrictions on foreign ownership,
(xii) custody risks associated with investing through Stock
Connect, an RQFII or other programs to access the
Chinese securities markets, (xiii) both interim and permanent
market regulations which may affect the ability of
certain stockholders to sell Chinese securities when it
would otherwise be advisable, and (xiv) different and less
stringent financial reporting standards.
From time to time, and as recently as early 2020 with the
coronavirus known as COVID-19, China has experienced
outbreaks of infectious illnesses, and the country may be
subject to other infectious illnesses, diseases or other
public health emergencies in the future. Any public health
emergency could reduce consumer demand or economic
output, result in market closures, travel restrictions or quarantines,
and generally have a significant impact on the
Chinese economy, which in turn could adversely affect the
fund’s investments.
A-Shares tax risk.
Uncertainties in the Chinese tax rules
governing taxation of income and gains from investments
in A-Shares could result in unexpected tax liabilities for the
fund or Underlying Fund. China generally imposes withholding
tax at a rate of 10% on dividends and interest
derived by nonresident enterprises (including QFIIs and
RQFIIs) from issuers resident in China. China also imposes
withholding tax at a rate of 10% on capital gains derived
by nonresident enterprises from investments in an issuer
resident in China, subject to an exemption or reduction
pursuant to domestic law or a double taxation agreement
or arrangement.
Since the respective inception of the Shanghai – Hong
Kong and Shenzhen – Hong Kong Stock Connect
programs, foreign investors (including the fund) investing
in A-Shares through Stock Connect would be temporarily
exempt from the PRC corporate income tax and value-
added tax on the gains on disposal of such A-Shares. Dividends
would be subject to PRC corporate income tax on
a withholding basis at 10%, unless reduced under a double
tax treaty with China upon application to and obtaining
approval from the competent tax authority. Since
November 17, 2014, the corporate income tax for QFIIs
and RQFIIs, with respect to capital gains, has been temporarily
lifted. The withholding tax relating to the realized
gains from shares in land-rich companies prior to
November 17, 2014 has been paid by the fund, while realized
gains from shares in non-land-rich companies prior
to November 17, 2014 were granted by treaty relief
pursuant to the PRC-US Double Taxation Agreement.
During 2015, revenue authorities in the PRC made
arrangements for the collection of capital gains taxes for
investments realized between November 17, 2009 and
November 16, 2014. The fund could be subject to tax
liability for any tax payments for which reserves have not
been made or that were not previously withheld. The
impact of any such tax liability on the fund’s return could
be substantial. The fund may also be liable to the Advisor
or subadvisor for any tax that is imposed on the Advisor or
subadvisor by the PRC with respect to the fund’s investments.
If the fund’s direct investments in A-Shares through
the Advisor’s or subadvisor’s RQFII license become
subject to repatriation restrictions or delays, the fund may
be unable to satisfy distribution requirements applicable
to RICs under the Internal Revenue Code, and be subject
to tax at the fund level. The current PRC tax laws and regulations
and interpretations thereof may be revised or
amended in the future, potentially retroactively, including
with respect to the possible liability of the fund for the
taxation of income and gains from investments in A-Shares
through Stock Connect or obligations of an RQFII. The withholding
taxes on dividends, interest and capital gains may
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in principle be subject to a reduced rate under an applicable
tax treaty, but the application of such treaties in the
case of an RQFII acting for a foreign investor such as the
fund is also uncertain. Finally, it is also unclear whether an
RQFII would also be eligible for PRC Business Tax (
“
BT
”
)
exemption, which has been granted to QFIIs, with respect
to gains derived prior to May 1, 2016. In practice, the BT
has not been collected. However, the imposition of such
taxes on the fund could have a material adverse effect on
the fund’s returns. Since May 1, 2016, RQFIIs are exempt
from PRC value-added tax, which replaced the BT with
respect to gains realized from the disposal of securities,
including A-Shares.
The PRC rules for taxation of RQFIIs (and QFIIs) are
evolving and certain tax regulations to be issued by the
PRC State Administration of Taxation and/or PRC Ministry
of Finance to clarify the subject matter may apply retrospectively,
even if such rules are adverse to the fund and
its shareholders.
If the PRC begins applying tax rules regarding the taxation
of income from A-Shares investments to RQFIIs and/or
begins collecting capital gains taxes on such investments
(whether made through Stock Connect or an RQFII), the
fund or Underlying Fund could be subject to withholding
tax liability in excess of the amount reserved (if any). The
impact of any such tax liability on the fund’s or Underlying
Fund’s return could be substantial. The fund will be liable
to the Advisor or subadvisor for any Chinese tax that is
imposed on the Advisor or subadvisor with respect to the
fund’s investments.
As described below under
“
Taxes – Taxes on Distributions,
”
the fund may elect, for US federal income tax purposes,
to treat Chinese taxes (including withholding taxes) paid by
the fund as paid by its shareholders. Even if the fund is
qualified to make that election and does so, however, your
ability to claim a credit for certain Chinese taxes may be
limited under general US tax principles.
In addition, to the extent the fund invests in swaps and
other derivative instruments, such investments may be
less tax-efficient from a US tax perspective than direct
investment in A-Shares and may be subject to special US
federal income tax rules that could adversely affect the
fund. Also the fund may be required to periodically adjust
its positions in those instruments to comply with certain
regulatory requirements which may further cause these
investments to be less efficient than a direct investment in
A-Shares.
Should the Chinese government impose restrictions on
the fund’s ability to repatriate funds associated with direct
investment in A-Shares, the fund may be unable to satisfy
distribution requirements applicable to regulated investment
companies (
“
RICs
”
) under the Internal Revenue
Code of 1986, as amended (the
“
Internal Revenue Code
”
),
and the fund may therefore be subject to fund-level US
federal taxes.
Depositary receipt risk.
Depositary receipts involve
similar risks to those associated with investments in securities
of non-US issuers. Depositary receipts also may be
less liquid than the underlying shares in their primary
trading market.
Derivatives risk.
Risks associated with derivatives include
the risk that the derivative is not well correlated with the
security, index or currency to which it relates; the risk that
derivatives may result in losses or missed opportunities;
the risk that the fund will be unable to sell the derivative
because of an illiquid secondary market; the risk that a
counterparty is unwilling or unable to meet its obligation;
and the risk that the derivative transaction could expose
the fund to the effects of leverage, which could increase
the fund’s exposure to the market and magnify potential
losses. There is no guarantee that derivatives, to the extent
employed, will have the intended effect, and their use
could cause lower returns or even losses to the fund. The
use of derivatives by the fund to hedge risk may reduce
the opportunity for gain by offsetting the positive effect of
favorable price movements.
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Currency and repatriation risk.
The Underlying Index is
calculated in onshore RMB (CNY), whereas the fund’s reference
currency is the US dollar. As a result, the fund’s
return may be adversely affected by currency exchange
rates. Further, although offshore RMB and onshore RMB
are the same currency, they trade at different rates. To the
extent the fund needs to exchange offshore RMB and
onshore RMB, any divergence between offshore RMB and
onshore RMB may adversely impact shareholders. The
value of the US dollar measured against other currencies
is influenced by a variety of factors. These factors include:
interest rates, national debt levels and trade deficits,
changes in balances of payments and trade, domestic and
foreign interest and inflation rates, global or regional
political, economic or financial events, monetary policies
of governments, actual or potential government intervention,
global energy prices, political instability and
government monetary policies and the buying or selling of
currencies by a country’s government.
In addition, the Chinese government heavily regulates the
domestic exchange of foreign currencies within China.
Chinese law requires that all domestic transactions must
be settled in RMB, places significant restrictions on the
remittance of foreign currencies, and strictly regulates
currency exchange from RMB. There is no assurance that
there will always be sufficient amounts of RMB for the
fund to remain fully invested. Repatriations by RQFIIs are
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currently permitted daily and are not subject to repatriation
restrictions or prior regulatory approval. However, there
is no assurance that Chinese rules and regulations will not
change or that repatriation restrictions will not be imposed
in the future. Further, such changes to the Chinese rules
and regulations may be applied retroactively. Any restrictions
on repatriation of the fund’s portfolio investments
may have an adverse effect on the fund’s ability to meet
redemption requests.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors
of the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Financials sector risk.
To the extent that the fund invests
significantly in the financials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
financials sector. The financials sector is subject to extensive
government regulation, can be subject to relatively
rapid change due to increasingly blurred distinctions
between service segments, and can be significantly
affected by availability and cost of capital funds, changes in
interest rates, the rate of corporate and consumer debt
defaults, and price competition.
Consumer staples sector risk.
To the extent that the fund
invests significantly in the consumer staples sector, the
fund will be sensitive to changes in, and the fund’s performance
may depend to a greater extent on, the overall
condition of the consumer staples sector. Companies in
the consumer staples sector may be adversely affected by
changes in the global economy, consumer spending,
competition, demographics and consumer preferences,
and production spending. Companies in the consumer
staples sector are also affected by changes in government
regulation, global economic, environmental and political
events, economic conditions and the depletion of
resources. In addition, companies in the consumer staples
sector may be subject to risks pertaining to the supply of,
demand for and prices of raw materials. The prices of raw
materials fluctuate in response to a number of factors,
including, without limitation, changes in government agricultural
support programs, exchange rates, import and
export controls, changes in international agricultural and
trading policies, and seasonal and weather conditions.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
If the fund is forced to sell underlying investments at
reduced prices or under unfavorable conditions to meet
redemption requests or other cash needs, the fund may
suffer a loss.
Pricing risk.
If market conditions make it difficult to value
some investments
(including China A-Shares), the fund
may value these investments using more subjective
methods, such as fair value pricing. In such cases, the
value determined for an investment could be different from
the value realized upon such investment’s sale. As a result,
you could pay more than the market value when buying
fund shares or receive less than the market value when
selling fund shares.
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Tracking error risk.
The performance of the fund may
diverge from that of its Underlying Index for a number of
reasons, including operating expenses, transaction costs,
cash flows and operational inefficiencies. The fund’s return
also may diverge from the return of the Underlying Index
because the fund bears the costs and risks associated
with buying and selling securities (especially when rebalancing
the fund’s securities holdings to reflect changes
in the Underlying Index) while such costs and risks are not
factored into the return of the Underlying Index. Transaction
costs, including brokerage costs, will decrease the
fund’s NAV to the extent not offset by the transaction fee
payable by an
“
Authorized Participant
”
(
“
AP
”
). Market
disruptions and regulatory restrictions could have an
adverse effect on the fund’s ability to adjust its exposure
to the required levels in order to track the Underlying
Index. In addition, to the extent that portfolio management
uses a representative sampling approach (investing in a
representative selection of securities included in the Underlying
Index rather than all securities in the Underlying
Index) it may cause the fund to not be as well correlated
with the return of the Underlying Index as would be the
case if the fund purchased all of the securities in the
Underlying Index in the proportions represented in the
Underlying Index. Errors in the Underlying Index data, the
Underlying Index computations and/or the construction
of the Underlying Index in accordance with its methodology
may occur from time to time and may not be
identified and corrected by the index provider for a period
of time or at all, which may have an adverse impact on the
fund and its shareholders. In addition, the fund may not
be able to invest in certain securities included in the Underlying
Index, or invest in them in the exact proportions in
which they are represented in the Underlying Index, due to
legal restrictions or limitations imposed by the governments
of certain countries, a lack of liquidity in the markets
in which such securities trade, potential adverse tax consequences
or other regulatory reasons. To the extent the
fund calculates its NAV based on fair value prices and the
value of the Underlying Index is based on securities’
closing prices (i.e., the value of the Underlying Index is not
based on fair value prices), the fund’s ability to track the
Underlying Index may be adversely affected. The performance
of the fund also may diverge from that of the
Underlying Index if the Advisor and/or subadvisor seek to
gain exposure to A-Shares by investing in securities not
included in the Underlying Index, derivative instruments,
and other pooled investment vehicles because the
subadvisor is unable to maintain its RQFII status, or the
Stock Connect Daily Quota has been exhausted. For tax
efficiency purposes, the fund may sell certain securities,
and such sale may cause the fund to realize a loss and
deviate from the performance of the Underlying Index. In
light of the factors discussed above, the fund’s return may
deviate significantly from the return of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
the NAV during periods of market volatility. The Advisor
cannot predict whether shares will trade above, below or
at their NAV. Given the fact that shares can be created and
redeemed in Creation Units (defined below), the Advisor
believes that large discounts or premiums to the NAV of
shares should not be sustained in the long-term. If market
makers exit the business or are unable to continue making
markets in fund shares, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market). Further, while the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in market prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. In addition, the securities held by the fund
may be traded in markets that close at a different time
than the exchange on which the fund’s shares trade.
Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time
when the exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. The bid/ask spread of the fund may be
wider in comparison to the bid/ask spread of other ETFs,
due to the Fund’s exposure to A-Shares. Further,
secondary markets may be subject to irregular trading
activity, wide bid-ask spreads and extended trade settlement
periods, which could cause a material decline in the
fund’s NAV. The fund’s investment results are measured
based upon the daily NAV of the fund. Investors purchasing
and selling shares in the secondary market may not experience
investment results consistent with those
experienced by those APs creating and redeeming shares
directly with the fund.
Valuation risk.
Because non-US markets may be open on
days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the
fund’s shares.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
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fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk. The fund is classified as non-diversified under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.
If the fund becomes classified as
“
diversified
”
over time
and again becomes non-diversified as a result of a change
in relative market capitalization or index weighting of one
or more constituents of the index that the fund is designed
to track, non-diversification risk would apply.
Cash transactions risk.
Unlike most other ETFs, the fund
expects to effect its creations and redemptions principally
for cash, rather than in-kind securities. Paying redemption
proceeds in cash rather than through in-kind delivery of
portfolio securities may require the fund to dispose of or
sell portfolio investments to obtain the cash needed to
distribute redemption proceeds at an inopportune time.
This may cause the fund to recognize gains or losses that
it might not have incurred if it had made a redemption
in- kind. As a result, the fund may pay out higher or lower
annual capital gains distributions than ETFs that redeem in
kind. Only APs who have entered into an agreement with
the fund’s distributor may redeem shares from the fund
directly; all other investors buy and sell shares at market
prices on an exchange.
Country concentration risk.
To the extent that the fund
invests significantly in a single country, it is more likely to
be impacted by events or conditions affecting that country.
For example, political and economic conditions and
changes in regulatory, tax or economic policy in a country
could significantly affect the market in that country and
in surrounding or related countries and have a negative
impact on the fund’s performance.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Past Performance
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund’s performance from year to year and by showing how the fund’s average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund’s past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future.
Updated performance information
is available on the fund’s website at
Xtrackers.com
(the website does not form a part of this prospectus).
Prior to June 4, 2018, the fund sought investment results
that corresponded generally to the performance, before
the fund’s fees and expenses, of the prior underlying
index.
Prospectus
October 1, 2020
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Xtrackers MSCI China A Inclusion Equity ETF
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CALENDAR YEAR TOTAL RETURNS(%)
Average Annual Total Returns(For periods ended 12/31/2019 expressed as a %)
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax. Your own actual after-tax returns will depend on your tax situation and may differ from what is shown here. After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts (“IRAs”) or employee-sponsored retirement plans.
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After tax on distribu-
tions
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After tax on distribu-
tions and sale of fund
shares
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MSCI China A Inclusion
Index
(reflects no deduc-
tions for fees, expenses
or taxes)
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MSCI ACWI ex USA
Index
(reflects no deduc-
tions for fees, expenses
or taxes)
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Management
Investment Advisor
DBX Advisors LLC
Portfolio Managers
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2015.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
Purchase and Sale of Fund Shares
The fund is an exchange-traded fund (commonly referred
to as an
“
ETF
”
). Individual fund shares may only be
purchased and sold through a brokerage firm. The price of
fund shares is based on market price, and because ETF
shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than
NAV (a discount). The fund will only issue or redeem
shares that have been aggregated into blocks of 50,000
shares or multiples thereof (
“
Creation Units
”
) to APs who
have entered into agreements with ALPS Distributors,
Inc., the fund’s distributor. You may incur costs attributable
to the difference between the highest price a buyer is
willing to pay to purchase shares of the fund (bid) and the
lowest price a seller is willing to accept for shares of the
fund (ask) when buying or selling shares (the
“
bid-ask
spread
”
). Information on the fund’s net asset value, market
price, premiums and discounts and bid-ask spreads may
be found at Xtrackers.com.
Tax Information
The fund's distributions are generally taxable to you as
ordinary income or capital gains, except when your investment
is in an IRA, 401(k), or other tax-deferred investment
plan. Any withdrawals you make from such tax- advantaged
investment plans, however, may be taxable to you.
Payments to Broker-Dealers and
Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer
or other financial intermediary (such as a bank), the
Advisor or other related companies may pay the intermediary
for marketing activities and presentations,
educational training programs, the support of technology
platforms and/or reporting systems or other services
related to the sale or promotion of the fund. These
payments may create a conflict of interest by influencing
the broker-dealer or other intermediary and your salesperson
to recommend the fund over another investment.
Ask your salesperson or visit your financial intermediary’s
website for more information.
Prospectus
October 1, 2020
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Xtrackers MSCI China A Inclusion Equity ETF
|
Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF
|
Stock Exchange: NYSE Arca, Inc.
|
Investment Objective
The Xtrackers Harvest CSI 500 China A-Shares Small Cap
ETF (the
“
fund
”
) seeks investment results that correspond
generally to the performance, before fees and expenses,
of the CSI 500 Index (the
“
Underlying Index
”
).
Fees and Expenses
These are the fees and expenses that you will pay when
you buy, hold and sell shares.
You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below.
ANNUAL FUND OPERATING EXPENSES(expenses that you pay each year as a % of the value of your investment)
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Total annual fund operating expenses
|
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EXAMPLE
This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then sell 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 operating expenses remain the same. The Example does not take into account brokerage commissions that you may pay on your purchases and sales of shares of the fund. It also does not include the transaction fees on purchases and redemptions of Creation Units (defined herein), because those fees will not be imposed on retail investors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
PORTFOLIO TURNOVER
The fund pays transaction costs, such as commissions,
when it buys and sells securities (or
“
turns over
”
its portfolio).
A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are
investing in a taxable account. These costs are not
reflected in annual fund operating expenses or in the
expense example, and can affect the fund's performance.
During the most recent fiscal year, the fund’s portfolio turnover
rate was
48
% of the average value of its portfolio.
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to reflect the price
fluctuation and performance of small-cap companies in the
China A-Share market and is composed of the 500
smallest and most liquid stocks in the China A-Share
market. DBX Advisors LLC (the
“
Advisor
”
) expects that,
over time, the correlation between the fund’s performance
and that of the Underlying Index, before fees and
expenses, will be 95% or better. A figure of 100% would
indicate perfect correlation.
A-Shares are equity securities issued by companies incorporated
in mainland China and are denominated and traded
in renminbi (
“
RMB
”
) on the Shenzhen and Shanghai Stock
Exchanges. Under current regulations in the People’s
Republic of China (
“
China
”
or the
“
PRC
”
), foreign investors
can invest in the domestic PRC securities markets
through certain market-access programs. These programs
include the Qualified Foreign Institutional Investor (
“
QFII
”
)
or a Renminbi Qualified Foreign Institutional Investor
(
“
RQFII
”
) licenses obtained from the China Securities
Regulatory Commission (
“
CSRC
”
). QFII and RQFII investors
have registered with China’s State Administration of
Prospectus
October 1, 2020
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Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF
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Foreign Exchange (
“
SAFE
”
) to invest foreign freely convertible
currencies (in the case of a QFII) and RMB (in the case
of an RQFII) in the PRC for the purpose of investing in
the PRC’s domestic securities markets.
Harvest Global Investments Limited (
“
HGI
”
or the
“
Subadvisor
”
) is a licensed RQFII and the fund may therefore
invest in A-Shares via HGI's RQFII license. The
Subadvisor, on behalf of the fund, may invest in A-Shares
and other permitted China securities listed on the Shanghai
and Shenzhen Stock Exchanges. The fund may also invest
in A-Shares listed and traded on the Shanghai Stock
Exchange and Shenzhen Stock Exchange through the
Shanghai – Hong Kong and Shenzhen – Hong Kong Stock
Connect programs (
“
Stock Connect
”
). Stock Connect is
a securities trading and clearing program between either
the Shanghai Stock Exchange or Shenzhen Stock
Exchange, and The Stock Exchange of Hong Kong Limited
(
“
SEHK
”
), China Securities Depository and Clearing Corporation
Limited and Hong Kong Securities Clearing
Company Limited. Stock Connect is designed to permit
mutual stock market access between mainland China and
Hong Kong by allowing investors to trade and settle shares
on each market via their local exchanges. Trading through
Stock Connect is subject to a daily quota (
“
Daily Quota
”
),
which limits the maximum daily net purchases on any
particular day by Hong Kong investors (and foreign investors
trading through Hong Kong) trading PRC listed
securities and PRC investors trading Hong Kong listed
securities trading through the relevant Stock Connect.
Accordingly, the fund’s direct investments in A-Shares will
be limited in part by the Daily Quota that limits total
purchases through Stock Connect. Investment companies
are not currently within the types of entities that are
eligible for an RQFII or QFII license.
The Subadvisor expects to use a full replication indexing
strategy to seek to track the Underlying Index. As such, the
Subadvisor expects to invest directly in the component
securities (or a substantial number of the component securities)
of the Underlying Index in substantially the same
weightings in which they are represented in the Underlying
Index. If it is not possible for the Subadvisor to acquire
component securities due to limited availability or regulatory
restrictions, the Subadvisor may use a representative
sampling indexing strategy to seek to track the Underlying
Index instead of a full replication indexing strategy.
“
Representative sampling
”
is an indexing strategy that
involves investing in a representative sample of securities
that collectively has an investment profile similar to the
Underlying Index. The securities selected are expected to
have, in the aggregate, investment characteristics (based
on factors such as market capitalization and industry
weightings), fundamental characteristics (such as return
variability and yield), and liquidity measures similar to
those of the Underlying Index. The fund may or may not
hold all of the securities in the Underlying Index when the
Subadvisor is using a representative sampling indexing
strategy.
The fund will normally invest at least 80% of its total
assets in securities of issuers that comprise the Underlying
Index. The fund will seek to achieve its investment
objective by primarily investing directly in A-Shares.
Because the fund does not satisfy the criteria to qualify as
an RQFII or QFII itself, the fund intends to invest directly
in A-Shares via the license granted to the Subadvisor and
may also invest through Stock Connect. While the fund
intends to invest primarily and directly in A-Shares, the
fund also may invest in securities of issuers not included
in the Underlying Index, futures contracts, stock index
futures, swap contracts and other types of derivative
instruments, and other pooled investment vehicles,
including affiliated and/or foreign investment companies,
that the Advisor and/or Subadvisor believes will help the
fund to achieve its investment objective. The remainder of
the fund’s assets will be invested primarily in money
market instruments and cash equivalents. Under normal
circumstances, the fund invests at least 80% of its net
assets, plus the amount of any borrowings for investment
purposes, in A-Shares of Chinese small-cap issuers or in
derivative instruments and other securities that provide
investment exposure to A-Shares of Chinese small-cap
issuers. The fund may invest in depositary receipts.
As of July 31, 2020, the Underlying Index consisted of 500
securities with an average market capitalization of approximately
$3.09 billion and a minimum market capitalization
of approximately $735 million. Under normal circumstances,
the Underlying Index is rebalanced semi-annually
every January and July. The fund rebalances its portfolio
in accordance with the Underlying Index, and, therefore,
any changes to the Underlying Index’s rebalance schedule
will result in corresponding changes to the fund’s rebalance
schedule.
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that the Underlying Index is concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
basic materials (16.8%), information technology (16.8%)
and industrials (16.0%) sectors. The basic materials sector
includes companies that manufacture chemicals, construction
materials, glass and paper products, as well as
metals, minerals and mining companies. The information
technology sector includes companies engaged in developing
software and providing data processing and
outsourced services, along with manufacturing and distributing
communications equipment, computers and other
electronic equipment and instruments. The industrials
sector includes companies engaged in the manufacture
and distribution of capital goods, such as those used in
defense, construction and engineering, companies that
manufacture and distribute electrical equipment and industrial
machinery and those that provide commercial and
transportation services and supplies. To the extent that the
fund tracks the Underlying Index, the fund’s investment
in certain sectors may change over time.
Prospectus
October 1, 2020
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Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF
|
The fund may become
“
non-diversified,
”
as defined under
the Investment Company Act of 1940, as amended, solely
as a result of a change in relative market capitalization or
index weighting of one or more constituents of the index
that the fund is designed to track. Shareholder approval will
not be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
Shares of the fund are not sponsored, endorsed, sold or
promoted by CSI or any affiliate of CSI and CSI bears no
liability with respect to the fund or any security.
Main Risks
As with any investment, you could lose all or part of your investment in the fund, and the fund’s performance could trail that of other investments.
The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective, as
well as numerous other risks that are described in greater
detail in the section of this Prospectus entitled
“
Additional
Information About Fund Strategies, Underlying Index Information
and Risks
”
and in the Statement of Additional
Information (
“
SAI
”
).
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Special risk considerations relating to the RQFII regime
and investments in A-Shares.
The Advisor’s ability to
achieve the fund’s investment objective by investing in the
component securities of the Underlying Index is dependent
on the continuous availability of A-Shares. Because
the fund will not be able to invest directly in A-Shares
beyond the limits that may be imposed by Stock Connect,
the size of the fund’s direct investment in A-Shares may
be limited. If the Subadvisor is unable to maintain its RQFII
status, the Subadvisor may seek to gain exposure to the
A-Share market by investing in securities not included in
the Underlying Index, futures contracts, swaps and other
derivative instruments, and other pooled investment
vehicles, including foreign and/or affiliated funds, that
provide exposure to the A-Share market until access via a
RQFII license can be re-obtained. A revocation or elimination
of the RQFII license may not only adversely affect
the ability of the fund to invest directly in A-Shares, but
also the willingness of swap counterparties to engage in
swaps and the performance of pooled investment vehicles
linked to the performance of A-Shares. Therefore, any such
revocation or elimination may have a material adverse
effect on the ability of the fund to achieve its investment
objective. These risks are compounded by the fact that
at present there are only a limited number of firms and
counterparties that have QFII or RQFII status. In addition,
the RQFII license may be revoked by Chinese regulators if,
among other things, the Subadvisor fails to observe SAFE
Prospectus
October 1, 2020
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Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF
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and other applicable Chinese regulations, which could also
lead to other adverse consequences, including the requirement
that the fund dispose of its A-Shares holdings. There
can be no guarantee that the fund will be able to invest
in appropriate futures contracts, swaps and other derivative
instruments, and the PRC government may at times
restrict the ability of firms regulated in the PRC to make
such instruments available. In addition, there are custody
risks associated with investing through an RQFII, where,
due to requirements regarding establishing a custody
account in the joint names of the fund and the
Subadvisor’s creditors than if the fund had an account in
its name only. If the fund is unable to obtain sufficient exposure
to the performance of the Underlying Index due to
the unavailability of RQFII license or other investments that
provide exposure to the performance of A-Shares, the
fund could, among other actions, limit or suspend
creations until the Subadvisor determines that the requisite
exposure to the Underlying Index is obtainable. During
the period that creations are limited or suspended, the
fund could trade at a significant premium or discount to
the NAV and could experience substantial redemptions.
Alternatively, the fund could change its investment objective
by, for example, seeking to track an alternative index
that does not include A-Shares as its component securities,
or decide to liquidate the fund.
On May 7, 2020, the People’s Bank of China (
“
PBOC
”
) and
SAFE jointly issued the Regulations on Funds of Securities
and Futures Investment by Foreign Institutional
Investors (PBOC & SAFE Announcement [2020] No. 2)
(the
“
Regulations
”
) which came into effect on June 6,
2020. The Regulations supersede certain post-registration
rules applicable to QFII and RQFII regimes. One of the
key changes of the Regulations is the removal of quota
restrictions on investment. However, as of the date of this
prospectus, this is a relatively new development, and
there is no guarantee that the quotas will continue to be
relaxed.
Special risk considerations of investing in China.
Investing in securities of Chinese issuers involves certain
risks and considerations not typically associated with
investing in securities of US issuers, including, among
others, (i) more frequent (and potentially widespread)
trading suspensions and government interventions with
respect to Chinese issuers, resulting in lack of liquidity and
in price volatility, (ii) currency revaluations and other
currency exchange rate fluctuations or blockage, (iii) the
nature and extent of intervention by the Chinese government
in the Chinese securities markets (including both
direct and indirect market stabilization efforts, which may
affect valuations of Chinese issuers), whether such intervention
will continue and the impact of such intervention
or its discontinuation, (iv) the risk of nationalization or expropriation
of assets, (v) the risk that the Chinese government
may decide not to continue to support economic reform
programs, (vi) limitations on the use of brokers (or action
by the Chinese government that discourages brokers from
serving international clients), (vii) higher rates of inflation,
(viii) greater political, economic and social uncertainty, (ix)
higher market volatility caused by any potential regional
territorial conflicts or natural disasters, (x) the risk of
increased trade tariffs, embargoes and other trade or regulatory
limitations, (xi) restrictions on foreign ownership,
(xii) custody risks associated with investing through Stock
Connect, an RQFII or other programs to access the
Chinese securities markets, (xiii) both interim and permanent
market regulations which may affect the ability of
certain stockholders to sell Chinese securities when it
would otherwise be advisable, and (xiv) different and less
stringent financial reporting standards.
From time to time, and as recently as early 2020 with the
coronavirus known as COVID-19, China has experienced
outbreaks of infectious illnesses, and the country may be
subject to other infectious illnesses, diseases or other
public health emergencies in the future. Any public health
emergency could reduce consumer demand or economic
output, result in market closures, travel restrictions or
quarantines, and generally have a significant impact on the
Chinese economy, which in turn could adversely affect
the fund’s investments.
A-Shares tax risk.
Uncertainties in the Chinese tax rules
governing taxation of income and gains from investments
in A-Shares could result in unexpected tax liabilities for the
fund or Underlying Fund. China generally imposes withholding
tax at a rate of 10% on dividends and interest
derived by nonresident enterprises (including QFIIs and
RQFIIs) from issuers resident in China. China also imposes
withholding tax at a rate of 10% on capital gains derived
by nonresident enterprises from investments in an issuer
resident in China, subject to an exemption or reduction
pursuant to domestic law or a double taxation agreement
or arrangement.
Since the respective inception of the Shanghai – Hong
Kong and Shenzhen – Hong Kong Stock Connect
programs, foreign investors (including the fund) investing
in A-Shares through Stock Connect would be temporarily
exempt from the PRC corporate income tax and value-
added tax on the gains on disposal of such A-Shares. Dividends
would be subject to PRC corporate income tax on
a withholding basis at 10%, unless reduced under a double
tax treaty with China upon application to and obtaining
approval from the competent tax authority. Since
November 17, 2014, the corporate income tax for QFIIs
and RQFIIs, with respect to capital gains, has been temporarily
lifted. The withholding tax relating to the realized
gains from shares in land-rich companies prior to
November 17, 2014 has been paid by the fund, while realized
gains from shares in non-land-rich companies prior
to November 17, 2014 were granted by treaty relief
pursuant to the PRC-US Double Taxation Agreement.
During 2015, revenue authorities in the PRC made
arrangements for the collection of capital gains taxes for
investments realized between November 17, 2009 and
Prospectus
October 1, 2020
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Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF
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November 16, 2014. The fund could be subject to tax
liability for any tax payments for which reserves have not
been made or that were not previously withheld. The
impact of any such tax liability on the fund’s return could
be substantial. The fund may also be liable to the Advisor
or Subadvisor for any tax that is imposed on the Advisor or
Subadvisor by the PRC with respect to the fund’s investments.
If the fund’s direct investments in A-Shares through
the Advisor’s or Subadvisor’s RQFII license become
subject to repatriation restrictions or delays, the fund may
be unable to satisfy distribution requirements applicable
to RICs under the Internal Revenue Code, and be subject
to tax at the fund level. The current PRC tax laws and regulations
and interpretations thereof may be revised or
amended in the future, potentially retroactively, including
with respect to the possible liability of the fund for the
taxation of income and gains from investments in A-Shares
through Stock Connect or obligations of an RQFII. The withholding
taxes on dividends, interest and capital gains may
in principle be subject to a reduced rate under an applicable
tax treaty, but the application of such treaties in the
case of an RQFII acting for a foreign investor such as the
fund is also uncertain. Finally, it is also unclear whether an
RQFII would also be eligible for PRC Business Tax (
“
BT
”
)
exemption, which has been granted to QFIIs, with respect
to gains derived prior to May 1, 2016. In practice, the BT
has not been collected. However, the imposition of such
taxes on the fund could have a material adverse effect on
the fund’s returns. Since May 1, 2016, RQFIIs are exempt
from PRC value-added tax, which replaced the BT with
respect to gains realized from the disposal of securities,
including A-Shares.
The PRC rules for taxation of RQFIIs (and QFIIs) are
evolving and certain tax regulations to be issued by the
PRC State Administration of Taxation and/or PRC Ministry
of Finance to clarify the subject matter may apply retrospectively,
even if such rules are adverse to the fund and
its shareholders.
If the PRC begins applying tax rules regarding the taxation
of income from A-Shares investments to RQFIIs and/or
begins collecting capital gains taxes on such investments
(whether made through Stock Connect or an RQFII), the
fund or Underlying Fund could be subject to withholding
tax liability in excess of the amount reserved (if any). The
impact of any such tax liability on the fund’s or Underlying
Fund’s return could be substantial. The fund will be liable
to the Advisor or Subadvisor for any Chinese tax that is
imposed on the Advisor or Subadvisor with respect to the
fund’s investments.
As described below under
“
Taxes – Taxes on Distributions,
”
the fund may elect, for US federal income tax purposes,
to treat Chinese taxes (including withholding taxes) paid by
the fund as paid by its shareholders. Even if the fund is
qualified to make that election and does so, however, your
ability to claim a credit for certain Chinese taxes may be
limited under general US tax principles.
In addition, to the extent the fund invests in swaps and
other derivative instruments, such investments may be
less tax-efficient from a US tax perspective than direct
investment in A-Shares and may be subject to special US
federal income tax rules that could adversely affect the
fund. Also the fund may be required to periodically adjust
its positions in those instruments to comply with certain
regulatory requirements which may further cause these
investments to be less efficient than a direct investment in
A-Shares.
Should the Chinese government impose restrictions on
the fund’s ability to repatriate funds associated with direct
investment in A-Shares, the fund may be unable to satisfy
distribution requirements applicable to regulated investment
companies (
“
RICs
”
) under the Internal Revenue
Code of 1986, as amended (the
“
Internal Revenue Code
”
),
and the fund may therefore be subject to fund-level US
federal taxes.
Risks of investing through Stock Connect.
Trading
through Stock Connect is subject to a number of restrictions
that may affect the fund’s investments and returns.
For example, trading through Stock Connect is subject to
the Daily Quota, which may restrict or preclude the fund’s
ability to invest in A-Shares through Stock Connect (
“
Stock
Connect A-Shares
”
). In addition, investments made
through Stock Connect are subject to trading, clearance
and settlement procedures that are relatively untested in
the PRC, which could pose risks to the fund. Moreover,
Stock Connect A-Shares generally may not be sold,
purchased or otherwise transferred other than through
Stock Connect in accordance with applicable rules. A
primary feature of Stock Connect is the application of the
home market’s laws and rules applicable to investors in
A-Shares. Therefore, the fund’s investments in Stock
Connect A-Shares are generally subject to PRC securities
regulations and listing rules, among other restrictions.
Finally, while foreign investors currently are exempted
from paying capital gains or value-added taxes on income
and gains from investments in Stock Connect A-Shares,
these PRC tax rules could be changed, which could result
in unexpected tax liabilities for the fund.
Stock Connect will only operate on days when both the
Chinese and Hong Kong markets are open for trading and
when banking services are available in both markets on the
corresponding settlement days. Therefore, an investment
in A-Shares through Stock Connect may subject the fund
to the risk of price fluctuations on days when the Chinese
markets are open, but Stock Connect is not trading.
The Stock Connect program is a relatively new program.
Further developments are likely and there can be no assurance
as to the program’s continued existence or whether
future developments regarding the program may restrict or
adversely affect the fund’s investments or returns. In addition,
the application and interpretation of the laws and
regulations of Hong Kong and the PRC, and the rules, policies
or guidelines published or applied by relevant
Prospectus
October 1, 2020
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25
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Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF
|
regulators and exchanges in respect of the Stock Connect
program are uncertain, and they may have a detrimental
effect on the fund’s investments and returns.
Depositary receipt risk.
Depositary receipts involve
similar risks to those associated with investments in securities
of non-US issuers. Depositary receipts also may be
less liquid than the underlying shares in their primary
trading market.
Derivatives risk.
Risks associated with derivatives include
the risk that the derivative is not well correlated with the
security, index or currency to which it relates; the risk that
derivatives may result in losses or missed opportunities;
the risk that the fund will be unable to sell the derivative
because of an illiquid secondary market; the risk that a
counterparty is unwilling or unable to meet its obligation;
and the risk that the derivative transaction could expose
the fund to the effects of leverage, which could increase
the fund’s exposure to the market and magnify potential
losses. There is no guarantee that derivatives, to the extent
employed, will have the intended effect, and their use
could cause lower returns or even losses to the fund. The
use of derivatives by the fund to hedge risk may reduce
the opportunity for gain by offsetting the positive effect of
favorable price movements.
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Currency and repatriation risk.
The Underlying Index is
calculated in onshore RMB (CNY), whereas the fund’s reference
currency is the US dollar. As a result, the fund’s
return may be adversely affected by currency exchange
rates. Further, although offshore RMB and onshore RMB
are the same currency, they trade at different rates. To the
extent the fund needs to exchange offshore RMB and
onshore RMB, any divergence between offshore RMB and
onshore RMB may adversely impact shareholders. The
value of the US dollar measured against other currencies
is influenced by a variety of factors. These factors include:
interest rates, national debt levels and trade deficits,
changes in balances of payments and trade, domestic and
foreign interest and inflation rates, global or regional
political, economic or financial events, monetary policies
of governments, actual or potential government intervention,
global energy prices, political instability and
government monetary policies and the buying or selling of
currencies by a country’s government.
In addition, the Chinese government heavily regulates the
domestic exchange of foreign currencies within China.
Chinese law requires that all domestic transactions must
be settled in RMB, places significant restrictions on the
remittance of foreign currencies, and strictly regulates
currency exchange from RMB. There is no assurance that
there will always be sufficient amounts of RMB for the
fund to remain fully invested. Repatriations by RQFIIs are
currently permitted daily and are not subject to repatriation
restrictions or prior regulatory approval. However, there
is no assurance that Chinese rules and regulations will not
change or that repatriation restrictions will not be imposed
in the future. Further, such changes to the Chinese rules
and regulations may be applied retroactively. Any restrictions
on repatriation of the fund’s portfolio investments
may have an adverse effect on the fund’s ability to meet
redemption requests.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors
of the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Basic materials sector risk.
To the extent that the fund
invests significantly in the basic materials sector, the fund
will be sensitive to changes in, and the fund’s performance
may depend to a greater extent on, the overall condition of
the basic materials sector. Companies engaged in the
production and distribution of basic materials may be
adversely affected by changes in world events, political
and economic conditions, energy conservation, environmental
policies, commodity price volatility, changes in
exchange rates, imposition of import controls, increased
competition, depletion of resources and labor relations.
Information technology sector risk.
To the extent that the
fund invests significantly in the information technology
sector, the fund will be sensitive to changes in, and the
fund’s performance may depend to a greater extent on, the
overall condition of the information technology sector. Information
technology companies are particularly vulnerable to
government regulation and competition, both domestically
and internationally, including competition from foreign
competitors with lower production costs. Information technology
companies also face competition for services of
qualified personnel. Additionally, the products of information
technology companies may face obsolescence due to
rapid technological development and frequent new
product introduction by competitors. Finally, information
technology companies are heavily dependent on patent
and intellectual property rights, the loss or impairment of
which may adversely affect profitability.
Industrials sector risk.
To the extent that the fund invests
significantly in the industrials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
industrials sector. Companies in the industrials sector may
be adversely affected by changes in government regulation,
world events and economic conditions. In addition,
companies in the industrials sector may be adversely
affected by environmental damages, product liability claims
and exchange rates.
Prospectus
October 1, 2020
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26
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Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF
|
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
If the fund is forced to sell underlying investments at
reduced prices or under unfavorable conditions to meet
redemption requests or other cash needs, the fund may
suffer a loss.
Pricing risk.
If market conditions make it difficult to value
some investments
(including China A-Shares), the fund
may value these investments using more subjective
methods, such as fair value pricing. In such cases, the
value determined for an investment could be different from
the value realized upon such investment’s sale. As a result,
you could pay more than the market value when buying
fund shares or receive less than the market value when
selling fund shares.
Tracking error risk.
The performance of the fund may
diverge from that of its Underlying Index for a number of
reasons, including operating expenses, transaction costs,
cash flows and operational inefficiencies. The fund’s return
also may diverge from the return of the Underlying Index
because the fund bears the costs and risks associated
with buying and selling securities (especially when rebalancing
the fund’s securities holdings to reflect changes
in the Underlying Index) while such costs and risks are not
factored into the return of the Underlying Index. Transaction
costs, including brokerage costs, will decrease the
fund’s NAV to the extent not offset by the transaction fee
payable by an
“
Authorized Participant
”
(
“
AP
”
). Market
disruptions and regulatory restrictions could have an
adverse effect on the fund’s ability to adjust its exposure
to the required levels in order to track the Underlying
Index. In addition, to the extent that portfolio management
uses a representative sampling approach (investing in a
representative selection of securities included in the Underlying
Index rather than all securities in the Underlying
Index) it may cause the fund to not be as well correlated
with the return of the Underlying Index as would be the
case if the fund purchased all of the securities in the
Underlying Index in the proportions represented in the
Underlying Index. Errors in the Underlying Index data, the
Underlying Index computations and/or the construction
of the Underlying Index in accordance with its methodology
may occur from time to time and may not be
identified and corrected by the index provider for a period
of time or at all, which may have an adverse impact on the
fund and its shareholders. In addition, the fund may not
be able to invest in certain securities included in the Underlying
Index, or invest in them in the exact proportions in
which they are represented in the Underlying Index, due to
legal restrictions or limitations imposed by the governments
of certain countries, a lack of liquidity in the markets
in which such securities trade, potential adverse tax consequences
or other regulatory reasons. To the extent the
fund calculates its NAV based on fair value prices and the
value of the Underlying Index is based on securities’
closing prices (i.e., the value of the Underlying Index is not
based on fair value prices), the fund’s ability to track the
Underlying Index may be adversely affected. The performance
of the fund also may diverge from that of the
Underlying Index if the Advisor and/or Subadvisor seek to
gain exposure to A-Shares by investing in securities not
included in the Underlying Index, derivative instruments,
and other pooled investment vehicles because the
Prospectus
October 1, 2020
|
27
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Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF
|
Subadvisor is unable to maintain its RQFII status, or the
Stock Connect Daily Quota has been exhausted. For tax
efficiency purposes, the fund may sell certain securities,
and such sale may cause the fund to realize a loss and
deviate from the performance of the Underlying Index. In
light of the factors discussed above, the fund’s return may
deviate significantly from the return of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
the NAV during periods of market volatility. The Advisor
cannot predict whether shares will trade above, below or
at their NAV. Given the fact that shares can be created and
redeemed in Creation Units (defined below), the Advisor
believes that large discounts or premiums to the NAV of
shares should not be sustained in the long-term. If market
makers exit the business or are unable to continue making
markets in fund shares, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
shares in the secondary market). Further, while the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in market prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. In addition, the securities held by the fund
may be traded in markets that close at a different time
than the exchange on which the fund’s shares trade.
Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time
when the exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. The bid/ask spread of the fund may be
wider in comparison to the bid/ask spread of other ETFs,
due to the Fund’s exposure to A-Shares. Further,
secondary markets may be subject to irregular trading
activity, wide bid-ask spreads and extended trade settlement
periods, which could cause a material decline in the
fund’s NAV. The fund’s investment results are measured
based upon the daily NAV of the fund. Investors purchasing
and selling shares in the secondary market may not experience
investment results consistent with those
experienced by those APs creating and redeeming shares
directly with the fund.
Valuation risk.
Because non-US markets may be open on
days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the
fund’s shares.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
Prospectus
October 1, 2020
|
28
|
Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF
|
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
At any given time, due to the
composition of the Underlying Index, the fund may be classified
as
“
non-diversified
”
under the Investment Company
Act of 1940, as amended. This means that the fund may
invest in securities of relatively few issuers. Thus, the
performance of one or a small number of portfolio holdings
can affect overall performance.
Cash transactions risk.
Unlike most other ETFs, the fund
expects to effect its creations and redemptions principally
for cash, rather than in-kind securities. Paying redemption
proceeds in cash rather than through in-kind delivery of
portfolio securities may require the fund to dispose of or
sell portfolio investments to obtain the cash needed to
distribute redemption proceeds at an inopportune time.
This may cause the fund to recognize gains or losses that
it might not have incurred if it had made a redemption
in- kind. As a result, the fund may pay out higher or lower
annual capital gains distributions than ETFs that redeem in
kind. Only APs who have entered into an agreement with
the fund’s distributor may redeem shares from the fund
directly; all other investors buy and sell shares at market
prices on an exchange.
Country concentration risk.
To the extent that the fund
invests significantly in a single country, it is more likely to
be impacted by events or conditions affecting that country.
For example, political and economic conditions and
changes in regulatory, tax or economic policy in a country
could significantly affect the market in that country and
in surrounding or related countries and have a negative
impact on the fund’s performance.
Small company risk.
Small company stocks tend to be
more volatile than medium-sized or large company stocks.
Because stock analysts are less likely to follow small
companies, less information about them is available to
investors. Industry-wide reversals may have a greater
impact on small companies, since they may lack the financial
resources of larger companies. Small company stocks
are typically less liquid than large company stocks.
Past Performance
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund’s performance from year to year and by showing how the fund’s average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund’s past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future.
Updated performance information
is available on the fund’s website at
Xtrackers.com
(the website does not form a part of this prospectus).
CALENDAR YEAR TOTAL RETURNS(%)
Average Annual Total Returns(For periods ended 12/31/2019 expressed as a %)
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax. Your own actual after-tax returns will depend on your tax situation and may differ from what is shown here. After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts (“IRAs”) or employee-sponsored retirement plans.
|
|
|
|
|
|
|
|
|
|
After tax on distribu-
tions
|
|
|
|
|
After tax on distribu-
tions and sale of fund
shares
|
|
|
|
|
CSI 500 Index
(reflects
no deductions for fees,
expenses or taxes)
|
|
|
|
|
MSCI ACWI ex USA
Index
(reflects no deduc-
tions for fees, expenses
or taxes)
|
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|
|
Management
Investment Advisor
DBX Advisors LLC
Subadvisor
Harvest Global Investments Limited
Portfolio Managers
Kevin Sung, CFA,
employee of HGI. Portfolio Manager of
the fund. Began managing the fund in 2018.
Tom Chan, CFA,
employee of HGI. Portfolio Manager of
the fund. Began managing the fund in 2018.
Hubert Shek
,
employee of HGI. Portfolio Manager of the
fund. Began managing the fund in 2020.
Prospectus
October 1, 2020
|
29
|
Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF
|
Purchase and Sale of Fund Shares
The fund is an exchange-traded fund (commonly referred
to as an
“
ETF
”
). Individual fund shares may only be
purchased and sold through a brokerage firm. The price of
fund shares is based on market price, and because ETF
shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than
NAV (a discount). The fund will only issue or redeem
shares that have been aggregated into blocks of 50,000
shares or multiples thereof (
“
Creation Units
”
) to APs who
have entered into agreements with ALPS Distributors,
Inc., the fund’s distributor. You may incur costs attributable
to the difference between the highest price a buyer is
willing to pay to purchase shares of the fund (bid) and the
lowest price a seller is willing to accept for shares of the
fund (ask) when buying or selling shares (the
“
bid-ask
spread
”
). Information on the fund’s net asset value, market
price, premiums and discounts and bid-ask spreads may
be found at Xtrackers.com.
Tax Information
The fund's distributions are generally taxable to you as
ordinary income or capital gains, except when your investment
is in an IRA, 401(k), or other tax-deferred investment
plan. Any withdrawals you make from such tax- advantaged
investment plans, however, may be taxable to you.
Payments to Broker-Dealers and
Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer
or other financial intermediary (such as a bank), the
Advisor or other related companies may pay the intermediary
for marketing activities and presentations,
educational training programs, the support of technology
platforms and/or reporting systems or other services
related to the sale or promotion of the fund. These
payments may create a conflict of interest by influencing
the broker-dealer or other intermediary and your salesperson
to recommend the fund over another investment.
Ask your salesperson or visit your financial intermediary’s
website for more information.
Prospectus
October 1, 2020
|
30
|
Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF
|
Xtrackers MSCI All China Equity ETF
|
Stock Exchange: NYSE Arca, Inc.
|
Investment Objective
The Xtrackers MSCI All China Equity ETF (the
“
fund
”
)
seeks investment results that correspond generally to the
performance, before fees and expenses, of the MSCI
China All Shares Index (the
“
Underlying Index
”
).
Fees and Expenses
These are the fees and expenses that you will pay when
you buy, hold and sell shares.
You may also pay other fees, such as brokerage commissions and other fees to financial intermediaries on the purchase and sale of shares of the fund, which are not reflected in the table and example below.
ANNUAL FUND OPERATING EXPENSES(expenses that you pay each year as a % of the value of your investment)
|
|
|
|
|
|
Acquired funds fees and expenses
1
|
|
Total annual fund operating expenses
|
|
Fee waiver/expense reimbursement
|
|
Total annual fund operating expenses after fee waiver
|
|
1
“Acquired Fund Fees and Expenses” reflect the fund’s pro rata share of the fees and expenses incurred by investing primarily in Xtrackers MSCI China A Inclusion Equity ETF (the “Underlying Fund”) and any other exchange-traded funds (“ETFs”) advised by DBX Advisors LLC (the “Advisor”). The impact of Acquired Fund Fees and Expenses is included in the total returns of the fund. Acquired Fund Fees and Expenses are not used to calculate the fund’s net asset value (“NAV”) per share.
To the extent the fund invests in the shares of an affiliated
fund, the Advisor has contractually agreed, until November
14, 2021, to waive fees and/or reimburse the fund’s
expenses to limit the fund’s current operating expenses
(except for interest expense, taxes, brokerage expenses,
distribution fees or expenses, litigation expenses and other
extraordinary expenses) by an amount equal to the
acquired fund’s fees and expenses attributable to the
fund’s investments in affiliated funds. In addition, the
Advisor has contractually agreed until
September 30, 2021
,
to waive a portion of its management fees to the extent
necessary to prevent the operating expenses (except for
interest expense, taxes, brokerage expenses, distribution
fees or expenses, litigation expenses and other extraordinary
expenses) of the fund from exceeding 0.50% of the
fund’s average daily net assets. These agreements may
only be terminated by the fund’s Board (and may not be
terminated by the Advisor) prior to that time.
EXAMPLE
This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then sell 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 operating expenses (including one year of capped expenses in each period) remain the same. The Example does not take into account brokerage commissions that you may pay on your purchases and sales of shares of the fund. It also does not include the transaction fees on purchases and redemptions of Creation Units (defined herein), because those fees will not be imposed on retail investors. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
PORTFOLIO TURNOVER
The fund pays transaction costs, such as commissions,
when it buys and sells securities (or
“
turns over
”
its portfolio).
A higher portfolio turnover may indicate higher
transaction costs and may mean higher taxes if you are
investing in a taxable account. These costs are not
reflected in annual fund operating expenses or in the
expense example, and can affect the fund's performance.
During the most recent fiscal year, the fund’s portfolio turnover
rate was
14
% of the average value of its portfolio.
Prospectus
October 1, 2020
|
31
|
Xtrackers MSCI All China Equity ETF
|
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to capture large- and
mid-capitalization representation across all China securities
listed in Hong Kong, Shanghai and Shenzhen. The Underlying
Index includes A-Shares, H-Shares, B-Shares, Red
chips and P chips share classes, as well as securities of
Chinese companies listed outside of China (e.g. American
depositary receipts). DBX Advisors LLC (the
“
Advisor
”
)
expects that, over time, the correlation between the fund’s
performance and that of the Underlying Index, before fees
and expenses, will be 95% or better. A figure of 100%
would indicate perfect correlation.
A-Shares are equity securities issued by companies incorporated
in mainland China and are denominated and traded
in renminbi (
“
RMB
”
) on the Shenzhen and Shanghai Stock
Exchanges. Under current regulations in the People’s
Republic of China (
“
China
”
or the
“
PRC
”
), foreign investors
can invest in the domestic PRC securities markets
through certain market-access programs. These programs
include the Qualified Foreign Institutional Investor (
“
QFII
”
)
or a Renminbi Qualified Foreign Institutional Investor
(
“
RQFII
”
) licenses obtained from the China Securities
Regulatory Commission (
“
CSRC
”
). QFII and RQFII investors
have also registered with China’s State Administration
of Foreign Exchange (
“
SAFE
”
) to invest foreign freely
convertible currencies (in the case of a QFII) and RMB (in
the case of an RQFII) in the PRC for the purpose of
investing in the PRC’s domestic securities markets.
B-Shares are equity securities issued by companies incorporated
in China and are denominated and traded in U.S.
dollars and Hong Kong dollars (
“
HKD
”
) on the Shanghai
and Shenzhen Stock Exchanges, respectively. B-Shares are
available to foreign investors. H-Shares are equity securities
issued by companies incorporated in mainland China
and are denominated and traded in HKD on the Hong Kong
Stock Exchange and other foreign exchanges.
Red chips and P chips are equity securities issued by
companies incorporated outside of mainland China and
listed on the Hong Kong Stock Exchange. Companies that
issue Red chips generally base their businesses in mainland
China and are controlled, either directly or indirectly,
by the state, provincial or municipal governments of the
PRC. Companies that issue P chips generally are nonstate-owned
Chinese companies incorporated outside of
mainland China that satisfy the following criteria: (i) the
company is controlled by PRC individuals, (ii) the company
derives more than 80% of its revenue from the PRC and
(iii) the company allocates more than 60% of its assets in
the PRC.
The Advisor expects to use a representative sampling
indexing strategy to seek to track the Underlying Index. As
such, the Advisor expects to invest in a representative
sample of the component securities of the Underlying
Index that collectively has an investment profile similar to
the Underlying Index. The securities selected are expected
to have, in the aggregate, investment characteristics
(based on factors such as market capitalization and
industry weightings), fundamental characteristics (such as
return variability and yield), and liquidity measures similar
to those of the Underlying Index. The Advisor expects to
obtain exposure to the A-Share components of the Underlying
Index indirectly by investing in the Xtrackers MSCI
China A Inclusion Equity ETF (the
“
Underlying Fund
”
). The
Advisor may also invest in Xtrackers Harvest CSI 300
China A-Shares ETF and Xtrackers Harvest CSI 500 China
A-Shares Small Cap ETF (the
“
Xtrackers Harvest ETFs
”
, and
together with the Underlying Fund, the
“
Xtrackers China
A-Shares ETFs
”
) or other affiliated funds advised by the
Advisor and sub-advised by Harvest Global Investments
Limited (
“
HGI
”
), a licensed RQFII, that invests in A-Shares
directly. Currently, the fund invests in the Underlying Fund.
The fund does not currently intend to invest in A-Shares
directly. To obtain exposure to the balance of the Underlying
Index, the Advisor intends to invest directly in the
components of the Underlying Index. The Underlying Fund
may invest in A-Shares and other permitted China securities
listed on the Shanghai and Shenzhen Stock Exchanges
through the Shanghai-Hong Kong Stock Connect program
(
“
Shanghai Connect
”
) or the Shenzhen-Hong Kong Stock
Connect program (
“
Shenzhen Connect,
”
and together with
Shanghai Connect,
“
Stock Connect
”
). Stock Connect is a
securities trading and clearing program between either the
Shanghai Stock Exchange or Shenzhen Stock Exchange
and The Stock Exchange of Hong Kong Limited (
“
SEHK
”
),
China Securities Depository and Clearing Corporation
Limited and Hong Kong Securities Clearing Company
Limited. Stock Connect is designed to permit mutual stock
market access between mainland China and Hong Kong
by allowing investors to trade and settle shares on each
market via their local exchanges. Trading through Stock
Connect is subject to a daily quota (
“
Daily Quota
”
), which
limits the maximum net purchases on any particular day
by Hong Kong investors (and foreign investors trading
through Hong Kong) trading PRC listed securities and PRC
investors trading Hong Kong listed securities trading
through the relevant Stock Connect, and as such, buy
orders for A-Shares would be rejected once the Daily
Quota is exceeded (although a fund will be permitted to
sell A-Shares regardless of the Daily Quota balance). The
Daily Quota is not specific to any fund, but to all investors
investing through the Stock Connect.
The Xtrackers Harvest ETFs, through their subadvisor, may
invest in A-Shares and other permitted China securities
listed on the Shanghai and Shenzhen Stock Exchanges via
the RQFII license of HGI. The Xtrackers Harvest ETFs may
also invest in A-Shares listed and traded on Stock Connect.
The Underlying Fund invests directly in A-Shares through
Stock Connect. Under Stock Connect, the Underlying
Fund’s trading of eligible A-Shares listed on the SSE or the
SZSE, as applicable, would be effectuated through the
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Advisor. Additionally, the Xtrackers Harvest ETFs’ direct
investments in A-Shares will be limited in part by the Daily
Quota applicable to Stock Connect. Investment companies
are not currently within the types of entities that are
eligible for an RQFII or QFII license. Because the Underlying
Fund does not satisfy the criteria to qualify as an
RQFII or QFII itself, the Underlying Fund intends to invest
directly in A-Shares via Stock Connect and, in the future,
may also utilize any QFII or RQFII license applied for by and
granted to the Advisor and/or a subadvisor.
The fund will normally invest at least 80% of its total
assets in securities of issuers that comprise either directly
or indirectly the Underlying Index or securities with
economic characteristics similar to those included in the
Underlying Index. While the fund intends to invest primarily
in H-Shares, B-Shares, Red chips, P chips, and shares of
the Underlying Fund, the fund also may invest in securities
of issuers not included in the Underlying Index, the
Xtrackers Harvest ETFs, futures contracts, stock index
futures, swap contracts and other types of derivative instruments,
and other pooled investment vehicles, including
affiliated and/or foreign investment companies, that the
Advisor believes will help the fund to achieve its investment
objective. The remainder of the fund’s assets will be
invested primarily in money market instruments and cash
equivalents. Under normal circumstances, the fund invests
at least 80% of its net assets, plus the amount of any
borrowings for investment purposes, in the equity securities
of Chinese companies or in derivative instruments and
other securities that provide investment exposure to
Chinese companies.
As of July 31, 2020, the Underlying Index consisted of 748
securities with an average market capitalization of approximately
$5.19 billion and a minimum market capitalization
of approximately $538 million. Under normal circumstances,
the Underlying Index is rebalanced on a quarterly
basis, usually as of the close of the last business day of
February, May, August, and November. The pro forma
Underlying Index is generally announced nine business
days before the effective date. The fund rebalances its portfolio
in accordance with the Underlying Index, and,
therefore, any changes to the Underlying Index’s rebalance
schedule will result in corresponding changes to the fund’s
rebalance schedule.
The fund will concentrate its investments (i.e., hold 25% or more of its total assets) in a particular industry or group of industries to the extent that the Underlying Index is concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
consumer discretionary (23.9%), financial services (16.6%)
and communication services (15.6%) sectors. The
consumer discretionary goods sector includes durable
goods, apparel, entertainment and leisure, and automobiles.
The financial services sector includes companies
involved in banking, consumer finance, asset management
and custody banks, as well as investment banking and
brokerage and insurance. The communication services
sector includes companies that facilitate communication
and offer related content and information through various
mediums. It includes telecom and media and entertainment
companies including producers of interactive gaming
products and companies engaged in content and information
creation or distribution through proprietary
platforms. To the extent that the fund tracks the Underlying
Index, the fund’s investment in certain sectors may
change over time.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Main Risks
As with any investment, you could lose all or part of your investment in the fund, and the fund’s performance could trail that of other investments.
The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective, as
well as numerous other risks that are described in greater
detail in the section of this Prospectus entitled
“
Additional
Information About Fund Strategies, Underlying Index Information
and Risks
”
and in the Statement of Additional
Information (
“
SAI
”
).
Because the fund invests in one or more Underlying
Funds, the risks listed here include those of the Underlying
Funds as well as those of the fund itself. Therefore, in
these risk descriptions the term
“
the fund
”
may refer to
the fund itself, one or more Underlying Funds, or both.
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
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result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Special risk considerations relating to the RQFII regime
and investments in A-Shares.
The Advisor’s ability to
achieve the fund’s investment objective by investing in the
component securities of the Underlying Index is dependent
on the continuous availability of A-Shares. Because
the fund will not be able to invest directly in A-Shares
beyond the limits that may be imposed by Stock Connect,
the size of the fund’s direct investment in A-Shares may
be limited. If the subadvisor is unable to maintain its RQFII
status, the subadvisor may seek to gain exposure to the
A-Share market by investing in securities not included in
the Underlying Index, futures contracts, swaps and other
derivative instruments, and other pooled investment
vehicles, including foreign and/or affiliated funds, that
provide exposure to the A-Share market until access via a
RQFII license can be re-obtained. A revocation or elimination
of the RQFII license may not only adversely affect
the ability of the fund to invest directly in A-Shares, but
also the willingness of swap counterparties to engage in
swaps and the performance of pooled investment vehicles
linked to the performance of A-Shares. Therefore, any such
revocation or elimination may have a material adverse
effect on the ability of the fund to achieve its investment
objective. These risks are compounded by the fact that
at present there are only a limited number of firms and
counterparties that have QFII or RQFII status. In addition,
the RQFII license may be revoked by Chinese regulators if,
among other things, the subadvisor fails to observe SAFE
and other applicable Chinese regulations, which could also
lead to other adverse consequences, including the requirement
that the fund dispose of its A-Shares holdings. There
can be no guarantee that the fund will be able to invest
in appropriate futures contracts, swaps and other derivative
instruments, and the PRC government may at times
restrict the ability of firms regulated in the PRC to make
such instruments available. In addition, there are custody
risks associated with investing through an RQFII, where,
due to requirements regarding establishing a custody
account in the joint names of the fund and the subadvisor’s
creditors than if the fund had an account in its name only.
If the fund is unable to obtain sufficient exposure to the
performance of the Underlying Index due to the unavailability
of RQFII license or other investments that provide
exposure to the performance of A-Shares, the fund could,
among other actions, limit or suspend creations until the
subadvisor determines that the requisite exposure to the
Underlying Index is obtainable. During the period that
creations are limited or suspended, the fund could trade at
a significant premium or discount to the NAV and could
experience substantial redemptions. Alternatively, the fund
could change its investment objective by, for example,
seeking to track an alternative index that does not include
A-Shares as its component securities, or decide to liquidate
the fund.
On May 7, 2020, the People’s Bank of China (
“
PBOC
”
) and
SAFE jointly issued the Regulations on Funds of Securities
and Futures Investment by Foreign Institutional
Investors (PBOC & SAFE Announcement [2020] No. 2)
(the
“
Regulations
”
) which came into effect on June 6,
2020. The Regulations supersede certain post-registration
rules applicable to QFII and RQFII regimes. One of the
key changes of the Regulations is the removal of quota
restrictions on investment. However, as of the date of this
prospectus, this is a relatively new development, and
there is no guarantee that the quotas will continue to be
relaxed.
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Special risk considerations of investing in China.
Investing in securities of Chinese issuers involves certain
risks and considerations not typically associated with
investing in securities of US issuers, including, among
others, (i) more frequent (and potentially widespread)
trading suspensions and government interventions with
respect to Chinese issuers, resulting in lack of liquidity and
in price volatility, (ii) currency revaluations and other
currency exchange rate fluctuations or blockage, (iii) the
nature and extent of intervention by the Chinese government
in the Chinese securities markets (including both
direct and indirect market stabilization efforts, which may
affect valuations of Chinese issuers), whether such intervention
will continue and the impact of such intervention
or its discontinuation, (iv) the risk of nationalization or expropriation
of assets, (v) the risk that the Chinese government
may decide not to continue to support economic reform
programs, (vi) limitations on the use of brokers (or action
by the Chinese government that discourages brokers from
serving international clients), (vii) higher rates of inflation,
(viii) greater political, economic and social uncertainty, (ix)
higher market volatility caused by any potential regional
territorial conflicts or natural disasters, (x) the risk of
increased trade tariffs, embargoes and other trade or regulatory
limitations, (xi) restrictions on foreign ownership,
(xii) custody risks associated with investing through Stock
Connect, an RQFII or other programs to access the
Chinese securities markets, (xiii) both interim and permanent
market regulations which may affect the ability of
certain stockholders to sell Chinese securities when it
would otherwise be advisable, and (xiv) different and less
stringent financial reporting standards.
From time to time, and as recently as early 2020 with the
coronavirus known as COVID-19, China has experienced
outbreaks of infectious illnesses, and the country may be
subject to other infectious illnesses, diseases or other
public health emergencies in the future. Any public health
emergency could reduce consumer demand or economic
output, result in market closures, travel restrictions or
quarantines, and generally have a significant impact on the
Chinese economy, which in turn could adversely affect
the fund’s investments.
Underlying funds risk.
To the extent the fund invests a
substantial portion of its assets in one or more Underlying
Funds, the fund’s performance will be directly related to
the performance of an Underlying Fund. The fund’s investments
in other investment companies subject the fund
to the risks affecting those investment companies.
In addition, the fund indirectly pays a portion of the
expenses incurred by an Underlying Fund, which lowers
performance. To the extent that the fund’s allocations favor
an Underlying Fund with higher expenses, the overall cost
of investing paid by the fund will be higher.
A-Shares tax risk.
Uncertainties in the Chinese tax rules
governing taxation of income and gains from investments
in A-Shares could result in unexpected tax liabilities for the
fund or Underlying Fund. China generally imposes withholding
tax at a rate of 10% on dividends and interest
derived by nonresident enterprises (including QFIIs and
RQFIIs) from issuers resident in China. China also imposes
withholding tax at a rate of 10% on capital gains derived
by nonresident enterprises from investments in an issuer
resident in China, subject to an exemption or reduction
pursuant to domestic law or a double taxation agreement
or arrangement.
Since the respective inception of the Shanghai – Hong
Kong and Shenzhen – Hong Kong Stock Connect
programs, foreign investors (including the fund) investing
in A-Shares through Stock Connect would be temporarily
exempt from the PRC corporate income tax and value-
added tax on the gains on disposal of such A-Shares. Dividends
would be subject to PRC corporate income tax on
a withholding basis at 10%, unless reduced under a double
tax treaty with China upon application to and obtaining
approval from the competent tax authority. Since
November 17, 2014, the corporate income tax for QFIIs
and RQFIIs, with respect to capital gains, has been temporarily
lifted. The withholding tax relating to the realized
gains from shares in land-rich companies prior to
November 17, 2014 has been paid by the fund, while realized
gains from shares in non-land-rich companies prior
to November 17, 2014 were granted by treaty relief
pursuant to the PRC-US Double Taxation Agreement.
During 2015, revenue authorities in the PRC made
arrangements for the collection of capital gains taxes for
investments realized between November 17, 2009 and
November 16, 2014. The fund could be subject to tax
liability for any tax payments for which reserves have not
been made or that were not previously withheld. The
impact of any such tax liability on the fund’s return could
be substantial. The fund may also be liable to the Advisor
or subadvisor for any tax that is imposed on the Advisor or
subadvisor by the PRC with respect to the fund’s investments.
If the fund’s direct investments in A-Shares through
the Advisor’s or subadvisor’s RQFII license become
subject to repatriation restrictions or delays, the fund may
be unable to satisfy distribution requirements applicable
to RICs under the Internal Revenue Code, and be subject
to tax at the fund level. The current PRC tax laws and regulations
and interpretations thereof may be revised or
amended in the future, potentially retroactively, including
with respect to the possible liability of the fund for the
taxation of income and gains from investments in A-Shares
through Stock Connect or obligations of an RQFII. The withholding
taxes on dividends, interest and capital gains may
in principle be subject to a reduced rate under an applicable
tax treaty, but the application of such treaties in the
case of an RQFII acting for a foreign investor such as the
fund is also uncertain. Finally, it is also unclear whether an
RQFII would also be eligible for PRC Business Tax (
“
BT
”
)
exemption, which has been granted to QFIIs, with respect
to gains derived prior to May 1, 2016. In practice, the BT
has not been collected. However, the imposition of such
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taxes on the fund could have a material adverse effect on
the fund’s returns. Since May 1, 2016, RQFIIs are exempt
from PRC value-added tax, which replaced the BT with
respect to gains realized from the disposal of securities,
including A-Shares.
The PRC rules for taxation of RQFIIs (and QFIIs) are
evolving and certain tax regulations to be issued by the
PRC State Administration of Taxation and/or PRC Ministry
of Finance to clarify the subject matter may apply retrospectively,
even if such rules are adverse to the fund and
its shareholders.
If the PRC begins applying tax rules regarding the taxation
of income from A-Shares investments to RQFIIs and/or
begins collecting capital gains taxes on such investments
(whether made through Stock Connect or an RQFII), the
fund or Underlying Fund could be subject to withholding
tax liability in excess of the amount reserved (if any). The
impact of any such tax liability on the fund’s or Underlying
Fund’s return could be substantial. The fund will be liable
to the Advisor or subadvisor for any Chinese tax that is
imposed on the Advisor or subadvisor with respect to the
fund’s investments.
As described below under
“
Taxes – Taxes on Distributions,
”
the fund may elect, for US federal income tax purposes,
to treat Chinese taxes (including withholding taxes) paid by
the fund as paid by its shareholders. Even if the fund is
qualified to make that election and does so, however, your
ability to claim a credit for certain Chinese taxes may be
limited under general US tax principles.
In addition, to the extent the fund invests in swaps and
other derivative instruments, such investments may be
less tax-efficient from a US tax perspective than direct
investment in A-Shares and may be subject to special US
federal income tax rules that could adversely affect the
fund. Also the fund may be required to periodically adjust
its positions in those instruments to comply with certain
regulatory requirements which may further cause these
investments to be less efficient than a direct investment in
A-Shares.
Should the Chinese government impose restrictions on
the fund’s ability to repatriate funds associated with direct
investment in A-Shares, the fund may be unable to satisfy
distribution requirements applicable to regulated investment
companies (
“
RICs
”
) under the Internal Revenue
Code of 1986, as amended (the
“
Internal Revenue Code
”
),
and the fund may therefore be subject to fund-level US
federal taxes.
Risks of investing through Stock Connect.
Trading
through Stock Connect is subject to a number of restrictions
that may affect the fund’s investments and returns.
For example, trading through Stock Connect is subject to
the Daily Quota, which may restrict or preclude the fund’s
ability to invest in A-Shares through Stock Connect (
“
Stock
Connect A-Shares
”
). In addition, investments made
through Stock Connect are subject to trading, clearance
and settlement procedures that are relatively untested in
the PRC, which could pose risks to the fund. Moreover,
Stock Connect A-Shares generally may not be sold,
purchased or otherwise transferred other than through
Stock Connect in accordance with applicable rules. A
primary feature of Stock Connect is the application of the
home market’s laws and rules applicable to investors in
A-Shares. Therefore, the fund’s investments in Stock
Connect A-Shares are generally subject to PRC securities
regulations and listing rules, among other restrictions.
Finally, while foreign investors currently are exempted
from paying capital gains or value-added taxes on income
and gains from investments in Stock Connect A-Shares,
these PRC tax rules could be changed, which could result
in unexpected tax liabilities for the fund.
Stock Connect will only operate on days when both the
Chinese and Hong Kong markets are open for trading and
when banking services are available in both markets on the
corresponding settlement days. Therefore, an investment
in A-Shares through Stock Connect may subject the fund
to the risk of price fluctuations on days when the Chinese
markets are open, but Stock Connect is not trading.
The Stock Connect program is a relatively new program.
Further developments are likely and there can be no assurance
as to the program’s continued existence or whether
future developments regarding the program may restrict or
adversely affect the fund’s investments or returns. In addition,
the application and interpretation of the laws and
regulations of Hong Kong and the PRC, and the rules, policies
or guidelines published or applied by relevant
regulators and exchanges in respect of the Stock Connect
program are uncertain, and they may have a detrimental
effect on the fund’s investments and returns.
Depositary receipt risk.
Depositary receipts involve
similar risks to those associated with investments in securities
of non-US issuers. Depositary receipts also may be
less liquid than the underlying shares in their primary
trading market.
Derivatives risk.
Risks associated with derivatives include
the risk that the derivative is not well correlated with the
security, index or currency to which it relates; the risk that
derivatives may result in losses or missed opportunities;
the risk that the fund will be unable to sell the derivative
because of an illiquid secondary market; the risk that a
counterparty is unwilling or unable to meet its obligation;
and the risk that the derivative transaction could expose
the fund to the effects of leverage, which could increase
the fund’s exposure to the market and magnify potential
losses. There is no guarantee that derivatives, to the extent
employed, will have the intended effect, and their use
could cause lower returns or even losses to the fund. The
use of derivatives by the fund to hedge risk may reduce
the opportunity for gain by offsetting the positive effect of
favorable price movements.
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Currency and repatriation risk.
The Underlying Index is
calculated in onshore RMB (CNY), whereas the fund’s reference
currency is the US dollar. As a result, the fund’s
return may be adversely affected by currency exchange
rates. Further, although offshore RMB and onshore RMB
are the same currency, they trade at different rates. To the
extent the fund needs to exchange offshore RMB and
onshore RMB, any divergence between offshore RMB and
onshore RMB may adversely impact shareholders. The
value of the US dollar measured against other currencies
is influenced by a variety of factors. These factors include:
interest rates, national debt levels and trade deficits,
changes in balances of payments and trade, domestic and
foreign interest and inflation rates, global or regional
political, economic or financial events, monetary policies
of governments, actual or potential government intervention,
global energy prices, political instability and
government monetary policies and the buying or selling of
currencies by a country’s government.
In addition, the Chinese government heavily regulates the
domestic exchange of foreign currencies within China.
Chinese law requires that all domestic transactions must
be settled in RMB, places significant restrictions on the
remittance of foreign currencies, and strictly regulates
currency exchange from RMB. There is no assurance that
there will always be sufficient amounts of RMB for the
fund to remain fully invested. Repatriations by RQFIIs are
currently permitted daily and are not subject to repatriation
restrictions or prior regulatory approval. However, there
is no assurance that Chinese rules and regulations will not
change or that repatriation restrictions will not be imposed
in the future. Further, such changes to the Chinese rules
and regulations may be applied retroactively. Any restrictions
on repatriation of the fund’s portfolio investments
may have an adverse effect on the fund’s ability to meet
redemption requests.
Counterparty risk.
A financial institution or other
counterparty with whom the fund does business, or that
underwrites, distributes or guarantees any investments or
contracts that the fund owns or is otherwise exposed to,
may decline in financial health and become unable to
honor its commitments. This could cause losses for the
fund or could delay the return or delivery of collateral or
other assets to the fund.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors
of the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Consumer discretionary sector risk.
To the extent that
the fund invests significantly in the consumer discretionary
sector, the fund will be sensitive to changes in, and the
fund’s performance may depend to a greater extent on, the
overall condition of the consumer discretionary sector.
Companies engaged in the consumer discretionary sector
are subject to fluctuations in supply and demand. These
companies may also be adversely affected by changes in
consumer spending as a result of world events, political
and economic conditions, commodity price volatility,
changes in exchange rates, imposition of import controls,
increased competition, depletion of resources and labor
relations.
Financials sector risk.
To the extent that the fund invests
significantly in the financials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
financials sector. The financials sector is subject to extensive
government regulation, can be subject to relatively
rapid change due to increasingly blurred distinctions
between service segments, and can be significantly
affected by availability and cost of capital funds, changes in
interest rates, the rate of corporate and consumer debt
defaults, and price competition.
Communication services sector risk.
To the extent that
the fund invests significantly in the communication
services sector, the fund will be sensitive to changes in,
and the fund’s performance may depend to a greater
extent on, the overall condition of the communication
services sector. Companies in the communications
services sector can be adversely affected by, among other
things, changes in government regulation, intense competition,
dependency on patent protection, equipment
incompatibility, changing consumer preferences, technological
obsolescence, and large capital expenditures and
debt burdens.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
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Xtrackers MSCI All China Equity ETF
|
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Pricing risk.
If market conditions make it difficult to value
some investments
(including China A-Shares), the fund
may value these investments using more subjective
methods, such as fair value pricing. In such cases, the
value determined for an investment could be different from
the value realized upon such investment’s sale. As a result,
you could pay more than the market value when buying
fund shares or receive less than the market value when
selling fund shares.
Tracking error risk.
The performance of the fund may
diverge from that of its Underlying Index for a number of
reasons, including operating expenses, transaction costs,
cash flows and operational inefficiencies. The fund’s return
also may diverge from the return of the Underlying Index
because the fund bears the costs and risks associated
with buying and selling securities (especially when rebalancing
the fund’s securities holdings to reflect changes
in the Underlying Index) while such costs and risks are not
factored into the return of the Underlying Index. Transaction
costs, including brokerage costs, will decrease the
fund’s NAV to the extent not offset by the transaction fee
payable by an
“
Authorized Participant
”
(
“
AP
”
). Market
disruptions and regulatory restrictions could have an
adverse effect on the fund’s ability to adjust its exposure
to the required levels in order to track the Underlying
Index. In addition, to the extent that portfolio management
uses a representative sampling approach (investing in a
representative selection of securities included in the Underlying
Index rather than all securities in the Underlying
Index) it may cause the fund to not be as well correlated
with the return of the Underlying Index as would be the
case if the fund purchased all of the securities in the
Underlying Index in the proportions represented in the
Underlying Index. Errors in the Underlying Index data, the
Underlying Index computations and/or the construction
of the Underlying Index in accordance with its methodology
may occur from time to time and may not be
identified and corrected by the index provider for a period
of time or at all, which may have an adverse impact on the
fund and its shareholders. In addition, the fund may not
be able to invest in certain securities included in the Underlying
Index, or invest in them in the exact proportions in
which they are represented in the Underlying Index, due to
legal restrictions or limitations imposed by the governments
of certain countries, a lack of liquidity in the markets
in which such securities trade, potential adverse tax consequences
or other regulatory reasons. To the extent the
fund calculates its NAV based on fair value prices and the
value of the Underlying Index is based on securities’
closing prices (i.e., the value of the Underlying Index is not
based on fair value prices), the fund’s ability to track the
Underlying Index may be adversely affected. The performance
of the fund also may diverge from that of the
Underlying Index if the Advisor and/or subadvisor seek to
gain exposure to A-Shares by investing in securities not
included in the Underlying Index, derivative instruments,
and other pooled investment vehicles because the
subadvisor is unable to maintain its RQFII status, or the
Stock Connect Daily Quota has been exhausted. For tax
efficiency purposes, the fund may sell certain securities,
and such sale may cause the fund to realize a loss and
deviate from the performance of the Underlying Index. In
light of the factors discussed above, the fund’s return may
deviate significantly from the return of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
the NAV during periods of market volatility. The Advisor
cannot predict whether shares will trade above, below or
at their NAV. Given the fact that shares can be created and
redeemed in Creation Units (defined below), the Advisor
believes that large discounts or premiums to the NAV of
shares should not be sustained in the long-term. If market
makers exit the business or are unable to continue making
markets in fund shares, shares may trade at a discount to
NAV like closed-end fund shares and may even face
delisting (that is, investors would no longer be able to trade
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Xtrackers MSCI All China Equity ETF
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shares in the secondary market). Further, while the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in market prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. In addition, the securities held by the fund
may be traded in markets that close at a different time
than the exchange on which the fund’s shares trade.
Liquidity in those securities may be reduced after the
applicable closing times. Accordingly, during the time
when the exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. The bid/ask spread of the fund may be
wider in comparison to the bid/ask spread of other ETFs,
due to the Fund’s exposure to A-Shares. Further,
secondary markets may be subject to irregular trading
activity, wide bid-ask spreads and extended trade settlement
periods, which could cause a material decline in the
fund’s NAV. The fund’s investment results are measured
based upon the daily NAV of the fund. Investors purchasing
and selling shares in the secondary market may not experience
investment results consistent with those
experienced by those APs creating and redeeming shares
directly with the fund.
Valuation risk.
Because non-US markets may be open on
days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the
fund’s shares.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk. The fund is classified as non-diversified under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.
Country concentration risk.
To the extent that the fund
invests significantly in a single country, it is more likely to
be impacted by events or conditions affecting that country.
For example, political and economic conditions and
changes in regulatory, tax or economic policy in a country
could significantly affect the market in that country and
in surrounding or related countries and have a negative
impact on the fund’s performance.
Medium-sized company risk.
Medium-sized company
stocks tend to be more volatile than large company stocks.
Because stock analysts are less likely to follow medium-sized
companies, less information about them is available
to investors. Industry-wide reversals may have a greater
impact on medium-sized companies, since they lack the
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Xtrackers MSCI All China Equity ETF
|
financial resources of larger companies. Medium-sized
company stocks are typically less liquid than large
company stocks.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Past Performance
The bar chart and table below provide some indication of the risks of investing in the fund by showing changes in the fund’s performance from year to year and by showing how the fund’s average annual returns compare with those of the Underlying Index and a broad measure of market performance.
The fund’s past performance (before and after taxes) is not necessarily an indication of how the fund will perform in the future.
Updated performance information
is available on the fund’s website at
Xtrackers.com
(the website does not form a part of this prospectus).
Effective November 30, 2015, changes were made to the
fund’s investment objective. Prior to November 30, 2015,
the fund sought investment results that corresponded
generally to the performance, before fees and expenses,
of the MSCI All China Index. Thus, performance prior to
that date reflects the fund’s prior investment objective.
CALENDAR YEAR TOTAL RETURNS(%)
Average Annual Total Returns(For periods ended 12/31/2019 expressed as a %)
All after-tax returns are calculated using the historical highest individual federal marginal income tax rates and do not reflect the impact of any state or local tax. Your own actual after-tax returns will depend on your tax situation
and may differ from what is shown here. After-tax returns are not relevant to investors who hold shares of the fund in tax-deferred accounts such as individual retirement accounts (“IRAs”) or employee-sponsored retirement plans.
|
|
|
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|
|
|
|
|
|
After tax on distribu-
tions
|
|
|
|
|
After tax on distribu-
tions and sale of fund
shares
|
|
|
|
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MSCI China All Shares
Index
(reflects no deduc-
tions for fees, expenses
or taxes)
|
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Management
Investment Advisor
DBX Advisors LLC
Portfolio Managers
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2014.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
Purchase and Sale of Fund Shares
The fund is an exchange-traded fund (commonly referred
to as an
“
ETF
”
). Individual fund shares may only be
purchased and sold through a brokerage firm. The price of
fund shares is based on market price, and because ETF
shares trade at market prices rather than NAV, shares may
trade at a price greater than NAV (a premium) or less than
NAV (a discount). The fund will only issue or redeem
shares that have been aggregated into blocks of 50,000
shares or multiples thereof (
“
Creation Units
”
) to APs who
have entered into agreements with ALPS Distributors,
Inc., the fund’s distributor. You may incur costs attributable
to the difference between the highest price a buyer is
willing to pay to purchase shares of the fund (bid) and the
lowest price a seller is willing to accept for shares of the
fund (ask) when buying or selling shares (the
“
bid-ask
spread
”
). Information on the fund’s net asset value, market
price, premiums and discounts and bid-ask spreads may
be found at Xtrackers.com.
Tax Information
The fund's distributions are generally taxable to you as
ordinary income or capital gains, except when your investment
is in an IRA, 401(k), or other tax-deferred investment
plan. Any withdrawals you make from such tax- advantaged
investment plans, however, may be taxable to you.
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Xtrackers MSCI All China Equity ETF
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Payments to Broker-Dealers and
Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer
or other financial intermediary (such as a bank), the
Advisor or other related companies may pay the intermediary
for marketing activities and presentations,
educational training programs, the support of technology
platforms and/or reporting systems or other services
related to the sale or promotion of the fund. These
payments may create a conflict of interest by influencing
the broker-dealer or other intermediary and your salesperson
to recommend the fund over another investment.
Ask your salesperson or visit your financial intermediary’s
website for more information.
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Xtrackers MSCI All China Equity ETF
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Additional Information About Fund
Strategies, Underlying Index
Information and Risks
Xtrackers Harvest CSI 300 China A-Shares ETF
Investment Objective
The Xtrackers Harvest CSI 300 China A-Shares ETF (the
“
fund
”
) seeks investment results that correspond generally
to the performance, before fees and expenses, of the
CSI 300 Index (the
“
Underlying Index
”
).
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investments results that correspond
generally to the performance, before fees and expense, of
the Underlying Index, which is designed to reflect the
price fluctuation and performance of the China A-Share
market and is composed of the 300 largest and most liquid
stocks in the China A-Share market. The Underlying Index
includes small-cap, mid-cap, and large-cap stocks. DBX
Advisors LLC (the
“
Advisor
”
) expects that, over time, the
correlation between the fund’s performance and that of
the Underlying Index, before fees and expenses, will be
95% or better. A figure of 100% would indicate perfect
correlation.
A-Shares are equity securities issued by companies incorporated
in mainland China and are denominated and traded
in renminbi (
“
RMB
”
) on the Shenzhen and Shanghai Stock
Exchanges. Under current regulations in the People’s
Republic of China (
“
China
”
or the
“
PRC
”
), foreign investors
can invest in the domestic PRC securities markets
through certain market-access programs. These programs
include the Qualified Foreign Institutional Investor (
“
QFII
”
)
or a Renminbi Qualified Foreign Institutional Investor
(
“
RQFII
”
) licenses obtained from the China Securities
Regulatory Commission (
“
CSRC
”
). QFII and RQFII investors
have also registered with China’s State Administration
of Foreign Exchange (
“
SAFE
”
) to invest foreign freely
convertible currencies (in the case of a QFII) and RMB (in
the case of an RQFII) in the PRC for the purpose of
investing in the PRC’s domestic securities markets.
Harvest Global Investments Limited (the
“
Subadvisor
”
or
“
HGI
”
) is a licensed RQFII and the fund may therefore
invest in A-Shares via HGI’s RQFII license. The Subadvisor,
on behalf of the fund, may invest in A-Shares and other
permitted China securities listed on the Shanghai and
Shenzhen Stock Exchanges. The fund may also invest in
A-Shares listed and traded on the Shanghai Stock
Exchange and Shenzhen Stock Exchange through the
Shanghai – Hong Kong and Shenzhen – Hong Kong Stock
Connect programs (
“
Stock Connect
”
). Stock Connect is
a securities trading and clearing program between either
the Shanghai Stock Exchange or Shenzhen Stock Exchange
and The Stock Exchange of Hong Kong Limited (
“
SEHK
”
),
China Securities Depository and Clearing Corporation
Limited and Hong Kong Securities Clearing Company
Limited. Stock Connect is designed to permit mutual stock
market access between mainland China and Hong Kong
by allowing investors to trade and settle shares on each
market via their local exchanges. Trading through Stock
Connect is subject to a daily quota (
“
Daily Quota
”
), which
limits the maximum daily net purchases on any particular
day by Hong Kong investors (and foreign investors trading
through Hong Kong) trading PRC listed securities and PRC
investors trading Hong Kong listed securities trading
through the relevant Stock Connect. Accordingly, the
fund’s direct investments in A-Shares will be limited in part
by the Daily Quota that limits total purchases through
Stock Connect. Investment companies are not currently
within the types of entities that are eligible for an RQFII or
QFII license.
The Subadvisor expects to use a full replication indexing
strategy to seek to track the Underlying Index. As such, the
Subadvisor expects to invest directly in the component
securities (or a substantial number of the component securities)
of the Underlying Index in substantially the same
weightings in which they are represented in the Underlying
Index. If it is not possible for the Subadvisor to acquire
component securities due to limited availability or regulatory
restrictions, the Sub- Advisor may use a
representative sampling indexing strategy to seek to track
the Underlying Index instead of a full replication indexing
strategy.
“
Representative sampling
”
is an indexing
strategy that involves investing in a representative sample
of securities that collectively has an investment profile
similar to the Underlying Index. The securities selected are
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42
|
Fund Details
|
expected to have, in the aggregate, investment characteristics
(based on factors such as market capitalization and
industry weightings), fundamental characteristics (such as
return variability and yield), and liquidity measures similar
to those of the Underlying Index. The fund may or may not
hold all of the securities in the Underlying Index when
the Subadvisor is using a representative sampling indexing
strategy.
The fund will normally invest at least 80% of its total
assets in securities of issuers that comprise the Underlying
Index. The fund will seek to achieve its investment
objective by primarily investing directly in A-Shares.
Because the fund does not satisfy the criteria to qualify as
an RQFII or QFII itself, the fund intends to invest directly
in A-Shares via the RQFII license granted to the Subadvisor
and may also invest through Stock Connect. While the
fund intends to invest primarily and directly in A-Shares,
the fund also may invest in securities of issuers not
included in the Underlying Index, futures contracts, stock
index futures, swap contracts and other types of derivative
instruments, and other pooled investment vehicles,
including affiliated and/or foreign investment companies,
that the Advisor and/or Subadvisor believes will help the
fund to achieve its investment objective. The remainder of
the fund’s assets will be invested primarily in money
market instruments and cash equivalents. Under normal
circumstances, the fund invests at least 80% of its net
assets, plus the amount of any borrowings for investment
purposes, in A-Shares of Chinese issuers or in derivative
instruments and other securities that provide investment
exposure to A-Shares of Chinese issuers. The fund may
invest in depositary receipts. The fund will not invest in any
unlisted depositary receipt or any depositary receipt that
the Advisor and/or Subadvisor deem illiquid at the time of
purchase or for which pricing information is not readily
available.
As of July 31, 2020, the Underlying Index consisted of 300
securities with an average market capitalization of approximately
$20.34 billion and a minimum market capitalization
of approximately $3.05 billion. Under normal circumstances,
the Underlying Index is rebalanced semi-annually
every June and December. The fund rebalances its portfolio
in accordance with the Underlying Index, and,
therefore, any changes to the Underlying Index’s rebalance
schedule will result in corresponding changes to the fund’s
rebalance schedule.
The fund will concentrate its investments (i.e., hold 25%
or more of its total assets) in a particular industry or group
of industries to the extent that the Underlying Index is
concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
financials (27.5%) sector. The financials sector includes
companies involved in banking, consumer finance, asset
management and custody banks, as well as investment
banking and brokerage and insurance. To the extent that
the fund tracks the Underlying Index, the fund’s investment
in certain sectors may change over time.
The Subadvisor intends to fully (or at least substantially)
replicate the fund’s Underlying Index, but may pursue a
representative sampling indexing strategy in circumstances
where there is limited availability of component
securities or regulatory restrictions that inhibit the transferability
of component securities. In addition, from time to
time, the Subadvisor may choose to underweight or overweight
a security in the fund’s Underlying Index, purchase
securities not included in the Underlying Index that the
Subadvisor believes are appropriate to substitute for
certain securities in the Underlying Index, or utilize various
combinations of other available investment techniques to
seek to track, before fees and expenses, the performance
of the Underlying Index. The fund also may seek to gain
exposure to A-Shares through means other than the use of
the Subadvisor’s RQFII quota, including Stock Connect,
obtaining a QFII quota or any other method permitted by
PRC law and consistent with the fund’s investment policies.
The Subadvisor may also sell securities that are
represented in the fund’s Underlying Index in anticipation
of their removal from the Underlying Index or purchase
securities not represented in the Underlying Index in anticipation
of their addition to the Underlying Index.
The fund may invest its assets in other securities,
including, but not limited to: (i) swap contracts, (ii) interests
in pooled investment vehicles, including affiliated and
foreign funds (certain funds may not be registered under
the Investment Company Act of 1940, as amended (the
“
1940 Act
”
) and therefore, not subject to the same
investor protections as the fund), (iii) securities not in the
Underlying Index, including: (a) depositary receipts (depositary
receipts, including American depositary receipts
(
“
ADRs
”
) may be used by the fund in seeking performance
that corresponds to the fund’s Underlying Index and in
managing cash flows, and they may count towards compliance
with the fund’s 80% investment policies) , (iv) cash
and cash equivalents, (v) money market instruments, such
as repurchase agreements or money market funds
(including money market funds advised by the Advisor,
HGI or their affiliates subject to applicable limitations under
the 1940 Act, or exemptions therefrom), (vi) convertible
securities, (vii) structured notes (notes on which the
amount of principal repayment and interest payments are
based on the movement of one or more specified factors,
such as the movement of a particular stock or stock index),
and (viii) futures contracts, options on futures contracts,
and other types of options related to the Underlying Index.
A futures contract is a standardized exchange-traded agreement
to buy or sell a specific quantity of an underlying
instrument at a specific price at a specific future time.
The fund may become
“
non-diversified,
”
as defined under
the Investment Company Act of 1940, as amended, solely
as a result of a change in relative market capitalization or
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43
|
Fund Details
|
index weighting of one or more constituents of the index
that the fund is designed to track. Shareholder approval will
not be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
Shares of the fund are not sponsored, endorsed, sold or
promoted by CSI or any affiliate of CSI and CSI bears no
liability with respect to the fund or any security.
Underlying Index Information
Xtrackers Harvest CSI 300 China A-Shares ETF Index
Description.
The Underlying Index is calculated and maintained by
China Securities Index Co., Ltd. (the
“
Index Provider
”
or
“
CSI
”
).
The Underlying Index is a modified free-float market capitalization
weighted index composed of the largest and
most liquid stocks in the China A-Share market.
Constituent stocks for the Underlying Index must have
been listed on either the Shanghai Stock Exchange or the
Shenzhen Stock Exchange for more than three months
(unless the stock’s average daily A-Share market capitalization
since its initial listing ranks among the top 30 of all
A-Shares), have demonstrated positive performance, and
not be subject to abnormal volatility or other evidence of
possible market manipulation. If an issuer has reported a
loss in its annual report or semi-annual report, the issuer’s
stock will not be eligible for inclusion in the Underlying
Index. In addition, if an issuer experiences stock price volatility
that is not attributable to market demand and supply
factors, but rather the possible result of market manipulation,
the Index Provider will take such factor into
consideration when determining whether the issuer is
eligible for inclusion or continued inclusion in the Underlying
Index. When determining eligibility, the Index Provider
also may consider other factors, such as whether the
issuer has been subject to any administrative penalty or
regulatory investigation. As of July 31, 2020, the Underlying
Index consisted of 300 securities with an average
market capitalization of approximately $20.34 billion and a
minimum market capitalization of approximately $3.05
billion. These amounts are subject to change.
When selecting constituent stocks for the Underlying
Index, the Index Provider: (1) calculates the daily average
trading value and daily average total market capitalization
during the most recent year (or in the case of a new issue,
during the time since its initial listing) for all the stocks in
the stock universe; (2) ranks the stocks in the stock
universe in descending order according to their average
daily trading values, and excludes the bottom 50%; and (3)
ranks the remaining stocks in descending order according
to their average daily market capitalization and selects
those which rank top 300 as constituent stocks of the
Underlying Index.
The weighting of a company in the Underlying Index is
intended to be a reflection of the current importance of
that company in the China A-Share market as a whole.
Stocks are selected and weighted according to market
capitalization. A company is heavily weighted in the Underlying
Index if it has a relatively larger free-float market
capitalization than the rest of the constituents in the
Underlying Index. The constituents of the Underlying Index
are frequently reviewed by the Index Provider to ensure
that the Underlying Index continues to reflect the state and
structure of the underlying market it measures. The Underlying
Index is calculated in real time and is published every
six seconds in RMB (specifically, Chinese onshore RMB
(referred to as
“
CNY
”
)). The Underlying Index is rebalanced
semi-annually every January and July.
During extraordinary market conditions, the Index Provider
may delay any scheduled rebalancing of the Underlying
Index. During any such delay it is possible that the Underlying
Index will deviate from the Underlying Index’s stated
methodology.
Main Risks
As with any investment, you could lose all or part of your
investment in the fund, and the fund’s performance could
trail that of other investments. The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective.
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
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operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Risk of investing in China.
Investments in China involve
certain risks and special considerations, including the
following:
Investments in A-Shares.
The fund intends to invest
directly in A-Shares through Stock Connect or the available
RQFII license, as applicable. In the future, the fund may
utilize an RQFII license applied for by and granted to the
Advisor and/or a subadvisor. Because the fund will not be
able to invest directly in A-Shares beyond the limits that
may be imposed by Stock Connect, the size of the fund’s
direct investments in A-Shares may be limited. In addition,
restrictions may be imposed on the repatriation of gains
and income that may affect the fund’s ability to satisfy
redemption requests. Currently, there are two stock
exchanges in mainland China, the SSE and the SZSE. The
Shanghai and Shenzhen Stock Exchanges are supervised
by the China Securities Regulatory Commission (
“
CSRC
”
)
and are highly automated with trading and settlement
executed electronically. The SSE and SZSE are substantially
smaller, less liquid, and more volatile than the major
securities markets in the US.
The SSE commenced trading on December 19, 1990, and
the SZSE commenced trading on July 3, 1991. The SSE
and SZSE divide listed shares into two classes: A-Shares
and B-Shares. Companies whose shares are traded on the
SSE and SZSE that are incorporated in mainland China
may issue both A-Shares and B-Shares. In China, the
A-Shares and B-Shares of an issuer may only trade on one
exchange. A-Shares and B-Shares may both be listed on
either the SSE or SZSE. Both classes represent an ownership
interest comparable to a share of common stock and
all shares are entitled to substantially the same rights and
benefits associated with ownership. A-Shares are traded
on SSE and SZSE in RMB.
As of October 31, 2019, the CSRC had granted licenses to
244 RQFIIs and to 313 QFIIs to invest in A-Shares and
other permitted Chinese securities. Because restrictions
continue to exist and capital therefore cannot flow freely
into the A-Share market, it is possible that in the event of a
market disruption, the liquidity of the A-Share market and
trading prices of A-Shares could be more severely affected
than the liquidity and trading prices of markets where securities
are freely tradable and capital therefore flows more
freely. The fund cannot predict the nature or duration of
such a market disruption or the impact that it may have on
the A-Share market and the short-term and long-term prospects
of its investments in the A-Share market.
The Chinese government has in the past taken actions
that benefited holders of A-Shares. As A-Shares become
more accessible to foreign investors, such as the funds,
the Chinese government may be less likely to take action
that would benefit holders of A-Shares. In addition, there is
no guarantee that any existing RQFII license will be maintained
if the RQFII license is revoked by CSRC at some
point in the future. The fund cannot predict what would
occur if the Stock Connect program was terminated, or if
the relevant RQFII license were to be revoked, although
such an occurrence would likely have a material adverse
effect on the fund.
On May 7, 2020, the People’s Bank of China (
“
PBOC
”
) and
SAFE jointly issued the Regulations on Funds of Securities
and Futures Investment by Foreign Institutional
Investors (PBOC & SAFE Announcement [2020] No. 2)
(the
“
Regulations
”
) which came into effect on June 6,
2020. The Regulations supersede certain post-registration
rules applicable to QFII and RQFII regimes. One of the
key changes of the Regulations is the removal of quota
restrictions on investment. However, as of the date of this
prospectus, this is a relatively new development, and
there is no guarantee that the quotas will continue to be
relaxed.
Custody risks of investing in A-Shares under the RQFII
program.
If the fund invests directly in A-Shares under the
RQFII program, the fund is required to select a PRC
sub-custodian (the
“
PRC sub- custodian
”
), which is a mainland
commercial bank qualified both as a custodian for
RQFII and as a settlement agent on the inter-bank bond
market. The PRC sub-custodian maintains the fund’s RMB
deposit accounts and oversees the fund’s investments
in A-Shares in the PRC to ensure their compliance with the
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rules and regulations of the CSRC and the People’s Bank
of China. A-Shares that are traded on the SSE and SZSE
are dealt and held in book-entry form through the CSDCC.
A-Shares purchased by the Subadvisor, in their capacity
as an RQFII, on behalf of the fund, may be received by the
CSDCC as credited to a securities trading account maintained
by the PRC sub-custodian in the names of the fund
and the Subadvisor as the RQFII. A fund will pay the cost
of the account. The Subadvisor may not use the account
for any other purpose than for maintaining the fund’s
assets. However, given that the securities trading account
will be maintained in the name of the Subadvisor for the
benefit of the fund, the fund’s assets may not be as well
protected as they would be if it were possible for them to
be registered and held solely in the name of the fund. In
particular, there is a risk that creditors of the Subadvisor
may assert that the securities are owned by the
Subadvisor and not the fund, and that a court would uphold
such an assertion, in which case creditors of the
Subadvisor could seize assets of the fund. Because the
Subadvisor’s RQFII license would be in the name of the
Subadvisor rather than the fund, there is also a risk that
regulatory actions taken against the Subadvisor by PRC
government authorities may affect the fund.
Investors should note that cash deposited in the fund’s
account with the PRC sub-custodian will not be segregated
but will be a debt owing from the PRC sub-custodian
to the fund as a depositor. Such cash will be co-mingled
with cash belonging to other clients of the PRC
sub-custodian. In the event of bankruptcy or liquidation of
the PRC sub-custodian, the fund will not have any proprietary
rights to the cash deposited in the account, and the
fund will become an unsecured creditor, ranking pari passu
with all other unsecured creditors, of the PRC
sub-custodian. A fund may face difficulty and/or encounter
delays in recovering such debt, or may not be able to
recover it in full or at all, in which case the fund will suffer
losses.
A-Shares tax risk.
Uncertainties in the Chinese tax rules
governing taxation of income and gains from investments
in A-Shares could result in unexpected tax liabilities for
a fund. China generally imposes withholding tax at a rate
of 10% on dividends and interest derived by nonresident
enterprises (including QFIIs and RQFIIs) from issuers resident
in China. China also imposes withholding tax at a rate
of 10% on capital gains derived by nonresident enterprises
from investments in an issuer resident in China, subject to
an exemption or reduction pursuant to domestic law or
a double taxation agreement or arrangement.
Since the respective inception of Shanghai – Hong Kong
Stock Connect and Shenzhen – Hong Kong Stock Connect,
foreign investors (including the funds) investing in
A-Shares listed on the SSE through Shanghai – Hong Kong
Stock Connect and those listed on the SZSE through
Shenzhen – Hong Kong Stock Connect would be temporarily
exempt from the PRC corporate income tax and value-added
tax on the gains on disposal of such A-Shares.
Dividends would be subject to PRC corporate income tax
on a withholding basis at 10%, unless reduced under a
double tax treaty with China upon application to and
obtaining approval from the competent tax authority. Since
November 17, 2014, the corporate income tax for QFIIs
and RQFIIs, with respect to capital gains, has been temporarily
lifted. The withholding tax relating to the realized
gains from shares in land-rich companies prior to
November 17, 2014 has been paid by the fund, while realized
gains from shares in non-land-rich companies prior
to November 17, 2014 were granted by treaty relief
pursuant to the PRC-US Double Taxation Agreement.
During 2015, revenue authorities in the PRC made
arrangements for the collection of capital gains taxes for
investments realized between November 17, 2009 and
November 16, 2014. The fund could be subject to tax
liability for any tax payments for which reserves have not
been made or that were not previously withheld. The
impact of any such tax liability on the fund’s return could
be substantial. The fund may also be liable to the Advisor
or Subadvisor for any tax that is imposed on the Advisor or
Subadvisor by the PRC with respect to the fund’s investments.
If the fund's direct investments in A-Shares
through the Advisor's or Subadvisor’s RQFII license in the
future becomes subject to repatriation restrictions, the
fund may be unable to satisfy distribution requirements
applicable to RICs under the Internal Revenue Code, and
be subject to tax at the fund level.
The current PRC tax laws and regulations and interpretations
thereof may be revised or amended in the future,
potentially retroactively, including with respect to the
possible liability of a fund for the taxation of income and
gains from investments in A-Shares through Stock Connect
or obligations of an RQFII. The withholding taxes on dividends,
interest and capital gains may in principle be
subject to a reduced rate under an applicable tax treaty,
but the application of such treaties in the case of an RQFII
acting for a foreign investor such as the fund is also uncertain.
Finally, it is also unclear whether an RQFII would also
be eligible for PRC Business Tax (
“
BT
”
) exemption, which
has been granted to QFIIs, with respect to gains derived
prior to May 1, 2016. In practice, the BT has not been
collected. However, the imposition of such taxes on the
fund could have a material adverse effect on the fund’s
returns. Since May 1, 2016, RQFIIs are exempt from PRC
value- added tax, which replaced the BT with respect to
gains realized from the disposal of securities, including
A-Shares.
The PRC rules for taxation of RQFIIs (and QFIIs) are
evolving and certain tax regulations to be issued by the
PRC State Administration of Taxation and/or PRC Ministry
of Finance to clarify the subject matter may apply retrospectively,
even if such rules are adverse to a fund and
their shareholders.
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If the PRC begins applying tax rules regarding the taxation
of income from A-Shares investments to RQFIIs and/or
begins collecting capital gains taxes on such investments
(whether made through Stock Connect or an RQFII), a fund
could be subject to withholding tax liability in excess of
the amount reserved (if any). The impact of any such tax
liability on a fund’s return could be substantial. A fund will
be liable to the Advisor and/or Subadvisor for any Chinese
tax that is imposed on the Advisor and/or Subadvisor with
respect to the fund’s investments.
To the extent a fund invests in swaps linked to A-Shares,
such investments may be less tax-efficient for US tax
purposes than a direct investment in A-Shares. Any tax
liability incurred by the swap counterparty may be passed
on to a fund. When a fund sells a swap on A-Shares, the
sale price may take into account of the RQFII’s tax liability.
Investments in swaps and other derivatives may be
subject to special US federal income tax rules that could
adversely affect the character, timing and amount of
income earned by a fund (e.g., by causing amounts that
would be capital gain to be taxed as ordinary income or to
be taken into income earlier than would otherwise be
necessary). Also, a fund may be required to periodically
adjust its positions in its swaps and derivatives to comply
with certain regulatory requirements which may further
cause these investments to be less efficient than a direct
investment in A-Shares. For example, swaps in which a
fund may invest may need to be reset on a regular basis in
order to maintain compliance with the 1940 Act, which
may increase the likelihood that the fund will generate
short-term capital gains. In addition, because the application
of special tax rules to a fund and its investments may
be uncertain, it is possible that the manner in which they
are applied by the fund may be determined to be incorrect.
In that event, a fund may be found to have failed to maintain
its qualification as a RIC or to be subject to additional
US tax liability. A fund may make investments, both
directly and through swaps or other derivative positions, in
companies classified as passive foreign investment companies
for US federal income tax purposes (
“
PFICs
”
).
Investments in PFICs are subject to special tax rules which
may result in adverse tax consequences to the fund and
its shareholders.
Risks of investing through Stock Connect.
Trading through
Stock Connect is subject to a number of restrictions that
may affect the fund’s investments and returns. Although
no individual investment quotas or licensing requirements
apply to investors in Stock Connect, trading through Stock
Connect is subject to a daily quota (
“
Daily Quota
”
), which
limits the maximum net purchases on any particular day by
Hong Kong investors (and foreign investors trading
through Hong Kong) trading PRC listed securities and PRC
investors trading Hong Kong listed securities trading
through the relevant Stock Connect. The Daily Quota does
not belong to the fund and is utilized by all investors on
a first-come-first- serve basis. As such, buy orders for
A-Shares would be rejected once the Daily Quota is
exceeded (although the fund will be permitted to sell
A-Shares regardless of the Daily Quota balance). The Daily
Quota may restrict the fund’s ability to invest in A-Shares
through Stock Connect on a timely basis, which could
affect the fund’s ability to effectively pursue its investment
strategy. The Daily Quota is also subject to change.
In addition, investments made through Stock Connect are
subject to trading, clearance and settlement procedures
that are relatively untested in the PRC, which could pose
risks to the fund. Moreover, A-Shares through Stock
Connect (
“
Stock Connect A-Shares
”
) generally may not be
sold, purchased or otherwise transferred other than
through Stock Connect in accordance with applicable rules.
While A-shares must be designated as eligible to be
traded under Stock Connect (such eligible A-Shares listed
on the SSE, the
“
SSE Securities,
”
and such eligible
A-Shares listed on the SZSE, the
“
SZSE Securities
”
), those
A-Shares may also lose such designation, and if this
occurs, such A-Shares may be sold but could no longer be
purchased through Stock Connect. With respect to sell
orders under Stock Connect, the Stock Exchange of Hong
Kong (
“
SEHK
”
) carries out pre-trade checks to ensure an
investor has sufficient A-Shares in its account before the
market opens on the trading day. Accordingly, if there are
insufficient A-Shares in an investor’s account before the
market opens on the trading day, the sell order will be
rejected, which may adversely impact the funds’
performance.
In addition, Stock Connect will only operate on days when
both the Chinese and Hong Kong markets are open for
trading and when banking services are available in both
markets on the corresponding settlement days. Therefore,
an investment in A- Shares through Stock Connect may
subject the fund to the risk of price fluctuations on days
when the Chinese markets are open, but Stock Connect is
not trading. Each of the SEHK, SSE and SZSE reserves
the right to suspend trading under Stock Connect under
certain circumstances. Where such a suspension of trading
is effected, the fund’s ability to access A-Shares through
Stock Connect will be adversely affected. In addition, if one
or both of the Chinese and Hong Kong markets are closed
on a US trading day, the fund may not be able to acquire or
dispose of A-Shares through Stock Connect in a timely
manner, which could adversely affect the fund’s
performance.
The fund’s investments in A-Shares though Stock Connect
are held by its custodian in accounts in Central Clearing
and Settlement System (
“
CCASS
”
) maintained by the
Hong Kong Securities Clearing Company Limited
(
“
HKSCC
”
), which in turn holds the A-Shares, as the
nominee holder, through an omnibus securities account in
its name registered with the China Securities Depository
and Clearing Corporation Limited (
“
CSDCC
”
). The precise
nature and rights of each fund as the beneficial owner of
the SSE Securities or SZSE Securities through HKSCC as
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nominee is not well defined under PRC law. There is a lack
of a clear definition of, and distinction between, legal
ownership and beneficial ownership under PRC law and
there have been few cases involving a nominee account
structure in the PRC courts. The exact nature and methods
of enforcement of the rights and interests of each fund
under PRC law is also uncertain. In the unlikely event that
HKSCC becomes subject to winding up proceedings in
Hong Kong, there is a risk that the SSE Securities or SZSE
Securities may not be regarded as held for the beneficial
ownership of each fund or as part of the general assets of
HKSCC available for general distribution to its creditors.
Notwithstanding the fact that HKSCC does not claim proprietary
interests in the SSE Securities or SZSE Securities
held in its omnibus stock account in the CSDCC, the
CSDCC as the share registrar for SSE- or SZSE-listed
companies will still treat HKSCC as one of the shareholders
when it handles corporate actions in respect of
such SSE Securities or SZSE Securities. HKSCC monitors
the corporate actions affecting SSE Securities and SZSE
Securities and keeps participants of CCASS informed of all
such corporate actions that require CCASS participants
to take steps in order to participate in them. A fund will
therefore depend on HKSCC for both settlement and notification
and implementation of corporate actions.
The HKSCC is responsible for the clearing, settlement and
the provisions of depositary, nominee and other related
services of the trades executed by Hong Kong market
participants and investors. Accordingly, investors do not
hold SSE Securities or SZSE Securities directly – they are
held through their brokers’ or custodians’ accounts with
CCASS. The HKSCC and the CSDCC establish clearing
links and each has become a participant of the other to
facilitate clearing and settlement of cross-border trades.
Should CSDCC default and the CSDCC be declared as
a defaulter, HKSCC’s liabilities in Stock Connect under its
market contracts with clearing participants will be limited
to assisting clearing participants in pursuing their claims
against the CSDCC. In that event, the fund may suffer
delays in the recovery process or may not be able to fully
recover its losses from the CSDCC.
Market participants are able to participate in Stock Connect
subject to meeting certain information technology capability,
risk management and other requirements as may be
specified by the relevant exchange and/or clearing house.
Further, the
“
connectivity
”
in Stock Connect requires the
routing of orders across the borders of Hong Kong and the
PRC. This requires the development of new information
technology systems on the part of the SEHK and exchange
participants. There is no assurance that these systems
will function properly or will continue to be adapted to
changes and developments in both markets. In the event
that the relevant systems fail to function properly, trading
in A-Shares through Stock Connect could be disrupted, and
the fund’s ability to achieve its investment objective may
be adversely affected.
A primary feature of Stock Connect is the application of
the home market’s laws and rules applicable to investors
in A-Shares. Therefore, the fund’s investments in Stock
Connect A-Shares are generally subject to PRC securities
regulations and listing rules, among other restrictions.
Finally, according to Caishui [2014] 81 (
“
Circular 81
”
) and
Caishui [2016] 127 (
“
Circular 127
”
), while foreign investors
are exempted from paying capital gains or business taxes
(later, value-added taxes) on income and gains from investments
in Stock Connect A-Shares, these PRC tax rules
could be changed, which could result in unexpected tax
liabilities for the fund. Dividends derived from A-Shares are
subject to a 10% PRC withholding income tax generally.
PRC stamp duty is also payable for transactions in
A-Shares through Stock Connect. Currently, PRC stamp
duty on A-Shares transactions is only imposed on the
seller, but not on the purchaser, at the tax rate of 0.1% of
the total sales value.
Circular 81 and Circular 127 stipulate that PRC business
tax (and, subsequently, PRC value-added tax) is temporarily
exempted on capital gains derived by Hong Kong market
participants (including the fund) from the trading of
A-Shares through Stock Connect. According to Caishui
[2016] No. 36, the PRC value- added tax reform in the PRC
will be expanded to all industries, including financial
services, starting May 1, 2016. The PRC business tax
exemption prescribed in Circular 81 is grandfathered under
the value-added tax regime.
The Stock Connect program is a relatively new program.
Further developments are likely and there can be no assurance
as to the program’s continued existence or whether
future developments regarding the program may restrict or
adversely affect the fund’s investments or returns. In addition,
the application and interpretation of the laws and
regulations of Hong Kong and the PRC, and the rules, policies
or guidelines published or applied by relevant
regulators and exchanges in respect of the Stock Connect
program are uncertain, and they may have a detrimental
effect on the fund’s investments and returns.
Political and economic risk.
The economy of China, which
has been in a state of transition from a planned economy
to a more market oriented economy, differs from the
economies of most developed countries in many respects,
including the level of government involvement, its state
of development, its growth rate, control of foreign
exchange, and allocation of resources. Although the
majority of productive assets in China are still owned by
the PRC government at various levels, in recent years, the
PRC government has implemented economic reform
measures emphasizing utilization of market forces in the
development of the economy of China and a high level
of management autonomy. The economy of China has
experienced significant growth in recent decades, but
growth has been uneven both geographically and among
various sectors of the economy. Economic growth has also
been accompanied by periods of high inflation. The PRC
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government has implemented various measures from time
to time to control inflation and restrain the rate of
economic growth.
For several decades, the PRC government has carried out
economic reforms to achieve decentralization and utilization
of market forces to develop the economy of the
PRC. These reforms have resulted in significant economic
growth and social progress. However, there can be no
assurance that the PRC government will continue to
pursue such economic policies or that such policies, if
pursued, will be successful. Any adjustment and modification
of those economic policies may have an adverse
impact on the securities markets in the PRC as well as the
constituent securities of the Underlying Index. Further,
the PRC government may from time to time adopt corrective
measures to control the growth of the PRC economy
which may also have an adverse impact on the capital
growth and performance of the fund.
Political changes, social instability and adverse diplomatic
developments in the PRC could result in the imposition
of additional government restrictions including expropriation
of assets, confiscatory taxes or nationalization of
some or all of the property held by the issuers of the
A-Shares in the fund’s Underlying Index. The laws, regulations,
including the investment regulations, government
policies and political and economic climate in China may
change with little or no advance notice. Any such change
could adversely affect market conditions and the performance
of the Chinese economy and, thus, the value of
securities in the fund’s portfolio.
The Chinese government continues to be an active participant
in many economic sectors through ownership
positions and regulations. The allocation of resources in
China is subject to a high level of government control. The
Chinese government strictly regulates the payment of
foreign currency denominated obligations and sets
monetary policy. Through its policies, the government may
provide preferential treatment to particular industries or
companies. The policies set by the government could have
a substantial effect on the Chinese economy and the
fund’s investments.
The Chinese economy is export-driven and highly reliant
on trade. The performance of the Chinese economy may
differ favorably or unfavorably from the US economy in
such respects as growth of gross domestic product, rate
of inflation, currency depreciation, capital reinvestment,
resource self- sufficiency and balance of payments position.
The domestic consumer class in China is still
emergent, while the economy's dependence on exports
may not be sustainable. Adverse changes to the economic
conditions of its primary trading partners, such as the European
Union, the US, Hong Kong, the Association of South
East Asian Nations, and Japan, would adversely affect the
Chinese economy and the fund’s investments.
In addition, as much of China’s growth over recent decades
has been a result of significant investment in substantial
export trade, international trade tensions may arise from
time to time which can result in trade tariffs, embargoes,
trade limitations, trade wars and other negative consequences.
The current political climate has intensified
concerns about trade tariffs and a potential trade war
between China and the US. These consequences may
trigger a significant reduction in international trade, the
oversupply of certain manufactured goods, substantial
price reductions of goods and possible failure of individual
companies and/or large segments of China’s export
industry with a potentially severe negative impact to the
fund. In addition, it is possible that the continuation or worsening
of the current political climate could result in
regulatory restrictions being contemplated or imposed in
the US or in China that could have a material adverse effect
on the fund’s ability to invest in accordance with its investment
policies and/or achieve its investment objective. In
July 2020, the President’s Working Group on Financial
Markets (the
“
PWG
”
) proposed a number of regulatory
changes aimed at addressing potential risks to US investors
from investments in issuers that provide limited
access to their financial statements, including Chinese
companies. The PWG’s proposals included having the SEC
consider encouraging or requiring US registered funds to
conduct additional due diligence on an index’s exposure to
such issuers and how the index provider addresses
concerns arising from limited availability of such issuers’
financial information. If the SEC adopts these proposals,
they could have a material adverse effect on the fund’s
ability to continue tracking the Underlying Index. Events
such as these are difficult to predict and may or may not
occur in the future.
China has been transitioning to a market economy since
the late seventies, and has only recently opened up to
foreign investment and permitted private economic
activity. Under the economic reforms implemented by the
Chinese government, the Chinese economy has experienced
tremendous growth, developing into one of the
largest and fastest growing economies in the world. There
is no assurance, however, that the Chinese government
will not revert to the economic policy of central planning
that it implemented prior to 1978 or that such growth will
be sustained in the future. Moreover, the current major
slowdown in other significant economies of the world,
such as the US, the European Union and certain Asian
countries, may adversely affect economic growth in China.
An economic downturn in China would adversely impact
the fund’s investments.
From time to time, and as recently as early 2020 with the
coronavirus known as COVID-19, China has experienced
outbreaks of infectious illnesses, and the country may be
subject to other infectious illnesses, diseases or other
public health emergencies in the future. Any public health
emergency could reduce consumer demand or economic
output, result in market closures, travel restrictions or
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quarantines, and generally have a significant impact on the
Chinese economy, which in turn could adversely affect
the fund’s investments.
Inflation.
Economic growth in China has historically been
accompanied by periods of high inflation. Beginning in
2004, the Chinese government commenced the implementation
of various measures to control inflation, which
included the tightening of the money supply, the raising of
interest rates and more stringent control over certain industries.
If these measures are not successful, and if inflation
were to steadily increase, the performance of the Chinese
economy and the fund’s investments could be adversely
affected.
Nationalization and expropriation.
After the formation of
the Chinese socialist state in 1949, the Chinese government
renounced various debt obligations and nationalized
private assets without providing any form of compensation.
There can be no assurance that the Chinese
government will not take similar actions in the future.
Accordingly, an investment in the fund involves a risk of a
total loss.
Hong Kong policy.
As part of Hong Kong’s transition from
British to Chinese sovereignty in 1997, China agreed to
allow Hong Kong to maintain a high degree of autonomy
with regard to its political, legal and economic systems for
a period of at least 50 years. China controls matters that
relate to defense and foreign affairs. Under the agreement,
China does not tax Hong Kong, does not limit the
exchange of the Hong Kong dollar for foreign currencies
and does not place restrictions on free trade in Hong Kong.
However, there is no guarantee that China will continue
to honor the agreement, and China may change its policies
regarding Hong Kong at any time. As of July 2020, the
Chinese Standing Committee of the National People's
Congress enacted the Law of the People's Republic of
China on Safeguarding National Security in the Hong Kong
Special Administrative Region. As of the same month,
Hong Kong is no longer afforded preferential economic
treatment by the United States under US law, and there is
uncertainty as to how the economy of Hong Kong will be
affected. Any further changes in China's policies could
adversely affect market conditions and the performance of
the Chinese economy and, thus, the value of securities
in the fund’s portfolio.
Chinese securities markets.
The securities markets in
China have a limited operating history and are not as
developed as those in the US. The markets tend to be
smaller in size, have less liquidity and historically have had
greater volatility than markets in the US and some other
countries. In addition, under normal market conditions,
there is less regulation and monitoring of Chinese securities
markets and the activities of investors, brokers and
other participants than in the US. Accordingly, issuers of
securities in China are not subject to the same degree of
regulation as are US issuers with respect to such matters
as insider trading rules, tender offer regulation, stockholder
proxy requirements and the requirements mandating
timely disclosure of information. During periods of significant
market volatility, the Chinese government has, from
time to time, intervened in its domestic securities markets
to a greater degree than would be typical in more developed
markets, including both direct and indirect market
stabilization efforts, which may affect valuations of Chinese
issuers. Stock markets in China are in the process of
change and further development. This may lead to trading
volatility, difficulty in the settlement and recording of transactions
and difficulty in interpreting and applying the
relevant regulations.
Available disclosure about Chinese companies.
Chinese
companies are required to follow Chinese accounting standards
and practices, which only follow international
accounting standards to a certain extent. However, the
accounting, auditing and financial reporting standards and
practices applicable to PRC companies may be less
rigorous, and there may be significant differences between
financial statements prepared in accordance with Chinese
accounting standards and practice and those prepared in
accordance with international accounting standards. In
particular, the assets and profits appearing on the financial
statements of a Chinese issuer may not reflect its financial
position or results of operations in the way they would
be reflected had such financial statements been prepared
in accordance with US Generally Accepted Accounting
Principles. The quality of audits in China may be unreliable,
which may require enhanced procedures. Consequently,
the fund may not be provided the same degree of protection
or information as would generally apply in developed
countries and the fund may be exposed to significant
losses. There is also substantially less publicly available
information about Chinese issuers than there is about US
issuers. Therefore, disclosure of certain material information
may not be made, and less information may be
available to the fund and other investors than would be the
case if the fund’s investments were restricted to securities
of US issuers.
Chinese corporate and securities law.
The regulations
which regulate investments by RQFIIs in the PRC and the
repatriation of capital from RQFII investments are relatively
new. As a result, the application and interpretation of such
investment regulations are therefore relatively untested. In
addition, PRC authorities and regulators have broad discretion
under such investment regulations and there is little
precedent or certainty evidencing how such discretion will
be exercised now or in the future.
The fund’s rights with respect to its investments in
A-Shares (as applicable), if any, generally will not be
governed by US law, and instead will generally be
governed by Chinese law. China operates under a civil law
system, in which court precedent is not binding. Because
there is no binding precedent to interpret existing statutes,
there is uncertainty regarding the implementation of
existing law.
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Legal principles relating to corporate affairs and the validity
of corporate procedures, directors’ fiduciary duties and
liabilities and stockholders’ rights often differ from those
that may apply in the US and other countries. Chinese laws
providing protection to investors, such as laws regarding
the fiduciary duties of officers and directors, are undeveloped
and will not provide investors, such as the fund,
with protection in all situations where protection would be
provided by comparable laws in the US. China lacks a
national set of laws that address all issues that may arise
with regard to a foreign investor such as the fund. It may
therefore be difficult for the fund to enforce its rights as an
investor under Chinese corporate and securities laws, and
it may be difficult or impossible for the fund to obtain a
judgment in court. Moreover, as Chinese corporate and
securities laws continue to develop, these developments
may adversely affect foreign investors, such as the fund.
Sanctions and embargoes.
From time to time, certain of
the companies in which the fund expects to invest may
operate in, or have dealings with, countries subject to sanctions
or embargoes imposed by the US government and
the United Nations and/or countries identified by the US
government as state sponsors of terrorism. A company
may suffer damage to its reputation if it is identified as a
company which operates in, or has dealings with, countries
subject to sanctions or embargoes imposed by the
US government and the United Nations and/or countries
identified by the US government as state sponsors of
terrorism. As an investor in such companies, the fund will
be indirectly subject to those risks.
Tax on retained income and gains.
To the extent the fund
does not distribute to shareholders all or substantially all of
its investment company taxable income and net capital
gain in a given year, it will be required to pay US federal
income tax on the retained income and gains, thereby
reducing the fund’s return. A fund may elect to treat any
retained net capital gain as having been distributed to
shareholders. In that case, shareholders of record on the
last day of the fund’s taxable year will be required to
include their attributable share of the retained gain in
income for the year as a long-term capital gain despite not
actually receiving the dividend, and will be entitled to a
tax credit or refund for the tax deemed paid on their behalf
by the fund as well as an increase in the basis of their
shares to reflect the difference between their attributable
share of the gain and the related credit or refund.
Foreign exchange control.
The Chinese government heavily
regulates the domestic exchange of foreign currencies
within China. Under China’s State Administration of
Foreign Exchange (
“
SAFE
”
) regulations, Chinese corporations
may only purchase foreign currencies through
government approved banks. In general, Chinese companies
must receive approval from or register with the
Chinese government before investing in certain capital
account items, including direct investments and loans, and
must thereafter maintain separate foreign exchange
accounts for the capital items. Foreign investors may only
exchange foreign currencies at specially authorized banks
after complying with documentation requirements. These
restrictions may adversely affect the fund and its investments.
The international community has requested that
China ease its restrictions on currency exchange, but it is
unclear whether the Chinese government will change its
policy.
RMB, is currently not a freely convertible currency as it is
subject to foreign exchange control, fiscal policies and repatriation
restrictions imposed by the Chinese government.
Such control of currency conversion and movements in the
RMB exchange rates may adversely affect the operations
and financial results of companies in the PRC. In addition,
if such control policies change in the future, the fund may
be adversely affected. Since 2005, the exchange rate of
the RMB is no longer pegged to the US dollar. The RMB
has now moved to a managed floating exchange rate
based on market supply and demand with reference to a
basket of foreign currencies. The daily trading price of the
RMB against other major currencies in the inter-bank
foreign exchange market would be allowed to float within
a narrow band around the central parity published by the
People’s Bank of China. As the exchange rates are based
primarily on market forces, the exchange rates for RMB
against other currencies, including the US dollar, are
susceptible to movements based on external factors.
There can be no assurance that the RMB will not be
subject to appreciation or devaluation, either due to
changes in government policy or market factors. Any
devaluation of the RMB could adversely affect the value of
the fund’s investments. The PRC government imposes
restrictions on the remittance of RMB out of and into
China. To the extent the fund invests through an RQFII, the
fund may be required to remit RMB from Hong Kong to
the PRC to settle the purchase of A-Shares and other
permissible securities by the fund. In the event such remittance
is disrupted, the fund may not be able to fully
replicate its Underlying Index by investing in the relevant
A-Shares and this will increase the tracking error of the
fund. Any delay in repatriation of RMB out of China may
result in delay in payment of redemption proceeds to the
redeeming investors. The Chinese government’s policies
on exchange control and repatriation restrictions are
subject to change, and the fund’s performance may be
adversely affected.
Foreign currency considerations.
The assets of the fund
are invested primarily in the equity securities of issuers in
China and the income received by the fund will be primarily
in RMB.
RMB can be further categorized into onshore RMB
(
“
CNY
”
), traded only in the PRC, and offshore RMB
(
“
CNH
”
), traded outside the PRC. CNY and CNH are
traded at different exchange rates and their exchange rates
may not move in the same direction. Although there has
been a growing amount of RMB held offshore, CNH
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cannot be freely remitted into the PRC and is subject to
certain restrictions, and vice versa. The fund may also be
adversely affected by the exchange rates between CNY
and CNH. There is no assurance that there will always be
RMB available in sufficient amounts for the fund to remain
fully invested.
Meanwhile, the fund will compute and expects to
distribute its income in US dollars, and the computation of
income will be made on the date that the income is
earned by the fund at the foreign exchange rate in effect
on that date. Any gain or loss attributable to fluctuations in
exchange rates between the time the fund accrues
income or gain and the time the fund converts such
income or gain from RMB to the US dollar is generally
treated as ordinary income or loss. Therefore, if the value
of the RMB increases relative to the US dollar between the
accrual of income and the time at which the fund converts
the RMB to US dollars, the fund will recognize ordinary
income when the RMB is converted. In such circumstances,
if the fund has insufficient cash in US dollars to
meet distribution requirements under the Internal Revenue
Code, the fund may be required to liquidate certain positions
in order to make distributions. The liquidation of
investments, if required, may also have an adverse impact
on the fund’s performance.
Furthermore, the fund may incur costs in connection with
conversions between US dollars and RMB. Foreign
exchange dealers realize a profit based on the difference
between the prices at which they are buying and selling
various currencies. Thus, a dealer normally will offer to sell
a foreign currency to the fund at one rate, while offering
a lesser rate of exchange should the fund desire immediately
to resell that currency to the dealer. A fund will
conduct its foreign currency exchange transactions either
on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market, or through entering
into forward, futures or options contracts to purchase or
sell foreign currencies.
Currently, there is no market in China in which the fund
may engage in hedging transactions to minimize RMB
foreign exchange risk in CNY, and there can be no guarantee
that instruments suitable for hedging currency in
CNY will be available to the fund in China at any time in the
future. In the event that in the future it becomes possible
to hedge RMB currency risk in China in CNY, the fund may
seek to reduce the foregoing currency risks by engaging
in hedging transactions. In that case, the fund may enter
into forward currency exchange contracts and currency
futures contracts and options on such futures contracts, as
well as purchase put or call options on currencies, in
China. The funds do not currently intend to hedge RMB
currency risk in CNH. Currency hedging would involve
special risks, including possible default by the other party
to the transaction, illiquidity and, to the extent the Advisor’s
or subadvisor’s (as applicable) view as to certain
market movements is incorrect, the risk that the use of
hedging could result in losses greater than if they had not
been used. The use of currency transactions could result in
the fund’s incurring losses as a result of the imposition of
exchange controls, exchange rate regulation, suspension
of settlements or the inability to deliver or receive a specified
currency.
PRC brokers risk.
Regulations adopted by the CSRC and
SAFE under which the fund will invest in A-Shares provide
that the Subadvisor, if licensed as an RQFII, may select
a PRC broker to execute transactions on its behalf on each
of the two PRC exchanges – the SSE and SZSE. The
Subadvisor may select the same broker for both
Exchanges. As a result, the Subadvisor will have less flexibility
to choose among brokers on behalf of the fund than
is typically the case for US investment managers. In the
event of any default of a PRC broker in the execution or
settlement of any transaction or in the transfer of any
funds or securities in the PRC, the fund may encounter
delays in recovering its assets which may in turn adversely
impact the NAV of the fund.
If the Subadvisor is unable to use one of its designated
PRC brokers in the PRC, units of the fund may trade at a
premium or discount to its NAV or the fund may not be
able to track the Underlying Index. Further, the operation
of the fund may be adversely affected in the case of any
acts or omissions of a PRC broker, which may result in
increased tracking error or the fund being traded at a significant
premium or discount to its NAV. The limited number
of PRC brokers that may be appointed may cause the fund
to not necessarily pay the lowest commission available
in the market. The Subadvisor, however, in its selection of
PRC brokers will consider such factors as the competitiveness
of commission rates, size of the relevant orders,
and execution standards. There is a risk that the fund may
suffer losses from the default, bankruptcy or disqualification
of the PRC brokers. In such events, the fund may be
adversely affected in the execution of any transaction.
Disclosure of interests and short swing profit rule.
The
fund may be subject to shareholder disclosure of interest
regulations promulgated by the CSRC. These regulations
currently require the fund to make certain public disclosures
when the fund and parties acting in concert with the
fund acquire 5% or more of the issued securities of a
listed company (which include A-Shares of the listed
company). If the reporting requirement is triggered, the
fund will be required to report information which includes,
but is not limited to: (a) information about the fund (and
parties acting in concert with the fund) and the type and
extent of its holdings in the company; (b) a statement of
the fund’s purposes for the investment and whether the
fund intends to increase its holdings over the following
12-month period; (c) a statement of the fund’s historical
investments in the company over the previous six months;
(d) the time of, and other information relating to, the transaction
that triggered the fund’s holding in the listed
company reaching the 5% reporting threshold; and (e)
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other information that may be required by the CSRC or the
stock exchange. Additional information may be required
if the fund and its concerted parties constitute the largest
shareholder or actual controlling shareholder of the listed
company. The report must be made to the CSRC, the stock
exchange, the invested company, and the CSRC local representative
office where the listed company is located. A
fund would also be required to make a public announcement
through a media outlet designated by the CSRC. The
public announcement must contain the same content as
the official report. The public announcement may require
the fund to disclose its holdings to the public, which could
have an adverse effect on the performance of the fund.
The relevant PRC regulations presumptively treat all affiliated
investors and investors under common control as
parties acting in concert. As such, under a conservative
interpretation of these regulations, the fund may be
deemed as a
“
concerted party
”
of other funds managed
by the Advisor, Subadvisor or their affiliates and therefore
may be subject to the risk that the fund’s holdings may be
required to be reported in the aggregate with the holdings
of such other funds should the aggregate holdings
trigger the reporting threshold under the PRC law. If the
5% shareholding threshold is triggered by the fund and
parties acting in concert with the fund, the fund would be
required to file its report within three days of the date the
threshold is reached. During the time limit for filing the
report, a trading freeze applies and the fund would not be
permitted to make subsequent trades in the invested
company’s securities. Any such trading freeze may undermine
the fund’s performance, if the fund would otherwise
make trades during that period but is prevented from
doing so by the regulation.
Once the fund and parties acting in concert reach the 5%
trading threshold as to any listed company, any subsequent
incremental increase or decrease of 5% or more will
trigger a further reporting requirement and an additional
three-day trading freeze, and also an additional freeze on
trading within two days of the fund’s report and announcement
of the incremental change. These trading freezes
may undermine the fund’s performance as described
above. Also, SSE requirements currently require the fund
and parties acting in concert, once they have reach the 5%
threshold, to disclose whenever their shareholding drops
below this threshold (even as a result of trading which
is less than the 5% incremental change that would trigger
a reporting requirement under the relevant CSRC
regulation).
CSRC regulations also contain additional disclosure (and
tender offer) requirements that apply when an investor and
parties acting in concert reach thresholds of 20% and
greater than 30% shareholding in a company.
Subject to the interpretation of PRC courts and PRC regulators,
the operation of the PRC short swing profit rule
may be applicable to the trading of the fund with the result
that where the holdings of the fund (possibly with the holdings
of other investors deemed as concert parties of the
fund) exceed 5% of the total issued shares of a listed
company, the fund may not reduce its holdings in the
company within six months of the last purchase of shares
of the company. If a fund violates the rule, it may be
required by the listed company to return any profits realized
from such trading to the listed company. In addition,
the rule limits the ability of the fund to repurchase securities
of the listed company within six months of such sale.
Moreover, under PRC civil procedures, the fund’s assets
may be frozen to the extent of the claims made by the
company in question. These risks may greatly impair the
performance of the fund.
Investment and repatriation restrictions.
Investments by
the fund in A-Shares (as well as other Chinese financial
instruments permitted by the CSRC and the People’s Bank
of China, including open- and closed-end investment
companies) are subject to governmental pre-approval limitations
on the quantity that the fund may purchase and/or
limits on the classes of securities in which the fund may
invest.
With respect to investments in A-Shares made through
the RQFII program, repatriations by RQFIIs are permitted
daily and are not subject to lock-up periods or prior
approval, but will require a tax commitment letter by the
RQFII. There is no assurance, however, that PRC rules and
regulations will not change or that repatriation restrictions
will not be imposed in the future. Any restrictions on repatriation
of the fund’s assets may adversely affect the
fund’s ability to meet redemption requests and/or may
cause the fund to borrow money in order to meet its obligations.
These limitations may also prevent the fund from
making certain distributions to shareholders.
The Chinese government limits foreign investment in the
securities of certain Chinese issuers entirely, if foreign
investment is banned in respect of the industry in which
the relevant Chinese issuers are conducting their business.
These restrictions or limitations may have adverse effects
on the liquidity and performance of the fund’s holdings
as compared to the performance of the Underlying Index.
This may increase the risk of tracking error and, at the
worst, the fund may not be able to achieve its investment
objective.
The Chinese government limits foreign investment in the
securities of certain Chinese issuers entirely, if foreign
investment is banned in respect of the industry in which
the relevant Chinese issuers are conducting their business.
These restrictions or limitations may have adverse effects
on the liquidity and performance of the fund’s holdings
as compared to the performance of the fund’s Underlying
Index, and thus with respect to the fund’s holdings as
compared to that of its Underlying Index. This may
increase the risk of tracking error and, at the worst, the
fund may not be able to achieve its investment objective.
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A-Shares currency risk.
The fund’s investments in A-Shares
will be denominated in RMB and the income received by
the fund in respect of such investments will be in RMB. As
a result, changes in currency exchange rates may
adversely affect the fund’s returns. The value of the RMB
may be subject to a high degree of fluctuation due to
changes in interest rates, the effects of monetary policies
issued by the PRC, the US, foreign governments, central
banks or supranational entities, the imposition of currency
controls or other national or global political or economic
developments. Therefore, the fund’s exposure to RMB
may result in reduced returns to the fund. The fund does
not expect to hedge its currency risk. Moreover, the fund
may incur costs in connection with conversions between
US dollars and RMB and will bear the risk of any inability to
convert the RMB.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
In addition, various PRC companies derive their revenues
in RMB but have requirements for foreign currency,
including for the import of materials, debt service on
foreign currency denominated debt, purchases of imported
equipment and payment of any cash dividends declared.
The existing PRC foreign exchange regulations have significantly
reduced government foreign exchange controls for
certain transactions, including trade and service related
foreign exchange transactions and payment of dividends.
However, it is impossible to predict whether the PRC
government will continue its existing foreign exchange
policy and when the PRC government will allow free
conversion of the RMB to foreign currency. Certain foreign
exchange transactions, including principal payments in
respect of foreign currency-denominated obligations,
currently continue to be subject to significant foreign
exchange controls and require the approval of SAFE. Since
1994, the conversion of RMB into US dollars has been
based on rates set by the People’s Bank of China, which
are set daily based on the previous day’s PRC interbank
foreign exchange market rate. It is not possible to predict
nor give any assurance of any future stability of the RMB
to US dollar exchange rate. Fluctuations in exchange rates
may adversely affect the fund’s NAV. Furthermore,
because dividends are declared in US dollars and underlying
payments are made in RMB, fluctuations in exchange
rates may adversely affect dividends paid by the fund.
Depositary receipt risk.
Foreign investments in American
Depositary Receipts and other depositary receipts may
be less liquid than the underlying shares in their primary
trading market. Certain of the depositary receipts in which
the fund invests may be unsponsored depositary receipts.
Unsponsored depositary receipts may not provide as
much information about the underlying issuer and may not
carry the same voting privileges as sponsored depositary
receipts. Unsponsored depositary receipts are issued by
one or more depositaries in response to market demand,
but without a formal agreement with the company that
issues the underlying securities.
Derivatives risk.
Derivatives are financial instruments,
such as futures and swaps, whose values are based on the
value of one or more indicators, such as a security, asset,
currency, interest rate, or index. Derivatives involve risks
different from, and possibly greater than, the risks associated
with investing directly in securities and other more
traditional investments. For example, derivatives involve
the risk of mispricing or improper valuation and the risk
that changes in the value of a derivative may not correlate
perfectly with the underlying indicator. Derivative transactions
can create investment leverage, may be highly
volatile and the fund could lose more than the amount it
invests. Many derivative transactions are entered into
“
over-the-counter
”
(i.e., not on an exchange or contract market);
as a result, the value of such a derivative transaction will
depend on the ability and the willingness of the fund’s
counterparty to perform its obligations under the transaction.
If a counterparty were to default on its obligations,
the fund’s contractual remedies against such counterparty
may be subject to bankruptcy and insolvency laws, which
could affect the fund’s rights as a creditor (e.g., the fund
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may not receive the net amount of payments that it is
contractually entitled to receive). A liquid secondary market
may not always exist for the fund’s derivative positions at
any time.
Counterparty risk.
To the extent the fund invests in swaps
to gain exposure to A-Shares in an effort to achieve the
fund’s investment objective, the fund will be subject to the
risk that the number of counterparties able to enter into
swaps to provide exposure to A-Shares may be limited. To
the extent that the RQFII license of a potential swap
counterparty is revoked or eliminated due to actions by the
Chinese government or as a result of transactions entered
into by the counterparty with other investors, the
counterparty’s ability to continue to enter into swaps or
other derivative transactions with the fund may be reduced
or eliminated, which could have a material adverse effect
on the fund. These risks are compounded by the fact that
at present there are only a limited number of potential
counterparties willing and able to enter into swap transactions
linked to the performance of A-Shares.
Furthermore, swaps are of limited duration and there is no
guarantee that swaps entered into with a counterparty
will continue indefinitely. Accordingly, the duration of a
swap depends on, among other things, the ability of the
fund to renew the expiration period of the relevant swap at
agreed upon terms. QFIIs and RQFIIs may be limited or
prohibited from entering into swap or other derivative transactions
on RQFII investments with the fund, which, in
turn, could adversely affect the fund.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors
of the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Financials sector risk.
To the extent that the fund invests
significantly in the financials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
financials sector. The financials sector is subject to extensive
government regulation, can be subject to relatively
rapid change due to increasingly blurred distinctions
between service segments, and can be significantly
affected by availability and cost of capital funds, changes in
interest rates, the rate of corporate and consumer debt
defaults, and price competition.
Numerous financial companies have experienced substantial
declines in the valuations of their assets, taken action
to raise capital (such as the issuance of debt or equity securities),
or even ceased operations. These actions have
caused the securities of many financial companies to
experience a dramatic decline in value. Moreover, certain
financial companies have avoided collapse due to intervention
by governmental regulatory authorities, but such
interventions have often not averted a substantial decline
in the value of such companies’ common stock. Issuers
that have exposure to the real estate, mortgage and credit
markets have been particularly affected by the foregoing
events and the general market turmoil, and it is uncertain
whether or for how long these conditions will continue.
The financial services sector in China is also undergoing
significant change, including continuing consolidations,
development of new products and structures and changes
to its regulatory framework, which may have an impact
on the issuers included in the Underlying Index. Increased
government involvement in the financial services sector,
including measures such as taking ownership positions in
financial institutions, could result in a dilution of the fund’s
investments in financial institutions.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
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trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
If the fund is forced to sell underlying investments at
reduced prices or under unfavorable conditions to meet
redemption requests or other cash needs, the fund may
suffer a loss.
Swap agreements may be subject to liquidity risk, which
exists when a particular swap is difficult to purchase or
sell. If a swap transaction is particularly large or if the
relevant market is illiquid, it may not be possible to initiate
a transaction or liquidate a position at an advantageous
time or price, which may result in significant losses to the
fund. This is especially true given the limited number of
potential counterparties willing and able to enter into swap
transactions on A-Shares. In addition, a swap transaction
may be subject to the fund’s limitation on investments
in illiquid securities. Swap agreements may be subject to
pricing risk, which exists when a particular swap agreement
becomes extraordinarily expensive (or inexpensive)
relative to historical prices or the prices of corresponding
cash market instruments. The swaps market is largely
unregulated. It is possible that developments in the swaps
market, including potential government regulation, could
adversely affect the fund’s ability to terminate existing
swap agreements or to realize amounts to be received
under such agreements.
Pricing risk.
If market conditions make it difficult to value
some investments
(including China A-Shares), the fund
may value these investments using more subjective
methods, such as fair value pricing. In such cases, the
value determined for an investment could be different from
the value realized upon such investment’s sale. As a result,
you could pay more than the market value when buying
fund shares or receive less than the market value when
selling fund shares.
Secondary markets may be subject to irregular trading
activity, wide bid/ask spreads and extended trade settlement
periods, which may prevent the fund from being able
to realize full value and thus sell a security for its full valuation.
This could cause a material decline in the fund’s net
asset value.
Tracking error risk.
The performance of the fund may
diverge from that of its Underlying Index for a number of
reasons, including operating expenses, transaction costs,
cash flows and operational inefficiencies. The fund’s return
also may diverge from the return of the Underlying Index
because the fund bears the costs and risks associated
with buying and selling securities (especially when rebalancing
the fund’s securities holdings to reflect changes
in the Underlying Index) while such costs and risks are not
factored into the return of the Underlying Index. Transaction
costs, including brokerage costs, will decrease the
fund’s NAV to the extent not offset by the transaction fee
payable by an
“
Authorized Participant
”
(
“
AP
”
). Market
disruptions and regulatory restrictions could have an
adverse effect on the fund’s ability to adjust its exposure
to the required levels in order to track the Underlying
Index. In addition, to the extent that portfolio management
uses a representative sampling approach (investing in a
representative selection of securities included in the Underlying
Index rather than all securities in the Underlying
Index) it may cause the fund to not be as well correlated
with the return of the Underlying Index as would be the
case if the fund purchased all of the securities in the
Underlying Index in the proportions represented in the
Underlying Index. Errors in the Underlying Index data, the
Underlying Index computations and/or the construction
of the Underlying Index in accordance with its methodology
may occur from time to time and may not be
identified and corrected by the index provider for a period
of time or at all, which may have an adverse impact on the
fund and its shareholders. In addition, the fund may not
be able to invest in certain securities included in the Underlying
Index, or invest in them in the exact proportions in
which they are represented in the Underlying Index, due to
legal restrictions or limitations imposed by the governments
of certain countries, a lack of liquidity in the markets
in which such securities trade, potential adverse tax consequences
or other regulatory reasons. To the extent the
fund calculates its NAV based on fair value prices and the
value of the Underlying Index is based on securities’
closing prices (i.e., the value of the Underlying Index is not
based on fair value prices), the fund’s ability to track the
Underlying Index may be adversely affected. The performance
of the fund also may diverge from that of the
Underlying Index if the Advisor and/or Subadvisor seek to
gain exposure to A-Shares by investing in securities not
included in the Underlying Index, derivative instruments,
and other pooled investment vehicles because the
Subadvisor is unable to maintain its RQFII status, or the
Stock Connect Daily Quota has been exhausted. For tax
efficiency purposes, the fund may sell certain securities,
and such sale may cause the fund to realize a loss and
deviate from the performance of the Underlying Index. In
light of the factors discussed above, the fund’s return may
deviate significantly from the return of the Underlying
Index.
For purposes of calculating the fund’s net asset value, the
value of assets denominated in non-US currencies is
converted into US dollars using prevailing market rates on
the date of valuation as quoted by one or more data
service providers. This conversion may result in a difference
between the prices used to calculate the fund’s net
asset value and the prices used by the Underlying Index,
which, in turn, could result in a difference between the
fund’s performance and the performance of the Underlying
Index.
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Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
NAV during periods of market volatility. Differences
between secondary market prices and the value of the
fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the
same forces as those influencing prices for securities held
by the fund at a particular time. The Advisor cannot predict
whether shares will trade above, below or at their NAV.
Given the fact that shares can be created and redeemed in
Creation Units, the Advisor believes that large discounts
or premiums to the NAV of shares should not be sustained
in the long-term. In addition, there may be times when
the market price and the value of the fund’s holdings vary
significantly and you may pay more than the value of the
fund’s holdings when buying shares on the secondary
market, and you may receive less than the value of the
fund’s holdings when you sell those shares. While the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in trading prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. If market makers. exit the business or are
unable to continue making markets in fund’s shares,
shares may trade at a discount to NAV like closed-end fund
shares and may even face delisting (that is, investors
would no longer be able to trade shares in the secondary
market). The market price of shares, like the price of any
exchange-traded security, includes a
“
bid-ask spread
”
charged by the exchange specialist, market makers or
other participants that trade the particular security. In times
of severe market disruption, the bid-ask spread often
increases significantly. This means that shares may trade
at a discount to the fund’s NAV, and the discount is likely to
be greatest when the price of shares is falling fastest,
which may be the time that you most want to sell your
shares. There are various methods by which investors can
purchase and sell shares of the funds and various orders
that may be placed. Investors should consult their financial
intermediary before purchasing or selling shares of a fund.
In addition, the securities held by a fund may be traded in
markets that close at a different time than an exchange.
Liquidity in those securities may be reduced after the applicable
closing times. Accordingly, during the time when
an exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. More generally, secondary markets may be
subject to irregular trading activity, wide bid-ask spreads
and extended trade settlement periods, which could cause
a material decline in the fund’s NAV. The bid-ask spread
varies over time for shares of a fund based on the fund’s
trading volume and market liquidity, and is generally lower
if the fund has substantial trading volume and market
liquidity, and higher if the fund has little trading volume and
market liquidity (which is often the case for funds that are
newly launched or small in size). The fund’s bid-ask spread
may also be impacted by the liquidity of the underlying
securities held by the fund, particularly for newly launched
or smaller funds or in instances of significant volatility of
the underlying securities. The bid/ask spread of the Fund
may be wider in comparison to the bid/ask spread of other
ETFs, due to the Fund’s exposure to A-Shares. The fund’s
investment results are measured based upon the daily
NAV of the fund. Investors purchasing and selling shares in
the secondary market may not experience investment
results consistent with those experienced by those APs
creating and redeeming shares directly with a fund. In
addition, transactions by large shareholders may account
for a large percentage of the trading volume on an
exchange and may, therefore, have a material effect on the
market price of the fund’s shares.
Valuation risk.
Because non-US markets may be open on
days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the
fund’s shares.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
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have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Cyber-attacks may include unauthorized attempts by third
parties to improperly access, modify, disrupt the operations
of, or prevent access to the systems of the fund’s
service providers or counterparties, issuers of securities
held by the fund or other market participants or data within
them. In addition, power or communications outages, acts
of god, information technology equipment malfunctions,
operational errors, and inaccuracies within software or data
processing systems may also disrupt business operations
or impact critical data.
Cyber-attacks, disruptions, or failures may adversely affect
the fund and its shareholders or cause reputational
damage and subject the fund to regulatory fines, litigation
costs, penalties or financial losses, reimbursement or
other compensation costs, and/or additional compliance
costs. In addition, cyber-attacks, disruptions, or failures
involving a fund counterparty could affect such
counterparty’s ability to meet its obligations to the fund,
which may result in losses to the fund and its shareholders.
Similar types of operational and technology risks
are also present for issuers of securities held by the fund,
which could have material adverse consequences for such
issuers, and may cause the fund’s investments to lose
value. Furthermore, as a result of cyber-attacks, disruptions,
or failures, an exchange or market may close or issue
trading halts on specific securities or the entire market,
which may result in the fund being, among other things,
unable to buy or sell certain securities or financial instruments
or unable to accurately price its investments.
For example, the fund relies on various sources to calculate
its NAV. Therefore, the fund is subject to certain
operational risks associated with reliance on third party
service providers and data sources. NAV calculation may
be impacted by operational risks arising from factors such
as failures in systems and technology. Such failures may
result in delays in the calculation of a fund’s NAV and/or the
inability to calculate NAV over extended time periods. The
fund may be unable to recover any losses associated with
such failures.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
At any given time, due to the
composition of the Underlying Index, the fund may be classified
as
“
non-diversified
”
and may invest a larger
percentage of its assets in securities of a few issuers or a
single issuer than that of a diversified fund. As a result,
the fund may be more susceptible to the risks associated
with these particular issuers, or to a single economic,
political or regulatory occurrence affecting these issuers.
This may increase the fund’s volatility and cause the performance
of a relatively smaller number of issuers to have a
greater impact on the fund’s performance.
Cash transactions risk.
Unlike many ETFs, the fund
expects to effect its creations and redemptions principally
for cash, rather than in-kind securities. Other more conventional
ETFs generally are able to make in-kind redemptions
and avoid realizing gains in connection with transactions
designed to meet redemption requests. Effecting all
redemptions for cash may cause the fund to sell portfolio
securities in order to obtain the cash needed to distribute
redemption proceeds. Such dispositions may occur at an
inopportune time resulting in potential losses to the fund
and involve transaction costs. If the fund recognizes a
capital loss on these sales, the loss will offset capital gains
and may result in smaller capital gain distributions from
the fund. If the fund recognizes gain on these sales, this
generally will cause the fund to recognize gain it might not
otherwise have recognized if it were to distribute portfolio
securities in-kind or to recognize such gain sooner
than would otherwise be required. The fund generally
intends to distribute these gains to shareholders to avoid
being taxed on this gain at the fund level and otherwise
comply with the special tax rules that apply to it. This
strategy may cause shareholders to be subject to tax on
gains they would not otherwise be subject to, or at an
earlier date than, if they had made an investment in a more
conventional ETF.
In addition, cash transactions may have to be carried out
over several days if the securities market is relatively
illiquid and may involve considerable brokerage fees and
taxes. These brokerage fees and taxes, which will be
higher than if a fund sold and redeemed its shares principally
in-kind, will generally be passed on to purchasers and
redeemers of Creation Units in the form of creation and
redemption transaction fees. To the extent transaction and
other costs associated with a redemption exceed the
redemption fee, those transaction costs might be borne by
the fund’s remaining shareholders. China may also impose
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higher local tax rates on transactions involving certain
companies. In addition, these factors may result in wider
spreads between the bid and the offered prices of the
fund’s shares than for more conventional ETFs.
As a practical matter, only institutions and large investors,
such as market makers or other large broker-dealers,
purchase or redeem Creation Units. Most investors will
buy and sell shares of the fund on an exchange.
Country concentration risk.
To the extent that the fund
invests significantly in a single country, it is more likely to
be impacted by events or conditions affecting that country.
For example, political and economic conditions and
changes in regulatory, tax or economic policy in a country
could significantly affect the market in that country and
in surrounding or related countries and have a negative
impact on the fund’s performance.
Small and medium-sized company risk.
Small and
medium-sized company stocks tend to be more volatile
than large company stocks. Because stock analysts are
less likely to follow medium-sized companies, less information
about them is available to investors. Industry-wide
reversals may have a greater impact on small and medium-sized
companies, since they lack the financial resources of
larger companies. Small and medium-sized company
stocks are typically less liquid than large company stocks.
Futures risk.
The value of a futures contract tends to
increase and decrease in tandem with the value of the
underlying instrument. Depending on the terms of the
particular contract, futures contracts are settled through
either physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether,
when and how to use futures involves the exercise of skill
and judgment and even a well-conceived futures transaction
may be unsuccessful because of market behavior or
unexpected events. In addition to the derivatives risks
discussed above, the prices of futures can be highly volatile,
using futures can lower total return and the potential
loss from futures can exceed the fund’s initial investment
in such contracts.
US tax risk
. A fund intends to distribute annually all or
substantially all of its investment company taxable income
and net capital gain. However, should the Chinese government
impose restrictions on the fund’s ability to repatriate
funds associated with direct investments in A-Shares, the
fund may be unable to satisfy distribution requirements
applicable to RICs under the Internal Revenue Code. If the
fund fails to satisfy the distribution requirements necessary
to qualify for treatment as a RIC for any taxable year,
the fund would be treated as a corporation subject to US
federal income tax, thereby subjecting any income earned
by the fund to tax at the corporate level. If the fund fails
to satisfy a separate distribution requirement, it will be
subject to a fund-level excise tax. These fund-level taxes
will apply in addition to taxes payable at the shareholder
level on distributions.
Borrowing risk.
Borrowing creates leverage. It also adds
to fund expenses and at times could effectively force the
fund to sell securities when it otherwise might not want
to.
To the extent that the fund borrows money and then
invests that money, it creates leverage, in that the fund is
exposed to investment risks through the securities it has
pledged for collateral as well as through the investments it
purchases with the money borrowed against that collateral.
This leverage means that changes in the prices of
securities the fund owns will have a greater effect on the
share price of the fund. The fund incurs interest expense
and other costs when it borrows money; therefore, unless
returns on assets acquired with borrowed funds are
greater than the costs of borrowing, performance will be
lower than it would have been without any borrowing.
When the fund borrows money it must comply with
certain asset coverage requirements, which at times may
require the fund to dispose of some of its portfolio holdings
even though it may be disadvantageous to do so at
that time.
Leveraging Risk.
The fund’s investment in futures
contracts and other derivative instruments provide leveraged
exposure. The fund’s investment in these
instruments generally requires a small investment relative
to the amount of investment exposure assumed. As a
result, such investments may give rise to losses that
exceed the amount invested in those instruments. The use
of derivatives and other similar financial instruments may
at times be an integral part of the fund’s investment
strategy and may expose the fund to potentially dramatic
losses (or gains) in the value of a derivative or other financial
instruments and, thus, in the value the fund’s portfolio.
The cost of investing in such instruments generally
increases as interest rates increase, which will lower a
fund’s return.
Underlying funds risk.
To the extent the fund invests a
substantial portion of its assets in one or more Underlying
Funds, the fund’s performance will be directly related to
the performance of an Underlying Fund. The fund’s investments
in other investment companies subject the fund
to the risks affecting those investment companies.
In addition, the fund indirectly pays a portion of the
expenses incurred by an Underlying Fund, which lowers
performance. To the extent that the fund’s allocations favor
an Underlying Fund with higher expenses, the overall cost
of investing paid by the fund will be higher.
The fund is also subject to the risk that an Underlying Fund
may pay a redemption request made by the fund, wholly
or partly, by an in-kind distribution of portfolio securities
rather than in cash. The fund may hold such portfolio securities
until the Advisor determines to dispose of them,
and the fund will bear the market risk of the securities
received in the redemption until their disposition. Upon
disposing of such portfolio securities, the fund may experience
increased brokerage commissions.
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An investor in the fund may receive taxable gains from
portfolio transactions by an Underlying Fund, as well as
taxable gains from transactions in shares of the Underlying
Fund held by the fund. As the fund’s allocations to an Underlying
Fund change from time to time, or to the extent that
the expense ratio of an Underlying Fund changes, the
weighted average operating expenses borne by the fund
may increase or decrease.
To the extent the fund invests a substantial portion of its
assets in shares of foreign investment companies,
including but not limited to, ETFs the shares of which are
listed and traded primarily or solely on a foreign securities
exchange, such foreign funds will not be registered as
investment companies with the SEC or subject to the US
federal securities laws. As a result, the fund’s ability to
transfer shares of such foreign funds outside of the foreign
fund’s primary market will be restricted or prohibited.
While such foreign funds may operate similarly to
domestic funds, the fund as an investor in a foreign fund
will not be afforded the same investor protections as are
provided by the US federal securities laws.
When the fund invests in a foreign fund, in addition to
directly bearing the expenses associated with its own
operations, it will bear a pro rata portion of the foreign
fund’s expenses. Further, in part because of these additional
expenses, the performance of a foreign fund may
differ from the performance the fund would achieve if it
invested directly in the underlying investments of the
foreign fund. The fund’s investments in foreign ETFs will
be subject to the risk that the NAV of the foreign fund’s
shares may trade below the fund’s NAV. The NAV of foreign
fund shares will fluctuate with changes in the market value
of the foreign fund’s holdings. The trading prices of foreign
fund shares will fluctuate in accordance with changes in
NAV as well as market supply and demand. The difference
between the bid price and ask price, commonly referred
to as the
“
spread,
”
will also vary for a foreign ETF
depending on the fund’s trading volume and market
liquidity. Generally, the greater the trading volume and
market liquidity, the smaller the spread is and vice versa.
Any of these factors may lead to a foreign fund’s shares
trading at a premium or a discount to NAV.
Portfolio turnover risk.
The fund may experience frequent
portfolio turnover due to the reconstituting and rebalancing
of the Underlying Index. A portfolio turnover rate of 200%,
for example, is equivalent to the fund buying and selling
all of its securities two times during the course of the year.
A high portfolio turnover rate could result in high brokerage
costs.
Xtrackers MSCI China A Inclusion Equity ETF
Investment Objective
The Xtrackers MSCI China A Inclusion Equity ETF (the
“
fund
”
) seeks investment results that correspond generally
to the performance, before fees and expenses, of the
MSCI China A Inclusion Index (the
“
Underlying Index
”
).
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to track the equity
market performance of China A-Shares that are accessible
through the Shanghai-Hong Kong Stock Connect program
(
“
Shanghai Connect
”
) or the Shenzhen- Hong Kong Stock
Connect program (
“
Shenzhen Connect,
”
and together with
Shanghai Connect,
“
Stock Connect
”
).
“
A-Shares
”
are
equity securities issued by companies incorporated in
mainland China and are denominated in renminbi (
“
RMB
”
).
Certain eligible A-Shares are traded on the Shanghai Stock
Exchange (
“
SSE
”
) or Shenzhen Stock Exchange (
“
SZSE
”
).
The Underlying Index is designed to track the inclusion
of A-Shares in the MSCI Emerging Markets Index over
time and is constructed by MSCI, Inc. (the
“
Index
Provider
”
or
“
MSCI
”
) by applying eligibility criteria for the
MSCI Global Investable Market Indexes (
“
GIMI
”
), and then
excluding small-capitalization A-Shares (as determined by
MSCI), A-Shares suspended for trading for more than 50
days in the past 12 months and A-Shares that are not
accessible through Stock Connect. The Underlying Index is
weighted by each issuer’s free float-adjusted market capitalization
(i.e., includes only shares that are readily available
for trading in the market) available to foreign investors and
includes only large-capitalization companies, as determined
by MSCI. The fund intends to invest in A-Shares
included in the Underlying Index primarily through Stock
Connect. Stock Connect is a securities trading and clearing
program with an aim to achieve mutual stock market
access between the People’s Republic of China (
“
China
”
or the
“
PRC
”
) and Hong Kong. Stock Connect was developed
by Hong Kong Exchanges and Clearing Limited, the
SSE (in the case of Shanghai Connect) or the SZSE (in the
case of Shenzhen Connect), and China Securities Depository
and Clearing Corporation Limited (
“
CSDCC
”
). Under
Stock Connect, the fund’s trading of eligible A-Shares listed
on the SSE or the SZSE, as applicable, would be effectuated
through DBX Advisors LLC (the
“
Advisor
”
). Trading
through Stock Connect is subject to a daily quota (
“
Daily
Quota
”
), which limits the maximum net purchases on any
particular day by Hong Kong investors (and foreign investors
trading through Hong Kong) trading PRC listed
securities and PRC investors trading Hong Kong listed
securities trading through the relevant Stock Connect, and
as such, buy orders for A-Shares would be rejected once
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the Daily Quota is exceeded (although the fund will be
permitted to sell A-Shares regardless of the Daily Quota
balance). The Daily Quota is not specific to the fund, but to
all investors investing through the Stock Connect. From
time to time, other stock exchanges in China may participate
in Stock Connect, and A-Shares listed and traded on
such other stock exchanges and accessible through Stock
Connect may be added to the Underlying Index, as determined
by MSCI.
Under current regulations in China, foreign investors can
also invest in the PRC’s domestic securities markets
through certain market-access programs. These programs
include the Qualified Foreign Institutional Investor (
“
QFII
”
)
program and the Renminbi Qualified Foreign Institutional
Investor (
“
RQFII
”
) program, where investors will be
required to obtain a license from the China Securities
Regulatory Commission (
“
CSRC
”
) in order to participate in
these programs. QFII and RQFII investors will also need
to register with China’s State Administration of Foreign
Exchange (
“
SAFE
”
) to invest foreign freely convertible
currencies (in the case of a QFII) and RMB (in the case of
an RQFII) in the PRC for the purpose of investing in the
PRC’s domestic securities markets.
The fund intends to invest directly in A-Shares through
Stock Connect, but, in the future, may also utilize an RQFII
license applied for by and granted to the Advisor and/or a
subadvisor subsequently appointed for the fund. In the
event the Advisor obtains an RQFII license, or appoints a
subadvisor that has such license, under certain circumstances,
including when the fund’s ability to invest in
A-Shares through Stock Connect is restricted as a result of
the Daily Quota or otherwise, the Advisor and/or a
subadvisor, on behalf of the fund, may invest in A-Shares
and other permitted China securities listed on the SSE and
SZSE through the QFII or RQFII license. Accordingly, the
fund’s direct investments in A-Shares will be limited in part
by the Daily Quota of Stock Connect through the QFII or
RQFII license. Investment companies are not currently
within the types of entities that are eligible for an RQFII or
QFII license.
The Advisor expects to use a full replication indexing
strategy to seek to track the Underlying Index. As such,
the Advisor expects to invest directly in the component
securities (or a substantial number of the component
securities) of the Underlying Index in substantially the
same weightings in which they are represented in the
Underlying Index. If it is not possible for the Advisor to
acquire component securities due to limited availability or
regulatory restrictions, the Advisor may use a representative
sampling indexing strategy to seek to track the
Underlying Index instead of a full replication indexing
strategy.
“
Representative sampling
”
is an indexing
strategy that involves investing in a representative sample
of securities that collectively has an investment profile
similar to the Underlying Index. The securities selected are
expected to have, in the aggregate, investment characteristics
(based on factors such as market capitalization and
industry weightings), fundamental characteristics (such as
return variability and yield), and liquidity measures similar
to those of the Underlying Index. The fund may or may not
hold all of the securities in the Underlying Index when
the Advisor is using a representative sampling indexing
strategy.
The fund will normally invest at least 80% of its total
assets in securities (including depositary receipts in
respect of such securities) of issuers that comprise the
Underlying Index. The fund will not invest in any unlisted
depositary receipt or any depositary receipt that the
Advisor and/or Subadvisor deem illiquid at the time of
purchase or for which pricing information is not readily
available. The fund will seek to achieve its investment
objective by primarily investing directly in A-Shares.
Because the fund does not satisfy the criteria to qualify as
an RQFII or QFII itself, the fund intends to invest directly
in A-Shares via Stock Connect and, in the future, may also
utilize any QFII or RQFII license applied for by and granted
to the Advisor and/or a subadvisor. While the fund intends
to invest primarily and directly in A-Shares, the fund also
may invest in securities of issuers not included in the
Underlying Index, futures contracts, stock index futures,
swap contracts and other types of derivative instruments,
and other pooled investment vehicles, including exchange-traded
funds (
“
ETFs
”
), whether or not managed by the
Advisor, as well as foreign investment companies, that the
Advisor believes will help the fund to achieve its investment
objective. The remainder of the fund’s assets will be
invested primarily in money market instruments and cash
equivalents. Under normal circumstances, the fund invests
at least 80% of its net assets, plus the amount of any
borrowings for investment purposes, in A-Shares of
Chinese issuers or in derivative instruments and other
securities that provide investment exposure to A-Shares of
Chinese issuers.
As of July 31, 2020, the Underlying Index consisted of 473
securities with an average market capitalization of approximately
$3.29 billion and a minimum market capitalization
of approximately $613 million. Under normal circumstances,
the Underlying Index is rebalanced quarterly in
February, May, August and November. The fund rebalances
its portfolio in accordance with the Underlying Index, and,
therefore, any changes to the Underlying Index’s rebalance
schedule will result in corresponding changes to the fund’s
rebalance schedule.
The fund is classified as a non-diversified fund under the
Investment Company Act of 1940, as amended (the
“
1940
Act
”
).
The fund will concentrate its investments (i.e., hold
25% or more of its total assets) in a particular industry
or group of industries to the extent that the Underlying
Index is concentrated.
As of July 31, 2020, a significant
percentage of the Underlying Index was comprised of
issuers in the financials (21.1%) and consumer staples
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(17.1%) sectors. The financials sector includes companies
involved in banking, consumer finance, asset management
and custody banks, as well as investment banking
and brokerage and insurance. The consumer staples sector
includes companies whose businesses are less sensitive
to economic cycles, such as manufacturers and distributors
of food, beverages and producers of non-durable
household goods and personal products. To the extent that
the fund tracks the Underlying Index, the fund’s investment
in certain sectors may change over time.
The Advisor intends to fully (or at least substantially) replicate
the fund’s Underlying Index, but may pursue a
representative sampling indexing strategy in circumstances
where there is limited availability of component
securities or regulatory restrictions that inhibit the transferability
of component securities. In addition, from time to
time, the Advisor may choose to underweight or overweight
a security in the fund’s Underlying Index, purchase
securities not included in the Underlying Index that the
Advisor believes are appropriate to substitute for certain
securities in the Underlying Index, or utilize various combinations
of other available investment techniques to seek
to track, before fees and expenses, the performance of the
Underlying Index. The fund also may seek to gain exposure
to A-Shares through means other than the Shanghai-Hong
Kong Stock Connect program (
“
Shanghai Connect
”
)
or the Shenzhen-Hong Kong Stock Connect program
(
“
Shenzhen Connect,
”
and together with Shanghai
Connect,
“
Stock Connect
”
), including the use of any future
Renminbi Qualified Foreign Institutional Investor (
“
RQFII
”
)
quota, obtaining a Qualified Foreign Institutional Investor
(
“
QFII
”
) quota or any other method permitted by the
People’s Republic of China (
“
China
”
or the
“
PRC
”
) law and
consistent with the fund’s investment policies. The Advisor
may also sell securities that are represented in the fund’s
Underlying Index in anticipation of their removal from the
Underlying Index or purchase securities not represented in
the Underlying Index in anticipation of their addition to
the Underlying Index.
The fund may invest its assets in other securities,
including, but not limited to: (i) swap contracts, (ii) interests
in pooled investment vehicles, including affiliated and
foreign funds (certain funds may not be registered under
the Investment Company Act of 1940, as amended (the
“
1940 Act
”
) and therefore, not subject to the same
investor protections as the fund), (iii) securities not in the
Underlying Index, including: (a) depositary receipts (depositary
receipts, including American depositary receipts
(
“
ADRs
”
) may be used by the fund in seeking performance
that corresponds to the fund’s Underlying Index and in
managing cash flows, and they may count towards compliance
with the fund’s 80% investment policies) , (iv) cash
and cash equivalents, (v) money market instruments, such
as repurchase agreements or money market funds
(including money market funds advised by the Advisor,
HGI or their affiliates subject to applicable limitations under
the 1940 Act, or exemptions therefrom), (vi) convertible
securities, (vii) structured notes (notes on which the
amount of principal repayment and interest payments are
based on the movement of one or more specified factors,
such as the movement of a particular stock or stock index),
and (viii) futures contracts, options on futures contracts,
and other types of options related to the Underlying Index.
A futures contract is a standardized exchange-traded agreement
to buy or sell a specific quantity of an underlying
instrument at a specific price at a specific future time.
While the fund is currently classified as
“
non-diversified
”
under the Investment Company Act of 1940, it may
operate as or become classified as
“
diversified
”
over time.
The fund could again become non-diversified solely as a
result of a change in relative market capitalization or index
weighting of one or more constituents of the index that
the fund is designed to track. Shareholder approval will not
be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
The Prospectus contains a more detailed description of
the limited relationship MSCI has with DBX Advisors LLC
and any related funds.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Underlying Index Information
Xtrackers MSCI China A Inclusion Equity ETF Index
Description.
The Underlying Index is calculated and maintained by
MSCI Inc. (the
“
Index Provider
”
or
“
MSCI
”
). MSCI’s Global
Investable Market Indexes (the
“
MSCI GIMI
”
) provide
exhaustive coverage and non-overlapping market segmentation
by market capitalization size and by style. The MSCI
GIMI intends to target approximately 99% coverage of the
free float-adjusted market capitalization in each market
of large-, mid- and small-cap securities.
■
MSCI Global Standard Indexes cover all investable large-
and mid-cap securities by including approximately 85%
of each market’s free float-adjusted market capitalization.
■
MSCI Global Small Cap Indexes provide coverage to all
companies with a market capitalization below that of the
companies in the MSCI Global Standard Indexes.
Defining the Equity Universe.
MSCI begins with securities
listed in countries in the MSCI GIMI. Of these
countries, 23 are classified as developed markets, 24 as
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emerging markets, and 28 as frontier markets. All listed
equity securities and listed securities that exhibit characteristics
of equity securities, except mutual funds, exchange-traded
funds (
“
ETFs
”
), equity derivatives, limited
partnerships and most investment trusts, are eligible for
inclusion in the equity universe. Real estate investment
trusts (
“
REITs
”
) in some countries and certain income
trusts in Canada are also eligible for inclusion. Each
company and its securities (i.e., share classes) are classified
in only one country, which allows for a distinctive
sorting of each company by its respective country.
The Underlying Index is designed to track the equity
market performance of China A-Shares that are accessible
through the Stock Connect.
“
A-Shares
”
are equity securities
issued by companies incorporated in mainland China
and are denominated in renminbi (
“
RMB
”
). Certain eligible
A-Shares are traded on the Shanghai Stock Exchanges
(
“
SSE
”
) or Shenzhen Stock Exchange (
“
SZSE
”
). The Underlying
Index is designed to track the inclusion of A-Shares
in the MSCI Emerging Markets Index over time and is
constructed by MSCI by applying eligibility criteria for the
MSCI GIMI, and then excluding mid- and small-capitalization
A-Shares (as determined by MSCI), A-Shares
suspended for trading for more than 50 days in the past
12 months and A-Shares that are not accessible through
Stock Connect. The Underlying Index is weighted by each
issuer’s free float-adjusted market capitalization available
to foreign investors and includes only large- capitalization
companies, as determined by MSCI. As of July 31, 2020,
the Underlying Index consisted of 473 securities with an
average market capitalization of approximately $3.29 billion
and a minimum market capitalization of approximately
$613 million. These amounts are subject to change.
The Underlying Index is rebalanced on a quarterly basis in
February, May, August, and November.
During extraordinary market conditions, the Index Provider
may delay any scheduled rebalancing of the Underlying
Index. During any such delay it is possible that the Underlying
Index will deviate from the Underlying Index’s stated
methodology.
Main Risks
As with any investment, you could lose all or part of your
investment in the fund, and the fund’s performance could
trail that of other investments. The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective.
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
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Risk of investing in China.
Investments in China involve
certain risks and special considerations, including the
following:
Investments in A-Shares.
The fund intends to invest
directly in A-Shares through Stock Connect or the available
RQFII license, as applicable. In the future, the fund may
utilize an RQFII license applied for by and granted to the
Advisor and/or a subadvisor. Because the fund will not be
able to invest directly in A-Shares beyond the limits that
may be imposed by Stock Connect, the size of the fund’s
direct investments in A-Shares may be limited. In addition,
restrictions may be imposed on the repatriation of gains
and income that may affect the fund’s ability to satisfy
redemption requests. Currently, there are two stock
exchanges in mainland China, the SSE and the SZSE. The
Shanghai and Shenzhen Stock Exchanges are supervised
by the China Securities Regulatory Commission (
“
CSRC
”
)
and are highly automated with trading and settlement
executed electronically. The SSE and SZSE are substantially
smaller, less liquid, and more volatile than the major
securities markets in the US.
The SSE commenced trading on December 19, 1990, and
the SZSE commenced trading on July 3, 1991. The SSE
and SZSE divide listed shares into two classes: A-Shares
and B-Shares. Companies whose shares are traded on the
SSE and SZSE that are incorporated in mainland China
may issue both A-Shares and B-Shares. In China, the
A-Shares and B-Shares of an issuer may only trade on one
exchange. A-Shares and B-Shares may both be listed on
either the SSE or SZSE. Both classes represent an ownership
interest comparable to a share of common stock and
all shares are entitled to substantially the same rights and
benefits associated with ownership. A-Shares are traded
on SSE and SZSE in RMB.
As of October 31, 2019, the CSRC had granted licenses to
244 RQFIIs and to 313 QFIIs to invest in A-Shares and
other permitted Chinese securities. Because restrictions
continue to exist and capital therefore cannot flow freely
into the A-Share market, it is possible that in the event of a
market disruption, the liquidity of the A-Share market and
trading prices of A-Shares could be more severely affected
than the liquidity and trading prices of markets where securities
are freely tradable and capital therefore flows more
freely. The fund cannot predict the nature or duration of
such a market disruption or the impact that it may have on
the A-Share market and the short-term and long-term prospects
of its investments in the A-Share market.
The Chinese government has in the past taken actions
that benefited holders of A-Shares. As A-Shares become
more accessible to foreign investors, such as the funds,
the Chinese government may be less likely to take action
that would benefit holders of A-Shares. In addition, there is
no guarantee that any existing RQFII license will be maintained
if the RQFII license is revoked by CSRC at some
point in the future. The fund cannot predict what would
occur if the Stock Connect program was terminated, or if
the relevant RQFII license were to be revoked, although
such an occurrence would likely have a material adverse
effect on the fund.
On May 7, 2020, the People’s Bank of China (
“
PBOC
”
) and
SAFE jointly issued the Regulations on Funds of Securities
and Futures Investment by Foreign Institutional
Investors (PBOC & SAFE Announcement [2020] No. 2)
(the
“
Regulations
”
) which came into effect on June 6,
2020. The Regulations supersede certain post-registration
rules applicable to QFII and RQFII regimes. One of the
key changes of the Regulations is the removal of quota
restrictions on investment. However, as of the date of this
prospectus, this is a relatively new development, and
there is no guarantee that the quotas will continue to be
relaxed.
Risks of investing through Stock Connect.
Trading through
Stock Connect is subject to a number of restrictions that
may affect the fund’s investments and returns. Although
no individual investment quotas or licensing requirements
apply to investors in Stock Connect, trading through Stock
Connect is subject to a daily quota (
“
Daily Quota
”
), which
limits the maximum net purchases on any particular day by
Hong Kong investors (and foreign investors trading
through Hong Kong) trading PRC listed securities and PRC
investors trading Hong Kong listed securities trading
through the relevant Stock Connect. The Daily Quota does
not belong to the fund and is utilized by all investors on
a first-come-first- serve basis. As such, buy orders for
A-Shares would be rejected once the Daily Quota is
exceeded (although the fund will be permitted to sell
A-Shares regardless of the Daily Quota balance). The Daily
Quota may restrict the fund’s ability to invest in A-Shares
through Stock Connect on a timely basis, which could
affect the fund’s ability to effectively pursue its investment
strategy. The Daily Quota is also subject to change.
In addition, investments made through Stock Connect are
subject to trading, clearance and settlement procedures
that are relatively untested in the PRC, which could pose
risks to the fund. Moreover, A-Shares through Stock
Connect (
“
Stock Connect A-Shares
”
) generally may not be
sold, purchased or otherwise transferred other than
through Stock Connect in accordance with applicable rules.
While A-shares must be designated as eligible to be
traded under Stock Connect (such eligible A-Shares listed
on the SSE, the
“
SSE Securities,
”
and such eligible
A-Shares listed on the SZSE, the
“
SZSE Securities
”
), those
A-Shares may also lose such designation, and if this
occurs, such A-Shares may be sold but could no longer be
purchased through Stock Connect. With respect to sell
orders under Stock Connect, the Stock Exchange of Hong
Kong (
“
SEHK
”
) carries out pre-trade checks to ensure an
investor has sufficient A-Shares in its account before the
market opens on the trading day. Accordingly, if there are
insufficient A-Shares in an investor’s account before the
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market opens on the trading day, the sell order will be
rejected, which may adversely impact the funds’
performance.
In addition, Stock Connect will only operate on days when
both the Chinese and Hong Kong markets are open for
trading and when banking services are available in both
markets on the corresponding settlement days. Therefore,
an investment in A- Shares through Stock Connect may
subject the fund to the risk of price fluctuations on days
when the Chinese markets are open, but Stock Connect is
not trading. Each of the SEHK, SSE and SZSE reserves
the right to suspend trading under Stock Connect under
certain circumstances. Where such a suspension of trading
is effected, the fund’s ability to access A-Shares through
Stock Connect will be adversely affected. In addition, if one
or both of the Chinese and Hong Kong markets are closed
on a US trading day, the fund may not be able to acquire or
dispose of A-Shares through Stock Connect in a timely
manner, which could adversely affect the fund’s
performance.
The fund’s investments in A-Shares though Stock Connect
are held by its custodian in accounts in Central Clearing
and Settlement System (
“
CCASS
”
) maintained by the
Hong Kong Securities Clearing Company Limited
(
“
HKSCC
”
), which in turn holds the A-Shares, as the
nominee holder, through an omnibus securities account in
its name registered with the China Securities Depository
and Clearing Corporation Limited (
“
CSDCC
”
). The precise
nature and rights of each fund as the beneficial owner of
the SSE Securities or SZSE Securities through HKSCC as
nominee is not well defined under PRC law. There is a lack
of a clear definition of, and distinction between, legal
ownership and beneficial ownership under PRC law and
there have been few cases involving a nominee account
structure in the PRC courts. The exact nature and methods
of enforcement of the rights and interests of each fund
under PRC law is also uncertain. In the unlikely event that
HKSCC becomes subject to winding up proceedings in
Hong Kong, there is a risk that the SSE Securities or SZSE
Securities may not be regarded as held for the beneficial
ownership of each fund or as part of the general assets of
HKSCC available for general distribution to its creditors.
Notwithstanding the fact that HKSCC does not claim proprietary
interests in the SSE Securities or SZSE Securities
held in its omnibus stock account in the CSDCC, the
CSDCC as the share registrar for SSE- or SZSE-listed
companies will still treat HKSCC as one of the shareholders
when it handles corporate actions in respect of
such SSE Securities or SZSE Securities. HKSCC monitors
the corporate actions affecting SSE Securities and SZSE
Securities and keeps participants of CCASS informed of all
such corporate actions that require CCASS participants
to take steps in order to participate in them. A fund will
therefore depend on HKSCC for both settlement and notification
and implementation of corporate actions.
The HKSCC is responsible for the clearing, settlement and
the provisions of depositary, nominee and other related
services of the trades executed by Hong Kong market
participants and investors. Accordingly, investors do not
hold SSE Securities or SZSE Securities directly – they are
held through their brokers’ or custodians’ accounts with
CCASS. The HKSCC and the CSDCC establish clearing
links and each has become a participant of the other to
facilitate clearing and settlement of cross-border trades.
Should CSDCC default and the CSDCC be declared as
a defaulter, HKSCC’s liabilities in Stock Connect under its
market contracts with clearing participants will be limited
to assisting clearing participants in pursuing their claims
against the CSDCC. In that event, the fund may suffer
delays in the recovery process or may not be able to fully
recover its losses from the CSDCC.
Market participants are able to participate in Stock Connect
subject to meeting certain information technology capability,
risk management and other requirements as may be
specified by the relevant exchange and/or clearing house.
Further, the
“
connectivity
”
in Stock Connect requires the
routing of orders across the borders of Hong Kong and the
PRC. This requires the development of new information
technology systems on the part of the SEHK and exchange
participants. There is no assurance that these systems
will function properly or will continue to be adapted to
changes and developments in both markets. In the event
that the relevant systems fail to function properly, trading
in A-Shares through Stock Connect could be disrupted, and
the fund’s ability to achieve its investment objective may
be adversely affected.
A primary feature of Stock Connect is the application of
the home market’s laws and rules applicable to investors
in A-Shares. Therefore, the fund’s investments in Stock
Connect A-Shares are generally subject to PRC securities
regulations and listing rules, among other restrictions.
Finally, according to Caishui [2014] 81 (
“
Circular 81
”
) and
Caishui [2016] 127 (
“
Circular 127
”
), while foreign investors
are exempted from paying capital gains or business taxes
(later, value-added taxes) on income and gains from investments
in Stock Connect A-Shares, these PRC tax rules
could be changed, which could result in unexpected tax
liabilities for the fund. Dividends derived from A-Shares are
subject to a 10% PRC withholding income tax generally.
PRC stamp duty is also payable for transactions in
A-Shares through Stock Connect. Currently, PRC stamp
duty on A-Shares transactions is only imposed on the
seller, but not on the purchaser, at the tax rate of 0.1% of
the total sales value.
Circular 81 and Circular 127 stipulate that PRC business
tax (and, subsequently, PRC value-added tax) is temporarily
exempted on capital gains derived by Hong Kong market
participants (including the fund) from the trading of
A-Shares through Stock Connect. According to Caishui
[2016] No. 36, the PRC value- added tax reform in the PRC
will be expanded to all industries, including financial
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services, starting May 1, 2016. The PRC business tax
exemption prescribed in Circular 81 is grandfathered under
the value-added tax regime.
The Stock Connect program is a relatively new program.
Further developments are likely and there can be no assurance
as to the program’s continued existence or whether
future developments regarding the program may restrict or
adversely affect the fund’s investments or returns. In addition,
the application and interpretation of the laws and
regulations of Hong Kong and the PRC, and the rules, policies
or guidelines published or applied by relevant
regulators and exchanges in respect of the Stock Connect
program are uncertain, and they may have a detrimental
effect on the fund’s investments and returns.
A-Shares tax risk.
Uncertainties in the Chinese tax rules
governing taxation of income and gains from investments
in A-Shares could result in unexpected tax liabilities for
a fund. China generally imposes withholding tax at a rate
of 10% on dividends and interest derived by nonresident
enterprises (including QFIIs and RQFIIs) from issuers resident
in China. China also imposes withholding tax at a rate
of 10% on capital gains derived by nonresident enterprises
from investments in an issuer resident in China, subject to
an exemption or reduction pursuant to domestic law or
a double taxation agreement or arrangement.
Since the respective inception of Shanghai – Hong Kong
Stock Connect and Shenzhen – Hong Kong Stock Connect,
foreign investors (including the funds) investing in
A-Shares listed on the SSE through Shanghai – Hong Kong
Stock Connect and those listed on the SZSE through
Shenzhen – Hong Kong Stock Connect would be temporarily
exempt from the PRC corporate income tax and value-added
tax on the gains on disposal of such A-Shares.
Dividends would be subject to PRC corporate income tax
on a withholding basis at 10%, unless reduced under a
double tax treaty with China upon application to and
obtaining approval from the competent tax authority. Since
November 17, 2014, the corporate income tax for QFIIs
and RQFIIs, with respect to capital gains, has been temporarily
lifted. The withholding tax relating to the realized
gains from shares in land-rich companies prior to
November 17, 2014 has been paid by the fund, while realized
gains from shares in non-land-rich companies prior
to November 17, 2014 were granted by treaty relief
pursuant to the PRC-US Double Taxation Agreement.
During 2015, revenue authorities in the PRC made
arrangements for the collection of capital gains taxes for
investments realized between November 17, 2009 and
November 16, 2014. The fund could be subject to tax
liability for any tax payments for which reserves have not
been made or that were not previously withheld. The
impact of any such tax liability on the fund’s return could
be substantial. The fund may also be liable to the Advisor
or subadvisor for any tax that is imposed on the Advisor or
subadvisor by the PRC with respect to the fund’s investments.
If the fund's direct investments in A-Shares
through the Advisor's or subadvisor’s RQFII license in the
future becomes subject to repatriation restrictions, the
fund may be unable to satisfy distribution requirements
applicable to RICs under the Internal Revenue Code, and
be subject to tax at the fund level.
The current PRC tax laws and regulations and interpretations
thereof may be revised or amended in the future,
potentially retroactively, including with respect to the
possible liability of a fund for the taxation of income and
gains from investments in A-Shares through Stock Connect
or obligations of an RQFII. The withholding taxes on dividends,
interest and capital gains may in principle be
subject to a reduced rate under an applicable tax treaty,
but the application of such treaties in the case of an RQFII
acting for a foreign investor such as the fund is also uncertain.
Finally, it is also unclear whether an RQFII would also
be eligible for PRC Business Tax (
“
BT
”
) exemption, which
has been granted to QFIIs, with respect to gains derived
prior to May 1, 2016. In practice, the BT has not been
collected. However, the imposition of such taxes on the
fund could have a material adverse effect on the fund’s
returns. Since May 1, 2016, RQFIIs are exempt from PRC
value- added tax, which replaced the BT with respect to
gains realized from the disposal of securities, including
A-Shares.
The PRC rules for taxation of RQFIIs (and QFIIs) are
evolving and certain tax regulations to be issued by the
PRC State Administration of Taxation and/or PRC Ministry
of Finance to clarify the subject matter may apply retrospectively,
even if such rules are adverse to a fund and
their shareholders.
If the PRC begins applying tax rules regarding the taxation
of income from A-Shares investments to RQFIIs and/or
begins collecting capital gains taxes on such investments
(whether made through Stock Connect or an RQFII), a fund
could be subject to withholding tax liability in excess of
the amount reserved (if any). The impact of any such tax
liability on a fund’s return could be substantial. A fund will
be liable to the Advisor and/or subadvisor for any Chinese
tax that is imposed on the Advisor and/or subadvisor with
respect to the fund’s investments.
To the extent a fund invests in swaps linked to A-Shares,
such investments may be less tax-efficient for US tax
purposes than a direct investment in A-Shares. Any tax
liability incurred by the swap counterparty may be passed
on to a fund. When a fund sells a swap on A-Shares, the
sale price may take into account of the RQFII’s tax liability.
Investments in swaps and other derivatives may be
subject to special US federal income tax rules that could
adversely affect the character, timing and amount of
income earned by a fund (e.g., by causing amounts that
would be capital gain to be taxed as ordinary income or to
be taken into income earlier than would otherwise be
necessary). Also, a fund may be required to periodically
adjust its positions in its swaps and derivatives to comply
with certain regulatory requirements which may further
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cause these investments to be less efficient than a direct
investment in A-Shares. For example, swaps in which a
fund may invest may need to be reset on a regular basis in
order to maintain compliance with the 1940 Act, which
may increase the likelihood that the fund will generate
short-term capital gains. In addition, because the application
of special tax rules to a fund and its investments may
be uncertain, it is possible that the manner in which they
are applied by the fund may be determined to be incorrect.
In that event, a fund may be found to have failed to maintain
its qualification as a RIC or to be subject to additional
US tax liability. A fund may make investments, both
directly and through swaps or other derivative positions, in
companies classified as passive foreign investment companies
for US federal income tax purposes (
“
PFICs
”
).
Investments in PFICs are subject to special tax rules which
may result in adverse tax consequences to the fund and
its shareholders.
Political and economic risk.
The economy of China, which
has been in a state of transition from a planned economy
to a more market oriented economy, differs from the
economies of most developed countries in many respects,
including the level of government involvement, its state
of development, its growth rate, control of foreign
exchange, and allocation of resources. Although the
majority of productive assets in China are still owned by
the PRC government at various levels, in recent years, the
PRC government has implemented economic reform
measures emphasizing utilization of market forces in the
development of the economy of China and a high level
of management autonomy. The economy of China has
experienced significant growth in recent decades, but
growth has been uneven both geographically and among
various sectors of the economy. Economic growth has also
been accompanied by periods of high inflation. The PRC
government has implemented various measures from time
to time to control inflation and restrain the rate of
economic growth.
For several decades, the PRC government has carried out
economic reforms to achieve decentralization and utilization
of market forces to develop the economy of the
PRC. These reforms have resulted in significant economic
growth and social progress. However, there can be no
assurance that the PRC government will continue to
pursue such economic policies or that such policies, if
pursued, will be successful. Any adjustment and modification
of those economic policies may have an adverse
impact on the securities markets in the PRC as well as the
constituent securities of the Underlying Index. Further,
the PRC government may from time to time adopt corrective
measures to control the growth of the PRC economy
which may also have an adverse impact on the capital
growth and performance of the fund.
Political changes, social instability and adverse diplomatic
developments in the PRC could result in the imposition
of additional government restrictions including expropriation
of assets, confiscatory taxes or nationalization of
some or all of the property held by the issuers of the
A-Shares in the fund’s Underlying Index. The laws, regulations,
including the investment regulations, government
policies and political and economic climate in China may
change with little or no advance notice. Any such change
could adversely affect market conditions and the performance
of the Chinese economy and, thus, the value of
securities in the fund’s portfolio.
The Chinese government continues to be an active participant
in many economic sectors through ownership
positions and regulations. The allocation of resources in
China is subject to a high level of government control. The
Chinese government strictly regulates the payment of
foreign currency denominated obligations and sets
monetary policy. Through its policies, the government may
provide preferential treatment to particular industries or
companies. The policies set by the government could have
a substantial effect on the Chinese economy and the
fund’s investments.
The Chinese economy is export-driven and highly reliant
on trade. The performance of the Chinese economy may
differ favorably or unfavorably from the US economy in
such respects as growth of gross domestic product, rate
of inflation, currency depreciation, capital reinvestment,
resource self- sufficiency and balance of payments position.
The domestic consumer class in China is still
emergent, while the economy's dependence on exports
may not be sustainable. Adverse changes to the economic
conditions of its primary trading partners, such as the European
Union, the US, Hong Kong, the Association of South
East Asian Nations, and Japan, would adversely affect the
Chinese economy and the fund’s investments.
In addition, as much of China’s growth over recent decades
has been a result of significant investment in substantial
export trade, international trade tensions may arise from
time to time which can result in trade tariffs, embargoes,
trade limitations, trade wars and other negative consequences.
The current political climate has intensified
concerns about trade tariffs and a potential trade war
between China and the US. These consequences may
trigger a significant reduction in international trade, the
oversupply of certain manufactured goods, substantial
price reductions of goods and possible failure of individual
companies and/or large segments of China’s export
industry with a potentially severe negative impact to the
fund. In addition, it is possible that the continuation or worsening
of the current political climate could result in
regulatory restrictions being contemplated or imposed in
the US or in China that could have a material adverse effect
on the fund’s ability to invest in accordance with its investment
policies and/or achieve its investment objective. In
July 2020, the President’s Working Group on Financial
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Markets (the
“
PWG
”
) proposed a number of regulatory
changes aimed at addressing potential risks to US investors
from investments in issuers that provide limited
access to their financial statements, including Chinese
companies. The PWG’s proposals included having the SEC
consider encouraging or requiring US registered funds to
conduct additional due diligence on an index’s exposure to
such issuers and how the index provider addresses
concerns arising from limited availability of such issuers’
financial information. If the SEC adopts these proposals,
they could have a material adverse effect on the fund’s
ability to continue tracking the Underlying Index. Events
such as these are difficult to predict and may or may not
occur in the future.
China has been transitioning to a market economy since
the late seventies, and has only recently opened up to
foreign investment and permitted private economic
activity. Under the economic reforms implemented by the
Chinese government, the Chinese economy has experienced
tremendous growth, developing into one of the
largest and fastest growing economies in the world. There
is no assurance, however, that the Chinese government
will not revert to the economic policy of central planning
that it implemented prior to 1978 or that such growth will
be sustained in the future. Moreover, the current major
slowdown in other significant economies of the world,
such as the US, the European Union and certain Asian
countries, may adversely affect economic growth in China.
An economic downturn in China would adversely impact
the fund’s investments.
From time to time, and as recently as early 2020 with the
coronavirus known as COVID-19, China has experienced
outbreaks of infectious illnesses, and the country may be
subject to other infectious illnesses, diseases or other
public health emergencies in the future. Any public health
emergency could reduce consumer demand or economic
output, result in market closures, travel restrictions or
quarantines, and generally have a significant impact on the
Chinese economy, which in turn could adversely affect
the fund’s investments.
Inflation.
Economic growth in China has historically been
accompanied by periods of high inflation. Beginning in
2004, the Chinese government commenced the implementation
of various measures to control inflation, which
included the tightening of the money supply, the raising of
interest rates and more stringent control over certain industries.
If these measures are not successful, and if inflation
were to steadily increase, the performance of the Chinese
economy and the fund’s investments could be adversely
affected.
Nationalization and expropriation.
After the formation of
the Chinese socialist state in 1949, the Chinese government
renounced various debt obligations and nationalized
private assets without providing any form of compensation.
There can be no assurance that the Chinese
government will not take similar actions in the future.
Accordingly, an investment in the fund involves a risk of a
total loss.
Hong Kong policy.
As part of Hong Kong’s transition from
British to Chinese sovereignty in 1997, China agreed to
allow Hong Kong to maintain a high degree of autonomy
with regard to its political, legal and economic systems for
a period of at least 50 years. China controls matters that
relate to defense and foreign affairs. Under the agreement,
China does not tax Hong Kong, does not limit the
exchange of the Hong Kong dollar for foreign currencies
and does not place restrictions on free trade in Hong Kong.
However, there is no guarantee that China will continue
to honor the agreement, and China may change its policies
regarding Hong Kong at any time. As of July 2020, the
Chinese Standing Committee of the National People's
Congress enacted the Law of the People's Republic of
China on Safeguarding National Security in the Hong Kong
Special Administrative Region. As of the same month,
Hong Kong is no longer afforded preferential economic
treatment by the United States under US law, and there is
uncertainty as to how the economy of Hong Kong will be
affected. Any further changes in China's policies could
adversely affect market conditions and the performance of
the Chinese economy and, thus, the value of securities
in the fund’s portfolio.
Chinese securities markets.
The securities markets in
China have a limited operating history and are not as
developed as those in the US. The markets tend to be
smaller in size, have less liquidity and historically have had
greater volatility than markets in the US and some other
countries. In addition, under normal market conditions,
there is less regulation and monitoring of Chinese securities
markets and the activities of investors, brokers and
other participants than in the US. Accordingly, issuers of
securities in China are not subject to the same degree of
regulation as are US issuers with respect to such matters
as insider trading rules, tender offer regulation, stockholder
proxy requirements and the requirements mandating
timely disclosure of information. During periods of significant
market volatility, the Chinese government has, from
time to time, intervened in its domestic securities markets
to a greater degree than would be typical in more developed
markets, including both direct and indirect market
stabilization efforts, which may affect valuations of Chinese
issuers. Stock markets in China are in the process of
change and further development. This may lead to trading
volatility, difficulty in the settlement and recording of transactions
and difficulty in interpreting and applying the
relevant regulations.
Available disclosure about Chinese companies.
Chinese
companies are required to follow Chinese accounting standards
and practices, which only follow international
accounting standards to a certain extent. However, the
accounting, auditing and financial reporting standards and
practices applicable to PRC companies may be less
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rigorous, and there may be significant differences between
financial statements prepared in accordance with Chinese
accounting standards and practice and those prepared in
accordance with international accounting standards. In
particular, the assets and profits appearing on the financial
statements of a Chinese issuer may not reflect its financial
position or results of operations in the way they would
be reflected had such financial statements been prepared
in accordance with US Generally Accepted Accounting
Principles. The quality of audits in China may be unreliable,
which may require enhanced procedures. Consequently,
the fund may not be provided the same degree of protection
or information as would generally apply in developed
countries and the fund may be exposed to significant
losses. There is also substantially less publicly available
information about Chinese issuers than there is about US
issuers. Therefore, disclosure of certain material information
may not be made, and less information may be
available to the fund and other investors than would be the
case if the fund’s investments were restricted to securities
of US issuers.
Chinese corporate and securities law.
The regulations
which regulate investments by RQFIIs in the PRC and the
repatriation of capital from RQFII investments are relatively
new. As a result, the application and interpretation of such
investment regulations are therefore relatively untested. In
addition, PRC authorities and regulators have broad discretion
under such investment regulations and there is little
precedent or certainty evidencing how such discretion will
be exercised now or in the future.
The fund’s rights with respect to its investments in
A-Shares (as applicable), if any, generally will not be
governed by US law, and instead will generally be
governed by Chinese law. China operates under a civil law
system, in which court precedent is not binding. Because
there is no binding precedent to interpret existing statutes,
there is uncertainty regarding the implementation of
existing law.
Legal principles relating to corporate affairs and the validity
of corporate procedures, directors’ fiduciary duties and
liabilities and stockholders’ rights often differ from those
that may apply in the US and other countries. Chinese laws
providing protection to investors, such as laws regarding
the fiduciary duties of officers and directors, are undeveloped
and will not provide investors, such as the fund,
with protection in all situations where protection would be
provided by comparable laws in the US. China lacks a
national set of laws that address all issues that may arise
with regard to a foreign investor such as the fund. It may
therefore be difficult for the fund to enforce its rights as an
investor under Chinese corporate and securities laws, and
it may be difficult or impossible for the fund to obtain a
judgment in court. Moreover, as Chinese corporate and
securities laws continue to develop, these developments
may adversely affect foreign investors, such as the fund.
Sanctions and embargoes.
From time to time, certain of
the companies in which the fund expects to invest may
operate in, or have dealings with, countries subject to
sanctions or embargoes imposed by the US government
and the United Nations and/or countries identified by the
US government as state sponsors of terrorism. A company
may suffer damage to its reputation if it is identified as a
company which operates in, or has dealings with, countries
subject to sanctions or embargoes imposed by the
US government and the United Nations and/or countries
identified by the US government as state sponsors of
terrorism. As an investor in such companies, the fund will
be indirectly subject to those risks.
Tax on retained income and gains.
To the extent the fund
does not distribute to shareholders all or substantially all of
its investment company taxable income and net capital
gain in a given year, it will be required to pay US federal
income tax on the retained income and gains, thereby
reducing the fund’s return. A fund may elect to treat any
retained net capital gain as having been distributed to
shareholders. In that case, shareholders of record on the
last day of the fund’s taxable year will be required to
include their attributable share of the retained gain in
income for the year as a long-term capital gain despite not
actually receiving the dividend, and will be entitled to a
tax credit or refund for the tax deemed paid on their behalf
by the fund as well as an increase in the basis of their
shares to reflect the difference between their attributable
share of the gain and the related credit or refund.
Foreign exchange control.
The Chinese government heavily
regulates the domestic exchange of foreign currencies
within China. Under China’s State Administration of
Foreign Exchange (
“
SAFE
”
) regulations, Chinese corporations
may only purchase foreign currencies through
government approved banks. In general, Chinese companies
must receive approval from or register with the
Chinese government before investing in certain capital
account items, including direct investments and loans, and
must thereafter maintain separate foreign exchange
accounts for the capital items. Foreign investors may only
exchange foreign currencies at specially authorized banks
after complying with documentation requirements. These
restrictions may adversely affect the fund and its investments.
The international community has requested that
China ease its restrictions on currency exchange, but it is
unclear whether the Chinese government will change its
policy.
RMB, is currently not a freely convertible currency as it is
subject to foreign exchange control, fiscal policies and repatriation
restrictions imposed by the Chinese government.
Such control of currency conversion and movements in the
RMB exchange rates may adversely affect the operations
and financial results of companies in the PRC. In addition,
if such control policies change in the future, the fund may
be adversely affected. Since 2005, the exchange rate of
the RMB is no longer pegged to the US dollar. The RMB
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has now moved to a managed floating exchange rate
based on market supply and demand with reference to a
basket of foreign currencies. The daily trading price of the
RMB against other major currencies in the inter-bank
foreign exchange market would be allowed to float within
a narrow band around the central parity published by the
People’s Bank of China. As the exchange rates are based
primarily on market forces, the exchange rates for RMB
against other currencies, including the US dollar, are
susceptible to movements based on external factors.
There can be no assurance that the RMB will not be
subject to appreciation or devaluation, either due to
changes in government policy or market factors. Any
devaluation of the RMB could adversely affect the value of
the fund’s investments. The PRC government imposes
restrictions on the remittance of RMB out of and into
China. To the extent the fund invests through an RQFII, the
fund may be required to remit RMB from Hong Kong to
the PRC to settle the purchase of A-Shares and other
permissible securities by the fund. In the event such remittance
is disrupted, the fund may not be able to fully
replicate its Underlying Index by investing in the relevant
A-Shares and this will increase the tracking error of the
fund. Any delay in repatriation of RMB out of China may
result in delay in payment of redemption proceeds to the
redeeming investors. The Chinese government’s policies
on exchange control and repatriation restrictions are
subject to change, and the fund’s performance may be
adversely affected.
Foreign currency considerations.
The assets of the fund
are invested primarily in the equity securities of issuers in
China and the income received by the fund will be primarily
in RMB.
RMB can be further categorized into onshore RMB
(
“
CNY
”
), traded only in the PRC, and offshore RMB
(
“
CNH
”
), traded outside the PRC. CNY and CNH are
traded at different exchange rates and their exchange rates
may not move in the same direction. Although there has
been a growing amount of RMB held offshore, CNH
cannot be freely remitted into the PRC and is subject to
certain restrictions, and vice versa. The fund may also be
adversely affected by the exchange rates between CNY
and CNH. There is no assurance that there will always be
RMB available in sufficient amounts for the fund to remain
fully invested.
Meanwhile, the fund will compute and expects to
distribute its income in US dollars, and the computation of
income will be made on the date that the income is
earned by the fund at the foreign exchange rate in effect
on that date. Any gain or loss attributable to fluctuations in
exchange rates between the time the fund accrues
income or gain and the time the fund converts such
income or gain from RMB to the US dollar is generally
treated as ordinary income or loss. Therefore, if the value
of the RMB increases relative to the US dollar between the
accrual of income and the time at which the fund converts
the RMB to US dollars, the fund will recognize ordinary
income when the RMB is converted. In such circumstances,
if the fund has insufficient cash in US dollars to
meet distribution requirements under the Internal Revenue
Code, the fund may be required to liquidate certain positions
in order to make distributions. The liquidation of
investments, if required, may also have an adverse impact
on the fund’s performance.
Furthermore, the fund may incur costs in connection with
conversions between US dollars and RMB. Foreign
exchange dealers realize a profit based on the difference
between the prices at which they are buying and selling
various currencies. Thus, a dealer normally will offer to sell
a foreign currency to the fund at one rate, while offering
a lesser rate of exchange should the fund desire immediately
to resell that currency to the dealer. A fund will
conduct its foreign currency exchange transactions either
on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market, or through entering
into forward, futures or options contracts to purchase or
sell foreign currencies.
Currently, there is no market in China in which the fund
may engage in hedging transactions to minimize RMB
foreign exchange risk in CNY, and there can be no guarantee
that instruments suitable for hedging currency in
CNY will be available to the fund in China at any time in the
future. In the event that in the future it becomes possible
to hedge RMB currency risk in China in CNY, the fund may
seek to reduce the foregoing currency risks by engaging
in hedging transactions. In that case, the fund may enter
into forward currency exchange contracts and currency
futures contracts and options on such futures contracts, as
well as purchase put or call options on currencies, in
China. The funds do not currently intend to hedge RMB
currency risk in CNH. Currency hedging would involve
special risks, including possible default by the other party
to the transaction, illiquidity and, to the extent the Advisor’s
or subadvisor’s (as applicable) view as to certain
market movements is incorrect, the risk that the use of
hedging could result in losses greater than if they had not
been used. The use of currency transactions could result in
the fund’s incurring losses as a result of the imposition of
exchange controls, exchange rate regulation, suspension
of settlements or the inability to deliver or receive a specified
currency.
Disclosure of interests and short swing profit rule.
The
fund may be subject to shareholder disclosure of interest
regulations promulgated by the CSRC. These regulations
currently require the fund to make certain public disclosures
when the fund and parties acting in concert with the
fund acquire 5% or more of the issued securities of a
listed company (which include A-Shares of the listed
company). If the reporting requirement is triggered, the
fund will be required to report information which includes,
but is not limited to: (a) information about the fund (and
parties acting in concert with the fund) and the type and
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extent of its holdings in the company; (b) a statement of
the fund’s purposes for the investment and whether the
fund intends to increase its holdings over the following
12-month period; (c) a statement of the fund’s historical
investments in the company over the previous six months;
(d) the time of, and other information relating to, the transaction
that triggered the fund’s holding in the listed
company reaching the 5% reporting threshold; and (e)
other information that may be required by the CSRC or the
stock exchange. Additional information may be required
if the fund and its concerted parties constitute the largest
shareholder or actual controlling shareholder of the listed
company. The report must be made to the CSRC, the stock
exchange, the invested company, and the CSRC local representative
office where the listed company is located. A
fund would also be required to make a public announcement
through a media outlet designated by the CSRC. The
public announcement must contain the same content as
the official report. The public announcement may require
the fund to disclose its holdings to the public, which could
have an adverse effect on the performance of the fund.
The relevant PRC regulations presumptively treat all affiliated
investors and investors under common control as
parties acting in concert. As such, under a conservative
interpretation of these regulations, the fund may be
deemed as a
“
concerted party
”
of other funds managed
by the Advisor, subadvisor or their affiliates and therefore
may be subject to the risk that the fund’s holdings may be
required to be reported in the aggregate with the holdings
of such other funds should the aggregate holdings
trigger the reporting threshold under the PRC law. If the
5% shareholding threshold is triggered by the fund and
parties acting in concert with the fund, the fund would be
required to file its report within three days of the date the
threshold is reached. During the time limit for filing the
report, a trading freeze applies and the fund would not be
permitted to make subsequent trades in the invested
company’s securities. Any such trading freeze may undermine
the fund’s performance, if the fund would otherwise
make trades during that period but is prevented from
doing so by the regulation.
Once the fund and parties acting in concert reach the 5%
trading threshold as to any listed company, any subsequent
incremental increase or decrease of 5% or more will
trigger a further reporting requirement and an additional
three-day trading freeze, and also an additional freeze on
trading within two days of the fund’s report and announcement
of the incremental change. These trading freezes
may undermine the fund’s performance as described
above. Also, SSE requirements currently require the fund
and parties acting in concert, once they have reach the 5%
threshold, to disclose whenever their shareholding drops
below this threshold (even as a result of trading which
is less than the 5% incremental change that would trigger
a reporting requirement under the relevant CSRC
regulation).
CSRC regulations also contain additional disclosure (and
tender offer) requirements that apply when an investor and
parties acting in concert reach thresholds of 20% and
greater than 30% shareholding in a company.
Subject to the interpretation of PRC courts and PRC regulators,
the operation of the PRC short swing profit rule
may be applicable to the trading of the fund with the result
that where the holdings of the fund (possibly with the holdings
of other investors deemed as concert parties of the
fund) exceed 5% of the total issued shares of a listed
company, the fund may not reduce its holdings in the
company within six months of the last purchase of shares
of the company. If a fund violates the rule, it may be
required by the listed company to return any profits realized
from such trading to the listed company. In addition,
the rule limits the ability of the fund to repurchase securities
of the listed company within six months of such sale.
Moreover, under PRC civil procedures, the fund’s assets
may be frozen to the extent of the claims made by the
company in question. These risks may greatly impair the
performance of the fund.
Investment and repatriation restrictions.
Investments by
the fund in A-Shares (as well as other Chinese financial
instruments permitted by the CSRC and the People’s Bank
of China, including open- and closed-end investment
companies) are subject to governmental pre-approval limitations
on the quantity that the fund may purchase and/or
limits on the classes of securities in which the fund may
invest.
With respect to investments in A-Shares made through
the RQFII program, repatriations by RQFIIs are permitted
daily and are not subject to lock-up periods or prior
approval, but will require a tax commitment letter by the
RQFII. There is no assurance, however, that PRC rules and
regulations will not change or that repatriation restrictions
will not be imposed in the future. Any restrictions on repatriation
of the fund’s assets may adversely affect the
fund’s ability to meet redemption requests and/or may
cause the fund to borrow money in order to meet its obligations.
These limitations may also prevent the fund from
making certain distributions to shareholders.
The Chinese government limits foreign investment in the
securities of certain Chinese issuers entirely, if foreign
investment is banned in respect of the industry in which
the relevant Chinese issuers are conducting their business.
These restrictions or limitations may have adverse effects
on the liquidity and performance of the fund’s holdings
as compared to the performance of the Underlying Index.
This may increase the risk of tracking error and, at the
worst, the fund may not be able to achieve its investment
objective.
The Chinese government limits foreign investment in the
securities of certain Chinese issuers entirely, if foreign
investment is banned in respect of the industry in which
the relevant Chinese issuers are conducting their business.
These restrictions or limitations may have adverse effects
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on the liquidity and performance of the fund’s holdings as
compared to the performance of the fund’s Underlying
Index, and thus with respect to the fund’s holdings as
compared to that of its Underlying Index. This may
increase the risk of tracking error and, at the worst, the
fund may not be able to achieve its investment objective.
A-Shares currency risk.
The fund’s investments in A-Shares
will be denominated in RMB and the income received by
the fund in respect of such investments will be in RMB. As
a result, changes in currency exchange rates may
adversely affect the fund’s returns. The value of the RMB
may be subject to a high degree of fluctuation due to
changes in interest rates, the effects of monetary policies
issued by the PRC, the US, foreign governments, central
banks or supranational entities, the imposition of currency
controls or other national or global political or economic
developments. Therefore, the fund’s exposure to RMB
may result in reduced returns to the fund. The fund does
not expect to hedge its currency risk. Moreover, the fund
may incur costs in connection with conversions between
US dollars and RMB and will bear the risk of any inability to
convert the RMB.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the
fund’s shares.
In addition, various PRC companies derive their revenues
in RMB but have requirements for foreign currency,
including for the import of materials, debt service on
foreign currency denominated debt, purchases of imported
equipment and payment of any cash dividends declared.
The existing PRC foreign exchange regulations have significantly
reduced government foreign exchange controls for
certain transactions, including trade and service related
foreign exchange transactions and payment of dividends.
However, it is impossible to predict whether the PRC
government will continue its existing foreign exchange
policy and when the PRC government will allow free
conversion of the RMB to foreign currency. Certain foreign
exchange transactions, including principal payments in
respect of foreign currency-denominated obligations,
currently continue to be subject to significant foreign
exchange controls and require the approval of SAFE. Since
1994, the conversion of RMB into US dollars has been
based on rates set by the People’s Bank of China, which
are set daily based on the previous day’s PRC interbank
foreign exchange market rate. It is not possible to predict
nor give any assurance of any future stability of the RMB
to US dollar exchange rate. Fluctuations in exchange rates
may adversely affect the fund’s NAV. Furthermore,
because dividends are declared in US dollars and underlying
payments are made in RMB, fluctuations in exchange
rates may adversely affect dividends paid by the fund.
Depositary receipt risk.
Foreign investments in American
Depositary Receipts and other depositary receipts may
be less liquid than the underlying shares in their primary
trading market. Certain of the depositary receipts in which
the fund invests may be unsponsored depositary receipts.
Unsponsored depositary receipts may not provide as
much information about the underlying issuer and may not
carry the same voting privileges as sponsored depositary
receipts. Unsponsored depositary receipts are issued by
one or more depositaries in response to market demand,
but without a formal agreement with the company that
issues the underlying securities.
Derivatives risk.
Derivatives are financial instruments,
such as futures and swaps, whose values are based on the
value of one or more indicators, such as a security, asset,
currency, interest rate, or index. Derivatives involve risks
different from, and possibly greater than, the risks associated
with investing directly in securities and other more
traditional investments. For example, derivatives involve
the risk of mispricing or improper valuation and the risk
that changes in the value of a derivative may not correlate
perfectly with the underlying indicator. Derivative transactions
can create investment leverage, may be highly
volatile and the fund could lose more than the amount it
invests. Many derivative transactions are entered into
“
over-the-counter
”
(i.e., not on an exchange or contract market);
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as a result, the value of such a derivative transaction will
depend on the ability and the willingness of the fund’s
counterparty to perform its obligations under the transaction.
If a counterparty were to default on its obligations,
the fund’s contractual remedies against such counterparty
may be subject to bankruptcy and insolvency laws, which
could affect the fund’s rights as a creditor (e.g., the fund
may not receive the net amount of payments that it is
contractually entitled to receive). A liquid secondary market
may not always exist for the fund’s derivative positions at
any time.
Counterparty risk.
To the extent the fund invests in swaps
to gain exposure to A-Shares in an effort to achieve the
fund’s investment objective, the fund will be subject to the
risk that the number of counterparties able to enter into
swaps to provide exposure to A-Shares may be limited. To
the extent that the RQFII license of a potential swap
counterparty is revoked or eliminated due to actions by the
Chinese government or as a result of transactions entered
into by the counterparty with other investors, the
counterparty’s ability to continue to enter into swaps or
other derivative transactions with the fund may be reduced
or eliminated, which could have a material adverse effect
on the fund. These risks are compounded by the fact that
at present there are only a limited number of potential
counterparties willing and able to enter into swap transactions
linked to the performance of A-Shares.
Furthermore, swaps are of limited duration and there is no
guarantee that swaps entered into with a counterparty
will continue indefinitely. Accordingly, the duration of a
swap depends on, among other things, the ability of the
fund to renew the expiration period of the relevant swap at
agreed upon terms. QFIIs and RQFIIs may be limited or
prohibited from entering into swap or other derivative transactions
on RQFII investments with the fund, which, in
turn, could adversely affect the fund.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors
of the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Financials sector risk.
To the extent that the fund invests
significantly in the financials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
financials sector. The financials sector is subject to extensive
government regulation, can be subject to relatively
rapid change due to increasingly blurred distinctions
between service segments, and can be significantly
affected by availability and cost of capital funds, changes in
interest rates, the rate of corporate and consumer debt
defaults, and price competition.
Numerous financial companies have experienced substantial
declines in the valuations of their assets, taken action
to raise capital (such as the issuance of debt or equity securities),
or even ceased operations. These actions have
caused the securities of many financial companies to
experience a dramatic decline in value. Moreover, certain
financial companies have avoided collapse due to intervention
by governmental regulatory authorities, but such
interventions have often not averted a substantial decline
in the value of such companies’ common stock. Issuers
that have exposure to the real estate, mortgage and credit
markets have been particularly affected by the foregoing
events and the general market turmoil, and it is uncertain
whether or for how long these conditions will continue.
The financial services sector in China is also undergoing
significant change, including continuing consolidations,
development of new products and structures and changes
to its regulatory framework, which may have an impact
on the issuers included in the Underlying Index. Increased
government involvement in the financial services sector,
including measures such as taking ownership positions in
financial institutions, could result in a dilution of the fund’s
investments in financial institutions.
Consumer staples sector risk.
To the extent that the fund
invests significantly in the consumer staples sector, the
fund will be sensitive to changes in, and the fund’s performance
may depend to a greater extent on, the overall
condition of the consumer staples sector. Companies in
the consumer staples sector may be adversely affected by
changes in the global economy, consumer spending,
competition, demographics and consumer preferences,
and production spending. Companies in the consumer
staples sector are also affected by changes in government
regulation, global economic, environmental and political
events, economic conditions and the depletion of
resources. In addition, companies in the consumer staples
sector may be subject to risks pertaining to the supply of,
demand for and prices of raw materials. The prices of raw
materials fluctuate in response to a number of factors,
including, without limitation, changes in government agricultural
support programs, exchange rates, import and
export controls, changes in international agricultural and
trading policies, and seasonal and weather conditions.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
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Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
If the fund is forced to sell underlying investments at
reduced prices or under unfavorable conditions to meet
redemption requests or other cash needs, the fund may
suffer a loss.
Swap agreements may be subject to liquidity risk, which
exists when a particular swap is difficult to purchase or
sell. If a swap transaction is particularly large or if the
relevant market is illiquid, it may not be possible to initiate
a transaction or liquidate a position at an advantageous
time or price, which may result in significant losses to the
fund. This is especially true given the limited number of
potential counterparties willing and able to enter into swap
transactions on A-Shares. In addition, a swap transaction
may be subject to the fund’s limitation on investments
in illiquid securities. Swap agreements may be subject to
pricing risk, which exists when a particular swap agreement
becomes extraordinarily expensive (or inexpensive)
relative to historical prices or the prices of corresponding
cash market instruments. The swaps market is largely
unregulated. It is possible that developments in the swaps
market, including potential government regulation, could
adversely affect the fund’s ability to terminate existing
swap agreements or to realize amounts to be received
under such agreements.
Pricing risk.
If market conditions make it difficult to value
some investments
(including China A-Shares), the fund
may value these investments using more subjective
methods, such as fair value pricing. In such cases, the
value determined for an investment could be different from
the value realized upon such investment’s sale. As a result,
you could pay more than the market value when buying
fund shares or receive less than the market value when
selling fund shares.
Secondary markets may be subject to irregular trading
activity, wide bid/ask spreads and extended trade settlement
periods, which may prevent the fund from being able
to realize full value and thus sell a security for its full valuation.
This could cause a material decline in the fund’s net
asset value.
Tracking error risk.
The performance of the fund may
diverge from that of its Underlying Index for a number of
reasons, including operating expenses, transaction costs,
cash flows and operational inefficiencies. The fund’s return
also may diverge from the return of the Underlying Index
because the fund bears the costs and risks associated
with buying and selling securities (especially when rebalancing
the fund’s securities holdings to reflect changes
in the Underlying Index) while such costs and risks are not
factored into the return of the Underlying Index. Transaction
costs, including brokerage costs, will decrease the
fund’s NAV to the extent not offset by the transaction fee
payable by an
“
Authorized Participant
”
(
“
AP
”
). Market
disruptions and regulatory restrictions could have an
adverse effect on the fund’s ability to adjust its exposure
to the required levels in order to track the Underlying
Index. In addition, to the extent that portfolio management
uses a representative sampling approach (investing in a
representative selection of securities included in the Underlying
Index rather than all securities in the Underlying
Index) it may cause the fund to not be as well correlated
with the return of the Underlying Index as would be the
case if the fund purchased all of the securities in the
Underlying Index in the proportions represented in the
Underlying Index. Errors in the Underlying Index data, the
Underlying Index computations and/or the construction
of the Underlying Index in accordance with its methodology
may occur from time to time and may not be
identified and corrected by the index provider for a period
of time or at all, which may have an adverse impact on the
fund and its shareholders. In addition, the fund may not
be able to invest in certain securities included in the Underlying
Index, or invest in them in the exact proportions in
which they are represented in the Underlying Index, due to
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legal restrictions or limitations imposed by the governments
of certain countries, a lack of liquidity in the markets
in which such securities trade, potential adverse tax consequences
or other regulatory reasons. To the extent the
fund calculates its NAV based on fair value prices and the
value of the Underlying Index is based on securities’
closing prices (i.e., the value of the Underlying Index is not
based on fair value prices), the fund’s ability to track the
Underlying Index may be adversely affected. The performance
of the fund also may diverge from that of the
Underlying Index if the Advisor and/or subadvisor seek to
gain exposure to A-Shares by investing in securities not
included in the Underlying Index, derivative instruments,
and other pooled investment vehicles because the
subadvisor is unable to maintain its RQFII status, or the
Stock Connect Daily Quota has been exhausted. For tax
efficiency purposes, the fund may sell certain securities,
and such sale may cause the fund to realize a loss and
deviate from the performance of the Underlying Index. In
light of the factors discussed above, the fund’s return may
deviate significantly from the return of the Underlying
Index.
For purposes of calculating the fund’s net asset value, the
value of assets denominated in non-US currencies is
converted into US dollars using prevailing market rates on
the date of valuation as quoted by one or more data
service providers. This conversion may result in a difference
between the prices used to calculate the fund’s net
asset value and the prices used by the Underlying Index,
which, in turn, could result in a difference between the
fund’s performance and the performance of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
NAV during periods of market volatility. Differences
between secondary market prices and the value of the
fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the
same forces as those influencing prices for securities held
by the fund at a particular time. The Advisor cannot predict
whether shares will trade above, below or at their NAV.
Given the fact that shares can be created and redeemed in
Creation Units, the Advisor believes that large discounts
or premiums to the NAV of shares should not be sustained
in the long-term. In addition, there may be times when
the market price and the value of the fund’s holdings vary
significantly and you may pay more than the value of the
fund’s holdings when buying shares on the secondary
market, and you may receive less than the value of the
fund’s holdings when you sell those shares. While the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in trading prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. If market makers. exit the business or are
unable to continue making markets in fund’s shares,
shares may trade at a discount to NAV like closed-end fund
shares and may even face delisting (that is, investors
would no longer be able to trade shares in the secondary
market). The market price of shares, like the price of any
exchange-traded security, includes a
“
bid-ask spread
”
charged by the exchange specialist, market makers or
other participants that trade the particular security. In times
of severe market disruption, the bid-ask spread often
increases significantly. This means that shares may trade
at a discount to the fund’s NAV, and the discount is likely to
be greatest when the price of shares is falling fastest,
which may be the time that you most want to sell your
shares. There are various methods by which investors can
purchase and sell shares of the funds and various orders
that may be placed. Investors should consult their financial
intermediary before purchasing or selling shares of a fund.
In addition, the securities held by a fund may be traded in
markets that close at a different time than an exchange.
Liquidity in those securities may be reduced after the applicable
closing times. Accordingly, during the time when
an exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. More generally, secondary markets may be
subject to irregular trading activity, wide bid-ask spreads
and extended trade settlement periods, which could cause
a material decline in the fund’s NAV. The bid-ask spread
varies over time for shares of a fund based on the fund’s
trading volume and market liquidity, and is generally lower
if the fund has substantial trading volume and market
liquidity, and higher if the fund has little trading volume and
market liquidity (which is often the case for funds that are
newly launched or small in size). The fund’s bid-ask spread
may also be impacted by the liquidity of the underlying
securities held by the fund, particularly for newly launched
or smaller funds or in instances of significant volatility of
the underlying securities. The bid/ask spread of the Fund
may be wider in comparison to the bid/ask spread of other
ETFs, due to the Fund’s exposure to A-Shares. The fund’s
investment results are measured based upon the daily
NAV of the fund. Investors purchasing and selling shares in
the secondary market may not experience investment
results consistent with those experienced by those APs
creating and redeeming shares directly with a fund. In
addition, transactions by large shareholders may account
for a large percentage of the trading volume on an
exchange and may, therefore, have a material effect on the
market price of the fund’s shares.
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Valuation risk.
Because non-US markets may be open on
days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the
fund’s shares.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Cyber-attacks may include unauthorized attempts by third
parties to improperly access, modify, disrupt the operations
of, or prevent access to the systems of the fund’s
service providers or counterparties, issuers of securities
held by the fund or other market participants or data within
them. In addition, power or communications outages, acts
of god, information technology equipment malfunctions,
operational errors, and inaccuracies within software or data
processing systems may also disrupt business operations
or impact critical data.
Cyber-attacks, disruptions, or failures may adversely affect
the fund and its shareholders or cause reputational
damage and subject the fund to regulatory fines, litigation
costs, penalties or financial losses, reimbursement or
other compensation costs, and/or additional compliance
costs. In addition, cyber-attacks, disruptions, or failures
involving a fund counterparty could affect such
counterparty’s ability to meet its obligations to the fund,
which may result in losses to the fund and its shareholders.
Similar types of operational and technology risks
are also present for issuers of securities held by the fund,
which could have material adverse consequences for such
issuers, and may cause the fund’s investments to lose
value. Furthermore, as a result of cyber-attacks, disruptions,
or failures, an exchange or market may close or issue
trading halts on specific securities or the entire market,
which may result in the fund being, among other things,
unable to buy or sell certain securities or financial instruments
or unable to accurately price its investments.
For example, the fund relies on various sources to calculate
its NAV. Therefore, the fund is subject to certain
operational risks associated with reliance on third party
service providers and data sources. NAV calculation may
be impacted by operational risks arising from factors such
as failures in systems and technology. Such failures may
result in delays in the calculation of a fund’s NAV and/or the
inability to calculate NAV over extended time periods. The
fund may be unable to recover any losses associated with
such failures.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
The fund is classified as
non-diversified under the Investment Company Act of
1940, as amended. This means that the fund may invest in
securities of relatively few issuers. Thus, the performance
of one or a small number of portfolio holdings can affect
overall performance.
If the fund becomes classified as
“
diversified
”
over time
and again becomes non-diversified as a result of a change
in relative market capitalization or index weighting of one
or more constituents of the index that the fund is designed
to track, non-diversification risk would apply.
Cash transactions risk.
Unlike many ETFs, the fund
expects to effect its creations and redemptions principally
for cash, rather than in-kind securities. Other more conventional
ETFs generally are able to make in-kind redemptions
and avoid realizing gains in connection with transactions
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designed to meet redemption requests. Effecting all
redemptions for cash may cause the fund to sell portfolio
securities in order to obtain the cash needed to distribute
redemption proceeds. Such dispositions may occur at an
inopportune time resulting in potential losses to the fund
and involve transaction costs. If the fund recognizes a
capital loss on these sales, the loss will offset capital gains
and may result in smaller capital gain distributions from
the fund. If the fund recognizes gain on these sales, this
generally will cause the fund to recognize gain it might not
otherwise have recognized if it were to distribute portfolio
securities in-kind or to recognize such gain sooner
than would otherwise be required. The fund generally
intends to distribute these gains to shareholders to avoid
being taxed on this gain at the fund level and otherwise
comply with the special tax rules that apply to it. This
strategy may cause shareholders to be subject to tax on
gains they would not otherwise be subject to, or at an
earlier date than, if they had made an investment in a more
conventional ETF.
In addition, cash transactions may have to be carried out
over several days if the securities market is relatively
illiquid and may involve considerable brokerage fees and
taxes. These brokerage fees and taxes, which will be
higher than if a fund sold and redeemed its shares principally
in-kind, will generally be passed on to purchasers and
redeemers of Creation Units in the form of creation and
redemption transaction fees. To the extent transaction and
other costs associated with a redemption exceed the
redemption fee, those transaction costs might be borne by
the fund’s remaining shareholders. China may also impose
higher local tax rates on transactions involving certain
companies. In addition, these factors may result in wider
spreads between the bid and the offered prices of the
fund’s shares than for more conventional ETFs.
As a practical matter, only institutions and large investors,
such as market makers or other large broker-dealers,
purchase or redeem Creation Units. Most investors will
buy and sell shares of the fund on an exchange.
Country concentration risk.
To the extent that the fund
invests significantly in a single country, it is more likely to
be impacted by events or conditions affecting that country.
For example, political and economic conditions and
changes in regulatory, tax or economic policy in a country
could significantly affect the market in that country and
in surrounding or related countries and have a negative
impact on the fund’s performance.
Futures risk.
The value of a futures contract tends to
increase and decrease in tandem with the value of the
underlying instrument. Depending on the terms of the
particular contract, futures contracts are settled through
either physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether,
when and how to use futures involves the exercise of skill
and judgment and even a well-conceived futures transaction
may be unsuccessful because of market behavior or
unexpected events. In addition to the derivatives risks
discussed above, the prices of futures can be highly volatile,
using futures can lower total return and the potential
loss from futures can exceed the fund’s initial investment
in such contracts.
US tax risk
. A fund intends to distribute annually all or
substantially all of its investment company taxable income
and net capital gain. However, should the Chinese government
impose restrictions on the fund’s ability to repatriate
funds associated with direct investments in A-Shares, the
fund may be unable to satisfy distribution requirements
applicable to RICs under the Internal Revenue Code. If the
fund fails to satisfy the distribution requirements necessary
to qualify for treatment as a RIC for any taxable year,
the fund would be treated as a corporation subject to US
federal income tax, thereby subjecting any income earned
by the fund to tax at the corporate level. If the fund fails
to satisfy a separate distribution requirement, it will be
subject to a fund-level excise tax. These fund-level taxes
will apply in addition to taxes payable at the shareholder
level on distributions.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
Borrowing risk.
Borrowing creates leverage. It also adds
to fund expenses and at times could effectively force the
fund to sell securities when it otherwise might not want
to.
To the extent that the fund borrows money and then
invests that money, it creates leverage, in that the fund is
exposed to investment risks through the securities it has
pledged for collateral as well as through the investments it
purchases with the money borrowed against that collateral.
This leverage means that changes in the prices of
securities the fund owns will have a greater effect on the
share price of the fund. The fund incurs interest expense
and other costs when it borrows money; therefore, unless
returns on assets acquired with borrowed funds are
greater than the costs of borrowing, performance will be
lower than it would have been without any borrowing.
When the fund borrows money it must comply with
certain asset coverage requirements, which at times may
require the fund to dispose of some of its portfolio holdings
even though it may be disadvantageous to do so at
that time.
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Leveraging Risk.
The fund’s investment in futures
contracts and other derivative instruments provide leveraged
exposure. The fund’s investment in these
instruments generally requires a small investment relative
to the amount of investment exposure assumed. As a
result, such investments may give rise to losses that
exceed the amount invested in those instruments. The use
of derivatives and other similar financial instruments may
at times be an integral part of the fund’s investment
strategy and may expose the fund to potentially dramatic
losses (or gains) in the value of a derivative or other financial
instruments and, thus, in the value the fund’s portfolio.
The cost of investing in such instruments generally
increases as interest rates increase, which will lower a
fund’s return.
Underlying funds risk.
To the extent the fund invests a
substantial portion of its assets in one or more Underlying
Funds, the fund’s performance will be directly related to
the performance of an Underlying Fund. The fund’s investments
in other investment companies subject the fund
to the risks affecting those investment companies.
In addition, the fund indirectly pays a portion of the
expenses incurred by an Underlying Fund, which lowers
performance. To the extent that the fund’s allocations favor
an Underlying Fund with higher expenses, the overall cost
of investing paid by the fund will be higher.
The fund is also subject to the risk that an Underlying Fund
may pay a redemption request made by the fund, wholly
or partly, by an in-kind distribution of portfolio securities
rather than in cash. The fund may hold such portfolio securities
until the Advisor determines to dispose of them,
and the fund will bear the market risk of the securities
received in the redemption until their disposition. Upon
disposing of such portfolio securities, the fund may experience
increased brokerage commissions.
An investor in the fund may receive taxable gains from
portfolio transactions by an Underlying Fund, as well as
taxable gains from transactions in shares of the Underlying
Fund held by the fund. As the fund’s allocations to an Underlying
Fund change from time to time, or to the extent that
the expense ratio of an Underlying Fund changes, the
weighted average operating expenses borne by the fund
may increase or decrease.
To the extent the fund invests a substantial portion of its
assets in shares of foreign investment companies,
including but not limited to, ETFs the shares of which are
listed and traded primarily or solely on a foreign securities
exchange, such foreign funds will not be registered as
investment companies with the SEC or subject to the US
federal securities laws. As a result, the fund’s ability to
transfer shares of such foreign funds outside of the foreign
fund’s primary market will be restricted or prohibited.
While such foreign funds may operate similarly to
domestic funds, the fund as an investor in a foreign fund
will not be afforded the same investor protections as are
provided by the US federal securities laws.
When the fund invests in a foreign fund, in addition to
directly bearing the expenses associated with its own
operations, it will bear a pro rata portion of the foreign
fund’s expenses. Further, in part because of these additional
expenses, the performance of a foreign fund may
differ from the performance the fund would achieve if it
invested directly in the underlying investments of the
foreign fund. The fund’s investments in foreign ETFs will
be subject to the risk that the NAV of the foreign fund’s
shares may trade below the fund’s NAV. The NAV of foreign
fund shares will fluctuate with changes in the market value
of the foreign fund’s holdings. The trading prices of foreign
fund shares will fluctuate in accordance with changes in
NAV as well as market supply and demand. The difference
between the bid price and ask price, commonly referred
to as the
“
spread,
”
will also vary for a foreign ETF
depending on the fund’s trading volume and market
liquidity. Generally, the greater the trading volume and
market liquidity, the smaller the spread is and vice versa.
Any of these factors may lead to a foreign fund’s shares
trading at a premium or a discount to NAV.
Xtrackers Harvest CSI 500 China A-Shares Small Cap
ETF
Investment Objective
The Xtrackers Harvest CSI 500 China A-Shares Small Cap
ETF (the
“
fund
”
) seeks investment results that correspond
generally to the performance, before fees and expenses,
of the CSI 500 Index (the
“
Underlying Index
”
).
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to reflect the price
fluctuation and performance of small-cap companies in the
China A-Share market and is composed of the 500
smallest and most liquid stocks in the China A-Share
market. DBX Advisors LLC (the
“
Advisor
”
) expects that,
over time, the correlation between the fund’s performance
and that of the Underlying Index, before fees and
expenses, will be 95% or better. A figure of 100% would
indicate perfect correlation.
A-Shares are equity securities issued by companies incorporated
in mainland China and are denominated and traded
in renminbi (
“
RMB
”
) on the Shenzhen and Shanghai Stock
Exchanges. Under current regulations in the People’s
Republic of China (
“
China
”
or the
“
PRC
”
), foreign investors
can invest in the domestic PRC securities markets
through certain market-access programs. These programs
include the Qualified Foreign Institutional Investor (
“
QFII
”
)
or a Renminbi Qualified Foreign Institutional Investor
(
“
RQFII
”
) licenses obtained from the China Securities
Regulatory Commission (
“
CSRC
”
). QFII and RQFII investors
have registered with China’s State Administration of
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Foreign Exchange (
“
SAFE
”
) to invest foreign freely convertible
currencies (in the case of a QFII) and RMB (in the case
of an RQFII) in the PRC for the purpose of investing in
the PRC’s domestic securities markets.
Harvest Global Investments Limited (
“
HGI
”
or the
“
Subadvisor
”
) is a licensed RQFII and the fund may therefore
invest in A-Shares via HGI's RQFII license. The
Subadvisor, on behalf of the fund, may invest in A-Shares
and other permitted China securities listed on the Shanghai
and Shenzhen Stock Exchanges. The fund may also invest
in A-Shares listed and traded on the Shanghai Stock
Exchange and Shenzhen Stock Exchange through the
Shanghai – Hong Kong and Shenzhen – Hong Kong Stock
Connect programs (
“
Stock Connect
”
). Stock Connect is
a securities trading and clearing program between either
the Shanghai Stock Exchange or Shenzhen Stock
Exchange, and The Stock Exchange of Hong Kong Limited
(
“
SEHK
”
), China Securities Depository and Clearing Corporation
Limited and Hong Kong Securities Clearing
Company Limited. Stock Connect is designed to permit
mutual stock market access between mainland China and
Hong Kong by allowing investors to trade and settle shares
on each market via their local exchanges. Trading through
Stock Connect is subject to a daily quota (
“
Daily Quota
”
),
which limits the maximum daily net purchases on any
particular day by Hong Kong investors (and foreign investors
trading through Hong Kong) trading PRC listed
securities and PRC investors trading Hong Kong listed
securities trading through the relevant Stock Connect.
Accordingly, the fund’s direct investments in A-Shares will
be limited in part by the Daily Quota that limits total
purchases through Stock Connect. Investment companies
are not currently within the types of entities that are
eligible for an RQFII or QFII license.
The Subadvisor expects to use a full replication indexing
strategy to seek to track the Underlying Index. As such, the
Subadvisor expects to invest directly in the component
securities (or a substantial number of the component securities)
of the Underlying Index in substantially the same
weightings in which they are represented in the Underlying
Index. If it is not possible for the Subadvisor to acquire
component securities due to limited availability or regulatory
restrictions, the Subadvisor may use a representative
sampling indexing strategy to seek to track the Underlying
Index instead of a full replication indexing strategy.
“
Representative sampling
”
is an indexing strategy that
involves investing in a representative sample of securities
that collectively has an investment profile similar to the
Underlying Index. The securities selected are expected to
have, in the aggregate, investment characteristics (based
on factors such as market capitalization and industry
weightings), fundamental characteristics (such as return
variability and yield), and liquidity measures similar to
those of the Underlying Index. The fund may or may not
hold all of the securities in the Underlying Index when the
Subadvisor is using a representative sampling indexing
strategy.
The fund will normally invest at least 80% of its total
assets in securities of issuers that comprise the Underlying
Index. The fund will seek to achieve its investment
objective by primarily investing directly in A-Shares.
Because the fund does not satisfy the criteria to qualify as
an RQFII or QFII itself, the fund intends to invest directly
in A-Shares via the license granted to the Subadvisor and
may also invest through Stock Connect. While the fund
intends to invest primarily and directly in A-Shares, the
fund also may invest in securities of issuers not included
in the Underlying Index, futures contracts, stock index
futures, swap contracts and other types of derivative
instruments, and other pooled investment vehicles,
including affiliated and/or foreign investment companies,
that the Advisor and/or Subadvisor believes will help the
fund to achieve its investment objective. The remainder of
the fund’s assets will be invested primarily in money
market instruments and cash equivalents. Under normal
circumstances, the fund invests at least 80% of its net
assets, plus the amount of any borrowings for investment
purposes, in A-Shares of Chinese small-cap issuers or in
derivative instruments and other securities that provide
investment exposure to A-Shares of Chinese small-cap
issuers. The fund may invest in depositary receipts. The
fund will not invest in any unlisted depositary receipt or
any depositary receipt that the Advisor deems illiquid at
the time of purchase or for which pricing information is not
readily available.
As of July 31, 2020, the Underlying Index consisted of 500
securities with an average market capitalization of approximately
$3.09 billion and a minimum market capitalization
of approximately $735 million. Under normal circumstances,
the Underlying Index is rebalanced semi-annually
every January and July. The fund rebalances its portfolio
in accordance with the Underlying Index, and, therefore,
any changes to the Underlying Index’s rebalance schedule
will result in corresponding changes to the fund’s rebalance
schedule.
The fund will concentrate its investments (i.e., hold 25%
or more of its total assets) in a particular industry or group
of industries to the extent that the Underlying Index is
concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
basic materials (16.8%), information technology (16.8%)
and industrials (16.0%) sectors. The basic materials sector
includes companies that manufacture chemicals, construction
materials, glass and paper products, as well as
metals, minerals and mining companies. The information
technology sector includes companies engaged in developing
software and providing data processing and
outsourced services, along with manufacturing and distributing
communications equipment, computers and other
electronic equipment and instruments. The industrials
sector includes companies engaged in the manufacture
and distribution of capital goods, such as those used in
defense, construction and engineering, companies that
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manufacture and distribute electrical equipment and industrial
machinery and those that provide commercial and
transportation services and supplies. To the extent that the
fund tracks the Underlying Index, the fund’s investment
in certain sectors may change over time.
The Subadvisor intends to fully (or at least substantially)
replicate the fund’s Underlying Index, but may pursue a
representative sampling indexing strategy in circumstances
where there is limited availability of component
securities or regulatory restrictions that inhibit the transferability
of component securities. In addition, from time to
time, the Subadvisor may choose to underweight or overweight
a security in the fund’s Underlying Index, purchase
securities not included in the Underlying Index that the
Subadvisor believes are appropriate to substitute for
certain securities in the Underlying Index, or utilize various
combinations of other available investment techniques to
seek to track, before fees and expenses, the performance
of the Underlying Index. The fund also may seek to gain
exposure to A-Shares through means other than the use of
the Subadvisor’s RQFII quota, including Stock Connect,
obtaining a QFII quota or any other method permitted by
PRC law and consistent with the fund’s investment policies.
The Subadvisor may also sell securities that are
represented in the fund’s Underlying Index in anticipation
of their removal from the Underlying Index or purchase
securities not represented in the Underlying Index in anticipation
of their addition to the Underlying Index.
The fund may invest its assets in other securities,
including, but not limited to: (i) swap contracts, (ii) interests
in pooled investment vehicles, including affiliated and
foreign funds (certain funds may not be registered under
the Investment Company Act of 1940, as amended (the
“
1940 Act
”
) and therefore, not subject to the same
investor protections as the fund), (iii) securities not in the
Underlying Index, including: (a) depositary receipts (depositary
receipts, including American depositary receipts
(
“
ADRs
”
) may be used by the fund in seeking performance
that corresponds to the fund’s Underlying Index and in
managing cash flows, and they may count towards compliance
with the fund’s 80% investment policies) , (iv) cash
and cash equivalents, (v) money market instruments, such
as repurchase agreements or money market funds
(including money market funds advised by the Advisor,
HGI or their affiliates subject to applicable limitations under
the 1940 Act, or exemptions therefrom), (vi) convertible
securities, (vii) structured notes (notes on which the
amount of principal repayment and interest payments are
based on the movement of one or more specified factors,
such as the movement of a particular stock or stock index),
and (viii) futures contracts, options on futures contracts,
and other types of options related to the Underlying Index.
A futures contract is a standardized exchange-traded agreement
to buy or sell a specific quantity of an underlying
instrument at a specific price at a specific future time.
The fund may become
“
non-diversified,
”
as defined under
the Investment Company Act of 1940, as amended, solely
as a result of a change in relative market capitalization or
index weighting of one or more constituents of the index
that the fund is designed to track. Shareholder approval will
not be sought when the fund crosses from diversified to
non-diversified status under such circumstances.
Shares of the fund are not sponsored, endorsed, sold or
promoted by CSI or any affiliate of CSI and CSI bears no
liability with respect to the fund or any security.
Underlying Index Information
Xtrackers Harvest CSI 500 China A-Shares Small Cap
ETF Index Description.
The Underlying Index is calculated and maintained by CSI.
The Underlying Index is a modified free- float market capitalization
weighted index composed of the 500 smallest
and most liquid stocks in the China A-Share market.
Constituent stocks for the Underlying Index must have
been listed on either the Shanghai Stock Exchange or the
Shenzhen Stock Exchange for more than three months
(unless the stock’s average daily A-Share market capitalization
since its initial listing ranks among the top 30 of all
A-Shares), have demonstrated positive performance, and
not be subject to abnormal volatility or other evidence of
possible market manipulation. If an issuer has reported a
loss in its annual report or semi-annual report, the issuer’s
stock will not be eligible for inclusion in the Underlying
Index. In addition, if an issuer experiences stock price volatility
that is not attributable to market demand and supply
factors, but rather the possible result of market manipulation,
the Index Provider will take such factor into
consideration when determining whether the issuer is
eligible for inclusion or continued inclusion in the Underlying
Index. When determining eligibility, the Index Provider
also may consider other factors, such as whether the
issuer has been subject to any administrative penalty or
regulatory investigation. As of July 31, 2020, the Underlying
Index consisted of 500 securities with an average
market capitalization of approximately $3.09 billion and a
minimum market capitalization of approximately $735
million. These amounts are subject to change.
When selecting constituent stocks for the Underlying
Index, the Index Provider: (1) calculates the daily average
trading value and daily average total market capitalization
during the most recent year (or in the case of a new issue,
during the time since its initial listing) for all the stocks in
the stock universe; (2) ranks the stocks in the stock
universe (excluding the stocks either in the CSI 300 or
ranked in the top 300 in Shanghai and Shenzhen stock
markets by daily average total market capitalization of the
past recent year) in descending order according to their
average daily trading values, and excludes the bottom
20%; and (3) ranks the remaining stocks in descending
order according to their average daily total market capitalization
and selects those which rank top 500 as constituent
stocks of the Underlying Index.
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The weighting of a company in the Underlying Index is
intended to be a reflection of the current importance of
that company in the China A-Share market as a whole.
Stocks are selected and weighted according to market
capitalization. A company is heavily weighted in the Underlying
Index if it has a relatively larger free-float market
capitalization than the rest of the constituents in the
Underlying Index. The constituents of the Underlying Index
are frequently reviewed by the Index Provider to ensure
that the Underlying Index continues to reflect the state and
structure of the underlying market it measures. The Underlying
Index is calculated in real time and is published every
six seconds in RMB (specifically, CNY). The Underlying
Index is rebalanced semi-annually every January and July.
During extraordinary market conditions, the Index Provider
may delay any scheduled rebalancing of the Underlying
Index. During any such delay it is possible that the Underlying
Index will deviate from the Underlying Index’s stated
methodology.
Main Risks
As with any investment, you could lose all or part of your
investment in the fund, and the fund’s performance could
trail that of other investments. The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective.
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
From time to time, and as recently as early 2020 with the
coronavirus known as COVID-19, China has experienced
outbreaks of infectious illnesses, and the country may be
subject to other infectious illnesses, diseases or other
public health emergencies in the future. Any public health
emergency could reduce consumer demand or economic
output, result in market closures, travel restrictions or
quarantines, and generally have a significant impact on the
Chinese economy, which in turn could adversely affect
the fund’s investments.
Risk of investing in China.
Investments in China involve
certain risks and special considerations, including the
following:
Investments in A-Shares.
The fund intends to invest
directly in A-Shares through Stock Connect or the available
RQFII license, as applicable. In the future, the fund may
utilize an RQFII license applied for by and granted to the
Advisor and/or a subadvisor. Because the fund will not be
able to invest directly in A-Shares beyond the limits that
may be imposed by Stock Connect, the size of the fund’s
direct investments in A-Shares may be limited. In addition,
restrictions may be imposed on the repatriation of gains
and income that may affect the fund’s ability to satisfy
redemption requests. Currently, there are two stock
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exchanges in mainland China, the SSE and the SZSE. The
Shanghai and Shenzhen Stock Exchanges are supervised
by the China Securities Regulatory Commission (
“
CSRC
”
)
and are highly automated with trading and settlement
executed electronically. The SSE and SZSE are substantially
smaller, less liquid, and more volatile than the major
securities markets in the US.
The SSE commenced trading on December 19, 1990, and
the SZSE commenced trading on July 3, 1991. The SSE
and SZSE divide listed shares into two classes: A-Shares
and B-Shares. Companies whose shares are traded on the
SSE and SZSE that are incorporated in mainland China
may issue both A-Shares and B-Shares. In China, the
A-Shares and B-Shares of an issuer may only trade on one
exchange. A-Shares and B-Shares may both be listed on
either the SSE or SZSE. Both classes represent an ownership
interest comparable to a share of common stock and
all shares are entitled to substantially the same rights and
benefits associated with ownership. A-Shares are traded
on SSE and SZSE in RMB.
As of October 31, 2019, the CSRC had granted licenses to
244 RQFIIs and to 313 QFIIs to invest in A-Shares and
other permitted Chinese securities. Because restrictions
continue to exist and capital therefore cannot flow freely
into the A-Share market, it is possible that in the event of a
market disruption, the liquidity of the A-Share market and
trading prices of A-Shares could be more severely affected
than the liquidity and trading prices of markets where securities
are freely tradable and capital therefore flows more
freely. The fund cannot predict the nature or duration of
such a market disruption or the impact that it may have on
the A-Share market and the short-term and long-term prospects
of its investments in the A-Share market.
The Chinese government has in the past taken actions
that benefited holders of A-Shares. As A-Shares become
more accessible to foreign investors, such as the funds,
the Chinese government may be less likely to take action
that would benefit holders of A-Shares. In addition, there is
no guarantee that any existing RQFII license will be maintained
if the RQFII license is revoked by CSRC at some
point in the future. The fund cannot predict what would
occur if the Stock Connect program was terminated, or if
the relevant RQFII license were to be revoked, although
such an occurrence would likely have a material adverse
effect on the fund.
On May 7, 2020, the People’s Bank of China (
“
PBOC
”
) and
SAFE jointly issued the Regulations on Funds of Securities
and Futures Investment by Foreign Institutional
Investors (PBOC & SAFE Announcement [2020] No. 2)
(the
“
Regulations
”
) which came into effect on June 6,
2020. The Regulations supersede certain post-registration
rules applicable to QFII and RQFII regimes. One of the
key changes of the Regulations is the removal of quota
restrictions on investment. However, as of the date of this
prospectus, this is a relatively new development, and
there is no guarantee that the quotas will continue to be
relaxed.
Custody risks of investing in A-Shares under the RQFII
program.
If the fund invests directly in A-Shares under the
RQFII program, the fund is required to select a PRC
sub-custodian (the
“
PRC sub- custodian
”
), which is a mainland
commercial bank qualified both as a custodian for
RQFII and as a settlement agent on the inter-bank bond
market. The PRC sub-custodian maintains the fund’s RMB
deposit accounts and oversees the fund’s investments
in A-Shares in the PRC to ensure their compliance with the
rules and regulations of the CSRC and the People’s Bank
of China. A-Shares that are traded on the SSE and SZSE
are dealt and held in book-entry form through the CSDCC.
A-Shares purchased by the Subadvisor, in their capacity
as an RQFII, on behalf of the fund, may be received by the
CSDCC as credited to a securities trading account maintained
by the PRC sub-custodian in the names of the fund
and the Subadvisor as the RQFII. A fund will pay the cost
of the account. The Subadvisor may not use the account
for any other purpose than for maintaining the fund’s
assets. However, given that the securities trading account
will be maintained in the name of the Subadvisor for the
benefit of the fund, the fund’s assets may not be as well
protected as they would be if it were possible for them to
be registered and held solely in the name of the fund. In
particular, there is a risk that creditors of the Subadvisor
may assert that the securities are owned by the
Subadvisor and not the fund, and that a court would uphold
such an assertion, in which case creditors of the
Subadvisor could seize assets of the fund. Because the
Subadvisor’s RQFII license would be in the name of the
Subadvisor rather than the fund, there is also a risk that
regulatory actions taken against the Subadvisor by PRC
government authorities may affect the fund.
Investors should note that cash deposited in the fund’s
account with the PRC sub-custodian will not be segregated
but will be a debt owing from the PRC sub-custodian
to the fund as a depositor. Such cash will be co-mingled
with cash belonging to other clients of the PRC
sub-custodian. In the event of bankruptcy or liquidation of
the PRC sub-custodian, the fund will not have any proprietary
rights to the cash deposited in the account, and the
fund will become an unsecured creditor, ranking pari passu
with all other unsecured creditors, of the PRC
sub-custodian. A fund may face difficulty and/or encounter
delays in recovering such debt, or may not be able to
recover it in full or at all, in which case the fund will suffer
losses.
A-Shares tax risk.
Uncertainties in the Chinese tax rules
governing taxation of income and gains from investments
in A-Shares could result in unexpected tax liabilities for
a fund. China generally imposes withholding tax at a rate
of 10% on dividends and interest derived by nonresident
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enterprises (including QFIIs and RQFIIs) from issuers resident
in China. China also imposes withholding tax at a
rate of 10% on capital gains derived by nonresident enterprises
from investments in an issuer resident in China,
subject to an exemption or reduction pursuant to domestic
law or a double taxation agreement or arrangement.
Since the respective inception of Shanghai – Hong Kong
Stock Connect and Shenzhen – Hong Kong Stock Connect,
foreign investors (including the funds) investing in
A-Shares listed on the SSE through Shanghai – Hong Kong
Stock Connect and those listed on the SZSE through
Shenzhen – Hong Kong Stock Connect would be temporarily
exempt from the PRC corporate income tax and value-added
tax on the gains on disposal of such A-Shares.
Dividends would be subject to PRC corporate income tax
on a withholding basis at 10%, unless reduced under a
double tax treaty with China upon application to and
obtaining approval from the competent tax authority. Since
November 17, 2014, the corporate income tax for QFIIs
and RQFIIs, with respect to capital gains, has been temporarily
lifted. The withholding tax relating to the realized
gains from shares in land-rich companies prior to
November 17, 2014 has been paid by the fund, while realized
gains from shares in non-land-rich companies prior
to November 17, 2014 were granted by treaty relief
pursuant to the PRC-US Double Taxation Agreement.
During 2015, revenue authorities in the PRC made
arrangements for the collection of capital gains taxes for
investments realized between November 17, 2009 and
November 16, 2014. The fund could be subject to tax
liability for any tax payments for which reserves have not
been made or that were not previously withheld. The
impact of any such tax liability on the fund’s return could
be substantial. The fund may also be liable to the Advisor
or Subadvisor for any tax that is imposed on the Advisor or
Subadvisor by the PRC with respect to the fund’s investments.
If the fund's direct investments in A-Shares
through the Advisor's or Subadvisor’s RQFII license in the
future becomes subject to repatriation restrictions, the
fund may be unable to satisfy distribution requirements
applicable to RICs under the Internal Revenue Code, and
be subject to tax at the fund level.
The current PRC tax laws and regulations and interpretations
thereof may be revised or amended in the future,
potentially retroactively, including with respect to the
possible liability of a fund for the taxation of income and
gains from investments in A-Shares through Stock Connect
or obligations of an RQFII. The withholding taxes on dividends,
interest and capital gains may in principle be
subject to a reduced rate under an applicable tax treaty,
but the application of such treaties in the case of an RQFII
acting for a foreign investor such as the fund is also uncertain.
Finally, it is also unclear whether an RQFII would also
be eligible for PRC Business Tax (
“
BT
”
) exemption, which
has been granted to QFIIs, with respect to gains derived
prior to May 1, 2016. In practice, the BT has not been
collected. However, the imposition of such taxes on the
fund could have a material adverse effect on the fund’s
returns. Since May 1, 2016, RQFIIs are exempt from PRC
value- added tax, which replaced the BT with respect to
gains realized from the disposal of securities, including
A-Shares.
The PRC rules for taxation of RQFIIs (and QFIIs) are
evolving and certain tax regulations to be issued by the
PRC State Administration of Taxation and/or PRC Ministry
of Finance to clarify the subject matter may apply retrospectively,
even if such rules are adverse to a fund and
their shareholders.
If the PRC begins applying tax rules regarding the taxation
of income from A-Shares investments to RQFIIs and/or
begins collecting capital gains taxes on such investments
(whether made through Stock Connect or an RQFII), a fund
could be subject to withholding tax liability in excess of
the amount reserved (if any). The impact of any such tax
liability on a fund’s return could be substantial. A fund will
be liable to the Advisor and/or Subadvisor for any Chinese
tax that is imposed on the Advisor and/or Subadvisor with
respect to the fund’s investments.
To the extent a fund invests in swaps linked to A-Shares,
such investments may be less tax-efficient for US tax
purposes than a direct investment in A-Shares. Any tax
liability incurred by the swap counterparty may be passed
on to a fund. When a fund sells a swap on A-Shares, the
sale price may take into account of the RQFII’s tax liability.
Investments in swaps and other derivatives may be
subject to special US federal income tax rules that could
adversely affect the character, timing and amount of
income earned by a fund (e.g., by causing amounts that
would be capital gain to be taxed as ordinary income or to
be taken into income earlier than would otherwise be
necessary). Also, a fund may be required to periodically
adjust its positions in its swaps and derivatives to comply
with certain regulatory requirements which may further
cause these investments to be less efficient than a direct
investment in A-Shares. For example, swaps in which a
fund may invest may need to be reset on a regular basis in
order to maintain compliance with the 1940 Act, which
may increase the likelihood that the fund will generate
short-term capital gains. In addition, because the application
of special tax rules to a fund and its investments may
be uncertain, it is possible that the manner in which they
are applied by the fund may be determined to be incorrect.
In that event, a fund may be found to have failed to maintain
its qualification as a RIC or to be subject to additional
US tax liability. A fund may make investments, both
directly and through swaps or other derivative positions, in
companies classified as passive foreign investment companies
for US federal income tax purposes (
“
PFICs
”
).
Investments in PFICs are subject to special tax rules which
may result in adverse tax consequences to the fund and
its shareholders.
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Risks of investing through Stock Connect.
Trading through
Stock Connect is subject to a number of restrictions that
may affect the fund’s investments and returns. Although
no individual investment quotas or licensing requirements
apply to investors in Stock Connect, trading through Stock
Connect is subject to a daily quota (
“
Daily Quota
”
), which
limits the maximum net purchases on any particular day by
Hong Kong investors (and foreign investors trading
through Hong Kong) trading PRC listed securities and PRC
investors trading Hong Kong listed securities trading
through the relevant Stock Connect. The Daily Quota does
not belong to the fund and is utilized by all investors on
a first-come-first- serve basis. As such, buy orders for
A-Shares would be rejected once the Daily Quota is
exceeded (although the fund will be permitted to sell
A-Shares regardless of the Daily Quota balance). The Daily
Quota may restrict the fund’s ability to invest in A-Shares
through Stock Connect on a timely basis, which could
affect the fund’s ability to effectively pursue its investment
strategy. The Daily Quota is also subject to change.
In addition, investments made through Stock Connect are
subject to trading, clearance and settlement procedures
that are relatively untested in the PRC, which could pose
risks to the fund. Moreover, A-Shares through Stock
Connect (
“
Stock Connect A-Shares
”
) generally may not be
sold, purchased or otherwise transferred other than
through Stock Connect in accordance with applicable rules.
While A-shares must be designated as eligible to be
traded under Stock Connect (such eligible A-Shares listed
on the SSE, the
“
SSE Securities,
”
and such eligible
A-Shares listed on the SZSE, the
“
SZSE Securities
”
), those
A-Shares may also lose such designation, and if this
occurs, such A-Shares may be sold but could no longer be
purchased through Stock Connect. With respect to sell
orders under Stock Connect, the Stock Exchange of Hong
Kong (
“
SEHK
”
) carries out pre-trade checks to ensure an
investor has sufficient A-Shares in its account before the
market opens on the trading day. Accordingly, if there are
insufficient A-Shares in an investor’s account before the
market opens on the trading day, the sell order will be
rejected, which may adversely impact the funds’
performance.
In addition, Stock Connect will only operate on days when
both the Chinese and Hong Kong markets are open for
trading and when banking services are available in both
markets on the corresponding settlement days. Therefore,
an investment in A- Shares through Stock Connect may
subject the fund to the risk of price fluctuations on days
when the Chinese markets are open, but Stock Connect is
not trading. Each of the SEHK, SSE and SZSE reserves
the right to suspend trading under Stock Connect under
certain circumstances. Where such a suspension of trading
is effected, the fund’s ability to access A-Shares through
Stock Connect will be adversely affected. In addition, if one
or both of the Chinese and Hong Kong markets are closed
on a US trading day, the fund may not be able to acquire or
dispose of A-Shares through Stock Connect in a timely
manner, which could adversely affect the fund’s
performance.
The fund’s investments in A-Shares though Stock Connect
are held by its custodian in accounts in Central Clearing
and Settlement System (
“
CCASS
”
) maintained by the
Hong Kong Securities Clearing Company Limited
(
“
HKSCC
”
), which in turn holds the A-Shares, as the
nominee holder, through an omnibus securities account in
its name registered with the China Securities Depository
and Clearing Corporation Limited (
“
CSDCC
”
). The precise
nature and rights of each fund as the beneficial owner of
the SSE Securities or SZSE Securities through HKSCC as
nominee is not well defined under PRC law. There is a lack
of a clear definition of, and distinction between, legal
ownership and beneficial ownership under PRC law and
there have been few cases involving a nominee account
structure in the PRC courts. The exact nature and methods
of enforcement of the rights and interests of each fund
under PRC law is also uncertain. In the unlikely event that
HKSCC becomes subject to winding up proceedings in
Hong Kong, there is a risk that the SSE Securities or SZSE
Securities may not be regarded as held for the beneficial
ownership of each fund or as part of the general assets of
HKSCC available for general distribution to its creditors.
Notwithstanding the fact that HKSCC does not claim proprietary
interests in the SSE Securities or SZSE Securities
held in its omnibus stock account in the CSDCC, the
CSDCC as the share registrar for SSE- or SZSE-listed
companies will still treat HKSCC as one of the shareholders
when it handles corporate actions in respect of
such SSE Securities or SZSE Securities. HKSCC monitors
the corporate actions affecting SSE Securities and SZSE
Securities and keeps participants of CCASS informed of all
such corporate actions that require CCASS participants
to take steps in order to participate in them. A fund will
therefore depend on HKSCC for both settlement and notification
and implementation of corporate actions.
The HKSCC is responsible for the clearing, settlement and
the provisions of depositary, nominee and other related
services of the trades executed by Hong Kong market
participants and investors. Accordingly, investors do not
hold SSE Securities or SZSE Securities directly – they are
held through their brokers’ or custodians’ accounts with
CCASS. The HKSCC and the CSDCC establish clearing
links and each has become a participant of the other to
facilitate clearing and settlement of cross-border trades.
Should CSDCC default and the CSDCC be declared as
a defaulter, HKSCC’s liabilities in Stock Connect under its
market contracts with clearing participants will be limited
to assisting clearing participants in pursuing their claims
against the CSDCC. In that event, the fund may suffer
delays in the recovery process or may not be able to fully
recover its losses from the CSDCC.
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Market participants are able to participate in Stock Connect
subject to meeting certain information technology capability,
risk management and other requirements as may be
specified by the relevant exchange and/or clearing house.
Further, the
“
connectivity
”
in Stock Connect requires the
routing of orders across the borders of Hong Kong and the
PRC. This requires the development of new information
technology systems on the part of the SEHK and exchange
participants. There is no assurance that these systems
will function properly or will continue to be adapted to
changes and developments in both markets. In the event
that the relevant systems fail to function properly, trading
in A-Shares through Stock Connect could be disrupted, and
the fund’s ability to achieve its investment objective may
be adversely affected.
A primary feature of Stock Connect is the application of
the home market’s laws and rules applicable to investors
in A-Shares. Therefore, the fund’s investments in Stock
Connect A-Shares are generally subject to PRC securities
regulations and listing rules, among other restrictions.
Finally, according to Caishui [2014] 81 (
“
Circular 81
”
) and
Caishui [2016] 127 (
“
Circular 127
”
), while foreign investors
are exempted from paying capital gains or business taxes
(later, value-added taxes) on income and gains from investments
in Stock Connect A-Shares, these PRC tax rules
could be changed, which could result in unexpected tax
liabilities for the fund. Dividends derived from A-Shares are
subject to a 10% PRC withholding income tax generally.
PRC stamp duty is also payable for transactions in
A-Shares through Stock Connect. Currently, PRC stamp
duty on A-Shares transactions is only imposed on the
seller, but not on the purchaser, at the tax rate of 0.1% of
the total sales value.
Circular 81 and Circular 127 stipulate that PRC business
tax (and, subsequently, PRC value-added tax) is temporarily
exempted on capital gains derived by Hong Kong market
participants (including the fund) from the trading of
A-Shares through Stock Connect. According to Caishui
[2016] No. 36, the PRC value- added tax reform in the PRC
will be expanded to all industries, including financial
services, starting May 1, 2016. The PRC business tax
exemption prescribed in Circular 81 is grandfathered under
the value-added tax regime.
The Stock Connect program is a relatively new program.
Further developments are likely and there can be no assurance
as to the program’s continued existence or whether
future developments regarding the program may restrict or
adversely affect the fund’s investments or returns. In addition,
the application and interpretation of the laws and
regulations of Hong Kong and the PRC, and the rules, policies
or guidelines published or applied by relevant
regulators and exchanges in respect of the Stock Connect
program are uncertain, and they may have a detrimental
effect on the fund’s investments and returns.
Political and economic risk.
The economy of China, which
has been in a state of transition from a planned economy
to a more market oriented economy, differs from the
economies of most developed countries in many respects,
including the level of government involvement, its state
of development, its growth rate, control of foreign
exchange, and allocation of resources. Although the
majority of productive assets in China are still owned by
the PRC government at various levels, in recent years, the
PRC government has implemented economic reform
measures emphasizing utilization of market forces in the
development of the economy of China and a high level
of management autonomy. The economy of China has
experienced significant growth in recent decades, but
growth has been uneven both geographically and among
various sectors of the economy. Economic growth has also
been accompanied by periods of high inflation. The PRC
government has implemented various measures from time
to time to control inflation and restrain the rate of
economic growth.
For several decades, the PRC government has carried out
economic reforms to achieve decentralization and utilization
of market forces to develop the economy of the
PRC. These reforms have resulted in significant economic
growth and social progress. However, there can be no
assurance that the PRC government will continue to
pursue such economic policies or that such policies, if
pursued, will be successful. Any adjustment and modification
of those economic policies may have an adverse
impact on the securities markets in the PRC as well as the
constituent securities of the Underlying Index. Further,
the PRC government may from time to time adopt corrective
measures to control the growth of the PRC economy
which may also have an adverse impact on the capital
growth and performance of the fund.
Political changes, social instability and adverse diplomatic
developments in the PRC could result in the imposition
of additional government restrictions including expropriation
of assets, confiscatory taxes or nationalization of
some or all of the property held by the issuers of the
A-Shares in the fund’s Underlying Index. The laws, regulations,
including the investment regulations, government
policies and political and economic climate in China may
change with little or no advance notice. Any such change
could adversely affect market conditions and the performance
of the Chinese economy and, thus, the value of
securities in the fund’s portfolio.
The Chinese government continues to be an active participant
in many economic sectors through ownership
positions and regulations. The allocation of resources in
China is subject to a high level of government control. The
Chinese government strictly regulates the payment of
foreign currency denominated obligations and sets
monetary policy. Through its policies, the government may
provide preferential treatment to particular industries or
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companies. The policies set by the government could have
a substantial effect on the Chinese economy and the
fund’s investments.
The Chinese economy is export-driven and highly reliant
on trade. The performance of the Chinese economy may
differ favorably or unfavorably from the US economy in
such respects as growth of gross domestic product, rate
of inflation, currency depreciation, capital reinvestment,
resource self- sufficiency and balance of payments position.
The domestic consumer class in China is still
emergent, while the economy's dependence on exports
may not be sustainable. Adverse changes to the economic
conditions of its primary trading partners, such as the European
Union, the US, Hong Kong, the Association of South
East Asian Nations, and Japan, would adversely affect the
Chinese economy and the fund’s investments.
In addition, as much of China’s growth over recent decades
has been a result of significant investment in substantial
export trade, international trade tensions may arise from
time to time which can result in trade tariffs, embargoes,
trade limitations, trade wars and other negative consequences.
The current political climate has intensified
concerns about trade tariffs and a potential trade war
between China and the US. These consequences may
trigger a significant reduction in international trade, the
oversupply of certain manufactured goods, substantial
price reductions of goods and possible failure of individual
companies and/or large segments of China’s export
industry with a potentially severe negative impact to the
fund. In addition, it is possible that the continuation or worsening
of the current political climate could result in
regulatory restrictions being contemplated or imposed in
the US or in China that could have a material adverse effect
on the fund’s ability to invest in accordance with its investment
policies and/or achieve its investment objective. In
July 2020, the President’s Working Group on Financial
Markets (the
“
PWG
”
) proposed a number of regulatory
changes aimed at addressing potential risks to US investors
from investments in issuers that provide limited
access to their financial statements, including Chinese
companies. The PWG’s proposals included having the SEC
consider encouraging or requiring US registered funds to
conduct additional due diligence on an index’s exposure to
such issuers and how the index provider addresses
concerns arising from limited availability of such issuers’
financial information. If the SEC adopts these proposals,
they could have a material adverse effect on the fund’s
ability to continue tracking the Underlying Index. Events
such as these are difficult to predict and may or may not
occur in the future.
China has been transitioning to a market economy since
the late seventies, and has only recently opened up to
foreign investment and permitted private economic
activity. Under the economic reforms implemented by the
Chinese government, the Chinese economy has experienced
tremendous growth, developing into one of the
largest and fastest growing economies in the world. There
is no assurance, however, that the Chinese government
will not revert to the economic policy of central planning
that it implemented prior to 1978 or that such growth will
be sustained in the future. Moreover, the current major
slowdown in other significant economies of the world,
such as the US, the European Union and certain Asian
countries, may adversely affect economic growth in China.
An economic downturn in China would adversely impact
the fund’s investments.
Inflation.
Economic growth in China has historically been
accompanied by periods of high inflation. Beginning in
2004, the Chinese government commenced the implementation
of various measures to control inflation, which
included the tightening of the money supply, the raising of
interest rates and more stringent control over certain industries.
If these measures are not successful, and if inflation
were to steadily increase, the performance of the Chinese
economy and the fund’s investments could be adversely
affected.
Nationalization and expropriation.
After the formation of
the Chinese socialist state in 1949, the Chinese government
renounced various debt obligations and nationalized
private assets without providing any form of compensation.
There can be no assurance that the Chinese
government will not take similar actions in the future.
Accordingly, an investment in the fund involves a risk of a
total loss.
Hong Kong policy.
As part of Hong Kong’s transition from
British to Chinese sovereignty in 1997, China agreed to
allow Hong Kong to maintain a high degree of autonomy
with regard to its political, legal and economic systems for
a period of at least 50 years. China controls matters that
relate to defense and foreign affairs. Under the agreement,
China does not tax Hong Kong, does not limit the
exchange of the Hong Kong dollar for foreign currencies
and does not place restrictions on free trade in Hong Kong.
However, there is no guarantee that China will continue
to honor the agreement, and China may change its policies
regarding Hong Kong at any time. As of July 2020, the
Chinese Standing Committee of the National People's
Congress enacted the Law of the People's Republic of
China on Safeguarding National Security in the Hong Kong
Special Administrative Region. As of the same month,
Hong Kong is no longer afforded preferential economic
treatment by the United States under US law, and there is
uncertainty as to how the economy of Hong Kong will be
affected. Any further changes in China's policies could
adversely affect market conditions and the performance of
the Chinese economy and, thus, the value of securities
in the fund’s portfolio.
Chinese securities markets.
The securities markets in
China have a limited operating history and are not as
developed as those in the US. The markets tend to be
smaller in size, have less liquidity and historically have had
greater volatility than markets in the US and some other
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countries. In addition, under normal market conditions,
there is less regulation and monitoring of Chinese securities
markets and the activities of investors, brokers and
other participants than in the US. Accordingly, issuers of
securities in China are not subject to the same degree of
regulation as are US issuers with respect to such matters
as insider trading rules, tender offer regulation, stockholder
proxy requirements and the requirements mandating
timely disclosure of information. During periods of significant
market volatility, the Chinese government has, from
time to time, intervened in its domestic securities markets
to a greater degree than would be typical in more developed
markets, including both direct and indirect market
stabilization efforts, which may affect valuations of Chinese
issuers. Stock markets in China are in the process of
change and further development. This may lead to trading
volatility, difficulty in the settlement and recording of transactions
and difficulty in interpreting and applying the
relevant regulations.
Available disclosure about Chinese companies.
Chinese
companies are required to follow Chinese accounting standards
and practices, which only follow international
accounting standards to a certain extent. However, the
accounting, auditing and financial reporting standards and
practices applicable to PRC companies may be less
rigorous, and there may be significant differences between
financial statements prepared in accordance with Chinese
accounting standards and practice and those prepared in
accordance with international accounting standards. In
particular, the assets and profits appearing on the financial
statements of a Chinese issuer may not reflect its financial
position or results of operations in the way they would
be reflected had such financial statements been prepared
in accordance with US Generally Accepted Accounting
Principles. The quality of audits in China may be unreliable,
which may require enhanced procedures. Consequently,
the fund may not be provided the same degree of protection
or information as would generally apply in developed
countries and the fund may be exposed to significant
losses. There is also substantially less publicly available
information about Chinese issuers than there is about US
issuers. Therefore, disclosure of certain material information
may not be made, and less information may be
available to the fund and other investors than would be the
case if the fund’s investments were restricted to securities
of US issuers.
Chinese corporate and securities law.
The regulations
which regulate investments by RQFIIs in the PRC and the
repatriation of capital from RQFII investments are relatively
new. As a result, the application and interpretation of such
investment regulations are therefore relatively untested. In
addition, PRC authorities and regulators have broad discretion
under such investment regulations and there is little
precedent or certainty evidencing how such discretion will
be exercised now or in the future.
The fund’s rights with respect to its investments in
A-Shares (as applicable), if any, generally will not be
governed by US law, and instead will generally be
governed by Chinese law. China operates under a civil law
system, in which court precedent is not binding. Because
there is no binding precedent to interpret existing statutes,
there is uncertainty regarding the implementation of
existing law.
Legal principles relating to corporate affairs and the validity
of corporate procedures, directors’ fiduciary duties and
liabilities and stockholders’ rights often differ from those
that may apply in the US and other countries. Chinese laws
providing protection to investors, such as laws regarding
the fiduciary duties of officers and directors, are undeveloped
and will not provide investors, such as the fund,
with protection in all situations where protection would be
provided by comparable laws in the US. China lacks a
national set of laws that address all issues that may arise
with regard to a foreign investor such as the fund. It may
therefore be difficult for the fund to enforce its rights as an
investor under Chinese corporate and securities laws, and
it may be difficult or impossible for the fund to obtain a
judgment in court. Moreover, as Chinese corporate and
securities laws continue to develop, these developments
may adversely affect foreign investors, such as the fund.
Sanctions and embargoes.
From time to time, certain of
the companies in which the fund expects to invest may
operate in, or have dealings with, countries subject to sanctions
or embargoes imposed by the US government and
the United Nations and/or countries identified by the US
government as state sponsors of terrorism. A company
may suffer damage to its reputation if it is identified as a
company which operates in, or has dealings with, countries
subject to sanctions or embargoes imposed by the
US government and the United Nations and/or countries
identified by the US government as state sponsors of
terrorism. As an investor in such companies, the fund will
be indirectly subject to those risks.
Tax on retained income and gains.
To the extent the fund
does not distribute to shareholders all or substantially all of
its investment company taxable income and net capital
gain in a given year, it will be required to pay US federal
income tax on the retained income and gains, thereby
reducing the fund’s return. A fund may elect to treat any
retained net capital gain as having been distributed to
shareholders. In that case, shareholders of record on the
last day of the fund’s taxable year will be required to
include their attributable share of the retained gain in
income for the year as a long-term capital gain despite not
actually receiving the dividend, and will be entitled to a
tax credit or refund for the tax deemed paid on their behalf
by the fund as well as an increase in the basis of their
shares to reflect the difference between their attributable
share of the gain and the related credit or refund.
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Foreign exchange control.
The Chinese government heavily
regulates the domestic exchange of foreign currencies
within China. Under China’s State Administration of
Foreign Exchange (
“
SAFE
”
) regulations, Chinese corporations
may only purchase foreign currencies through
government approved banks. In general, Chinese companies
must receive approval from or register with the
Chinese government before investing in certain capital
account items, including direct investments and loans, and
must thereafter maintain separate foreign exchange
accounts for the capital items. Foreign investors may only
exchange foreign currencies at specially authorized banks
after complying with documentation requirements. These
restrictions may adversely affect the fund and its investments.
The international community has requested that
China ease its restrictions on currency exchange, but it is
unclear whether the Chinese government will change its
policy.
RMB, is currently not a freely convertible currency as it is
subject to foreign exchange control, fiscal policies and repatriation
restrictions imposed by the Chinese government.
Such control of currency conversion and movements in the
RMB exchange rates may adversely affect the operations
and financial results of companies in the PRC. In addition,
if such control policies change in the future, the fund may
be adversely affected. Since 2005, the exchange rate of
the RMB is no longer pegged to the US dollar. The RMB
has now moved to a managed floating exchange rate
based on market supply and demand with reference to a
basket of foreign currencies. The daily trading price of the
RMB against other major currencies in the inter-bank
foreign exchange market would be allowed to float within
a narrow band around the central parity published by the
People’s Bank of China. As the exchange rates are based
primarily on market forces, the exchange rates for RMB
against other currencies, including the US dollar, are
susceptible to movements based on external factors.
There can be no assurance that the RMB will not be
subject to appreciation or devaluation, either due to
changes in government policy or market factors. Any
devaluation of the RMB could adversely affect the value of
the fund’s investments. The PRC government imposes
restrictions on the remittance of RMB out of and into
China. To the extent the fund invests through an RQFII, the
fund may be required to remit RMB from Hong Kong to
the PRC to settle the purchase of A-Shares and other
permissible securities by the fund. In the event such remittance
is disrupted, the fund may not be able to fully
replicate its Underlying Index by investing in the relevant
A-Shares and this will increase the tracking error of the
fund. Any delay in repatriation of RMB out of China may
result in delay in payment of redemption proceeds to the
redeeming investors. The Chinese government’s policies
on exchange control and repatriation restrictions are
subject to change, and the fund’s performance may be
adversely affected.
Foreign currency considerations.
The assets of the fund
are invested primarily in the equity securities of issuers in
China and the income received by the fund will be primarily
in RMB.
RMB can be further categorized into onshore RMB
(
“
CNY
”
), traded only in the PRC, and offshore RMB
(
“
CNH
”
), traded outside the PRC. CNY and CNH are
traded at different exchange rates and their exchange rates
may not move in the same direction. Although there has
been a growing amount of RMB held offshore, CNH
cannot be freely remitted into the PRC and is subject to
certain restrictions, and vice versa. The fund may also be
adversely affected by the exchange rates between CNY
and CNH. There is no assurance that there will always be
RMB available in sufficient amounts for the fund to remain
fully invested.
Meanwhile, the fund will compute and expects to
distribute its income in US dollars, and the computation of
income will be made on the date that the income is
earned by the fund at the foreign exchange rate in effect
on that date. Any gain or loss attributable to fluctuations in
exchange rates between the time the fund accrues
income or gain and the time the fund converts such
income or gain from RMB to the US dollar is generally
treated as ordinary income or loss. Therefore, if the value
of the RMB increases relative to the US dollar between the
accrual of income and the time at which the fund converts
the RMB to US dollars, the fund will recognize ordinary
income when the RMB is converted. In such circumstances,
if the fund has insufficient cash in US dollars to
meet distribution requirements under the Internal Revenue
Code, the fund may be required to liquidate certain positions
in order to make distributions. The liquidation of
investments, if required, may also have an adverse impact
on the fund’s performance.
Furthermore, the fund may incur costs in connection with
conversions between US dollars and RMB. Foreign
exchange dealers realize a profit based on the difference
between the prices at which they are buying and selling
various currencies. Thus, a dealer normally will offer to sell
a foreign currency to the fund at one rate, while offering
a lesser rate of exchange should the fund desire immediately
to resell that currency to the dealer. A fund will
conduct its foreign currency exchange transactions either
on a spot (i.e., cash) basis at the spot rate prevailing in the
foreign currency exchange market, or through entering
into forward, futures or options contracts to purchase or
sell foreign currencies.
Currently, there is no market in China in which the fund
may engage in hedging transactions to minimize RMB
foreign exchange risk in CNY, and there can be no guarantee
that instruments suitable for hedging currency in
CNY will be available to the fund in China at any time in the
future. In the event that in the future it becomes possible
to hedge RMB currency risk in China in CNY, the fund may
seek to reduce the foregoing currency risks by engaging
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in hedging transactions. In that case, the fund may enter
into forward currency exchange contracts and currency
futures contracts and options on such futures contracts, as
well as purchase put or call options on currencies, in
China. The funds do not currently intend to hedge RMB
currency risk in CNH. Currency hedging would involve
special risks, including possible default by the other party
to the transaction, illiquidity and, to the extent the Advisor’s
or subadvisor’s (as applicable) view as to certain
market movements is incorrect, the risk that the use of
hedging could result in losses greater than if they had not
been used. The use of currency transactions could result in
the fund’s incurring losses as a result of the imposition of
exchange controls, exchange rate regulation, suspension
of settlements or the inability to deliver or receive a specified
currency.
PRC brokers risk.
Regulations adopted by the CSRC and
SAFE under which the fund will invest in A-Shares provide
that the Subadvisor, if licensed as an RQFII, may select
a PRC broker to execute transactions on its behalf on each
of the two PRC exchanges – the SSE and SZSE. The
Subadvisor may select the same broker for both
Exchanges. As a result, the Subadvisor will have less flexibility
to choose among brokers on behalf of the fund than
is typically the case for US investment managers. In the
event of any default of a PRC broker in the execution or
settlement of any transaction or in the transfer of any
funds or securities in the PRC, the fund may encounter
delays in recovering its assets which may in turn adversely
impact the NAV of the fund.
If the Subadvisor is unable to use one of its designated
PRC brokers in the PRC, units of the fund may trade at a
premium or discount to its NAV or the fund may not be
able to track the Underlying Index. Further, the operation
of the fund may be adversely affected in the case of any
acts or omissions of a PRC broker, which may result in
increased tracking error or the fund being traded at a significant
premium or discount to its NAV. The limited number
of PRC brokers that may be appointed may cause the fund
to not necessarily pay the lowest commission available
in the market. The Subadvisor, however, in its selection of
PRC brokers will consider such factors as the competitiveness
of commission rates, size of the relevant orders,
and execution standards. There is a risk that the fund may
suffer losses from the default, bankruptcy or disqualification
of the PRC brokers. In such events, the fund may be
adversely affected in the execution of any transaction.
Disclosure of interests and short swing profit rule.
The
fund may be subject to shareholder disclosure of interest
regulations promulgated by the CSRC. These regulations
currently require the fund to make certain public disclosures
when the fund and parties acting in concert with the
fund acquire 5% or more of the issued securities of a
listed company (which include A-Shares of the listed
company). If the reporting requirement is triggered, the
fund will be required to report information which includes,
but is not limited to: (a) information about the fund (and
parties acting in concert with the fund) and the type and
extent of its holdings in the company; (b) a statement of
the fund’s purposes for the investment and whether the
fund intends to increase its holdings over the following
12-month period; (c) a statement of the fund’s historical
investments in the company over the previous six months;
(d) the time of, and other information relating to, the transaction
that triggered the fund’s holding in the listed
company reaching the 5% reporting threshold; and (e)
other information that may be required by the CSRC or the
stock exchange. Additional information may be required
if the fund and its concerted parties constitute the largest
shareholder or actual controlling shareholder of the listed
company. The report must be made to the CSRC, the stock
exchange, the invested company, and the CSRC local representative
office where the listed company is located. A
fund would also be required to make a public announcement
through a media outlet designated by the CSRC. The
public announcement must contain the same content as
the official report. The public announcement may require
the fund to disclose its holdings to the public, which could
have an adverse effect on the performance of the fund.
The relevant PRC regulations presumptively treat all affiliated
investors and investors under common control as
parties acting in concert. As such, under a conservative
interpretation of these regulations, the fund may be
deemed as a
“
concerted party
”
of other funds managed
by the Advisor, Subadvisor or their affiliates and therefore
may be subject to the risk that the fund’s holdings may be
required to be reported in the aggregate with the holdings
of such other funds should the aggregate holdings
trigger the reporting threshold under the PRC law. If the
5% shareholding threshold is triggered by the fund and
parties acting in concert with the fund, the fund would be
required to file its report within three days of the date the
threshold is reached. During the time limit for filing the
report, a trading freeze applies and the fund would not be
permitted to make subsequent trades in the invested
company’s securities. Any such trading freeze may undermine
the fund’s performance, if the fund would otherwise
make trades during that period but is prevented from
doing so by the regulation.
Once the fund and parties acting in concert reach the 5%
trading threshold as to any listed company, any subsequent
incremental increase or decrease of 5% or more will
trigger a further reporting requirement and an additional
three-day trading freeze, and also an additional freeze on
trading within two days of the fund’s report and announcement
of the incremental change. These trading freezes
may undermine the fund’s performance as described
above. Also, SSE requirements currently require the fund
and parties acting in concert, once they have reach the 5%
threshold, to disclose whenever their shareholding drops
below this threshold (even as a result of trading which
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is less than the 5% incremental change that would trigger
a reporting requirement under the relevant CSRC
regulation).
CSRC regulations also contain additional disclosure (and
tender offer) requirements that apply when an investor and
parties acting in concert reach thresholds of 20% and
greater than 30% shareholding in a company.
Subject to the interpretation of PRC courts and PRC regulators,
the operation of the PRC short swing profit rule
may be applicable to the trading of the fund with the result
that where the holdings of the fund (possibly with the holdings
of other investors deemed as concert parties of the
fund) exceed 5% of the total issued shares of a listed
company, the fund may not reduce its holdings in the
company within six months of the last purchase of shares
of the company. If a fund violates the rule, it may be
required by the listed company to return any profits realized
from such trading to the listed company. In addition,
the rule limits the ability of the fund to repurchase securities
of the listed company within six months of such sale.
Moreover, under PRC civil procedures, the fund’s assets
may be frozen to the extent of the claims made by the
company in question. These risks may greatly impair the
performance of the fund.
Investment and repatriation restrictions.
Investments by
the fund in A-Shares (as well as other Chinese financial
instruments permitted by the CSRC and the People’s Bank
of China, including open- and closed-end investment
companies) are subject to governmental pre-approval limitations
on the quantity that the fund may purchase and/or
limits on the classes of securities in which the fund may
invest.
With respect to investments in A-Shares made through
the RQFII program, repatriations by RQFIIs are permitted
daily and are not subject to lock-up periods or prior
approval, but will require a tax commitment letter by the
RQFII. There is no assurance, however, that PRC rules and
regulations will not change or that repatriation restrictions
will not be imposed in the future. Any restrictions on repatriation
of the fund’s assets may adversely affect the
fund’s ability to meet redemption requests and/or may
cause the fund to borrow money in order to meet its obligations.
These limitations may also prevent the fund from
making certain distributions to shareholders.
The Chinese government limits foreign investment in the
securities of certain Chinese issuers entirely, if foreign
investment is banned in respect of the industry in which
the relevant Chinese issuers are conducting their business.
These restrictions or limitations may have adverse effects
on the liquidity and performance of the fund’s holdings
as compared to the performance of the Underlying Index.
This may increase the risk of tracking error and, at the
worst, the fund may not be able to achieve its investment
objective.
The Chinese government limits foreign investment in the
securities of certain Chinese issuers entirely, if foreign
investment is banned in respect of the industry in which
the relevant Chinese issuers are conducting their business.
These restrictions or limitations may have adverse effects
on the liquidity and performance of the fund’s holdings
as compared to the performance of the fund’s Underlying
Index, and thus with respect to the fund’s holdings as
compared to that of its Underlying Index. This may
increase the risk of tracking error and, at the worst, the
fund may not be able to achieve its investment objective.
A-Shares currency risk.
The fund’s investments in A-Shares
will be denominated in RMB and the income received by
the fund in respect of such investments will be in RMB. As
a result, changes in currency exchange rates may
adversely affect the fund’s returns. The value of the RMB
may be subject to a high degree of fluctuation due to
changes in interest rates, the effects of monetary policies
issued by the PRC, the US, foreign governments, central
banks or supranational entities, the imposition of currency
controls or other national or global political or economic
developments. Therefore, the fund’s exposure to RMB
may result in reduced returns to the fund. The fund does
not expect to hedge its currency risk. Moreover, the fund
may incur costs in connection with conversions between
US dollars and RMB and will bear the risk of any inability to
convert the RMB.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
situations, it may become virtually impossible to sell an
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investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
In addition, various PRC companies derive their revenues
in RMB but have requirements for foreign currency,
including for the import of materials, debt service on
foreign currency denominated debt, purchases of imported
equipment and payment of any cash dividends declared.
The existing PRC foreign exchange regulations have significantly
reduced government foreign exchange controls for
certain transactions, including trade and service related
foreign exchange transactions and payment of dividends.
However, it is impossible to predict whether the PRC
government will continue its existing foreign exchange
policy and when the PRC government will allow free
conversion of the RMB to foreign currency. Certain foreign
exchange transactions, including principal payments in
respect of foreign currency-denominated obligations,
currently continue to be subject to significant foreign
exchange controls and require the approval of SAFE. Since
1994, the conversion of RMB into US dollars has been
based on rates set by the People’s Bank of China, which
are set daily based on the previous day’s PRC interbank
foreign exchange market rate. It is not possible to predict
nor give any assurance of any future stability of the RMB
to US dollar exchange rate. Fluctuations in exchange rates
may adversely affect the fund’s NAV. Furthermore,
because dividends are declared in US dollars and underlying
payments are made in RMB, fluctuations in exchange
rates may adversely affect dividends paid by the fund.
Depositary receipt risk.
Foreign investments in American
Depositary Receipts and other depositary receipts may
be less liquid than the underlying shares in their primary
trading market. Certain of the depositary receipts in which
the fund invests may be unsponsored depositary receipts.
Unsponsored depositary receipts may not provide as
much information about the underlying issuer and may not
carry the same voting privileges as sponsored depositary
receipts. Unsponsored depositary receipts are issued by
one or more depositaries in response to market demand,
but without a formal agreement with the company that
issues the underlying securities.
Derivatives risk.
Derivatives are financial instruments,
such as futures and swaps, whose values are based on the
value of one or more indicators, such as a security, asset,
currency, interest rate, or index. Derivatives involve risks
different from, and possibly greater than, the risks associated
with investing directly in securities and other more
traditional investments. For example, derivatives involve
the risk of mispricing or improper valuation and the risk
that changes in the value of a derivative may not correlate
perfectly with the underlying indicator. Derivative transactions
can create investment leverage, may be highly
volatile and the fund could lose more than the amount it
invests. Many derivative transactions are entered into
“
over-the-counter
”
(i.e., not on an exchange or contract market);
as a result, the value of such a derivative transaction will
depend on the ability and the willingness of the fund’s
counterparty to perform its obligations under the transaction.
If a counterparty were to default on its obligations,
the fund’s contractual remedies against such counterparty
may be subject to bankruptcy and insolvency laws, which
could affect the fund’s rights as a creditor (e.g., the fund
may not receive the net amount of payments that it is
contractually entitled to receive). A liquid secondary market
may not always exist for the fund’s derivative positions at
any time.
Counterparty risk.
To the extent the fund invests in swaps
to gain exposure to A-Shares in an effort to achieve the
fund’s investment objective, the fund will be subject to the
risk that the number of counterparties able to enter into
swaps to provide exposure to A-Shares may be limited. To
the extent that the RQFII license of a potential swap
counterparty is revoked or eliminated due to actions by the
Chinese government or as a result of transactions entered
into by the counterparty with other investors, the
counterparty’s ability to continue to enter into swaps or
other derivative transactions with the fund may be reduced
or eliminated, which could have a material adverse effect
on the fund. These risks are compounded by the fact that
at present there are only a limited number of potential
counterparties willing and able to enter into swap transactions
linked to the performance of A-Shares.
Furthermore, swaps are of limited duration and there is no
guarantee that swaps entered into with a counterparty
will continue indefinitely. Accordingly, the duration of a
swap depends on, among other things, the ability of the
fund to renew the expiration period of the relevant swap at
agreed upon terms. QFIIs and RQFIIs may be limited or
prohibited from entering into swap or other derivative transactions
on RQFII investments with the fund, which, in
turn, could adversely affect the fund.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors
of the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Basic materials sector risk.
To the extent the Underlying
Index includes securities of issuers in the basic materials
sector, the fund will invest in companies in such sector. As
such, the fund may be sensitive to changes in, and its
performance may depend on, the overall condition of the
basic materials sector. Companies engaged in the production
and distribution of basic materials may be adversely
affected by changes in world events, political and
economic conditions, energy conservation, environmental
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policies, commodity price volatility, changes in exchange
rates, imposition of import controls, increased competition,
depletion of resources and labor relations.
Information technology sector risk.
To the extent that
the fund invests significantly in the information technology
sector, the fund will be sensitive to changes in, and the
fund’s performance may depend to a greater extent on, the
overall condition of the information technology sector. Information
technology companies are particularly vulnerable to
government regulation and competition, both domestically
and internationally, including competition from foreign
competitors with lower production costs. Information technology
companies also face competition for services of
qualified personnel. Additionally, the products of information
technology companies may face obsolescence due to
rapid technological development and frequent new
product introduction by competitors. Finally, information
technology companies are heavily dependent on patent
and intellectual property rights, the loss or impairment of
which may adversely affect profitability.
Industrials sector risk.
To the extent that the fund invests
significantly in the industrials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
industrials sector. Companies in the industrials sector may
be adversely affected by changes in government regulation,
world events and economic conditions. In addition,
companies in the industrials sector may be adversely
affected by environmental damages, product liability claims
and exchange rates.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
If the fund is forced to sell underlying investments at
reduced prices or under unfavorable conditions to meet
redemption requests or other cash needs, the fund may
suffer a loss.
Swap agreements may be subject to liquidity risk, which
exists when a particular swap is difficult to purchase or
sell. If a swap transaction is particularly large or if the
relevant market is illiquid, it may not be possible to initiate
a transaction or liquidate a position at an advantageous
time or price, which may result in significant losses to the
fund. This is especially true given the limited number of
potential counterparties willing and able to enter into swap
transactions on A-Shares. In addition, a swap transaction
may be subject to the fund’s limitation on investments
in illiquid securities. Swap agreements may be subject to
pricing risk, which exists when a particular swap agreement
becomes extraordinarily expensive (or inexpensive)
relative to historical prices or the prices of corresponding
cash market instruments. The swaps market is largely
unregulated. It is possible that developments in the swaps
market, including potential government regulation, could
adversely affect the fund’s ability to terminate existing
swap agreements or to realize amounts to be received
under such agreements.
Pricing risk.
If market conditions make it difficult to value
some investments
(including China A-Shares), the fund
may value these investments using more subjective
methods, such as fair value pricing. In such cases, the
value determined for an investment could be different from
the value realized upon such investment’s sale. As a result,
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you could pay more than the market value when buying
fund shares or receive less than the market value when
selling fund shares.
Secondary markets may be subject to irregular trading
activity, wide bid/ask spreads and extended trade settlement
periods, which may prevent the fund from being able
to realize full value and thus sell a security for its full valuation.
This could cause a material decline in the fund’s net
asset value.
Tracking error risk.
The performance of the fund may
diverge from that of its Underlying Index for a number of
reasons, including operating expenses, transaction costs,
cash flows and operational inefficiencies. The fund’s return
also may diverge from the return of the Underlying Index
because the fund bears the costs and risks associated
with buying and selling securities (especially when rebalancing
the fund’s securities holdings to reflect changes
in the Underlying Index) while such costs and risks are not
factored into the return of the Underlying Index. Transaction
costs, including brokerage costs, will decrease the
fund’s NAV to the extent not offset by the transaction fee
payable by an
“
Authorized Participant
”
(
“
AP
”
). Market
disruptions and regulatory restrictions could have an
adverse effect on the fund’s ability to adjust its exposure
to the required levels in order to track the Underlying
Index. In addition, to the extent that portfolio management
uses a representative sampling approach (investing in a
representative selection of securities included in the Underlying
Index rather than all securities in the Underlying
Index) it may cause the fund to not be as well correlated
with the return of the Underlying Index as would be the
case if the fund purchased all of the securities in the
Underlying Index in the proportions represented in the
Underlying Index. Errors in the Underlying Index data, the
Underlying Index computations and/or the construction
of the Underlying Index in accordance with its methodology
may occur from time to time and may not be
identified and corrected by the index provider for a period
of time or at all, which may have an adverse impact on the
fund and its shareholders. In addition, the fund may not
be able to invest in certain securities included in the Underlying
Index, or invest in them in the exact proportions in
which they are represented in the Underlying Index, due to
legal restrictions or limitations imposed by the governments
of certain countries, a lack of liquidity in the markets
in which such securities trade, potential adverse tax consequences
or other regulatory reasons. To the extent the
fund calculates its NAV based on fair value prices and the
value of the Underlying Index is based on securities’
closing prices (i.e., the value of the Underlying Index is not
based on fair value prices), the fund’s ability to track the
Underlying Index may be adversely affected. The performance
of the fund also may diverge from that of the
Underlying Index if the Advisor and/or Subadvisor seek to
gain exposure to A-Shares by investing in securities not
included in the Underlying Index, derivative instruments,
and other pooled investment vehicles because the
Subadvisor is unable to maintain its RQFII status, or the
Stock Connect Daily Quota has been exhausted. For tax
efficiency purposes, the fund may sell certain securities,
and such sale may cause the fund to realize a loss and
deviate from the performance of the Underlying Index. In
light of the factors discussed above, the fund’s return may
deviate significantly from the return of the Underlying
Index.
For purposes of calculating the fund’s net asset value, the
value of assets denominated in non-US currencies is
converted into US dollars using prevailing market rates on
the date of valuation as quoted by one or more data
service providers. This conversion may result in a difference
between the prices used to calculate the fund’s net
asset value and the prices used by the Underlying Index,
which, in turn, could result in a difference between the
fund’s performance and the performance of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
NAV during periods of market volatility. Differences
between secondary market prices and the value of the
fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the
same forces as those influencing prices for securities held
by the fund at a particular time. The Advisor cannot predict
whether shares will trade above, below or at their NAV.
Given the fact that shares can be created and redeemed in
Creation Units, the Advisor believes that large discounts
or premiums to the NAV of shares should not be sustained
in the long-term. In addition, there may be times when
the market price and the value of the fund’s holdings vary
significantly and you may pay more than the value of the
fund’s holdings when buying shares on the secondary
market, and you may receive less than the value of the
fund’s holdings when you sell those shares. While the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in trading prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. If market makers. exit the business or are
unable to continue making markets in fund’s shares,
shares may trade at a discount to NAV like closed-end fund
shares and may even face delisting (that is, investors
would no longer be able to trade shares in the secondary
market). The market price of shares, like the price of any
exchange-traded security, includes a
“
bid-ask
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spread
”
charged by the exchange specialist, market makers
or other participants that trade the particular security. In
times of severe market disruption, the bid-ask spread often
increases significantly. This means that shares may trade
at a discount to the fund’s NAV, and the discount is likely to
be greatest when the price of shares is falling fastest,
which may be the time that you most want to sell your
shares. There are various methods by which investors can
purchase and sell shares of the funds and various orders
that may be placed. Investors should consult their financial
intermediary before purchasing or selling shares of a fund.
In addition, the securities held by a fund may be traded in
markets that close at a different time than an exchange.
Liquidity in those securities may be reduced after the applicable
closing times. Accordingly, during the time when
an exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. More generally, secondary markets may be
subject to irregular trading activity, wide bid-ask spreads
and extended trade settlement periods, which could cause
a material decline in the fund’s NAV. The bid-ask spread
varies over time for shares of a fund based on the fund’s
trading volume and market liquidity, and is generally lower
if the fund has substantial trading volume and market
liquidity, and higher if the fund has little trading volume and
market liquidity (which is often the case for funds that are
newly launched or small in size). The fund’s bid-ask spread
may also be impacted by the liquidity of the underlying
securities held by the fund, particularly for newly launched
or smaller funds or in instances of significant volatility of
the underlying securities. The bid/ask spread of the Fund
may be wider in comparison to the bid/ask spread of other
ETFs, due to the Fund’s exposure to A-Shares. The fund’s
investment results are measured based upon the daily
NAV of the fund. Investors purchasing and selling shares in
the secondary market may not experience investment
results consistent with those experienced by those APs
creating and redeeming shares directly with a fund. In
addition, transactions by large shareholders may account
for a large percentage of the trading volume on an
exchange and may, therefore, have a material effect on the
market price of the fund’s shares.
Valuation risk.
Because non-US markets may be open on
days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the
fund’s shares.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers
could impact the ability to conduct the fund’s operations.
In addition, the fund cannot directly control any
cybersecurity plans and systems put in place by its service
providers, fund counterparties, issuers of securities held
by the fund or other market participants.
Cyber-attacks may include unauthorized attempts by third
parties to improperly access, modify, disrupt the operations
of, or prevent access to the systems of the fund’s
service providers or counterparties, issuers of securities
held by the fund or other market participants or data within
them. In addition, power or communications outages, acts
of god, information technology equipment malfunctions,
operational errors, and inaccuracies within software or data
processing systems may also disrupt business operations
or impact critical data.
Cyber-attacks, disruptions, or failures may adversely affect
the fund and its shareholders or cause reputational
damage and subject the fund to regulatory fines, litigation
costs, penalties or financial losses, reimbursement or
other compensation costs, and/or additional compliance
costs. In addition, cyber-attacks, disruptions, or failures
involving a fund counterparty could affect such
counterparty’s ability to meet its obligations to the fund,
which may result in losses to the fund and its shareholders.
Similar types of operational and technology risks
are also present for issuers of securities held by the fund,
which could have material adverse consequences for such
issuers, and may cause the fund’s investments to lose
value. Furthermore, as a result of cyber-attacks, disruptions,
or failures, an exchange or market may close or issue
trading halts on specific securities or the entire market,
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which may result in the fund being, among other things,
unable to buy or sell certain securities or financial instruments
or unable to accurately price its investments.
For example, the fund relies on various sources to calculate
its NAV. Therefore, the fund is subject to certain
operational risks associated with reliance on third party
service providers and data sources. NAV calculation may
be impacted by operational risks arising from factors such
as failures in systems and technology. Such failures may
result in delays in the calculation of a fund’s NAV and/or the
inability to calculate NAV over extended time periods. The
fund may be unable to recover any losses associated with
such failures.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
At any given time, due to the
composition of the Underlying Index, the fund may be classified
as
“
non-diversified
”
and may invest a larger
percentage of its assets in securities of a few issuers or a
single issuer than that of a diversified fund. As a result,
the fund may be more susceptible to the risks associated
with these particular issuers, or to a single economic,
political or regulatory occurrence affecting these issuers.
This may increase the fund’s volatility and cause the performance
of a relatively smaller number of issuers to have a
greater impact on the fund’s performance.
Cash transactions risk.
Unlike many ETFs, the fund
expects to effect its creations and redemptions principally
for cash, rather than in-kind securities. Other more conventional
ETFs generally are able to make in-kind redemptions
and avoid realizing gains in connection with transactions
designed to meet redemption requests. Effecting all
redemptions for cash may cause the fund to sell portfolio
securities in order to obtain the cash needed to distribute
redemption proceeds. Such dispositions may occur at an
inopportune time resulting in potential losses to the fund
and involve transaction costs. If the fund recognizes a
capital loss on these sales, the loss will offset capital gains
and may result in smaller capital gain distributions from
the fund. If the fund recognizes gain on these sales, this
generally will cause the fund to recognize gain it might not
otherwise have recognized if it were to distribute portfolio
securities in-kind or to recognize such gain sooner
than would otherwise be required. The fund generally
intends to distribute these gains to shareholders to avoid
being taxed on this gain at the fund level and otherwise
comply with the special tax rules that apply to it. This
strategy may cause shareholders to be subject to tax on
gains they would not otherwise be subject to, or at an
earlier date than, if they had made an investment in a more
conventional ETF.
In addition, cash transactions may have to be carried out
over several days if the securities market is relatively
illiquid and may involve considerable brokerage fees and
taxes. These brokerage fees and taxes, which will be
higher than if a fund sold and redeemed its shares principally
in-kind, will generally be passed on to purchasers and
redeemers of Creation Units in the form of creation and
redemption transaction fees. To the extent transaction and
other costs associated with a redemption exceed the
redemption fee, those transaction costs might be borne by
the fund’s remaining shareholders. China may also impose
higher local tax rates on transactions involving certain
companies. In addition, these factors may result in wider
spreads between the bid and the offered prices of the
fund’s shares than for more conventional ETFs.
As a practical matter, only institutions and large investors,
such as market makers or other large broker-dealers,
purchase or redeem Creation Units. Most investors will
buy and sell shares of the fund on an exchange.
Country concentration risk.
To the extent that the fund
invests significantly in a single country, it is more likely to
be impacted by events or conditions affecting that country.
For example, political and economic conditions and
changes in regulatory, tax or economic policy in a country
could significantly affect the market in that country and
in surrounding or related countries and have a negative
impact on the fund’s performance.
Small company risk.
Small company stocks tend to be
more volatile than medium-sized or large company stocks.
Because stock analysts are less likely to follow small
companies, less information about them is available to
investors. Industry-wide reversals may have a greater
impact on small companies, since they may lack the financial
resources of larger companies. Small company stocks
are typically less liquid than large company stocks.
Futures risk.
The value of a futures contract tends to
increase and decrease in tandem with the value of the
underlying instrument. Depending on the terms of the
particular contract, futures contracts are settled through
either physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether,
when and how to use futures involves the exercise of skill
and judgment and even a well-conceived futures transaction
may be unsuccessful because of market behavior or
unexpected events. In addition to the derivatives risks
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discussed above, the prices of futures can be highly volatile,
using futures can lower total return and the potential
loss from futures can exceed the fund’s initial investment
in such contracts.
US tax risk
. A fund intends to distribute annually all or
substantially all of its investment company taxable income
and net capital gain. However, should the Chinese government
impose restrictions on the fund’s ability to repatriate
funds associated with direct investments in A-Shares, the
fund may be unable to satisfy distribution requirements
applicable to RICs under the Internal Revenue Code. If the
fund fails to satisfy the distribution requirements necessary
to qualify for treatment as a RIC for any taxable year,
the fund would be treated as a corporation subject to US
federal income tax, thereby subjecting any income earned
by the fund to tax at the corporate level. If the fund fails
to satisfy a separate distribution requirement, it will be
subject to a fund-level excise tax. These fund-level taxes
will apply in addition to taxes payable at the shareholder
level on distributions.
Borrowing risk.
Borrowing creates leverage. It also adds
to fund expenses and at times could effectively force the
fund to sell securities when it otherwise might not want
to.
To the extent that the fund borrows money and then
invests that money, it creates leverage, in that the fund is
exposed to investment risks through the securities it has
pledged for collateral as well as through the investments it
purchases with the money borrowed against that collateral.
This leverage means that changes in the prices of
securities the fund owns will have a greater effect on the
share price of the fund. The fund incurs interest expense
and other costs when it borrows money; therefore, unless
returns on assets acquired with borrowed funds are
greater than the costs of borrowing, performance will be
lower than it would have been without any borrowing.
When the fund borrows money it must comply with
certain asset coverage requirements, which at times may
require the fund to dispose of some of its portfolio holdings
even though it may be disadvantageous to do so at
that time.
Leveraging Risk.
The fund’s investment in futures
contracts and other derivative instruments provide leveraged
exposure. The fund’s investment in these
instruments generally requires a small investment relative
to the amount of investment exposure assumed. As a
result, such investments may give rise to losses that
exceed the amount invested in those instruments. The use
of derivatives and other similar financial instruments may
at times be an integral part of the fund’s investment
strategy and may expose the fund to potentially dramatic
losses (or gains) in the value of a derivative or other financial
instruments and, thus, in the value the fund’s portfolio.
The cost of investing in such instruments generally
increases as interest rates increase, which will lower a
fund’s return.
Underlying funds risk.
To the extent the fund invests a
substantial portion of its assets in one or more Underlying
Funds, the fund’s performance will be directly related to
the performance of an Underlying Fund. The fund’s investments
in other investment companies subject the fund
to the risks affecting those investment companies.
In addition, the fund indirectly pays a portion of the
expenses incurred by an Underlying Fund, which lowers
performance. To the extent that the fund’s allocations favor
an Underlying Fund with higher expenses, the overall cost
of investing paid by the fund will be higher.
The fund is also subject to the risk that an Underlying Fund
may pay a redemption request made by the fund, wholly
or partly, by an in-kind distribution of portfolio securities
rather than in cash. The fund may hold such portfolio securities
until the Advisor determines to dispose of them,
and the fund will bear the market risk of the securities
received in the redemption until their disposition. Upon
disposing of such portfolio securities, the fund may experience
increased brokerage commissions.
An investor in the fund may receive taxable gains from
portfolio transactions by an Underlying Fund, as well as
taxable gains from transactions in shares of the Underlying
Fund held by the fund. As the fund’s allocations to an Underlying
Fund change from time to time, or to the extent that
the expense ratio of an Underlying Fund changes, the
weighted average operating expenses borne by the fund
may increase or decrease.
To the extent the fund invests a substantial portion of its
assets in shares of foreign investment companies,
including but not limited to, ETFs the shares of which are
listed and traded primarily or solely on a foreign securities
exchange, such foreign funds will not be registered as
investment companies with the SEC or subject to the US
federal securities laws. As a result, the fund’s ability to
transfer shares of such foreign funds outside of the foreign
fund’s primary market will be restricted or prohibited.
While such foreign funds may operate similarly to
domestic funds, the fund as an investor in a foreign fund
will not be afforded the same investor protections as are
provided by the US federal securities laws.
When the fund invests in a foreign fund, in addition to
directly bearing the expenses associated with its own
operations, it will bear a pro rata portion of the foreign
fund’s expenses. Further, in part because of these additional
expenses, the performance of a foreign fund may
differ from the performance the fund would achieve if it
invested directly in the underlying investments of the
foreign fund. The fund’s investments in foreign ETFs will
be subject to the risk that the NAV of the foreign fund’s
shares may trade below the fund’s NAV. The NAV of foreign
fund shares will fluctuate with changes in the market value
of the foreign fund’s holdings. The trading prices of foreign
fund shares will fluctuate in accordance with changes in
NAV as well as market supply and demand. The difference
between the bid price and ask price, commonly referred
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to as the
“
spread,
”
will also vary for a foreign ETF
depending on the fund’s trading volume and market
liquidity. Generally, the greater the trading volume and
market liquidity, the smaller the spread is and vice versa.
Any of these factors may lead to a foreign fund’s shares
trading at a premium or a discount to NAV.
Xtrackers MSCI All China Equity ETF
Investment Objective
The Xtrackers MSCI All China Equity ETF (the
“
fund
”
)
seeks investment results that correspond generally to the
performance, before fees and expenses, of the MSCI
China All Shares Index (the
“
Underlying Index
”
).
Principal Investment Strategies
The fund, using a
“
passive
”
or indexing investment
approach, seeks investment results that correspond generally
to the performance, before fees and expenses, of the
Underlying Index, which is designed to capture large- and
mid-capitalization representation across all China securities
listed in Hong Kong, Shanghai and Shenzhen. The Underlying
Index includes A-Shares, H-Shares, B-Shares, Red
chips and P chips share classes, as well as securities of
Chinese companies listed outside of China (e.g. American
depositary receipts). DBX Advisors LLC (the
“
Advisor
”
)
expects that, over time, the correlation between the fund’s
performance and that of the Underlying Index, before fees
and expenses, will be 95% or better. A figure of 100%
would indicate perfect correlation. The fund will not invest
in any unlisted depositary receipt or any depositary receipt
that the Advisor deems illiquid at the time of purchase or
for which pricing information is not readily available.
A-Shares are equity securities issued by companies incorporated
in mainland China and are denominated and traded
in renminbi (
“
RMB
”
) on the Shenzhen and Shanghai Stock
Exchanges. Under current regulations in the People’s
Republic of China (
“
China
”
or the
“
PRC
”
), foreign investors
can invest in the domestic PRC securities markets
through certain market-access programs. These programs
include the Qualified Foreign Institutional Investor (
“
QFII
”
)
or a Renminbi Qualified Foreign Institutional Investor
(
“
RQFII
”
) licenses obtained from the China Securities
Regulatory Commission (
“
CSRC
”
). QFII and RQFII investors
have also registered with China’s State Administration
of Foreign Exchange (
“
SAFE
”
) to invest foreign freely
convertible currencies (in the case of a QFII) and RMB (in
the case of an RQFII) in the PRC for the purpose of
investing in the PRC’s domestic securities markets.
B-Shares are equity securities issued by companies incorporated
in China and are denominated and traded in U.S.
dollars and Hong Kong dollars (
“
HKD
”
) on the Shanghai
and Shenzhen Stock Exchanges, respectively. B-Shares are
available to foreign investors. H-Shares are equity securities
issued by companies incorporated in mainland China
and are denominated and traded in HKD on the Hong Kong
Stock Exchange and other foreign exchanges.
Red chips and P chips are equity securities issued by
companies incorporated outside of mainland China and
listed on the Hong Kong Stock Exchange. Companies that
issue Red chips generally base their businesses in mainland
China and are controlled, either directly or indirectly,
by the state, provincial or municipal governments of the
PRC. Companies that issue P chips generally are nonstate-owned
Chinese companies incorporated outside of
mainland China that satisfy the following criteria: (i) the
company is controlled by PRC individuals, (ii) the company
derives more than 80% of its revenue from the PRC and
(iii) the company allocates more than 60% of its assets in
the PRC.
The Advisor expects to use a representative sampling
indexing strategy to seek to track the Underlying Index. As
such, the Advisor expects to invest in a representative
sample of the component securities of the Underlying
Index that collectively has an investment profile similar to
the Underlying Index. The securities selected are expected
to have, in the aggregate, investment characteristics
(based on factors such as market capitalization and
industry weightings), fundamental characteristics (such as
return variability and yield), and liquidity measures similar
to those of the Underlying Index. The Advisor expects to
obtain exposure to the A-Share components of the Underlying
Index indirectly by investing in the Xtrackers MSCI
China A Inclusion Equity ETF (the
“
Underlying Fund
”
). The
Advisor may also invest in Xtrackers Harvest CSI 300
China A-Shares ETF and Xtrackers Harvest CSI 500 China
A-Shares Small Cap ETF (the
“
Xtrackers Harvest ETFs
”
, and
together with the Underlying Fund, the
“
Xtrackers China
A-Shares ETFs
”
) or other affiliated funds advised by the
Advisor and sub-advised by Harvest Global Investments
Limited (
“
HGI
”
), a licensed RQFII, that invests in A-Shares
directly. Currently, the fund invests in the Underlying Fund.
The fund does not currently intend to invest in A-Shares
directly. To obtain exposure to the balance of the Underlying
Index, the Advisor intends to invest directly in the
components of the Underlying Index. The Underlying Fund
may invest in A-Shares and other permitted China securities
listed on the Shanghai and Shenzhen Stock Exchanges
through the Shanghai-Hong Kong Stock Connect program
(
“
Shanghai Connect
”
) or the Shenzhen-Hong Kong Stock
Connect program (
“
Shenzhen Connect,
”
and together with
Shanghai Connect,
“
Stock Connect
”
). Stock Connect is a
securities trading and clearing program between either the
Shanghai Stock Exchange or Shenzhen Stock Exchange
and The Stock Exchange of Hong Kong Limited (
“
SEHK
”
),
China Securities Depository and Clearing Corporation
Limited and Hong Kong Securities Clearing Company
Limited. Stock Connect is designed to permit mutual stock
market access between mainland China and Hong Kong
by allowing investors to trade and settle shares on each
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market via their local exchanges. Trading through Stock
Connect is subject to a daily quota (
“
Daily Quota
”
), which
limits the maximum net purchases on any particular day
by Hong Kong investors (and foreign investors trading
through Hong Kong) trading PRC listed securities and PRC
investors trading Hong Kong listed securities trading
through the relevant Stock Connect, and as such, buy
orders for A-Shares would be rejected once the Daily
Quota is exceeded (although a fund will be permitted to
sell A-Shares regardless of the Daily Quota balance). The
Daily Quota is not specific to any fund, but to all investors
investing through the Stock Connect.
The Xtrackers Harvest ETFs, through their subadvisor, may
invest in A-Shares and other permitted China securities
listed on the Shanghai and Shenzhen Stock Exchanges via
the RQFII license of HGI. The Xtrackers Harvest ETFs may
also invest in A-Shares listed and traded on Stock Connect.
The Underlying Fund invests directly in A-Shares through
Stock Connect. Under Stock Connect, the Underlying
Fund’s trading of eligible A-Shares listed on the SSE or the
SZSE, as applicable, would be effectuated through the
Advisor. Additionally, the Xtrackers Harvest ETFs’ direct
investments in A-Shares will be limited in part by the Daily
Quota applicable to Stock Connect. Investment companies
are not currently within the types of entities that are
eligible for an RQFII or QFII license. Because the Underlying
Fund does not satisfy the criteria to qualify as an
RQFII or QFII itself, the Underlying Fund intends to invest
directly in A-Shares via Stock Connect and, in the future,
may also utilize any QFII or RQFII license applied for by and
granted to the Advisor and/or a subadvisor.
The fund will normally invest at least 80% of its total
assets in securities of issuers that comprise either directly
or indirectly the Underlying Index or securities with
economic characteristics similar to those included in the
Underlying Index. While the fund intends to invest primarily
in H-Shares, B-Shares, Red chips, P chips, and shares of
the Underlying Fund, the fund also may invest in securities
of issuers not included in the Underlying Index, the
Xtrackers Harvest ETFs, futures contracts, stock index
futures, swap contracts and other types of derivative instruments,
and other pooled investment vehicles, including
affiliated and/or foreign investment companies, that the
Advisor believes will help the fund to achieve its investment
objective. The remainder of the fund’s assets will be
invested primarily in money market instruments and cash
equivalents. Under normal circumstances, the fund invests
at least 80% of its net assets, plus the amount of any
borrowings for investment purposes, in the equity securities
of Chinese companies or in derivative instruments and
other securities that provide investment exposure to
Chinese companies.
As of July 31, 2020, the Underlying Index consisted of 748
securities with an average market capitalization of approximately
$5.19 billion and a minimum market capitalization
of approximately $538 million. Under normal circumstances,
the Underlying Index is rebalanced on a quarterly
basis, usually as of the close of the last business day of
February, May, August, and November. The pro forma
Underlying Index is generally announced nine business
days before the effective date. The fund rebalances its portfolio
in accordance with the Underlying Index, and,
therefore, any changes to the Underlying Index’s rebalance
schedule will result in corresponding changes to the fund’s
rebalance schedule.
The fund will concentrate its investments (i.e., hold 25%
or more of its total assets) in a particular industry or group
of industries to the extent that the Underlying Index is
concentrated.
As of July 31, 2020, a significant percentage
of the Underlying Index was comprised of issuers in the
consumer discretionary (23.9%), financial services (16.6%)
and communication services (15.6%) sectors. The
consumer discretionary goods sector includes durable
goods, apparel, entertainment and leisure, and automobiles.
The financial services sector includes companies
involved in banking, consumer finance, asset management
and custody banks, as well as investment banking and
brokerage and insurance. The communication services
sector includes companies that facilitate communication
and offer related content and information through various
mediums. It includes telecom and media and entertainment
companies including producers of interactive gaming
products and companies engaged in content and information
creation or distribution through proprietary
platforms. To the extent that the fund tracks the Underlying
Index, the fund’s investment in certain sectors may
change over time.
The Advisor intends to pursue a representative sampling
indexing strategy to achieve exposure to the fund’s Underlying
Index, and to invest in shares of Xtrackers China
A-Shares ETFs to obtain indirect exposure to the A-Share
components of the fund’s Underlying Index. While
employing a representative sampling indexing strategy the
Advisor does not expect the fund to hold all of the components
of the Underlying Index. In addition, from time to
time, the Advisor may choose to underweight or overweight
a security in the Underlying Index, purchase
securities not included in the Underlying Index that the
Advisor believes are appropriate to substitute for certain
securities in the Underlying Index, or utilize various combinations
of other available investment techniques to seek
to track, before fees and expenses, the performance of the
Underlying Index. The Advisor may also sell securities that
are represented in the Underlying Index in anticipation of
their removal from the Underlying Index or purchase securities
not represented in the Underlying Index in
anticipation of their addition to the Underlying Index.
The fund may invest its assets in other securities,
including, but not limited to: (i) swap contracts, (ii) interests
in pooled investment vehicles, including affiliated and
foreign funds (certain funds may not be registered under
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the Investment Company Act of 1940, as amended (the
“
1940 Act
”
) and therefore, not subject to the same
investor protections as the fund), (iii) securities not in the
Underlying Index, including: (a) depositary receipts (depositary
receipts, including American depositary receipts
(
“
ADRs
”
) may be used by the fund in seeking performance
that corresponds to the fund’s Underlying Index and in
managing cash flows, and they may count towards compliance
with the fund’s 80% investment policies) and (b)
H-Shares, which are shares of a company incorporated in
mainland China that are denominated in Hong Kong dollars
and listed on the Hong Kong Stock Exchange or other
foreign exchanges, (iv) cash and cash equivalents, (v)
money market instruments, such as repurchase agreements
or money market funds (including money market
funds advised by the Advisor, HGI or their affiliates subject
to applicable limitations under the 1940 Act, or exemptions
therefrom), (vi) convertible securities, (vii) structured
notes (notes on which the amount of principal repayment
and interest payments are based on the movement of one
or more specified factors, such as the movement of a
particular stock or stock index), and (viii) futures contracts,
options on futures contracts, and other types of options
related to the Underlying Index. A futures contract is a
standardized exchange-traded agreement to buy or sell a
specific quantity of an underlying instrument at a specific
price at a specific future time.
The fund or securities referred to herein are not sponsored,
endorsed, issued, sold or promoted by MSCI, and
MSCI bears no liability with respect to the fund or securities
or any index on which the fund or securities are based.
The Prospectus contains a more detailed description of
the limited relationship MSCI has with DBX Advisors LLC
and any related funds.
Securities lending.
The fund may lend its portfolio securities
to brokers, dealers and other financial institutions
desiring to borrow securities to complete transactions and
for other purposes. In connection with such loans, the
fund receives liquid collateral equal to at least 102% of the
value of the portfolio securities being lent. This collateral
is marked to market on a daily basis. The fund may lend its
portfolio securities in an amount up to 33 1/3% of its total
assets.
Underlying Index Information
Xtrackers MSCI All China Equity ETF
Index
Description.
The Underlying Index is a rules-based, free-float adjusted
market capitalization index comprised of equity securities
that are listed in Hong Kong, Shanghai and Shenzhen.
The Underlying Index is intended to give investors a
means of tracking the overall performance of equity securities
that are a representative sample of the entire Chinese
investment universe. The Underlying Index is comprised of
A-Shares, B-Shares, H-Shares, Red chips and P chips
share classes as well as securities of Chinese companies
listed in the US and Singapore. Securities listed in the US
and Singapore are considered to be Chinese companies if
they satisfy two out of three of the following criteria: (i)
the company is based in the PRC; (ii) the company derives
more than 50% of its revenue from activities conducted
in the PRC; and (iii) the company has more than 50% of its
assets in the PRC. As of July 31, 2020, the Underlying
Index consisted of 748 securities with an average market
capitalization of approximately $5.19 billion and a minimum
market capitalization of approximately $538 million. These
amounts are subject to change.
To be eligible for inclusion in the Underlying Index, a security
must have adequate liquidity measured by 12-month
and three-month trading volume. Constituent stocks for
the Underlying Index must have been listed for more than
three months prior to the implementation of a semi-annual
index review by the Index Provider, unless the stock meets
certain size-segment investability and full market capitalization
requirements as defined by the Index Provider.
The Underlying Index is rebalanced on a quarterly basis,
usually as of the close of the last business day of February,
May, August, and November. The pro forma Underlying
Index is generally announced nine business days before
the effective date.
During extraordinary market conditions, the Index Provider
may delay any scheduled rebalancing of the Underlying
Index. During any such delay it is possible that the Underlying
Index will deviate from the Underlying Index’s stated
methodology.
Main Risks
As with any investment, you could lose all or part of your
investment in the fund, and the fund’s performance could
trail that of other investments. The fund is subject to the
main risks noted below, any of which may adversely affect
the fund’s net asset value (
“
NAV
”
), trading price, yield,
total return and ability to meet its investment objective.
Because the fund invests in one or more Underlying
Funds, the risks listed here include those of the Underlying
Funds as well as those of the fund itself. Therefore, in
these risk descriptions the term
“
the fund
”
may refer to
the fund itself, one or more Underlying Funds, or both.
Stock market risk.
When stock prices fall, you should
expect the value of your investment to fall as well. Stock
prices can be hurt by poor management on the part of the
stock’s issuer, shrinking product demand and other business
risks. These may affect single companies as well as
groups of companies. The market as a whole may not favor
the types of investments the fund makes, which could
adversely affect a stock’s price, regardless of how well the
company performs, or the fund’s ability to sell a stock at
an attractive price. There is a chance that stock prices
overall will decline because stock markets tend to move in
cycles, with periods of rising and falling prices. Events in
the US and global financial markets, including actions
taken by the US Federal Reserve or foreign central banks
to stimulate or stabilize economic growth, may at times
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result in unusually high market volatility which could negatively
affect performance. To the extent that the fund
invests in a particular geographic region, capitalization or
sector, the fund’s performance may be affected by the
general performance of that region, capitalization or sector.
Market disruption risk.
Geopolitical and other events,
including war, terrorism, economic uncertainty, trade
disputes, public health crises and related geopolitical
events have led, and in the future may lead, to disruptions
in the US and world economies and markets, which may
increase financial market volatility and have significant
adverse direct or indirect effects on the fund and its investments.
Market disruptions could cause the fund to lose
money, experience significant redemptions, and encounter
operational difficulties. Although multiple asset classes
may be affected by a market disruption, the duration and
effects may not be the same for all types of assets.
Recent market disruption events include the pandemic
spread of the novel coronavirus known as COVID-19, and
the significant uncertainty, market volatility, decreased
economic and other activity and increased government
activity that it has caused. Specifically, COVID-19 has led
to significant death and morbidity, and concerns about
its further spread have resulted in the closing of schools
and non-essential businesses, cancellations, shelter-in-place
orders, lower consumer spending in certain sectors,
social distancing, bans on large social gatherings and
travel, quarantines, government economic stimulus
measures, reduced productivity, rapid increases in unemployment,
increased demand for and strain on government
and medical resources, border closings and global trade
and supply chain interruptions, among others. The full
effects, duration and costs of the COVID-19 pandemic are
impossible to predict, and the circumstances surrounding
the COVID-19 pandemic will continue to evolve. The
pandemic may affect certain countries, industries,
economic sectors, companies and investment products
more than others, may exacerbate existing economic,
political, or social tensions and may increase the probability
of an economic recession or depression. The fund and its
investments may be adversely affected by the effects of
the COVID-19 pandemic, and a prolonged pandemic may
result in the fund and its service providers experiencing
operational difficulties in coordinating a remote workforce
and implementing their business continuity plans, among
others.
Risk of investing in China.
Investments in China involve
certain risks and special considerations, including the
following:
Investments in A-Shares.
The fund intends to invest
directly in A-Shares through Stock Connect or the available
RQFII license, as applicable. In the future, the fund may
utilize an RQFII license applied for by and granted to the
Advisor and/or a subadvisor. Because the fund will not be
able to invest directly in A-Shares beyond the limits that
may be imposed by Stock Connect, the size of the fund’s
direct investments in A-Shares may be limited. In addition,
restrictions may be imposed on the repatriation of gains
and income that may affect the fund’s ability to satisfy
redemption requests. Currently, there are two stock
exchanges in mainland China, the SSE and the SZSE. The
Shanghai and Shenzhen Stock Exchanges are supervised
by the China Securities Regulatory Commission (
“
CSRC
”
)
and are highly automated with trading and settlement
executed electronically. The SSE and SZSE are substantially
smaller, less liquid, and more volatile than the major
securities markets in the US.
The SSE commenced trading on December 19, 1990, and
the SZSE commenced trading on July 3, 1991. The SSE
and SZSE divide listed shares into two classes: A-Shares
and B-Shares. Companies whose shares are traded on the
SSE and SZSE that are incorporated in mainland China
may issue both A-Shares and B-Shares. In China, the
A-Shares and B-Shares of an issuer may only trade on one
exchange. A-Shares and B-Shares may both be listed on
either the SSE or SZSE. Both classes represent an ownership
interest comparable to a share of common stock and
all shares are entitled to substantially the same rights and
benefits associated with ownership. A-Shares are traded
on SSE and SZSE in RMB.
As of October 31, 2019, the CSRC had granted licenses to
244 RQFIIs and to 313 QFIIs to invest in A-Shares and
other permitted Chinese securities. Because restrictions
continue to exist and capital therefore cannot flow freely
into the A-Share market, it is possible that in the event of a
market disruption, the liquidity of the A-Share market and
trading prices of A-Shares could be more severely affected
than the liquidity and trading prices of markets where securities
are freely tradable and capital therefore flows more
freely. The fund cannot predict the nature or duration of
such a market disruption or the impact that it may have on
the A-Share market and the short-term and long-term prospects
of its investments in the A-Share market.
The Chinese government has in the past taken actions
that benefited holders of A-Shares. As A-Shares become
more accessible to foreign investors, such as the funds,
the Chinese government may be less likely to take action
that would benefit holders of A-Shares. In addition, there is
no guarantee that any existing RQFII license will be maintained
if the RQFII license is revoked by CSRC at some
point in the future. The fund cannot predict what would
occur if the Stock Connect program was terminated, or if
the relevant RQFII license were to be revoked, although
such an occurrence would likely have a material adverse
effect on the fund.
Currently, the fund does not expect to invest in A-Shares
directly. Instead, the fund will invest primarily in the Underlying
Fund to obtain investment exposure to A-Shares.
The fund may also invest in the Xtrackers Harvest ETFs.
The fund’s A-Shares investment exposure may be limited
by the limits that may be imposed by Stock Connect.
Because the Xtrackers China A-Shares ETFs invest directly
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in A-Shares, they are subject to the risk that restrictions
may be imposed on the repatriation of gains and income
that may affect their ability to satisfy redemption requests.
The potential inability of the Xtrackers China A-Shares
ETFs to satisfy redemption requests could adversely affect
the liquidity and performance of the fund.
On May 7, 2020, the People’s Bank of China (
“
PBOC
”
) and
SAFE jointly issued the Regulations on Funds of Securities
and Futures Investment by Foreign Institutional
Investors (PBOC & SAFE Announcement [2020] No. 2)
(the
“
Regulations
”
) which came into effect on June 6,
2020. The Regulations supersede certain post-registration
rules applicable to QFII and RQFII regimes. One of the
key changes of the Regulations is the removal of quota
restrictions on investment. However, as of the date of this
prospectus, this is a relatively new development, and
there is no guarantee that the quotas will continue to be
relaxed.
Custody risks of investing in A-Shares under the RQFII
program.
If the fund invests directly in A-Shares under the
RQFII program, the fund is required to select a PRC
sub-custodian (the
“
PRC sub- custodian
”
), which is a mainland
commercial bank qualified both as a custodian for
RQFII and as a settlement agent on the inter-bank bond
market. The PRC sub-custodian maintains the fund’s RMB
deposit accounts and oversees the fund’s investments
in A-Shares in the PRC to ensure their compliance with the
rules and regulations of the CSRC and the People’s Bank
of China. A-Shares that are traded on the SSE and SZSE
are dealt and held in book-entry form through the CSDCC.
A-Shares purchased by the subadvisor, in their capacity
as an RQFII, on behalf of the fund, may be received by the
CSDCC as credited to a securities trading account maintained
by the PRC sub-custodian in the names of the fund
and the subadvisor as the RQFII. A fund will pay the cost
of the account. The subadvisor may not use the account for
any other purpose than for maintaining the fund’s assets.
However, given that the securities trading account will
be maintained in the name of the subadvisor for the
benefit of the fund, the fund’s assets may not be as well
protected as they would be if it were possible for them to
be registered and held solely in the name of the fund. In
particular, there is a risk that creditors of the subadvisor
may assert that the securities are owned by the subadvisor
and not the fund, and that a court would uphold such an
assertion, in which case creditors of the subadvisor could
seize assets of the fund. Because the subadvisor’s RQFII
license would be in the name of the subadvisor rather than
the fund, there is also a risk that regulatory actions taken
against the subadvisor by PRC government authorities may
affect the fund.
Investors should note that cash deposited in the fund’s
account with the PRC sub-custodian will not be segregated
but will be a debt owing from the PRC sub-custodian
to the fund as a depositor. Such cash will be co-mingled
with cash belonging to other clients of the PRC
sub-custodian. In the event of bankruptcy or liquidation of
the PRC sub-custodian, the fund will not have any proprietary
rights to the cash deposited in the account, and the
fund will become an unsecured creditor, ranking pari passu
with all other unsecured creditors, of the PRC
sub-custodian. A fund may face difficulty and/or encounter
delays in recovering such debt, or may not be able to
recover it in full or at all, in which case the fund will suffer
losses.
Risks of investing through Stock Connect.
Trading through
Stock Connect is subject to a number of restrictions that
may affect the fund’s investments and returns. Although
no individual investment quotas or licensing requirements
apply to investors in Stock Connect, trading through Stock
Connect is subject to a daily quota (
“
Daily Quota
”
), which
limits the maximum net purchases on any particular day by
Hong Kong investors (and foreign investors trading
through Hong Kong) trading PRC listed securities and PRC
investors trading Hong Kong listed securities trading
through the relevant Stock Connect. The Daily Quota does
not belong to the fund and is utilized by all investors on
a first-come-first- serve basis. As such, buy orders for
A-Shares would be rejected once the Daily Quota is
exceeded (although the fund will be permitted to sell
A-Shares regardless of the Daily Quota balance). The Daily
Quota may restrict the fund’s ability to invest in A-Shares
through Stock Connect on a timely basis, which could
affect the fund’s ability to effectively pursue its investment
strategy. The Daily Quota is also subject to change.
In addition, investments made through Stock Connect are
subject to trading, clearance and settlement procedures
that are relatively untested in the PRC, which could pose
risks to the fund. Moreover, A-Shares through Stock
Connect (
“
Stock Connect A-Shares
”
) generally may not be
sold, purchased or otherwise transferred other than
through Stock Connect in accordance with applicable rules.
While A-shares must be designated as eligible to be
traded under Stock Connect (such eligible A-Shares listed
on the SSE, the
“
SSE Securities,
”
and such eligible
A-Shares listed on the SZSE, the
“
SZSE Securities
”
), those
A-Shares may also lose such designation, and if this
occurs, such A-Shares may be sold but could no longer be
purchased through Stock Connect. With respect to sell
orders under Stock Connect, the Stock Exchange of Hong
Kong (
“
SEHK
”
) carries out pre-trade checks to ensure an
investor has sufficient A-Shares in its account before the
market opens on the trading day. Accordingly, if there are
insufficient A-Shares in an investor’s account before the
market opens on the trading day, the sell order will be
rejected, which may adversely impact the funds’
performance.
In addition, Stock Connect will only operate on days when
both the Chinese and Hong Kong markets are open for
trading and when banking services are available in both
markets on the corresponding settlement days. Therefore,
an investment in A- Shares through Stock Connect may
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subject the fund to the risk of price fluctuations on days
when the Chinese markets are open, but Stock Connect is
not trading. Each of the SEHK, SSE and SZSE reserves
the right to suspend trading under Stock Connect under
certain circumstances. Where such a suspension of trading
is effected, the fund’s ability to access A-Shares through
Stock Connect will be adversely affected. In addition, if one
or both of the Chinese and Hong Kong markets are closed
on a US trading day, the fund may not be able to acquire or
dispose of A-Shares through Stock Connect in a timely
manner, which could adversely affect the fund’s
performance.
The fund’s investments in A-Shares though Stock Connect
are held by its custodian in accounts in Central Clearing
and Settlement System (
“
CCASS
”
) maintained by the
Hong Kong Securities Clearing Company Limited
(
“
HKSCC
”
), which in turn holds the A-Shares, as the
nominee holder, through an omnibus securities account in
its name registered with the China Securities Depository
and Clearing Corporation Limited (
“
CSDCC
”
). The precise
nature and rights of each fund as the beneficial owner of
the SSE Securities or SZSE Securities through HKSCC as
nominee is not well defined under PRC law. There is a lack
of a clear definition of, and distinction between, legal
ownership and beneficial ownership under PRC law and
there have been few cases involving a nominee account
structure in the PRC courts. The exact nature and methods
of enforcement of the rights and interests of each fund
under PRC law is also uncertain. In the unlikely event that
HKSCC becomes subject to winding up proceedings in
Hong Kong, there is a risk that the SSE Securities or SZSE
Securities may not be regarded as held for the beneficial
ownership of each fund or as part of the general assets of
HKSCC available for general distribution to its creditors.
Notwithstanding the fact that HKSCC does not claim proprietary
interests in the SSE Securities or SZSE Securities
held in its omnibus stock account in the CSDCC, the
CSDCC as the share registrar for SSE- or SZSE-listed
companies will still treat HKSCC as one of the shareholders
when it handles corporate actions in respect of
such SSE Securities or SZSE Securities. HKSCC monitors
the corporate actions affecting SSE Securities and SZSE
Securities and keeps participants of CCASS informed of all
such corporate actions that require CCASS participants
to take steps in order to participate in them. A fund will
therefore depend on HKSCC for both settlement and notification
and implementation of corporate actions.
The HKSCC is responsible for the clearing, settlement and
the provisions of depositary, nominee and other related
services of the trades executed by Hong Kong market
participants and investors. Accordingly, investors do not
hold SSE Securities or SZSE Securities directly – they are
held through their brokers’ or custodians’ accounts with
CCASS. The HKSCC and the CSDCC establish clearing
links and each has become a participant of the other to
facilitate clearing and settlement of cross-border trades.
Should CSDCC default and the CSDCC be declared as a
defaulter, HKSCC’s liabilities in Stock Connect under its
market contracts with clearing participants will be limited
to assisting clearing participants in pursuing their claims
against the CSDCC. In that event, the fund may suffer
delays in the recovery process or may not be able to fully
recover its losses from the CSDCC.
Market participants are able to participate in Stock Connect
subject to meeting certain information technology capability,
risk management and other requirements as may be
specified by the relevant exchange and/or clearing house.
Further, the
“
connectivity
”
in Stock Connect requires the
routing of orders across the borders of Hong Kong and the
PRC. This requires the development of new information
technology systems on the part of the SEHK and exchange
participants. There is no assurance that these systems
will function properly or will continue to be adapted to
changes and developments in both markets. In the event
that the relevant systems fail to function properly, trading
in A-Shares through Stock Connect could be disrupted, and
the fund’s ability to achieve its investment objective may
be adversely affected.
A primary feature of Stock Connect is the application of
the home market’s laws and rules applicable to investors
in A-Shares. Therefore, the fund’s investments in Stock
Connect A-Shares are generally subject to PRC securities
regulations and listing rules, among other restrictions.
Finally, according to Caishui [2014] 81 (
“
Circular 81
”
) and
Caishui [2016] 127 (
“
Circular 127
”
), while foreign investors
are exempted from paying capital gains or business taxes
(later, value-added taxes) on income and gains from investments
in Stock Connect A-Shares, these PRC tax rules
could be changed, which could result in unexpected tax
liabilities for the fund. Dividends derived from A-Shares are
subject to a 10% PRC withholding income tax generally.
PRC stamp duty is also payable for transactions in
A-Shares through Stock Connect. Currently, PRC stamp
duty on A-Shares transactions is only imposed on the
seller, but not on the purchaser, at the tax rate of 0.1% of
the total sales value.
Circular 81 and Circular 127 stipulate that PRC business
tax (and, subsequently, PRC value-added tax) is temporarily
exempted on capital gains derived by Hong Kong market
participants (including the fund) from the trading of
A-Shares through Stock Connect. According to Caishui
[2016] No. 36, the PRC value- added tax reform in the PRC
will be expanded to all industries, including financial
services, starting May 1, 2016. The PRC business tax
exemption prescribed in Circular 81 is grandfathered under
the value-added tax regime.
The Stock Connect program is a relatively new program.
Further developments are likely and there can be no assurance
as to the program’s continued existence or whether
future developments regarding the program may restrict or
adversely affect the fund’s investments or returns. In addition,
the application and interpretation of the laws and
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regulations of Hong Kong and the PRC, and the rules, policies
or guidelines published or applied by relevant
regulators and exchanges in respect of the Stock Connect
program are uncertain, and they may have a detrimental
effect on the fund’s investments and returns.
Political and economic risk.
The economy of China, which
has been in a state of transition from a planned economy
to a more market oriented economy, differs from the
economies of most developed countries in many respects,
including the level of government involvement, its state
of development, its growth rate, control of foreign
exchange, and allocation of resources. Although the
majority of productive assets in China are still owned by
the PRC government at various levels, in recent years, the
PRC government has implemented economic reform
measures emphasizing utilization of market forces in the
development of the economy of China and a high level
of management autonomy. The economy of China has
experienced significant growth in recent decades, but
growth has been uneven both geographically and among
various sectors of the economy. Economic growth has also
been accompanied by periods of high inflation. The PRC
government has implemented various measures from time
to time to control inflation and restrain the rate of
economic growth.
For several decades, the PRC government has carried out
economic reforms to achieve decentralization and utilization
of market forces to develop the economy of the
PRC. These reforms have resulted in significant economic
growth and social progress. However, there can be no
assurance that the PRC government will continue to
pursue such economic policies or that such policies, if
pursued, will be successful. Any adjustment and modification
of those economic policies may have an adverse
impact on the securities markets in the PRC as well as the
constituent securities of the Underlying Index. Further,
the PRC government may from time to time adopt corrective
measures to control the growth of the PRC economy
which may also have an adverse impact on the capital
growth and performance of the fund.
Political changes, social instability and adverse diplomatic
developments in the PRC could result in the imposition
of additional government restrictions including expropriation
of assets, confiscatory taxes or nationalization of
some or all of the property held by the issuers of the
A-Shares in the fund’s Underlying Index. The laws, regulations,
including the investment regulations, government
policies and political and economic climate in China may
change with little or no advance notice. Any such change
could adversely affect market conditions and the performance
of the Chinese economy and, thus, the value of
securities in the fund’s portfolio.
The Chinese government continues to be an active participant
in many economic sectors through ownership
positions and regulations. The allocation of resources in
China is subject to a high level of government control. The
Chinese government strictly regulates the payment of
foreign currency denominated obligations and sets
monetary policy. Through its policies, the government may
provide preferential treatment to particular industries or
companies. The policies set by the government could have
a substantial effect on the Chinese economy and the
fund’s investments.
The Chinese economy is export-driven and highly reliant
on trade. The performance of the Chinese economy may
differ favorably or unfavorably from the US economy in
such respects as growth of gross domestic product, rate
of inflation, currency depreciation, capital reinvestment,
resource self- sufficiency and balance of payments position.
The domestic consumer class in China is still
emergent, while the economy's dependence on exports
may not be sustainable. Adverse changes to the economic
conditions of its primary trading partners, such as the European
Union, the US, Hong Kong, the Association of South
East Asian Nations, and Japan, would adversely affect the
Chinese economy and the fund’s investments.
In addition, as much of China’s growth over recent decades
has been a result of significant investment in substantial
export trade, international trade tensions may arise from
time to time which can result in trade tariffs, embargoes,
trade limitations, trade wars and other negative consequences.
The current political climate has intensified
concerns about trade tariffs and a potential trade war
between China and the US. These consequences may
trigger a significant reduction in international trade, the
oversupply of certain manufactured goods, substantial
price reductions of goods and possible failure of individual
companies and/or large segments of China’s export
industry with a potentially severe negative impact to the
fund. In addition, it is possible that the continuation or worsening
of the current political climate could result in
regulatory restrictions being contemplated or imposed in
the US or in China that could have a material adverse effect
on the fund’s ability to invest in accordance with its investment
policies and/or achieve its investment objective. In
July 2020, the President’s Working Group on Financial
Markets (the
“
PWG
”
) proposed a number of regulatory
changes aimed at addressing potential risks to US investors
from investments in issuers that provide limited
access to their financial statements, including Chinese
companies. The PWG’s proposals included having the SEC
consider encouraging or requiring US registered funds to
conduct additional due diligence on an index’s exposure to
such issuers and how the index provider addresses
concerns arising from limited availability of such issuers’
financial information. If the SEC adopts these proposals,
they could have a material adverse effect on the fund’s
ability to continue tracking the Underlying Index. Events
such as these are difficult to predict and may or may not
occur in the future.
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China has been transitioning to a market economy since
the late seventies, and has only recently opened up to
foreign investment and permitted private economic
activity. Under the economic reforms implemented by the
Chinese government, the Chinese economy has experienced
tremendous growth, developing into one of the
largest and fastest growing economies in the world. There
is no assurance, however, that the Chinese government
will not revert to the economic policy of central planning
that it implemented prior to 1978 or that such growth will
be sustained in the future. Moreover, the current major
slowdown in other significant economies of the world,
such as the US, the European Union and certain Asian
countries, may adversely affect economic growth in China.
An economic downturn in China would adversely impact
the fund’s investments.
From time to time, and as recently as early 2020 with the
coronavirus known as COVID-19, China has experienced
outbreaks of infectious illnesses, and the country may be
subject to other infectious illnesses, diseases or other
public health emergencies in the future. Any public health
emergency could reduce consumer demand or economic
output, result in market closures, travel restrictions or
quarantines, and generally have a significant impact on the
Chinese economy, which in turn could adversely affect
the fund’s investments.
Inflation.
Economic growth in China has historically been
accompanied by periods of high inflation. Beginning in
2004, the Chinese government commenced the implementation
of various measures to control inflation, which
included the tightening of the money supply, the raising of
interest rates and more stringent control over certain industries.
If these measures are not successful, and if inflation
were to steadily increase, the performance of the Chinese
economy and the fund’s investments could be adversely
affected.
Nationalization and expropriation.
After the formation of
the Chinese socialist state in 1949, the Chinese government
renounced various debt obligations and nationalized
private assets without providing any form of compensation.
There can be no assurance that the Chinese
government will not take similar actions in the future.
Accordingly, an investment in the fund involves a risk of a
total loss.
Hong Kong policy.
As part of Hong Kong’s transition from
British to Chinese sovereignty in 1997, China agreed to
allow Hong Kong to maintain a high degree of autonomy
with regard to its political, legal and economic systems for
a period of at least 50 years. China controls matters that
relate to defense and foreign affairs. Under the agreement,
China does not tax Hong Kong, does not limit the
exchange of the Hong Kong dollar for foreign currencies
and does not place restrictions on free trade in Hong Kong.
However, there is no guarantee that China will continue
to honor the agreement, and China may change its policies
regarding Hong Kong at any time. As of July 2020, the
Chinese Standing Committee of the National People's
Congress enacted the Law of the People's Republic of
China on Safeguarding National Security in the Hong Kong
Special Administrative Region. As of the same month,
Hong Kong is no longer afforded preferential economic
treatment by the United States under US law, and there is
uncertainty as to how the economy of Hong Kong will be
affected. Any further changes in China's policies could
adversely affect market conditions and the performance of
the Chinese economy and, thus, the value of securities
in the fund’s portfolio.
Chinese securities markets.
The securities markets in
China have a limited operating history and are not as
developed as those in the US. The markets tend to be
smaller in size, have less liquidity and historically have had
greater volatility than markets in the US and some other
countries. In addition, under normal market conditions,
there is less regulation and monitoring of Chinese securities
markets and the activities of investors, brokers and
other participants than in the US. Accordingly, issuers of
securities in China are not subject to the same degree of
regulation as are US issuers with respect to such matters
as insider trading rules, tender offer regulation, stockholder
proxy requirements and the requirements mandating
timely disclosure of information. During periods of significant
market volatility, the Chinese government has, from
time to time, intervened in its domestic securities markets
to a greater degree than would be typical in more developed
markets, including both direct and indirect market
stabilization efforts, which may affect valuations of Chinese
issuers. Stock markets in China are in the process of
change and further development. This may lead to trading
volatility, difficulty in the settlement and recording of transactions
and difficulty in interpreting and applying the
relevant regulations.
Available disclosure about Chinese companies.
Chinese
companies are required to follow Chinese accounting standards
and practices, which only follow international
accounting standards to a certain extent. However, the
accounting, auditing and financial reporting standards and
practices applicable to PRC companies may be less
rigorous, and there may be significant differences between
financial statements prepared in accordance with Chinese
accounting standards and practice and those prepared in
accordance with international accounting standards. In
particular, the assets and profits appearing on the financial
statements of a Chinese issuer may not reflect its financial
position or results of operations in the way they would
be reflected had such financial statements been prepared
in accordance with US Generally Accepted Accounting
Principles. The quality of audits in China may be unreliable,
which may require enhanced procedures. Consequently,
the fund may not be provided the same degree of protection
or information as would generally apply in developed
countries and the fund may be exposed to significant
losses. There is also substantially less publicly available
information about Chinese issuers than there is about US
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issuers. Therefore, disclosure of certain material information
may not be made, and less information may be
available to the fund and other investors than would be the
case if the fund’s investments were restricted to securities
of US issuers.
Chinese corporate and securities law.
The regulations
which regulate investments by RQFIIs in the PRC and the
repatriation of capital from RQFII investments are relatively
new. As a result, the application and interpretation of such
investment regulations are therefore relatively untested. In
addition, PRC authorities and regulators have broad discretion
under such investment regulations and there is little
precedent or certainty evidencing how such discretion will
be exercised now or in the future.
The fund’s rights with respect to its investments in
A-Shares (as applicable), if any, generally will not be
governed by US law, and instead will generally be
governed by Chinese law. China operates under a civil law
system, in which court precedent is not binding. Because
there is no binding precedent to interpret existing statutes,
there is uncertainty regarding the implementation of
existing law.
Legal principles relating to corporate affairs and the validity
of corporate procedures, directors’ fiduciary duties and
liabilities and stockholders’ rights often differ from those
that may apply in the US and other countries. Chinese laws
providing protection to investors, such as laws regarding
the fiduciary duties of officers and directors, are undeveloped
and will not provide investors, such as the fund,
with protection in all situations where protection would be
provided by comparable laws in the US. China lacks a
national set of laws that address all issues that may arise
with regard to a foreign investor such as the fund. It may
therefore be difficult for the fund to enforce its rights as an
investor under Chinese corporate and securities laws, and
it may be difficult or impossible for the fund to obtain a
judgment in court. Moreover, as Chinese corporate and
securities laws continue to develop, these developments
may adversely affect foreign investors, such as the fund.
Sanctions and embargoes.
From time to time, certain of
the companies in which the fund expects to invest may
operate in, or have dealings with, countries subject to sanctions
or embargoes imposed by the US government and
the United Nations and/or countries identified by the US
government as state sponsors of terrorism. A company
may suffer damage to its reputation if it is identified as a
company which operates in, or has dealings with, countries
subject to sanctions or embargoes imposed by the
US government and the United Nations and/or countries
identified by the US government as state sponsors of
terrorism. As an investor in such companies, the fund will
be indirectly subject to those risks.
Tax on retained income and gains.
To the extent the fund
does not distribute to shareholders all or substantially all of
its investment company taxable income and net capital
gain in a given year, it will be required to pay US federal
income tax on the retained income and gains, thereby
reducing the fund’s return. A fund may elect to treat any
retained net capital gain as having been distributed to
shareholders. In that case, shareholders of record on the
last day of the fund’s taxable year will be required to
include their attributable share of the retained gain in
income for the year as a long-term capital gain despite not
actually receiving the dividend, and will be entitled to a
tax credit or refund for the tax deemed paid on their behalf
by the fund as well as an increase in the basis of their
shares to reflect the difference between their attributable
share of the gain and the related credit or refund.
Foreign exchange control.
The Chinese government heavily
regulates the domestic exchange of foreign currencies
within China. Under China’s State Administration of
Foreign Exchange (
“
SAFE
”
) regulations, Chinese corporations
may only purchase foreign currencies through
government approved banks. In general, Chinese companies
must receive approval from or register with the
Chinese government before investing in certain capital
account items, including direct investments and loans, and
must thereafter maintain separate foreign exchange
accounts for the capital items. Foreign investors may only
exchange foreign currencies at specially authorized banks
after complying with documentation requirements. These
restrictions may adversely affect the fund and its investments.
The international community has requested that
China ease its restrictions on currency exchange, but it is
unclear whether the Chinese government will change its
policy.
RMB, is currently not a freely convertible currency as it is
subject to foreign exchange control, fiscal policies and repatriation
restrictions imposed by the Chinese government.
Such control of currency conversion and movements in the
RMB exchange rates may adversely affect the operations
and financial results of companies in the PRC. In addition,
if such control policies change in the future, the fund may
be adversely affected. Since 2005, the exchange rate of
the RMB is no longer pegged to the US dollar. The RMB
has now moved to a managed floating exchange rate
based on market supply and demand with reference to a
basket of foreign currencies. The daily trading price of the
RMB against other major currencies in the inter-bank
foreign exchange market would be allowed to float within
a narrow band around the central parity published by the
People’s Bank of China. As the exchange rates are based
primarily on market forces, the exchange rates for RMB
against other currencies, including the US dollar, are
susceptible to movements based on external factors.
There can be no assurance that the RMB will not be
subject to appreciation or devaluation, either due to
changes in government policy or market factors. Any
devaluation of the RMB could adversely affect the value of
the fund’s investments. The PRC government imposes
restrictions on the remittance of RMB out of and into
China. To the extent the fund invests through an RQFII, the
fund may be required to remit RMB from Hong Kong to
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the PRC to settle the purchase of A-Shares and other
permissible securities by the fund. In the event such remittance
is disrupted, the fund may not be able to fully
replicate its Underlying Index by investing in the relevant
A-Shares and this will increase the tracking error of the
fund. Any delay in repatriation of RMB out of China may
result in delay in payment of redemption proceeds to the
redeeming investors. The Chinese government’s policies
on exchange control and repatriation restrictions are
subject to change, and the fund’s performance may be
adversely affected.
PRC brokers risk.
Regulations adopted by the CSRC and
SAFE under which the fund will invest in A-Shares provide
that the subadvisor, if licensed as an RQFII, may select a
PRC broker to execute transactions on its behalf on each of
the two PRC exchanges – the SSE and SZSE. The
subadvisor may select the same broker for both
Exchanges. As a result, the subadvisor will have less flexibility
to choose among brokers on behalf of the fund than
is typically the case for US investment managers. In the
event of any default of a PRC broker in the execution or
settlement of any transaction or in the transfer of any
funds or securities in the PRC, the fund may encounter
delays in recovering its assets which may in turn adversely
impact the NAV of the fund.
If the subadvisor is unable to use one of its designated
PRC brokers in the PRC, units of the fund may trade at a
premium or discount to its NAV or the fund may not be
able to track the Underlying Index. Further, the operation
of the fund may be adversely affected in the case of any
acts or omissions of a PRC broker, which may result in
increased tracking error or the fund being traded at a significant
premium or discount to its NAV. The limited number
of PRC brokers that may be appointed may cause the fund
to not necessarily pay the lowest commission available
in the market. The subadvisor, however, in its selection of
PRC brokers will consider such factors as the competitiveness
of commission rates, size of the relevant orders, and
execution standards. There is a risk that the fund may
suffer losses from the default, bankruptcy or disqualification
of the PRC brokers. In such events, the fund may be
adversely affected in the execution of any transaction.
Disclosure of interests and short swing profit rule.
The
fund may be subject to shareholder disclosure of interest
regulations promulgated by the CSRC. These regulations
currently require the fund to make certain public disclosures
when the fund and parties acting in concert with the
fund acquire 5% or more of the issued securities of a
listed company (which include A-Shares of the listed
company). If the reporting requirement is triggered, the
fund will be required to report information which includes,
but is not limited to: (a) information about the fund (and
parties acting in concert with the fund) and the type and
extent of its holdings in the company; (b) a statement of
the fund’s purposes for the investment and whether the
fund intends to increase its holdings over the following
12-month period; (c) a statement of the fund’s historical
investments in the company over the previous six months;
(d) the time of, and other information relating to, the transaction
that triggered the fund’s holding in the listed
company reaching the 5% reporting threshold; and (e)
other information that may be required by the CSRC or the
stock exchange. Additional information may be required
if the fund and its concerted parties constitute the largest
shareholder or actual controlling shareholder of the listed
company. The report must be made to the CSRC, the stock
exchange, the invested company, and the CSRC local representative
office where the listed company is located. A
fund would also be required to make a public announcement
through a media outlet designated by the CSRC. The
public announcement must contain the same content as
the official report. The public announcement may require
the fund to disclose its holdings to the public, which could
have an adverse effect on the performance of the fund.
The relevant PRC regulations presumptively treat all affiliated
investors and investors under common control as
parties acting in concert. As such, under a conservative
interpretation of these regulations, the fund may be
deemed as a
“
concerted party
”
of other funds managed
by the Advisor, subadvisor or their affiliates and therefore
may be subject to the risk that the fund’s holdings may be
required to be reported in the aggregate with the holdings
of such other funds should the aggregate holdings
trigger the reporting threshold under the PRC law. If the
5% shareholding threshold is triggered by the fund and
parties acting in concert with the fund, the fund would be
required to file its report within three days of the date the
threshold is reached. During the time limit for filing the
report, a trading freeze applies and the fund would not be
permitted to make subsequent trades in the invested
company’s securities. Any such trading freeze may undermine
the fund’s performance, if the fund would otherwise
make trades during that period but is prevented from
doing so by the regulation.
Once the fund and parties acting in concert reach the 5%
trading threshold as to any listed company, any subsequent
incremental increase or decrease of 5% or more will
trigger a further reporting requirement and an additional
three-day trading freeze, and also an additional freeze on
trading within two days of the fund’s report and announcement
of the incremental change. These trading freezes
may undermine the fund’s performance as described
above. Also, SSE requirements currently require the fund
and parties acting in concert, once they have reach the 5%
threshold, to disclose whenever their shareholding drops
below this threshold (even as a result of trading which
is less than the 5% incremental change that would trigger
a reporting requirement under the relevant CSRC
regulation).
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CSRC regulations also contain additional disclosure (and
tender offer) requirements that apply when an investor and
parties acting in concert reach thresholds of 20% and
greater than 30% shareholding in a company.
Subject to the interpretation of PRC courts and PRC regulators,
the operation of the PRC short swing profit rule
may be applicable to the trading of the fund with the result
that where the holdings of the fund (possibly with the holdings
of other investors deemed as concert parties of the
fund) exceed 5% of the total issued shares of a listed
company, the fund may not reduce its holdings in the
company within six months of the last purchase of shares
of the company. If a fund violates the rule, it may be
required by the listed company to return any profits realized
from such trading to the listed company. In addition,
the rule limits the ability of the fund to repurchase securities
of the listed company within six months of such sale.
Moreover, under PRC civil procedures, the fund’s assets
may be frozen to the extent of the claims made by the
company in question. These risks may greatly impair the
performance of the fund.
Investment and repatriation restrictions.
Investments by
the fund in A-Shares (as well as other Chinese financial
instruments permitted by the CSRC and the People’s Bank
of China, including open- and closed-end investment
companies) are subject to governmental pre-approval limitations
on the quantity that the fund may purchase and/or
limits on the classes of securities in which the fund may
invest.
With respect to investments in A-Shares made through
the RQFII program, repatriations by RQFIIs are permitted
daily and are not subject to lock-up periods or prior
approval, but will require a tax commitment letter by the
RQFII. There is no assurance, however, that PRC rules and
regulations will not change or that repatriation restrictions
will not be imposed in the future. Any restrictions on repatriation
of the fund’s assets may adversely affect the
fund’s ability to meet redemption requests and/or may
cause the fund to borrow money in order to meet its obligations.
These limitations may also prevent the fund from
making certain distributions to shareholders.
The Chinese government limits foreign investment in the
securities of certain Chinese issuers entirely, if foreign
investment is banned in respect of the industry in which
the relevant Chinese issuers are conducting their business.
These restrictions or limitations may have adverse effects
on the liquidity and performance of the fund’s holdings
as compared to the performance of the Underlying Index.
This may increase the risk of tracking error and, at the
worst, the fund may not be able to achieve its investment
objective.
The Chinese government limits foreign investment in the
securities of certain Chinese issuers entirely, if foreign
investment is banned in respect of the industry in which
the relevant Chinese issuers are conducting their business.
These restrictions or limitations may have adverse effects
on the liquidity and performance of the fund’s holdings as
compared to the performance of the fund’s Underlying
Index, and thus with respect to the fund’s holdings as
compared to that of its Underlying Index. This may
increase the risk of tracking error and, at the worst, the
fund may not be able to achieve its investment objective.
Investments in certain Chinese financial instruments
permitted by the CSRC and the People’s Bank of China,
including A-Shares (if any) and open- and closed-end investment
companies, are subject to governmental
pre-approval limitations on the quantity that the fund may
purchase and/or limits on the classes of securities in which
the fund may invest.
A-Shares currency risk.
The fund’s investments in A-Shares
will be denominated in RMB and the income received by
the fund in respect of such investments will be in RMB. As
a result, changes in currency exchange rates may
adversely affect the fund’s returns. The value of the RMB
may be subject to a high degree of fluctuation due to
changes in interest rates, the effects of monetary policies
issued by the PRC, the US, foreign governments, central
banks or supranational entities, the imposition of currency
controls or other national or global political or economic
developments. Therefore, the fund’s exposure to RMB
may result in reduced returns to the fund. The fund does
not expect to hedge its currency risk. Moreover, the fund
may incur costs in connection with conversions between
US dollars and RMB and will bear the risk of any inability to
convert the RMB.
Foreign investment risk.
The fund faces the risks inherent
in foreign investing. Adverse political, economic or social
developments could undermine the value of the fund’s
investments or prevent the fund from realizing the full
value of its investments. Financial reporting standards for
companies based in foreign markets differ from those in
the US. Additionally, foreign securities markets generally
are smaller and less liquid than US markets. To the extent
that the fund invests in non-US dollar denominated foreign
securities, changes in currency exchange rates may affect
the US dollar value of foreign securities or the income or
gain received on these securities.
Foreign governments may restrict investment by
foreigners, limit withdrawal of trading profit or currency
from the country, restrict currency exchange or seize
foreign investments. The investments of the fund may also
be subject to foreign withholding taxes. Foreign brokerage
commissions and other fees are generally higher than
those for US investments, and the transactions and
custody of foreign assets may involve delays in payment,
delivery or recovery of money or investments.
Foreign markets can have liquidity risks beyond those
typical of US markets. Because foreign exchanges generally
are smaller and less liquid than US exchanges, buying
and selling foreign investments can be more difficult and
costly. Relatively small transactions can sometimes materially
affect the price and availability of securities. In certain
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situations, it may become virtually impossible to sell an
investment at a price that approaches portfolio management’s
estimate of its value. For the same reason, it may
at times be difficult to value the fund’s foreign investments.
In addition, because non-US markets may be open
on days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on
days when shareholders will not be able to purchase or sell
the fund’s shares.
In addition, various PRC companies derive their revenues
in RMB but have requirements for foreign currency,
including for the import of materials, debt service on
foreign currency denominated debt, purchases of imported
equipment and payment of any cash dividends declared.
The existing PRC foreign exchange regulations have significantly
reduced government foreign exchange controls for
certain transactions, including trade and service related
foreign exchange transactions and payment of dividends.
However, it is impossible to predict whether the PRC
government will continue its existing foreign exchange
policy and when the PRC government will allow free
conversion of the RMB to foreign currency. Certain foreign
exchange transactions, including principal payments in
respect of foreign currency-denominated obligations,
currently continue to be subject to significant foreign
exchange controls and require the approval of SAFE. Since
1994, the conversion of RMB into US dollars has been
based on rates set by the People’s Bank of China, which
are set daily based on the previous day’s PRC interbank
foreign exchange market rate. It is not possible to predict
nor give any assurance of any future stability of the RMB
to US dollar exchange rate. Fluctuations in exchange rates
may adversely affect the fund’s NAV. Furthermore,
because dividends are declared in US dollars and underlying
payments are made in RMB, fluctuations in exchange
rates may adversely affect dividends paid by the fund.
Underlying funds risk.
To the extent the fund invests a
substantial portion of its assets in one or more Underlying
Funds, the fund’s performance will be directly related to
the performance of an Underlying Fund. The fund’s investments
in other investment companies subject the fund
to the risks affecting those investment companies.
In addition, the fund indirectly pays a portion of the
expenses incurred by an Underlying Fund, which lowers
performance. To the extent that the fund’s allocations favor
an Underlying Fund with higher expenses, the overall cost
of investing paid by the fund will be higher.
The fund is also subject to the risk that an Underlying Fund
may pay a redemption request made by the fund, wholly
or partly, by an in-kind distribution of portfolio securities
rather than in cash. The fund may hold such portfolio securities
until the Advisor determines to dispose of them,
and the fund will bear the market risk of the securities
received in the redemption until their disposition. Upon
disposing of such portfolio securities, the fund may experience
increased brokerage commissions.
An investor in the fund may receive taxable gains from
portfolio transactions by an Underlying Fund, as well as
taxable gains from transactions in shares of the Underlying
Fund held by the fund. As the fund’s allocations to an Underlying
Fund change from time to time, or to the extent that
the expense ratio of an Underlying Fund changes, the
weighted average operating expenses borne by the fund
may increase or decrease.
To the extent the fund invests a substantial portion of its
assets in shares of foreign investment companies,
including but not limited to, ETFs the shares of which are
listed and traded primarily or solely on a foreign securities
exchange, such foreign funds will not be registered as
investment companies with the SEC or subject to the US
federal securities laws. As a result, the fund’s ability to
transfer shares of such foreign funds outside of the foreign
fund’s primary market will be restricted or prohibited.
While such foreign funds may operate similarly to
domestic funds, the fund as an investor in a foreign fund
will not be afforded the same investor protections as are
provided by the US federal securities laws.
When the fund invests in a foreign fund, in addition to
directly bearing the expenses associated with its own
operations, it will bear a pro rata portion of the foreign
fund’s expenses. Further, in part because of these additional
expenses, the performance of a foreign fund may
differ from the performance the fund would achieve if it
invested directly in the underlying investments of the
foreign fund. The fund’s investments in foreign ETFs will
be subject to the risk that the NAV of the foreign fund’s
shares may trade below the fund’s NAV. The NAV of foreign
fund shares will fluctuate with changes in the market value
of the foreign fund’s holdings. The trading prices of foreign
fund shares will fluctuate in accordance with changes in
NAV as well as market supply and demand. The difference
between the bid price and ask price, commonly referred
to as the
“
spread,
”
will also vary for a foreign ETF
depending on the fund’s trading volume and market
liquidity. Generally, the greater the trading volume and
market liquidity, the smaller the spread is and vice versa.
Any of these factors may lead to a foreign fund’s shares
trading at a premium or a discount to NAV.
Depositary receipt risk.
Foreign investments in American
Depositary Receipts and other depositary receipts may
be less liquid than the underlying shares in their primary
trading market. Certain of the depositary receipts in which
the fund invests may be unsponsored depositary receipts.
Unsponsored depositary receipts may not provide as
much information about the underlying issuer and may not
carry the same voting privileges as sponsored depositary
receipts. Unsponsored depositary receipts are issued by
one or more depositaries in response to market demand,
but without a formal agreement with the company that
issues the underlying securities.
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Derivatives risk.
Derivatives are financial instruments,
such as futures and swaps, whose values are based on the
value of one or more indicators, such as a security, asset,
currency, interest rate, or index. Derivatives involve risks
different from, and possibly greater than, the risks associated
with investing directly in securities and other more
traditional investments. For example, derivatives involve
the risk of mispricing or improper valuation and the risk
that changes in the value of a derivative may not correlate
perfectly with the underlying indicator. Derivative transactions
can create investment leverage, may be highly
volatile and the fund could lose more than the amount it
invests. Many derivative transactions are entered into
“
over-the-counter
”
(i.e., not on an exchange or contract market);
as a result, the value of such a derivative transaction will
depend on the ability and the willingness of the fund’s
counterparty to perform its obligations under the transaction.
If a counterparty were to default on its obligations,
the fund’s contractual remedies against such counterparty
may be subject to bankruptcy and insolvency laws, which
could affect the fund’s rights as a creditor (e.g., the fund
may not receive the net amount of payments that it is
contractually entitled to receive). A liquid secondary market
may not always exist for the fund’s derivative positions at
any time.
Counterparty risk.
To the extent the fund invests in swaps
to gain exposure to A-Shares in an effort to achieve the
fund’s investment objective, the fund will be subject to the
risk that the number of counterparties able to enter into
swaps to provide exposure to A-Shares may be limited. To
the extent that the RQFII license of a potential swap
counterparty is revoked or eliminated due to actions by the
Chinese government or as a result of transactions entered
into by the counterparty with other investors, the
counterparty’s ability to continue to enter into swaps or
other derivative transactions with the fund may be reduced
or eliminated, which could have a material adverse effect
on the fund. These risks are compounded by the fact that
at present there are only a limited number of potential
counterparties willing and able to enter into swap transactions
linked to the performance of A-Shares.
Furthermore, swaps are of limited duration and there is no
guarantee that swaps entered into with a counterparty
will continue indefinitely. Accordingly, the duration of a
swap depends on, among other things, the ability of the
fund to renew the expiration period of the relevant swap at
agreed upon terms. QFIIs and RQFIIs may be limited or
prohibited from entering into swap or other derivative transactions
on RQFII investments with the fund, which, in
turn, could adversely affect the fund.
Focus risk.
To the extent that the fund focuses its investments
in particular industries, asset classes or sectors
of the economy, any market price movements, regulatory
or technological changes, or economic conditions affecting
companies in those industries, asset classes or sectors
may have a significant impact on the fund’s performance.
Consumer discretionary sector risk.
To the extent that
the fund invests significantly in the consumer discretionary
sector, the fund will be sensitive to changes in, and the
fund’s performance may depend to a greater extent on, the
overall condition of the consumer discretionary sector.
Companies engaged in the consumer discretionary sector
are subject to fluctuations in supply and demand. These
companies may also be adversely affected by changes in
consumer spending as a result of world events, political
and economic conditions, commodity price volatility,
changes in exchange rates, imposition of import controls,
increased competition, depletion of resources and labor
relations.
Financials sector risk.
To the extent that the fund invests
significantly in the financials sector, the fund will be sensitive
to changes in, and the fund’s performance may
depend to a greater extent on, the overall condition of the
financials sector. The financials sector is subject to extensive
government regulation, can be subject to relatively
rapid change due to increasingly blurred distinctions
between service segments, and can be significantly
affected by availability and cost of capital funds, changes in
interest rates, the rate of corporate and consumer debt
defaults, and price competition.
Numerous financial companies have experienced substantial
declines in the valuations of their assets, taken action
to raise capital (such as the issuance of debt or equity securities),
or even ceased operations. These actions have
caused the securities of many financial companies to
experience a dramatic decline in value. Moreover, certain
financial companies have avoided collapse due to intervention
by governmental regulatory authorities, but such
interventions have often not averted a substantial decline
in the value of such companies’ common stock. Issuers
that have exposure to the real estate, mortgage and credit
markets have been particularly affected by the foregoing
events and the general market turmoil, and it is uncertain
whether or for how long these conditions will continue.
The financial services sector in China is also undergoing
significant change, including continuing consolidations,
development of new products and structures and changes
to its regulatory framework, which may have an impact
on the issuers included in the Underlying Index. Increased
government involvement in the financial services sector,
including measures such as taking ownership positions in
financial institutions, could result in a dilution of the fund’s
investments in financial institutions.
Communication services sector risk.
To the extent that
the fund invests significantly in the communication
services sector, the fund will be sensitive to changes in,
and the fund’s performance may depend to a greater
extent on, the overall condition of the communication
services sector. Companies in the communications
services sector can be adversely affected by, among other
things, changes in government regulation, intense competition,
dependency on patent protection, equipment
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incompatibility, changing consumer preferences, technological
obsolescence, and large capital expenditures and
debt burdens.
Passive investing risk.
Unlike a fund that is actively
managed, in which portfolio management buys and sells
securities based on research and analysis, the fund invests
in securities included in, or representative of, the Underlying
Index, regardless of their investment merits. Because
the fund is designed to maintain a high level of exposure
to the Underlying Index at all times, portfolio management
generally will not buy or sell a security unless the security
is added or removed, respectively, from the Underlying
Index, and will not take any steps to invest defensively or
otherwise reduce the risk of loss during market
downturns.
Index-related risk.
The fund seeks investment results that
correspond generally to the performance, before fees and
expenses, of the Underlying Index as published by the
index provider. There is no assurance that the Underlying
Index provider will compile the Underlying Index accurately,
or that the Underlying Index will be determined,
composed or calculated accurately. Market disruptions
could cause delays in the Underlying Index’s rebalancing
schedule. During any such delay, it is possible that the
Underlying Index and, in turn, the fund will deviate from
the Underlying Index’s stated methodology and therefore
experience returns different than those that would have
been achieved under a normal rebalancing schedule. Generally,
the index provider does not provide any warranty, or
accept any liability, with respect to the quality, accuracy or
completeness of the Underlying Index or its related data,
and does not guarantee that the Underlying Index will be in
line with its stated methodology. Errors in the Underlying
Index data, the Underlying Index computations and/or the
construction of the Underlying Index in accordance with its
stated methodology may occur from time to time and may
not be identified and corrected by the index provider for a
period of time or at all, which may have an adverse impact
on the fund and its shareholders. The Advisor and its affiliates
do not provide any warranty or guarantee against
such errors. Therefore, the gains, losses or costs associated
with the index provider’s errors will generally be
borne by the fund and its shareholders.
Liquidity risk.
In certain situations, it may be difficult or
impossible to sell an investment at an acceptable price.
This risk can be ongoing for any security that does not
trade actively or in large volumes, for any security that
trades primarily on smaller markets, and for investments
that typically trade only among a limited number of large
investors (such as certain types of derivatives or restricted
securities). In unusual market conditions, even normally
liquid securities may be affected by a degree of liquidity
risk. This may affect only certain securities or an overall
securities market.
Although the fund primarily seeks to redeem shares of the
fund on an in-kind basis, if the fund is forced to sell underlying
investments at reduced prices or under unfavorable
conditions to meet redemption requests or other cash
needs, the fund may suffer a loss. This may be magnified
in circumstances where redemptions from the fund may
be higher than normal.
Swap agreements may be subject to liquidity risk, which
exists when a particular swap is difficult to purchase or
sell. If a swap transaction is particularly large or if the
relevant market is illiquid, it may not be possible to initiate
a transaction or liquidate a position at an advantageous
time or price, which may result in significant losses to the
fund. This is especially true given the limited number of
potential counterparties willing and able to enter into swap
transactions on A-Shares. In addition, a swap transaction
may be subject to the fund’s limitation on investments
in illiquid securities. Swap agreements may be subject to
pricing risk, which exists when a particular swap agreement
becomes extraordinarily expensive (or inexpensive)
relative to historical prices or the prices of corresponding
cash market instruments. The swaps market is largely
unregulated. It is possible that developments in the swaps
market, including potential government regulation, could
adversely affect the fund’s ability to terminate existing
swap agreements or to realize amounts to be received
under such agreements.
Pricing risk.
If market conditions make it difficult to value
some investments
(including China A-Shares), the fund
may value these investments using more subjective
methods, such as fair value pricing. In such cases, the
value determined for an investment could be different from
the value realized upon such investment’s sale. As a result,
you could pay more than the market value when buying
fund shares or receive less than the market value when
selling fund shares.
Secondary markets may be subject to irregular trading
activity, wide bid/ask spreads and extended trade settlement
periods, which may prevent the fund from being able
to realize full value and thus sell a security for its full valuation.
This could cause a material decline in the fund’s net
asset value.
Tracking error risk.
The performance of the fund may
diverge from that of its Underlying Index for a number of
reasons, including operating expenses, transaction costs,
cash flows and operational inefficiencies. The fund’s return
also may diverge from the return of the Underlying Index
because the fund bears the costs and risks associated
with buying and selling securities (especially when rebalancing
the fund’s securities holdings to reflect changes
in the Underlying Index) while such costs and risks are not
factored into the return of the Underlying Index. Transaction
costs, including brokerage costs, will decrease the
fund’s NAV to the extent not offset by the transaction fee
payable by an
“
Authorized Participant
”
(
“
AP
”
). Market
disruptions and regulatory restrictions could have an
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adverse effect on the fund’s ability to adjust its exposure
to the required levels in order to track the Underlying
Index. In addition, to the extent that portfolio management
uses a representative sampling approach (investing in a
representative selection of securities included in the Underlying
Index rather than all securities in the Underlying
Index) it may cause the fund to not be as well correlated
with the return of the Underlying Index as would be the
case if the fund purchased all of the securities in the
Underlying Index in the proportions represented in the
Underlying Index. Errors in the Underlying Index data, the
Underlying Index computations and/or the construction
of the Underlying Index in accordance with its methodology
may occur from time to time and may not be
identified and corrected by the index provider for a period
of time or at all, which may have an adverse impact on the
fund and its shareholders. In addition, the fund may not
be able to invest in certain securities included in the Underlying
Index, or invest in them in the exact proportions in
which they are represented in the Underlying Index, due to
legal restrictions or limitations imposed by the governments
of certain countries, a lack of liquidity in the markets
in which such securities trade, potential adverse tax consequences
or other regulatory reasons. To the extent the
fund calculates its NAV based on fair value prices and the
value of the Underlying Index is based on securities’
closing prices (i.e., the value of the Underlying Index is not
based on fair value prices), the fund’s ability to track the
Underlying Index may be adversely affected. The performance
of the fund also may diverge from that of the
Underlying Index if the Advisor and/or subadvisor seek to
gain exposure to A-Shares by investing in securities not
included in the Underlying Index, derivative instruments,
and other pooled investment vehicles because the
subadvisor is unable to maintain its RQFII status, or the
Stock Connect Daily Quota has been exhausted. For tax
efficiency purposes, the fund may sell certain securities,
and such sale may cause the fund to realize a loss and
deviate from the performance of the Underlying Index. In
light of the factors discussed above, the fund’s return may
deviate significantly from the return of the Underlying
Index.
For purposes of calculating the fund’s net asset value, the
value of assets denominated in non-US currencies is
converted into US dollars using prevailing market rates on
the date of valuation as quoted by one or more data
service providers. This conversion may result in a difference
between the prices used to calculate the fund’s net
asset value and the prices used by the Underlying Index,
which, in turn, could result in a difference between the
fund’s performance and the performance of the Underlying
Index.
Market price risk.
Fund shares are listed for trading on an
exchange and are bought and sold in the secondary
market at market prices. The market prices of shares will
fluctuate, in some cases materially, in response to changes
in the NAV and supply and demand for shares. As a result,
the trading prices of shares may deviate significantly from
NAV during periods of market volatility. Differences
between secondary market prices and the value of the
fund’s holdings may be due largely to supply and demand
forces in the secondary market, which may not be the
same forces as those influencing prices for securities held
by the fund at a particular time. The Advisor cannot predict
whether shares will trade above, below or at their NAV.
Given the fact that shares can be created and redeemed in
Creation Units, the Advisor believes that large discounts
or premiums to the NAV of shares should not be sustained
in the long-term. In addition, there may be times when
the market price and the value of the fund’s holdings vary
significantly and you may pay more than the value of the
fund’s holdings when buying shares on the secondary
market, and you may receive less than the value of the
fund’s holdings when you sell those shares. While the
creation/redemption feature is designed to make it likely
that shares normally will trade close to the value of the
fund’s holdings, disruptions to creations and redemptions,
including disruptions at market makers, APs or market
participants, or during periods of significant market volatility,
may result in trading prices that differ significantly
from the value of the fund’s holdings. Although market
makers will generally take advantage of differences
between the NAV and the market price of fund shares
through arbitrage opportunities, there is no guarantee that
they will do so. If market makers. exit the business or are
unable to continue making markets in fund’s shares,
shares may trade at a discount to NAV like closed-end fund
shares and may even face delisting (that is, investors
would no longer be able to trade shares in the secondary
market). The market price of shares, like the price of any
exchange-traded security, includes a
“
bid-ask spread
”
charged by the exchange specialist, market makers or
other participants that trade the particular security. In times
of severe market disruption, the bid-ask spread often
increases significantly. This means that shares may trade
at a discount to the fund’s NAV, and the discount is likely to
be greatest when the price of shares is falling fastest,
which may be the time that you most want to sell your
shares. There are various methods by which investors can
purchase and sell shares of the funds and various orders
that may be placed. Investors should consult their financial
intermediary before purchasing or selling shares of a fund.
In addition, the securities held by a fund may be traded in
markets that close at a different time than an exchange.
Liquidity in those securities may be reduced after the applicable
closing times. Accordingly, during the time when
an exchange is open but after the applicable market
closing, fixing or settlement times, bid-ask spreads and
the resulting premium or discount to the shares’ NAV is
likely to widen. More generally, secondary markets may be
subject to irregular trading activity, wide bid-ask spreads
and extended trade settlement periods, which could cause
a material decline in the fund’s NAV. The bid-ask spread
varies over time for shares of a fund based on the fund’s
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trading volume and market liquidity, and is generally lower
if the fund has substantial trading volume and market
liquidity, and higher if the fund has little trading volume and
market liquidity (which is often the case for funds that are
newly launched or small in size). The fund’s bid-ask spread
may also be impacted by the liquidity of the underlying
securities held by the fund, particularly for newly launched
or smaller funds or in instances of significant volatility of
the underlying securities. The bid/ask spread of the Fund
may be wider in comparison to the bid/ask spread of other
ETFs, due to the Fund’s exposure to A-Shares. The fund’s
investment results are measured based upon the daily
NAV of the fund. Investors purchasing and selling shares in
the secondary market may not experience investment
results consistent with those experienced by those APs
creating and redeeming shares directly with a fund. In
addition, transactions by large shareholders may account
for a large percentage of the trading volume on an
exchange and may, therefore, have a material effect on the
market price of the fund’s shares.
Valuation risk.
Because non-US markets may be open on
days when the fund does not price its shares, the value
of the securities in the fund’s portfolio may change on days
when shareholders will not be able to purchase or sell the
fund’s shares.
Operational and technology risk.
Cyber-attacks, disruptions,
or failures that affect the fund’s service providers or
counterparties, issuers of securities held by the fund, or
other market participants may adversely affect the fund
and its shareholders, including by causing losses for the
fund or impairing fund operations. For example, the fund’s
or its service providers’ assets or sensitive or confidential
information may be misappropriated, data may be
corrupted and operations may be disrupted (e.g., cyber-attacks,
operational failures or broader disruptions may
cause the release of private shareholder information or
confidential fund information, interfere with the processing
of shareholder transactions, impact the ability to calculate
the fund’s net asset value and impede trading). Market
events and disruptions also may trigger a volume of transactions
that overloads current information technology and
communication systems and processes, impacting the
ability to conduct the fund’s operations.
While the fund and its service providers may establish
business continuity and other plans and processes that
seek to address the possibility of and fallout from cyber-attacks,
disruptions or failures, there are inherent
limitations in such plans and systems, including that they
do not apply to third parties, such as fund counterparties,
issuers of securities held by the fund or other market
participants, as well as the possibility that certain risks
have not been identified or that unknown threats may
emerge in the future and there is no assurance that such
plans and processes will be effective. Among other situations,
disruptions (for example, pandemics or health crises)
that cause prolonged periods of remote work or significant
employee absences at the fund’s service providers could
impact the ability to conduct the fund’s operations. In addition,
the fund cannot directly control any cybersecurity
plans and systems put in place by its service providers,
fund counterparties, issuers of securities held by the fund
or other market participants.
Cyber-attacks may include unauthorized attempts by third
parties to improperly access, modify, disrupt the operations
of, or prevent access to the systems of the fund’s
service providers or counterparties, issuers of securities
held by the fund or other market participants or data within
them. In addition, power or communications outages, acts
of god, information technology equipment malfunctions,
operational errors, and inaccuracies within software or data
processing systems may also disrupt business operations
or impact critical data.
Cyber-attacks, disruptions, or failures may adversely affect
the fund and its shareholders or cause reputational
damage and subject the fund to regulatory fines, litigation
costs, penalties or financial losses, reimbursement or
other compensation costs, and/or additional compliance
costs. In addition, cyber-attacks, disruptions, or failures
involving a fund counterparty could affect such
counterparty’s ability to meet its obligations to the fund,
which may result in losses to the fund and its shareholders.
Similar types of operational and technology risks
are also present for issuers of securities held by the fund,
which could have material adverse consequences for such
issuers, and may cause the fund’s investments to lose
value. Furthermore, as a result of cyber-attacks, disruptions,
or failures, an exchange or market may close or issue
trading halts on specific securities or the entire market,
which may result in the fund being, among other things,
unable to buy or sell certain securities or financial instruments
or unable to accurately price its investments.
For example, the fund relies on various sources to calculate
its NAV. Therefore, the fund is subject to certain
operational risks associated with reliance on third party
service providers and data sources. NAV calculation may
be impacted by operational risks arising from factors such
as failures in systems and technology. Such failures may
result in delays in the calculation of a fund’s NAV and/or the
inability to calculate NAV over extended time periods. The
fund may be unable to recover any losses associated with
such failures.
Authorized Participant concentration risk.
The fund may
have a limited number of financial institutions that may
act as APs. Only APs who have entered into agreements
with the fund’s distributor may engage in creation or
redemption transactions directly with the fund (as
described in the section of this Prospectus entitled
“
Buying and Selling Shares
”
). If those APs exit the business
or are unable to process creation and/or redemption
orders, (including in situations where APs have limited
or diminished access to capital required to post collateral)
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and no other AP is able to step forward to create and
redeem in either of these cases, shares may trade at a
discount to NAV like closed-end fund shares and may even
face delisting (that is, investors would no longer be able
to trade shares in the secondary market).
Non-diversification risk.
The fund is classified as
non-diversified under the Investment Company Act of
1940, as amended. This means that the fund may invest in
securities of relatively few issuers. Thus, the performance
of one or a small number of portfolio holdings can affect
overall performance.
Country concentration risk.
To the extent that the fund
invests significantly in a single country, it is more likely to
be impacted by events or conditions affecting that country.
For example, political and economic conditions and
changes in regulatory, tax or economic policy in a country
could significantly affect the market in that country and
in surrounding or related countries and have a negative
impact on the fund’s performance.
Futures risk.
The value of a futures contract tends to
increase and decrease in tandem with the value of the
underlying instrument. Depending on the terms of the
particular contract, futures contracts are settled through
either physical delivery of the underlying instrument on the
settlement date or by payment of a cash settlement
amount on the settlement date. A decision as to whether,
when and how to use futures involves the exercise of skill
and judgment and even a well-conceived futures transaction
may be unsuccessful because of market behavior or
unexpected events. In addition to the derivatives risks
discussed above, the prices of futures can be highly volatile,
using futures can lower total return and the potential
loss from futures can exceed the fund’s initial investment
in such contracts.
US tax risk
. A fund intends to distribute annually all or
substantially all of its investment company taxable income
and net capital gain. However, should the Chinese government
impose restrictions on the fund’s ability to repatriate
funds associated with direct investments in A-Shares, the
fund may be unable to satisfy distribution requirements
applicable to RICs under the Internal Revenue Code. If the
fund fails to satisfy the distribution requirements necessary
to qualify for treatment as a RIC for any taxable year,
the fund would be treated as a corporation subject to US
federal income tax, thereby subjecting any income earned
by the fund to tax at the corporate level. If the fund fails
to satisfy a separate distribution requirement, it will be
subject to a fund-level excise tax. These fund-level taxes
will apply in addition to taxes payable at the shareholder
level on distributions.
Tax risk.
The fund’s exposure to China A-Shares investments
through its Underlying Fund or Funds (i.e., primarily
through the Underlying Fund) may be less tax efficient
than a direct investment in A-Shares. The fund will not be
able to offset its taxable income and gains with losses
incurred by an Underlying Fund, because the Underlying
Fund is treated as a corporation for US federal income tax
purposes. The fund’s sales of shares in an Underlying
Fund, including those resulting from changes in the fund’s
allocation of assets, could cause the recognition of additional
taxable gains. A portion of any such gains may be
short-term capital gains, which will be taxable as ordinary
dividend income when distributed to the fund’s
shareholders.
Further, certain losses recognized on sales of shares in an
Underlying Fund may be deferred under the wash sale
rules. Any loss realized by the fund on a disposition of
shares in an Underlying Fund held for six months or less
will be treated as a long-term capital loss to the extent of
any amounts treated as distributions to the fund of net
long- term capital gain with respect to the Underlying
Fund’s shares (including any amounts credited to the fund
as undistributed capital gains). Short-term capital gains
earned by an Underlying Fund will be treated as ordinary
dividends when distributed to a fund and therefore may
not be offset by any short-term capital losses incurred by
the fund. The fund’s short-term capital losses might
instead offset long-term capital gains realized by the fund,
which would otherwise be eligible for reduced US federal
income tax rates when distributed to individual and certain
other non-corporate shareholders. If the Chinese government
imposes restrictions on an Underlying Fund’s ability
to repatriate funds associated with investment in A-Shares,
the Underlying Fund could fail to qualify for US federal
income tax treatment as a regulated investment company.
Under those circumstances, an Underlying Fund would
be subject to tax as a regular corporation, and the fund
would not be able to treat non-US income taxes paid by
the Underlying Fund as paid by the fund’s shareholders.
Uncertainties in the Chinese tax rules governing taxation of
income and gains from investments in A-Shares could
result in unexpected tax liabilities for an Underlying Fund.
Specific rules governing taxes on capital gains derived by
RQFIIs and QFIIs from the trading of PRC securities have
yet to be announced. In the absence of specific rules, the
tax treatment of an Underlying Fund’s investments in
A-Shares through HGI’s RQFII quota should be governed
by the general PRC tax provisions and provisions applicable
to RQFIIs. Under these provisions, an Underlying Fund is
generally subject to a tax of 10% on any dividends and
interest derived by nonresident enterprises (including
QFIIs and RQFIIs) from issuers resident in China. In addition,
a nonresident enterprise is subject to withholding tax
at a rate of 10% on its capital gains, subject to an exemption
or reduction pursuant to domestic law or a double
taxation agreement or arrangement.
Effective November 17, 2014, the corporate income tax for
QFIIs and RQFIIs, with respect to capital gains, has been
temporarily lifted. The withholding tax relating to the realized
gains from shares in land-rich companies prior to
November 17, 2014 has been paid by the Xtrackers
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Harvest ETFs, while realized gains from shares in non-land-
rich companies prior to November 17, 2014 were granted
by treaty relief pursuant to the PRC-US Double Taxation
Agreement. During 2015, revenue authorities in the PRC
made arrangements for the collection of capital gains taxes
for investments realized between November 17, 2009 and
November 16, 2014. An underlying fund could be subject
to tax liability for any tax payments for which reserves have
not been made or that were not previously withheld. The
impact of any such tax liability on an Underlying Fund’s
return could be substantial. An Underlying Fund may also
be liable to the Subadvisor for any tax that is imposed on
the Subadvisor by the PRC with respect to the Underlying
Fund’s investments. If an Underlying Fund’s direct investments
in A-Shares through the Subadvisor’s RQFII quota
become subject to repatriation restrictions, the Underlying
Fund may be unable to satisfy distribution requirements
applicable to RICs under the Internal Revenue Code, and
be subject to tax at the fund level.
The current PRC tax laws and regulations and interpretations
thereof may be revised or amended in the future,
including with respect to the possible liability of the fund
for obligations of an RQFII, such as HGI or in the future,
the Advisor. The withholding taxes on dividends, interest
and capital gains may in principle be subject to a reduced
rate under an applicable tax treaty, but the application of
such treaties in the case of an RQFII acting for a foreign
investor is also uncertain. Finally, it is whether an RQFII
would also be eligible for PRC BT exemption, which has
been granted to QFIIs, with respect to gains derived prior
to May 1, 2016. In practice, the BT has not been collected.
However, the imposition of such taxes on an Underlying
Fund could have a material adverse effect on a fund’s
returns. Since May 1, 2016, RQFIIs are exempt from PRC
value-added tax, which replaced the BT with respect to
gains realized from the disposal of securities, including
A-Shares.
The PRC rules for taxation of RQFIIs (and QFIIs) are
evolving and certain of the tax regulations to be issued by
the PRC State Administration of Taxation and/or PRC
Ministry of Finance to clarify the subject matter may apply
retrospectively, even if such rules are adverse to an Underlying
Fund and their shareholders.
If the PRC begins applying tax rules regarding the taxation
of income from A-Shares investments to RQFIIs and/or
begins collecting capital gains taxes on such investments,
an Underlying Fund could be subject to withholding tax
liability in excess of the amount reserved. The impact of
any such tax liability on the fund’s return could be substantial.
An Underlying Fund will be liable to HGI for any
Chinese tax that is imposed on HGI with respect to the
Underlying Fund’s investments.
Investments in swaps and other derivatives may be
subject to special US federal income tax rules that could
adversely affect the character, timing and amount of
income earned by the fund (e.g., by causing amounts that
would be capital gain to be taxed as ordinary income or to
be taken into income earlier than would otherwise be
necessary). Also, the fund may be required to periodically
adjust its positions in its swaps and derivatives to comply
with certain regulatory requirements which may further
cause these investments to be less efficient than a direct
investment in A-Shares. For example, swaps in which the
fund may invest may need to be reset on a regular basis in
order to maintain compliance with the 1940 Act, which
may increase the likelihood that the fund will generate
short- term capital gains. In addition, because the application
of special tax rules to the fund and its investments
may be uncertain, it is possible that the manner in which
they are applied by the fund may be determined to be
incorrect. In that event, the fund may be found to have
failed to maintain its qualification as a RIC or to be subject
to additional US tax liability. The fund may make investments,
both directly and through swaps or other derivative
positions, in companies classified as controlled foreign
corporations (
“
CFCs
”
) or passive foreign investment
companies (
“
PFICs
”
) for US federal income tax purposes.
Investments in CFCs and PFICs are subject to special tax
rules which may result in adverse tax consequences to the
fund and its shareholders.
The sale or other transfer by the Advisor of B-Shares will
be subject to PRC Stamp Duty at a rate of 0.1% on the
transacted value. The Advisor will not be subject to PRC
Stamp Duty when it acquires B-Shares.
To the extent the fund invests in swaps linked to A-Shares,
such investments may be less tax-efficient for US tax
purposes than a direct investment in A-Shares. Any tax
liability incurred by the swap counterparty may be passed
on to the fund. When the fund sells a swap on A-Shares,
the sale price may take into account of the RQFII’s tax
liability imposed under Chinese law.
Medium-sized company risk.
Medium-sized company
stocks tend to be more volatile than large company stocks.
Because stock analysts are less likely to follow medium-sized
companies, less information about them is available
to investors. Industry-wide reversals may have a greater
impact on medium-sized companies, since they lack the
financial resources of larger companies. Medium-sized
company stocks are typically less liquid than large
company stocks.
Securities lending risk.
Securities lending involves the
risk that the fund may lose money because the borrower
of the loaned securities fails to return the securities in a
timely manner or at all. The fund could also lose money in
the event of a decline in the value of the collateral provided
for the loaned securities or a decline in the value of any
investments made with cash collateral. These events, and
securities lending in general, could trigger adverse tax
consequences for the fund and its investors. For example,
if the fund loans its securities, the fund and its investors
may lose the ability to treat certain fund distributions associated
with those securities as qualified dividend income.
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Leveraging Risk.
The fund’s investment in futures
contracts and other derivative instruments provide leveraged
exposure. The fund’s investment in these
instruments generally requires a small investment relative
to the amount of investment exposure assumed. As a
result, such investments may give rise to losses that
exceed the amount invested in those instruments. The use
of derivatives and other similar financial instruments may
at times be an integral part of the fund’s investment
strategy and may expose the fund to potentially dramatic
losses (or gains) in the value of a derivative or other financial
instruments and, thus, in the value the fund’s portfolio.
The cost of investing in such instruments generally
increases as interest rates increase, which will lower a
fund’s return.
Other Policies and Risks
While the previous pages describe the main points of each
fund’s strategy and risks, there are a few other matters
to know about:
■
Each of the policies described herein, including the
investment objective and 80% investment policies of
each fund, constitutes a non-fundamental policy that
may be changed by the Board without shareholder
approval. Each fund’s 80% investment policies require
60 days’ prior written notice to shareholders before they
can be changed. Certain fundamental policies of each
fund are set forth in the SAI.
■
Because each fund seeks to track its Underlying Index,
no fund invests defensively and each fund will not invest
in money market instruments or other short-term investments
as part of a temporary defensive strategy to
protect against potential market declines.
■
Each fund may borrow money up to 33 1/3%of the value
of its total assets (including the amount borrowed) from
banks as permitted by the 1940 Act. Any borrowings
which come to exceed this amount will be reduced in
accordance with applicable law.
■
Xtrackers Harvest CSI 300 China A-Shares ETF, Xtrackers
MSCI China A Inclusion Equity ETF and Xtrackers
Harvest CSI 500 China A-Shares Small Cap ETF may
borrow money under a credit facility to the extent necessary
for temporary or emergency purposes, including
the funding of shareholder redemption requests, trade
settlements, and as necessary to distribute to shareholders
any income necessary to maintain a fund’s
status as a regulated investment company (
“
RIC
”
).
■
From time to time a third party, the Advisor and/or its
affiliates may invest in a fund and hold its investment for
a specific period of time in order for a fund to achieve
size or scale. There can be no assurance that any such
entity would not redeem its investment or that the size
of a fund would be maintained at such levels. In order to
comply with applicable law, it is possible that the
Advisor or its affiliates, to the extent they are invested in
a fund, may be required to redeem some or all of their
ownership interests in a fund prematurely or at an inopportune
time.
■
Secondary market trading in fund shares may be halted
by a stock exchange because of market conditions or
other reasons. In addition, trading in fund shares on a
stock exchange or in any market may be subject to
trading halts caused by extraordinary market volatility
pursuant to
“
circuit breaker
”
rules on the exchange or
market. If a trading halt or unanticipated early closing of
a stock exchange occurs, a shareholder may be unable
to purchase or sell shares of each fund. There can be no
assurance that the requirements necessary to maintain
the listing or trading of fund shares will continue to
be met or will remain unchanged or that shares will
trade with any volume, or at all, in any secondary
market. As with all other exchange traded securities,
shares may be sold short and may experience increased
volatility and price decreases associated with such
trading activity.
■
From time to time, a fund may have a concentration of
shareholder accounts holding a significant percentage of
shares outstanding. Investment activities of these shareholders
could have a material impact on a fund. For
example, a fund may be used as an underlying investment
for other registered investment companies.
Portfolio Holdings Information
A description of DBX ETF Trust’s (
“
Trust
”
) policies and
procedures with respect to the disclosure of each fund’s
portfolio securities is available in each fund’s SAI. The top
holdings of each fund can be found at Xtrackers.com. Fund
fact sheets provide information regarding each fund’s top
holdings and may be requested by calling 1-855-329-3837
(1-855-DBX-ETFS).
Who Manages and Oversees the Funds
The Investment Advisor
DBX Advisors LLC (
“
Advisor
”
), with headquarters at 875
Third Avenue, New York, NY 10022, is the investment
advisor for the fund. Under the oversight of the Board, the
Advisor (or a subadvisor, if applicable, under the oversight
of the Advisor) makes the investment decisions, buys and
sells securities for the fund and conducts research that
leads to these purchase and sale decisions.
The Advisor is an indirect, wholly-owned subsidiary of
DWS Group GmbH & Co. KGaA (
“
DWS Group
”
), a separate,
publicly-listed financial services firm that is an
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indirect, majority-owned subsidiary of Deutsche Bank AG.
Founded in 2010, the Advisor managed approximately
$17.3 billion in 33 operational exchange-traded funds, as of
August 31, 2020.
DWS represents the asset management activities
conducted by DWS Group or any of its subsidiaries,
including the Advisor and other affiliated investment
advisors.
DWS is a global organization that offers a wide range of
investing expertise and resources, including hundreds of
portfolio managers and analysts and an office network that
reaches the world’s major investment centers. This well-
resourced global investment platform brings together a
wide variety of experience and investment insight across
industries, regions, asset classes and investing styles.
The Advisor may utilize the resources of its global investment
platform to provide investment management
services through branch offices or affiliates located outside
the US. In some cases, the Advisor may also utilize its
branch offices or affiliates located in the US or outside the
US to perform certain services, such as trade execution,
trade matching and settlement, or various administrative,
back-office or other services. To the extent services are
performed outside the US, such activity may be subject to
both US and foreign regulation. It is possible that the jurisdiction
in which the Advisor or its affiliate performs such
services may impose restrictions or limitations on portfolio
transactions that are different from, and in addition to,
those in the US.
Subadvisor for Xtrackers Harvest CSI 300 China
A-Shares ETF and Xtrackers Harvest CSI 500 China
A-Shares Small Cap ETF
Harvest Global Investments Limited (
“
HGI
”
), the
subadvisor for Xtrackers Harvest CSI 300 China A-Shares
ETF and Xtrackers Harvest CSI 500 China A-Shares Small
Cap ETF, is located at 31/F One Exchange Square, 8
Connaught Place, Central, Hong Kong.
HGI is a SEC registered investment advisor and serves as
the investment subadvisor for the funds and, subject to
the supervision of the Advisor and the Trust’s Board, is
responsible for the investment management of the funds.
Management Fee.
Under the Investment Advisory Agreement,
the Advisor is responsible for substantially all
expenses of each fund, including the payments to the
subadvisor (as applicable), the cost of transfer agency,
custody, fund administration, compensation paid to the
Independent Board Members, legal, audit and other
services, except for the fee payments to the Advisor under
the Investment Advisory Agreement (also known as a
“
unitary advisory fee
”
), interest expense, acquired fund
fees and expenses, taxes, brokerage expenses, distribution
fees or expenses (if any), litigation expenses and other
extraordinary expenses.
For its services to each fund, during the most recent fiscal
year, the Advisor received aggregate unitary advisory fees
at the following annual rates as a percentage of each
fund’s average daily net assets.
|
|
Xtrackers Harvest CSI 300
China A-Shares ETF
|
|
Xtrackers MSCI China A Inclu-
sion Equity ETF
|
|
Xtrackers Harvest CSI 500
China A-Shares Small Cap ETF
|
|
Xtrackers MSCI All China
Equity ETF
|
|
*
Reflecting the effect of expense limitations and/or fee waivers then in
effect.
For Xtrackers MSCI All China Equity ETF, to the extent the
fund invests in the shares of an affiliated fund, the Advisor
has contractually agreed, until November 14, 2021, to
waive fees and/or reimburse the fund’s expenses to limit
the fund’s current operating expenses (except for interest
expense, taxes, brokerage expenses, distribution fees or
expenses, litigation expenses and other extraordinary
expenses) by an amount equal to the acquired fund’s fees
and expenses attributable to the fund’s investments in
the affiliated funds. In addition, the Advisor has contractually
agreed until September 30, 2021, to waive a portion of
its management fees to the extent necessary to prevent
the operating expenses (except for interest expense,
taxes, brokerage expenses, distribution fees or expenses,
litigation expenses and other extraordinary expenses) of
the fund from exceeding 0.50% of the fund’s average daily
net assets. These agreements may only be terminated
by the fund’s Board (and may not be terminated by the
Advisor) prior to that time.
A discussion regarding the basis for the Board's approval
of each fund’s Investment Advisory Agreement is
contained in the most recent annual report for the annual
period ended May 31. For information on how to obtain
shareholder reports, see the back cover.
Multi-Manager Structure.
The Advisor and the Trust may
rely on an exemptive order (the
“
Order
”
) from the SEC that
permits the Advisor to enter into investment sub-advisory
agreements with unaffiliated and affiliated subadvisors
without obtaining shareholder approval. The Advisor,
subject to the review and approval of the Board, selects
subadvisors for each fund and supervises, monitors and
evaluates the performance of the subadvisor.
The Order also permits the Advisor, subject to the approval
of the Board, to replace subadvisors and amend investment
subadvisory agreements, including fees, without
shareholder approval whenever the Advisor and the Board
believe such action will benefit a fund and its shareholders.
The Advisor thus has the ultimate responsibility
(subject to the ultimate oversight of the Board) to recommend
the hiring and replacement of subadvisors as well as
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the discretion to terminate any subadvisor and reallocate a
fund’s assets for management among any other
subadvisor(s) and itself. This means that the Advisor is able
to reduce the subadvisory fees and retain a larger portion
of the management fee, or increase the subadvisory fees
and retain a smaller portion of the management fee.
Pursuant to the Order, the Advisor is not required to
disclose its contractual fee arrangements with any
subadvisor. The Advisor compensates a subadvisor out of
its management fee.
Management
Xtrackers Harvest CSI 300 China A-Shares ETF
The following Portfolio Managers are primarily responsible
for the day-to-day management of the fund. The Portfolio
Managers are responsible for various functions related
to portfolio management, including, but not limited to,
investing cash inflows, coordinating with members of their
team to focus on certain asset classes, implementing the
investment strategy, researching and reviewing the investment
strategy, and overseeing members of their portfolio
management team with more limited responsibilities.
Kevin Sung, CFA,
employee of HGI. Portfolio Manager of
the fund. Began managing the fund in 2018.
■
Joined HGI in 2018, with eight years of financial industry
experience. Prior to joining HGI, he was a portfolio
manager in DWS and Creditease. Prior to that, he
worked in Value Partners Limited (Hong Kong) to develop
quantitative strategy and managed ETF and quantitative
portfolios.
■
MSc in Financial Mathematics and Statistics, Hong Kong
University of Science and Technology; MPhil and BSc
in Physics, The Chinese University of Hong Kong.
■
CFA Charterholder and FRM holder.
Tom Chan, CFA,
employee of HGI. Portfolio Manager of
the fund. Began managing the fund in 2018.
■
Joined HGI in 2018, with five years of financial industry
experience, including ETF portfolio management and
quantitative strategies development. Prior to joining HGI,
he was a Senior Analyst in Value Partners and Analyst
in Conning Asia Pacific.
■
BS in Quantitative Finance and Risk Management
Science, The Chinese University of Hong Kong.
Hubert Shek
,
employee of HGI. Portfolio Manager of the
fund. Began managing the fund in 2020.
■
Joined HGI in 2020. Prior to joining HGI, he worked in an
operations and risk role at Prudence Investment Management.
■
MSc in Risk Management and Financial Engineering,
Imperial College Business School; BSc in Mechanical
Engineering, the University of Southern California.
Xtrackers MSCI China A Inclusion Equity ETF
The following Portfolio Managers are primarily responsible
for the day-to-day management of the fund. Each Portfolio
Manager functions as a member of a portfolio
management team.
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2015.
■
Joined DWS in 2011 with 11 years of industry experience.
Prior to joining DWS, he worked in ETF
management at XShares Advisors, an ETF issuer based
in New York, and before that he served as an equity
analyst for Fairhaven Capital LLC, a long/short equity
fund.
■
Head of Passive Portfolio Management, Americas: New
York.
■
BS in Finance, Boston College.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
■
Joined DWS in 2016 with 16 years of industry experience.
Prior to joining DWS, he was the head of Northern
Trust’s Equity Index, ETF, and Overlay portfolio management
team in Chicago, managing portfolios for North
American based clients. His time at Northern Trust
included working in New York, Chicago, and in Hong
Kong building a portfolio management desk. Prior to
joining Northern Trust in 2003, he participated in the
Deutsche Asset Management graduate training
program. He rotated through the domestic fixed income
and US structured equity fund management groups.
■
Lead Equity Portfolio Manager, US Passive Equities:
New York.
■
BS in Finance, Rutgers University.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
■
Joined DWS in 2017 with 13 years of industry experience.
Prior to joining DWS, Mr. Bassous worked at
Northern Trust where he filled a variety of operational
functions supporting portfolio management. In 2010 he
began managing equity portfolios on behalf of institutional
clients across a variety of global benchmarks.
Before joining Northern Trust in 2007, he worked at The
Bank of New York Mellon and Morgan Stanley in a
variety of roles supporting equity trading and portfolio
management.
■
Equity Portfolio Manager, US Passive Equities: New York.
■
BS in Finance, Yeshiva University.
Xtrackers Harvest CSI 500 China A-Shares Small Cap
ETF
The following Portfolio Managers are primarily responsible
for the day-to-day management of the fund. The Portfolio
Managers are responsible for various functions related
to portfolio management, including, but not limited to,
investing cash inflows, coordinating with members of their
team to focus on certain asset classes, implementing the
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investment strategy, researching and reviewing the investment
strategy, and overseeing members of their portfolio
management team with more limited responsibilities.
Kevin Sung, CFA,
employee of HGI. Portfolio Manager of
the fund. Began managing the fund in 2018.
■
Joined HGI in 2018, with eight years of financial industry
experience. Prior to joining HGI, he was a portfolio
manager in DWS and Creditease. Prior to that, he
worked in Value Partners Limited (Hong Kong) to develop
quantitative strategy and managed ETF and quantitative
portfolios.
■
MSc in Financial Mathematics and Statistics, Hong Kong
University of Science and Technology; MPhil and BSc
in Physics, The Chinese University of Hong Kong.
■
CFA Charterholder and FRM holder.
Tom Chan, CFA,
employee of HGI. Portfolio Manager of
the fund. Began managing the fund in 2018.
■
Joined HGI in 2018, with five years of financial industry
experience, including ETF portfolio management and
quantitative strategies development. Prior to joining HGI,
he was a Senior Analyst in Value Partners and Analyst
in Conning Asia Pacific.
■
BS in Quantitative Finance and Risk Management
Science, The Chinese University of Hong Kong.
Hubert Shek
,
employee of HGI. Portfolio Manager of the
fund. Began managing the fund in 2020.
■
Joined HGI in 2020. Prior to joining HGI, he worked in an
operations and risk role at Prudence Investment Management.
■
MSc in Risk Management and Financial Engineering,
Imperial College Business School; BSc in Mechanical
Engineering, the University of Southern California.
Xtrackers MSCI All China Equity ETF
The following Portfolio Managers are primarily responsible
for the day-to-day management of the fund. Each Portfolio
Manager functions as a member of a portfolio
management team.
Bryan Richards, CFA, Managing Director.
Portfolio
Manager of the fund. Began managing the fund in 2014.
■
Joined DWS in 2011 with 11 years of industry experience.
Prior to joining DWS, he worked in ETF
management at XShares Advisors, an ETF issuer based
in New York, and before that he served as an equity
analyst for Fairhaven Capital LLC, a long/short equity
fund.
■
Head of Passive Portfolio Management, Americas: New
York.
■
BS in Finance, Boston College.
Patrick Dwyer, Director.
Portfolio Manager of the fund.
Began managing the fund in 2016.
■
Joined DWS in 2016 with 16 years of industry experience.
Prior to joining DWS, he was the head of Northern
Trust’s Equity Index, ETF, and Overlay portfolio management
team in Chicago, managing portfolios for North
American based clients. His time at Northern Trust
included working in New York, Chicago, and in Hong
Kong building a portfolio management desk. Prior to
joining Northern Trust in 2003, he participated in the
Deutsche Asset Management graduate training
program. He rotated through the domestic fixed income
and US structured equity fund management groups.
■
Lead Equity Portfolio Manager, US Passive Equities:
New York.
■
BS in Finance, Rutgers University.
Shlomo Bassous, Vice President.
Portfolio Manager of
the fund. Began managing the fund in 2017.
■
Joined DWS in 2017 with 13 years of industry experience.
Prior to joining DWS, Mr. Bassous worked at
Northern Trust where he filled a variety of operational
functions supporting portfolio management. In 2010 he
began managing equity portfolios on behalf of institutional
clients across a variety of global benchmarks.
Before joining Northern Trust in 2007, he worked at The
Bank of New York Mellon and Morgan Stanley in a
variety of roles supporting equity trading and portfolio
management.
■
Equity Portfolio Manager, US Passive Equities: New York.
■
BS in Finance, Yeshiva University.
Each fund’s Statement of Additional Information provides
additional information about a portfolio manager’s investments
in each fund, a description of the portfolio
management compensation structure and information
regarding other accounts managed.
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Additional shareholder information, including how to buy
and sell shares of a fund, is available free of charge by
calling toll-free: 1-855-329-3837 (1-855-DBX-ETFS) or
visiting our website at Xtrackers.com.
Buying and Selling Shares
Shares of a fund are listed for trading on a national securities
exchange during the trading day. Shares can be
bought and sold throughout the trading day at market
prices like shares of other publicly-traded companies. The
Trust does not impose any minimum investment for shares
of a fund purchased on an exchange. Buying or selling
fund shares involves two types of costs that may apply to
all securities transactions. When buying or selling shares
of a fund through a broker, you will likely incur a brokerage
commission or other charges determined by your broker.
In addition, you may incur the cost of the
“
spread
”
– that
is, any difference between the bid price and the ask price.
The commission is frequently a fixed amount and may be
a significant proportional cost for investors seeking to buy
or sell small amounts of shares. The spread varies over
time for shares of a fund based on its trading volume and
market liquidity, and is generally lower if a fund has a lot of
trading volume and market liquidity and higher if a fund
has little trading volume and market liquidity.
Shares of a fund may be acquired or redeemed directly
from a fund only in Creation Units or multiples thereof, as
discussed in the section of this Prospectus entitled
“
Creations and Redemptions.
”
Only an AP may engage in
creation or redemption transactions directly with a fund.
Once created, shares of a fund generally trade in the
secondary market in amounts less than a Creation Unit.
The Board has evaluated the risks of market timing activities
by a fund’s shareholders. The Board noted that shares
of a fund can only be purchased and redeemed directly
from the fund in Creation Units by APs and that the vast
majority of trading in a fund’s shares occurs on the
secondary market. Because the secondary market trades
do not involve a fund directly, it is unlikely those trades
would cause many of the harmful effects of market timing,
including dilution, disruption of portfolio management,
increases in a fund’s trading costs and the realization of
capital gains. With regard to the purchase or redemption of
Creation Units directly with a fund, to the extent effected
in-kind (i.e., for securities), such trades do not cause any of
the harmful effects (as previously noted) that may result
from frequent cash trades. To the extent trades are
effected in whole or in part in cash, the Board noted that
such trades could result in dilution to a fund and increased
transaction costs, which could negatively impact a fund’s
ability to achieve its investment objective. However, the
Board noted that direct trading by APs is critical to ensuring
that a fund’s shares trade at or close to NAV. In addition,
a fund imposes both fixed and variable transaction fees on
purchases and redemptions of fund shares to cover the
custodial and other costs incurred by a fund in effecting
trades. These fees increase if an investor substitutes cash
in part or in whole for securities, reflecting the fact that
a fund’s trading costs increase in those circumstances.
Given this structure, the Board determined that with
respect to a fund it is not necessary to adopt policies and
procedures to detect and deter market timing of a fund’s
shares.
The 1940 Act imposes certain restrictions on investments
by registered investment companies in the securities of
other investment companies, such as the funds. Registered
investment companies, except as noted below, are
permitted to invest in a fund beyond applicable 1940 Act
limitations, subject to certain terms and conditions set
forth in an SEC exemptive order issued to the Trust,
including that such investment companies enter into an
agreement with the Trust. However, this relief is not available
for investments by registered investment companies
in the Xtrackers MSCI All China Equity ETF, because the
fund operates as a
“
fund-of-funds
”
by investing in the
Xtrackers China A-Shares ETFs.
Shares of a fund trade on the exchange and under the
ticker symbol as shown in the table below.
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|
|
|
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Xtrackers Harvest CSI
300 China A-Shares
ETF
|
|
|
Xtrackers MSCI China
A Inclusion Equity ETF
|
|
|
Xtrackers Harvest CSI
500 China A-Shares
Small Cap ETF
|
|
|
Xtrackers MSCI All
China Equity ETF
|
|
|
Book Entry
Shares of a fund are held in book-entry form, which means
that no stock certificates are issued. The Depository Trust
Company (
“
DTC
”
) or its nominee is the record owner of all
outstanding shares of a fund and is recognized as the
owner of all shares for all purposes.
Investors owning shares of a fund are beneficial owners as
shown on the records of DTC or its participants. DTC
serves as the securities depository for shares of a fund.
DTC participants include securities brokers and dealers,
banks, trust companies, clearing corporations and other
institutions that directly or indirectly maintain a custodial
relationship with DTC. As a beneficial owner of shares, you
are not entitled to receive physical delivery of stock certificates
or to have shares registered in your name, and you
are not considered a registered owner of shares. Therefore,
to exercise any right as an owner of shares, you must
rely upon the procedures of DTC and its participants.
These procedures are the same as those that apply to any
other securities that you hold in book-entry or
“
street
name
”
form.
Share Prices
The trading prices of a fund’s shares in the secondary
market generally differ from a fund’s daily NAV per share
and are affected by market forces such as supply and
demand, economic conditions and other factors. Information
regarding the intraday value of shares of a fund, also
known as the
“
indicative optimized portfolio value
”
(
“
IOPV
”
), is disseminated every 15 seconds throughout
the trading day by the national securities exchange on
which a fund’s shares are listed or by market data vendors
or other information providers. The IOPV is based on the
current market value of the securities and/or cash required
to be deposited in exchange for a Creation Unit. The IOPV
does not necessarily reflect the precise composition of the
current portfolio of securities held by a fund at a particular
point in time nor the best possible valuation of the current
portfolio. Therefore, the IOPV should not be viewed as a
“
real-time
”
update of the NAV, which is computed only
once a day. The IOPV is generally determined by using both
current market quotations and/or price quotations obtained
from broker-dealers that may trade in the portfolio securities
held by a fund. The quotations of certain fund holdings
may not be updated during US trading hours if such holdings
do not trade in the US. Each fund is not involved in, or
responsible for, the calculation or dissemination of the
IOPV and makes no representation or warranty as to its
accuracy.
Determination of Net Asset Value
The NAV of each fund is generally determined once daily
Monday through Friday as of the regularly scheduled close
of business of the New York Stock Exchange (
“
NYSE
”
)
(normally 4:00 p.m., Eastern time) on each day that the
NYSE is open for trading. NAV is calculated by deducting
all of the fund’s liabilities from the total value of its assets
and dividing the result by the number of shares
outstanding, rounding to the nearest cent. All valuations
are subject to review by the Trust’s Board or its delegate. In
determining NAV, expenses are accrued and applied daily
and securities and other assets for which market quotations
are available are valued at market value.
The value of each fund’s portfolio securities is based on
the securities’ closing price on local markets when available.
In determining NAV, expenses are accrued and
applied daily and securities and other assets for which
market quotations are available are valued at market value.
Equity investments are valued at market value, which is
generally determined using the last reported official closing
or last trading price on the exchange or market on which
the security is primarily traded at the time of valuation.
Debt securities’ values are based on price quotations or
other equivalent indications of value provided by a third-party
pricing service. Any such third-party pricing service
may use a variety of methodologies to value some or all of
a fund’s debt securities to determine the market price.
For example, the prices of securities with characteristics
similar to those held by a fund may be used to assist with
the pricing process. In addition, the pricing service may
use proprietary pricing models. In certain cases, some of a
fund’s debt securities may be valued at the mean between
the last available bid and ask prices for such securities or, if
such prices are not available, at prices for securities of
comparable maturity, quality, and type. Short-term securities
for which market quotations are not readily available
are valued at amortized cost, which approximates market
value. Money market securities maturing in 60 days or less
will be valued at amortized cost. The approximate value
of shares of the applicable fund, an amount representing
on a per share basis the sum of the current value of the
deposit securities based on their then current market price
and the estimated cash component will be disseminated
every 15 seconds throughout the trading day through the
facilities of the Consolidated Tape Association. Foreign
currency exchange rates with respect to each fund’s
non-U.S. securities are generally determined as of 4:00
p.m., London time. As the respective international local
markets close, the market value of the portfolio securities
will continue to be updated for foreign exchange rates for
the remainder of the U.S. trading day at the prescribed 15
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second intervals. Generally, trading in non-U.S. securities,
U.S. government securities, money market instruments
and certain fixed-income securities is substantially
completed each day at various times prior to the close of
business on the NYSE. The values of such securities used
in computing the NAV of each fund are determined as of
such earlier times. The value of each Underlying Index will
not be calculated and disseminated intra-day. The value
and return of each Underlying Index is calculated once
each trading day by the Index Provider based on prices
received from the respective international local markets. In
addition, the value of assets or liabilities denominated in
non-U.S. currencies will be converted into U.S. dollars
using prevailing market rates on the date of the valuation
as quoted by one or more data service providers. Use of a
rate different from the rate used by the Index Provider
may adversely affect a fund’s ability to track its Underlying
Index.
If a security’s market price is not readily available or does
not otherwise accurately reflect the fair value of the security,
the security will be valued by another method that
the Adviser believes will better reflect fair value in accordance
with the Trust’s valuation policies and procedures
approved by the Board. Each fund may use fair value
pricing in a variety of circumstances, including but not
limited to, situations when the value of a security in a
fund’s portfolio has been materially affected by events
occurring after the close of the market on which the security
is principally traded (such as a corporate action or other
news that may materially affect the price of a security) or
trading in a security has been suspended or halted. Fair
value pricing involves subjective judgments and it is
possible that a fair value determination for a security is
materially different from the value that could be realized
upon the sale of the security. In addition, fair value pricing
could result in a difference between the prices used to
calculate a fund’s NAV and the prices used by the fund’s
Underlying Index. This may adversely affect a fund’s ability
to track its Underlying Index. With respect to securities
that are primarily listed on foreign exchanges, the value of
a fund’s portfolio securities may change on days when
you will not be able to purchase or sell your shares.
Creations and Redemptions
Prior to trading in the secondary market, shares of the
funds are
“
created
”
at NAV by market makers, large investors
and institutions only in block-size Creation Units of
50,000 shares or multiples thereof (
“
Creation Units
”
). The
size of a Creation Unit will be subject to change. Each
“
creator
”
or AP (which must be a DTC participant) enters
into an authorized participant agreement (
“
Authorized
Participant Agreement
”
) with the fund’s distributor, ALPS
Distributors, Inc. (the
“
Distributor
”
), subject to acceptance
by the Transfer Agent. Only an AP may create or redeem
Creation Units. With respect to Xtrackers Harvest CSI 300
China A-Shares ETF, Xtrackers Harvest CSI 500 China
A-Shares Small Cap ETF and Xtrackers MSCI China A
Inclusion Equity ETF, Creation Units generally are issued
and redeemed in exchange for a specified amount of cash
totaling the NAV of the Creation Units. With respect to
Xtrackers MSCI All China Equity ETF, Creation Units are
principally issued and redeemed in exchange for a specific
basket of securities approximating the holdings of the applicable
fund and a designated amount of cash. Creation
Units may also be issued and redeemed in exchange for a
specified amount of cash totaling the NAV of the Creation
Units. Except when aggregated in Creation Units, shares
are not redeemable by the fund. The prices at which
creations and redemptions occur are based on the next
calculation of NAV after an order is received in a form
described in the Authorized Participant Agreement.
Additional information about the procedures regarding
creation and redemption of Creation Units (including the
cut-off times for receipt of creation and redemption orders)
is included in the SAI.
Each fund intends to comply with the US federal securities
laws in accepting securities for deposits and satisfying
redemptions with redemption securities, including that the
securities accepted for deposits and the securities used
to satisfy redemption requests will be sold in transactions
that would be exempt from registration under the Securities
Act of 1933, as amended (
“
1933 Act
”
). Further, an AP
that is not a
“
qualified institutional buyer,
”
as such term is
defined under Rule 144A under the 1933 Act, will not be
able to receive fund securities that are restricted securities
eligible for resale under Rule 144A.
Dividends and Distributions
General Policies.
Dividends from net investment income, if
any, are generally declared and paid at least annually by
each fund. Distributions of net realized capital gains, if any,
generally are declared and paid once a year, but the Trust
may make distributions on a more frequent basis for a
fund. The Trust reserves the right to declare special distributions
if, in its reasonable discretion, such action is
necessary or advisable to preserve its status as a regulated
investment company or to avoid imposition of income
or excise taxes on undistributed income or realized gains.
Dividends and other distributions on shares of a fund are
distributed on a pro rata basis to beneficial owners of such
shares. Dividend payments are made through DTC participants
and indirect participants to beneficial owners as of
the record date with proceeds received from a fund.
Dividend Reinvestment Service.
No dividend reinvestment
service is provided by the Trust. Broker-dealers may make
available the DTC book-entry Dividend Reinvestment
Service for use by beneficial owners of a fund for reinvestment
of their dividend distributions. Beneficial owners
should contact their broker to determine the availability
and costs of the service and the details of participation
therein. Brokers may require beneficial owners to adhere
to specific procedures and timetables. If this service is
Prospectus
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|
available and used, dividend distributions of both income
and realized gains will be automatically reinvested in additional
whole shares of a fund purchased in the secondary
market.
Taxes
As with any investment, you should consider how your
investment in shares of a fund will be taxed. The tax information
in this Prospectus is provided as general
information. You should consult your own tax professional
about the tax consequences of an investment in shares
of a fund.
Unless your investment in fund shares is made through a
tax-exempt entity or tax-deferred retirement account, such
as an IRA, you need to be aware of the possible tax consequences
when a fund makes distributions or you sell fund
shares.
Taxes on Distributions
Distributions from a fund’s net investment income (other
than qualified dividend income), including distributions
of income from securities lending and distributions out of
the fund’s net short-term capital gains, if any, are taxable to
you as ordinary income. Distributions by a fund of net long-term
capital gains in excess of net short-term capital
losses (capital gain dividends) are taxable to non-corporate
shareholders as long-term capital gains, which are subject
to reduced maximum tax rates, regardless of how long the
shareholders have held the fund’s shares. Distributions
by a fund that qualify as qualified dividend income are
taxable to non-corporate shareholders at long-term capital
gain rates. The maximum individual rate applicable to
“
qualified
dividend income
”
and long-term capital gains is
generally either 15% or 20%, depending on whether the
individual’s income exceeds certain threshold amounts.
If certain holding period requirements are met, qualified
dividend income received by a fund may be eligible to be
treated as qualified dividend income when distributed to
non-corporate shareholders. Generally, qualified dividend
income includes dividend income from taxable US corporations
and qualified non-US corporations, provided that the
fund satisfies certain holding period requirements in
respect of the stock of such corporations and has not
hedged its position in the stock in certain ways. For this
purpose, a qualified non-US corporation means any non-US
corporation that is eligible for benefits under a comprehensive
income tax treaty with the United States which
includes an exchange of information program or if the
stock with respect to which the dividend was paid is
readily tradable on an established United States security
market. The PRC has such a treaty with the US Dividends
from PFICs are not qualified dividend income.
In general, your distributions are subject to US federal
income tax for the year when they are paid. Certain distributions
paid in January, however, may be treated as paid
on December 31 of the prior year.
Distributions in excess of a fund’s current and accumulated
earnings and profits will, as to each shareholder, be
treated as a return of capital to the extent of the shareholder’s
basis in his or her shares of the fund, and generally
as a capital gain thereafter. A return of capital distribution
generally will not be taxable but will reduce the shareholder’s
cost basis and result in a higher capital gain or lower
capital loss when those shares on which the distribution
was received are sold.
If you are neither a resident nor a citizen of the United
States or if you are a non-US entity, a fund’s ordinary
income dividends (which include distributions of net short-
term capital gains) will generally be subject to a 30% US
withholding tax, unless a lower treaty rate applies,
provided that withholding tax will generally not apply to
any gain or income realized by a non-US shareholder in
respect of any distributions of long-term capital gains or
upon the sale or other disposition of shares of the fund.
As noted above, investment income earned by a fund may
be subject to non-US taxes; in particular, taxes imposed
by China. If, as is expected, more than 50% of the total
assets of the fund at the close of a year consist of non-US
stocks or securities, the fund may elect, for US federal
income tax purposes, to treat certain non-US income taxes
(including withholding taxes) paid (or deemed paid) by the
fund as paid by its shareholders. This means that you
would be considered to have received as additional gross
income (potentially subject to US withholding tax for
non-US shareholders) your share of such non-US taxes,
but you may, in such case, be entitled to either a tax deduction
in calculating your taxable income, or a credit in
calculating your US federal income tax. Your ability to use
foreign tax credits is subject to certain generally applicable
limitations as further described in the SAI.
If a fund holds shares in
“
passive foreign investment
companies
”
(
“
PFICs
”
), it may be subject to US federal
income tax on a portion of any
“
excess distribution
”
or gain
from the disposition of such shares even if such income
is distributed as a taxable dividend by the fund to its shareholders.
Additional charges in the nature of interest may
be imposed on the fund in respect of deferred taxes
arising from such distributions or gains. A fund may be
eligible to elect to treat the PFIC as a
“
qualified electing
fund
”
under the Code, in which case, the fund would generally
be required to include in income each year a portion of
the ordinary earnings and net capital gains of the qualified
electing fund, even if not distributed to the fund, and
such amounts would be subject to the 90% and excise tax
distribution requirements described above. In order to
make this election, the fund would be required to obtain
certain annual information from the PFICs in which it
invests, which may be difficult or impossible to obtain.
Alternatively, a fund may make a mark-to-market election
that would result in the fund being treated as if it had sold
and repurchased its PFIC stock at the end of each year. In
such case, the fund would report any gains resulting from
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such deemed sales as ordinary income and would deduct
any losses resulting from such deemed sales as ordinary
losses to the extent of previously recognized gains.
A fund’s exposure to securities through an underlying fund
(i.e., the Underlying Funds) may be less tax efficient than
a direct investment in securities. The fund will not be able
to offset its taxable income and gains with losses incurred
by the underlying fund because the underlying fund(s) are
treated as corporations for US federal income tax
purposes. The fund’s sales of shares of an underlying fund,
including those resulting from changes in the fund’s allocation
of assets, could cause the recognition of additional
taxable gains. A portion of any such gains may be short-term
capital gains, which will be taxable as ordinary
dividend income when distributed to the fund’s shareholders.
Further, certain losses recognized on sales of
shares of the underlying fund may be deferred indefinitely
under the wash sale rules. Short-term capital gains earned
by the underlying fund will be treated as ordinary dividends
when distributed to the fund and therefore may not
be offset by any short-term capital losses incurred by the
fund. The fund’s short-term capital losses might instead
offset long-term capital gains realized by the fund, which
would otherwise be eligible for reduced US federal income
tax rates when distributed to individual and certain other
non-corporate shareholders.
If you are a resident or a citizen of the United States, by
law, back-up withholding (currently at a rate of 24%) will
apply to your distributions and proceeds if you have not
provided a taxpayer identification number or social security
number and made other required certifications.
Taxes when Shares are Sold
Currently, any capital gain or loss realized upon a sale of
fund shares is generally treated as a long-term gain or loss
if the shares have been held for more than one year. Any
capital gain or loss realized upon a sale of fund shares held
for one year or less is generally treated as short-term gain
or loss, except that any capital loss on the sale of shares
held for six months or less is treated as long-term capital
loss to the extent that capital gain dividends were paid
with respect to such shares.
Medicare Tax
An additional 3.8% Medicare tax is imposed on certain net
investment income (including ordinary dividends and
capital gain distributions received from a fund and net
gains from redemptions or other taxable dispositions of
fund shares) of US individuals, estates and trusts to the
extent that such person’s
“
modified adjusted gross
income
”
(in the case of an individual) or
“
adjusted gross
income
”
(in the case of an estate or trust) exceeds certain
threshold amounts.
The foregoing discussion summarizes some of the consequences
under current US federal tax law of an
investment in a fund. It is not a substitute for personal tax
advice. You may also be subject to state and local taxation
on fund distributions and sales of shares. Consult your
personal tax advisor about the potential tax consequences
of an investment in shares of a fund under all applicable
tax laws.
Authorized Participants and the Continuous Offering of
Shares
Because new shares may be created and issued on an
ongoing basis, at any point during the life of a fund a
“
distribution,
”
as such term is used in the 1933 Act, may be
occurring. Broker-dealers and other persons are cautioned
that some activities on their part may, depending on the
circumstances, result in their being deemed participants in
a distribution in a manner that could render them statutory
underwriters and subject to the prospectus delivery
and liability provisions of the 1933 Act. Any determination
of whether one is an underwriter must take into account
all the relevant facts and circumstances of each particular
case.
Broker-dealers should also note that dealers who are not
“
underwriters
”
but are participating in a distribution (as
contrasted to ordinary secondary transactions), and thus
dealing with shares that are part of an
“
unsold allotment
”
within the meaning of Section 4(3)(C) of the 1933 Act,
would be unable to take advantage of the prospectus
delivery exemption provided by Section 4(3) of the 1933
Act. For delivery of prospectuses to exchange members,
the prospectus delivery mechanism of Rule 153 under the
1933 Act is available only with respect to transactions on
a national securities exchange.
Certain affiliates of a fund and the Advisor may purchase
and resell fund shares pursuant to this Prospectus.
Transaction Fees
APs are charged standard creation and redemption transaction
fees to offset transfer and other transaction costs
associated with the issuance and redemption of Creation
Units. Purchasers and redeemers of Creation Units for
cash are required to pay an additional variable charge (up
to a maximum of 2% for redemptions, including the standard
redemption fee) to compensate for brokerage and
market impact expenses. The standard creation and
redemption transaction fee for each fund is set forth in the
table below. The maximum redemption fee, as a
percentage of the amount redeemed, is 2%.
|
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Xtrackers Harvest CSI 300
China A-Shares ETF
|
|
Xtrackers MSCI China A Inclu-
sion Equity ETF
|
|
Xtrackers Harvest CSI 500
China A-Shares Small Cap ETF
|
|
Xtrackers MSCI All China
Equity ETF
|
|
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Distribution
The Distributor distributes Creation Units for each fund on
an agency basis. The Distributor does not maintain a
secondary market in shares of a fund. The Distributor has
no role in determining the policies of a fund or the securities
that are purchased or sold by a fund. The Distributor’s
principal address is 1290 Broadway, Suite 1000, Denver,
Colorado 80203.
The Advisor and/or its affiliates may pay additional compensation,
out of their own assets and not as an additional
charge to a fund, to selected affiliated and unaffiliated
brokers, dealers, participating insurance companies or
other financial intermediaries (
“
financial representatives
”
)
in connection with the sale and/or distribution of fund
shares or the retention and/or servicing of fund investors
and fund shares (
“
revenue sharing
”
). For example, the
Advisor and/or its affiliates may compensate financial representatives
for providing a fund with
“
shelf space
”
or
access to a third party platform or fund offering list or other
marketing programs, including, without limitation, inclusion
of a fund on preferred or recommended sales lists,
fund
“
supermarket
”
platforms and other formal sales
programs; granting the Advisor and/ or its affiliates access
to the financial representative’s sales force; granting the
Advisor and/or its affiliates access to the financial representative’s
conferences and meetings; assistance in training
and educating the financial representative’s personnel; and
obtaining other forms of marketing support.
The level of revenue sharing payments made to financial
representatives may be a fixed fee or based upon one
or more of the following factors: gross sales, current
assets and/or number of accounts of a fund attributable to
the financial representative, the particular fund or fund
type or other measures as agreed to by the Advisor and/or
its affiliates and the financial representatives or any combination
thereof. The amount of these revenue sharing
payments is determined at the discretion of the Advisor
and/or its affiliates from time to time, may be substantial,
and may be different for different financial representatives
based on, for example, the nature of the services provided
by the financial representative.
Receipt of, or the prospect of receiving, additional compensation
may influence your financial representative’s
recommendation of a fund. You should review your financial
representative’s compensation disclosure and/or talk to
your financial representative to obtain more information
on how this compensation may have influenced your financial
representative’s recommendation of the fund.
Additional information regarding these revenue sharing
payments is included in a fund’s Statement of Additional
Information, which is available to you on request at no
charge (see the back cover of this Prospectus for more
information on how to request a copy of the Statement of
Additional Information).
It is possible that broker-dealers that execute portfolio transactions
for a fund will also sell shares of a fund to their
customers. However, the Advisor will not consider the sale
of fund shares as a factor in the selection of broker-dealers
to execute portfolio transactions for a fund. Accordingly,
the Advisor has implemented policies and procedures
reasonably designed to prevent its traders from considering
sales of fund shares as a factor in the selection of
broker-dealers to execute portfolio transactions for a fund.
In addition, the Advisor and/or its affiliates will not use
fund brokerage to pay for their obligation to provide additional
compensation to financial representatives as
described above.
Premium/Discount Information
Information regarding how often shares of each fund
traded on NYSE Arca at a price above (i.e., at a premium)
or below (i.e., at a discount) the NAV of each fund during
the past calendar year can be found at Xtrackers.com.
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The financial highlights are designed to help you understand recent financial performance. The figures in the first part of
each table are for a single share. The total return figures represent the percentage that an investor in a fund would have
earned (or lost), assuming all dividends and distributions were reinvested. This information has been audited by Ernst &
Young LLP, independent registered public accounting firm, whose report, along with each fund’s financial statements, is
included in each fund’s Annual Report (see
“
For More Information
”
on the back cover).
Xtrackers Harvest CSI 300 China A-Shares ETF
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Net Asset Value, beginning of year
|
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Income (loss) from investment operations:
|
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|
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|
Net investment income (loss)
a
|
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Net realized and unrealized gain (loss)
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Total from investment operations
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Net Asset Value, end of year
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Ratios to Average Net Assets and Supplemental Data
|
Net Assets, end of year ($ millions)
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Ratio of net investment income (loss) (%)
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Portfolio turnover rate (%)
c
|
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a
Based on average shares outstanding during the period.
b
Because of the timing of subscriptions and redemptions in relation to fluctuating markets at value, the amount shown may not agree with the change
in aggregate gains and losses.
c
Portfolio turnover rate does not include securities received or delivered from processing creations or redemptions.
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125
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Financial Highlights
|
Xtrackers MSCI China A Inclusion Equity ETF
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Net Asset Value, beginning of period
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Income (loss) from investment operations:
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Net investment income (loss)
a
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Net realized and unrealized gain (loss)
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Total from investment operations
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Net Asset Value, end of period
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Ratios to Average Net Assets and Supplemental Data
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Net Assets, end of period ($ millions)
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Ratio of expenses before fee waiver (%)
c
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Ratio of expenses after fee waiver (%)
c
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Ratio of net investment income (loss)(%)
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Portfolio turnover rate (%)
d
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a
Based on average shares outstanding during the period.
b
Total Return would have been lower if certain expenses had not been reimbursed by the Advisor.
c
The Fund invests in other ETFs and indirectly bears its proportionate shares of fees and expenses incurred by the Underlying Funds in which the Fund
is invested. This ratio does not included these indirect fees and expenses.
d
Portfolio turnover rate does not include securities received or delivered from processing creations or redemptions.
e
For the period October 20, 2015 (commencement of operations) through May 31, 2016.
f
The Fund’s total return includes a reimbursement by the Advisor for a realized loss on a trade executed incorrectly, which otherwise would have
reduced total return by 0.41%.
***
Annualized. Includes excise tax expense that is not annualized.
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Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF
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Net Asset Value, beginning of year
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Income (loss) from investment operations:
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Net investment income (loss)
a
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Net realized and unrealized gain (loss)
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Total from investment operations
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Net Asset Value, end of year
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Ratios to Average Net Assets and Supplemental Data
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Net Assets, end of year ($ millions)
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Ratio of net investment income (loss) (%)
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Portfolio turnover rate (%)
c
|
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a
Based on average shares outstanding during the period.
b
Because of the timing of subscriptions and redemptions in relation to fluctuating markets at value, the amount shown may not agree with the change
in aggregate gains and losses.
c
Portfolio turnover rate does not include securities received or delivered from processing creations or redemptions.
Xtrackers MSCI All China Equity ETF
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Net Asset Value, beginning of year
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Income (loss) from investment operations:
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Net investment income (loss)
a
|
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Net realized and unrealized gain (loss)
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Total from investment operations
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Net Asset Value, end of year
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Ratios to Average Net Assets and Supplemental Data
|
Net Assets, end of year ($ millions)
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Ratio of expenses before fee waiver (%)
c
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Ratio of expenses after fee waiver (%)
c
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Ratio of net investment income (loss) (%)
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Portfolio turnover rate (%)
d
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a
Based on average shares outstanding during the period.
b
Total Return would have been lower if certain expenses had not been reimbursed by the Advisor.
c
The Fund invests in other ETFs and indirectly bears its proportionate shares of fees and expenses incurred by the Underlying Funds in which the Fund
is invested. This ratio does not included these indirect fees and expenses.
d
Portfolio turnover rate does not include securities received or delivered from processing creations or redemptions.
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Financial Highlights
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Index Providers and Licenses
CSI, a leading index provider in China, is a joint venture between the SSE and the SZSE that specializes in the creation of
indices and index-related services. CSI is not affiliated with the Trust, the Advisor, the Subadvisor, The Bank of New York
Mellon, the Distributor or any of their respective affiliates.
MSCI, Inc. (
“
MSCI
”
) is a leading provider of global indexes and benchmark related products and services to investors
worldwide. MSCI is not affiliated with the Trust, the Advisor, The Bank of New York Mellon, the Distributor or any of their
respective affiliates.
The Advisor has entered into a license agreement with CSI and MSCI to use each Underlying Index. All license fees are
paid by the Adviser out of its own resources and not the assets of the Fund.
Disclaimers
Shares of the funds are not sponsored, endorsed or promoted by NYSE Arca. NYSE Arca makes no representation or
warranty, express or implied, to the owners of the shares of the funds or any member of the public regarding the ability
of the funds to track the total return performance of the Underlying Index or the ability of the Underlying Index to track
stock market performance. NYSE Arca is not responsible for, nor has it participated in, the determination of the compilation
or the calculation of the Underlying Index, nor in the determination of the timing of, prices of, or quantities of shares of
the funds to be issued, nor in the determination or calculation of the equation by which the shares are redeemable. NYSE
Arca has no obligation or liability to owners of the shares of the funds in connection with the administration, marketing
or trading of the shares of the funds.
NYSE Arca does not guarantee the accuracy and/or the completeness of the Underlying Index or any data included
therein. NYSE Arca makes no warranty, express or implied, as to results to be obtained by the Trust on behalf of the funds
as licensee, licensee’s customers and counterparties, owners of the shares of the funds, or any other person or entity
from the use of the subject index or any data included therein in connection with the rights licensed as described herein
or for any other use. NYSE Arca makes no express or implied warranties and hereby expressly disclaims all warranties of
merchantability or fitness for a particular purpose with respect to the Underlying Index or any data included therein.
Without limiting any of the foregoing, in no event shall NYSE Arca have any liability for any direct, indirect, special, punitive,
consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
The Advisor does not guarantee the accuracy or the completeness of the Underlying Index or any data included therein
and the Advisor shall have no liability for any errors, omissions or interruptions therein.
The Advisor makes no warranty, express or implied, to the owners of shares of the funds or to any other person or entity,
as to results to be obtained by the funds from the use of the Underlying Index or any data included therein. The Advisor
makes no express or implied warranties and expressly disclaims all warranties of merchantability or fitness for a particular
purpose or use with respect to the Underlying Index or any data included therein. Without limiting any of the foregoing,
in no event shall the Advisor have any liability for any special, punitive, direct, indirect or consequential damages (including
lost profits), even if notified of the possibility of such damages.
Shares of the funds are not sponsored, endorsed, sold or promoted by CSI or any affiliate of CSI and CSI bears no liability
with respect to the funds or any security. The Underlying Index of Xtrackers Harvest CSI 300 China A-Shares ETF and
Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF is compiled and calculated by CSI. CSI will apply all necessary
means to ensure the accuracy of the Underlying Index. However, none of CSI, the SSE nor the SZSE shall be liable
(whether in negligence or otherwise) to any person for any error in the Underlying Index and none of CSI, the SSE nor the
SZSE shall be under any obligation to advise any person of any error therein. All rights in Underlying Index vests in CSI.
Neither the publication of the Underlying Index by CSI nor the granting of a license regarding the Underlying Index as well
Prospectus
October 1, 2020
|
128
|
Appendix
|
as the Index Trademark for the utilization in connection with the funds, which derived from the Underlying Indexes, represents
a recommendation by CSI for a capital investment or contains in any manner a warranty or opinion by CSI with
respect to the attractiveness on an investment in the funds.
XTRACKERS MSCI ALL CHINA EQUITY ETF AND XTRACKERS MSCI CHINA A INCLUSION EQUITY ETF ARE NOT SPONSORED,
ENDORSED, SOLD OR PROMOTED BY MSCI INC. (
“
MSCI
”
), ANY OF ITS AFFILIATES, ANY OF ITS
INFORMATION PROVIDERS OR ANY OTHER THIRD PARTY INVOLVED IN, OR RELATED TO, COMPILING, COMPUTING
OR CREATING ANY MSCI INDEX (COLLECTIVELY, THE
“
MSCI PARTIES
”
). THE MSCI INDEXES ARE THE EXCLUSIVE
PROPERTY OF MSCI. MSCI AND THE MSCI INDEX NAMES ARE SERVICE MARK(S) OF MSCI OR ITS AFFILIATES AND
HAVE BEEN LICENSED FOR USE FOR CERTAIN PURPOSES BY THE ADVISER. NONE OF THE MSCI PARTIES MAKES
ANY REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, TO THE ISSUER OR OWNERS OF THE FUNDS OR ANY
OTHER PERSON OR ENTITY REGARDING THE ADVISABILITY OF INVESTING IN FUNDS GENERALLY OR IN A FUND
PARTICULARLY OR THE ABILITY OF ANY MSCI INDEX TO TRACK CORRESPONDING STOCK MARKET PERFORMANCE.
MSCI OR ITS AFFILIATES ARE THE LICENSORS OF CERTAIN TRADEMARKS, SERVICE MARKS AND TRADE NAMES
AND OF THE MSCI INDEXES WHICH ARE DETERMINED, COMPOSED AND CALCULATED BY MSCI WITHOUT REGARD
TO THE FUNDS OR THE ISSUER OR OWNERS OF THE FUNDS OR ANY OTHER PERSON OR ENTITY. NONE OF THE
MSCI PARTIES HAS ANY OBLIGATION TO TAKE THE NEEDS OF THE ISSUER OR OWNERS OF THE FUNDS OR ANY
OTHER PERSON OR ENTITY INTO CONSIDERATION IN DETERMINING, COMPOSING OR CALCULATING THE MSCI
INDEXES. NONE OF THE MSCI PARTIES IS RESPONSIBLE FOR OR HAS PARTICIPATED IN THE DETERMINATION OF
THE TIMING OF, PRICES AT, OR QUANTITIES OF THE FUNDS TO BE ISSUED OR IN THE DETERMINATION OR CALCULATION
OF THE EQUATION BY OR THE CONSIDERATION INTO WHICH THE FUNDS ARE REDEEMABLE. FURTHER,
NONE OF THE MSCI PARTIES HAS ANY OBLIGATION OR LIABILITY TO THE ISSUER OR OWNERS OF THE FUNDS OR
ANY OTHER PERSON OR ENTITY IN CONNECTION WITH THE ADMINISTRATION, MARKETING OR OFFERING OF THE
FUNDS.
ALTHOUGH MSCI SHALL OBTAIN INFORMATION FOR INCLUSION IN OR FOR USE IN THE CALCULATION OF THE
MSCI INDEXES FROM SOURCES THAT MSCI CONSIDERS RELIABLE, NONE OF THE MSCI PARTIES WARRANTS OR
GUARANTEES THE ORIGINALITY, ACCURACY AND/OR THE COMPLETENESS OF ANY MSCI INDEX OR ANY DATA
INCLUDED THEREIN. NONE OF THE MSCI PARTIES MAKES ANY WARRANTY, EXPRESS OR IMPLIED, AS TO RESULTS
TO BE OBTAINED BY THE ISSUER OF THE FUNDS, OWNERS OF THE FUNDS, OR ANY OTHER PERSON OR ENTITY,
FROM THE USE OF ANY MSCI INDEX OR ANY DATA INCLUDED THEREIN. NONE OF THE MSCI PARTIES SHALL HAVE
ANY LIABILITY FOR ANY ERRORS, OMISSIONS OR INTERRUPTIONS OF OR IN CONNECTION WITH ANY MSCI INDEX
OR ANY DATA INCLUDED THEREIN. FURTHER, NONE OF THE MSCI PARTIES MAKES ANY EXPRESS OR IMPLIED
WARRANTIES OF ANY KIND, AND THE MSCI PARTIES HEREBY EXPRESSLY DISCLAIM ALLWARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO EACH MSCI INDEX AND ANY
DATA INCLUDED THEREIN.WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT SHALL ANY OF THE MSCI
PARTIES HAVE ANY LIABILITY FOR ANY DIRECT, INDIRECT, SPECIAL, PUNITIVE, CONSEQUENTIAL OR ANY OTHER
DAMAGES (INCLUDING LOST PROFITS) EVEN IF NOTIFIED OF THE POSSIBILITY OF SUCH DAMAGES.
NO PURCHASER, SELLER OR HOLDER OF THIS SECURITY, PRODUCT OR FUND, OR ANY OTHER PERSON OR ENTITY,
SHOULD USE OR REFER TO ANY MSCI TRADE NAME, TRADEMARK OR SERVICE MARK TO SPONSOR, ENDORSE,
MARKET OR PROMOTE THIS SECURITY WITHOUT FIRST CONTACTING MSCI TO DETERMINE WHETHER MSCI’S
PERMISSION IS REQUIRED. UNDER NO CIRCUMSTANCES MAY ANY PERSON OR ENTITY CLAIM ANY AFFILIATION
WITH MSCI WITHOUT THE PRIOR WRITTEN PERMISSION OF MSCI.
Prospectus
October 1, 2020
|
129
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Appendix
|
FOR MORE INFORMATION:
XTRACKERS.COM
1-855-329-3837 (1-855-DBX-ETFS)
Copies of the prospectus, SAI and recent shareholder
reports, when available, can be found on our website at
Xtrackers.com. For more information about a fund, you
may request a copy of the SAI. The SAI provides detailed
information about a fund and is incorporated by reference
into this prospectus. This means that the SAI, for legal
purposes, is a part of this prospectus.
If you have any questions about the Trust or shares of a
fund or you wish to obtain the SAI or shareholder report
free of charge, please:
|
1-855-329-3837 or 1-855-DBX-ETFS
(toll free) Monday through Friday
8:30 a.m. to 6:30 p.m. (Eastern time)
E-mail: dbxquestions@list.db.com
|
|
DBX ETF Trust
c/o ALPS Distributors, Inc.
1290 Broadway, Suite 1000
Denver, Colorado 80203
|
Information about a fund (including the SAI), reports and
other information about a fund are available on the EDGAR
Database on the SEC’s website at sec.gov, and copies of
this information may be obtained, after paying a duplicating
fee, by electronic request at the following e-mail address:
publicinfo@sec.gov.
Householding is an option available to certain fund investors.
Householding is a method of delivery, based on the
preference of the individual investor, in which a single copy
of certain shareholder documents can be delivered to investors
who share the same address, even if their accounts
are registered under different names. Please contact your
broker-dealer if you are interested in enrolling in
householding and receiving a single copy of prospectuses
and other shareholder documents, or if you are currently
enrolled in householding and wish to change your
householding status.
No person is authorized to give any information or to make
any representations about a fund and their shares not
contained in this prospectus and you should not rely on
any other information. Read and keep the prospectus for
future reference.
Investment Company Act File No.: 811-22487
Statement
of Additional Information
October
1, 2020
DBX
ETF TRUST
Xtrackers
International Real Estate ETF |
|
This Statement of
Additional Information (“SAI”)
is not a prospectus and should be read in conjunction with
the prospectus for the fund dated October 1, 2020, as supplemented, a copy of which
may be obtained without charge by calling 1-855-329-3837 (1-855-DBX-ETFS);
by visiting Xtrackers.com
(the Web site does not form a part of this SAI); or by writing to
the Trust’s distributor, ALPS Distributors, Inc. (the “Distributor”),
1290 Broadway, Suite 1000, Denver, Colorado 80203. This SAI is incorporated by
reference into the prospectus.
Portions
of the Annual Report to Shareholders of the fund are incorporated herein by reference,
and are hereby deemed to be part of this SAI. Reports to Shareholders
may also be obtained without charge by calling the number provided in the preceding
paragraph.
This
SAI is divided into two Parts—Part
I and Part II. Part I contains information that is specific to the fund,
while Part II contains information that generally applies to each of the funds
in the Xtrackers funds.
Statement
of Additional Information (SAI)—Part
I
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|
|
|
|
|
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|
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Portfolio
Transactions, Brokerage Commissions and Securities Lending Activities |
|
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Independent
Registered Public Accounting Firm, Reports to Shareholders and Financial Statements |
|
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Part
I: Appendix I-A—Board
Member Share Ownership and Control Persons |
|
Part
I: Appendix I-B—Board
Committees and Meetings |
|
Part
I: Appendix I-C—Board
Member Compensation |
|
Part
I: Appendix I-D—Portfolio
Management |
|
Part
I: Appendix I-E—Service
Provider Compensation |
|
Part
I: Appendix I-F—Portfolio
Transactions and Brokerage Commissions |
|
Part
I: Appendix I-G—Investments,
Practices and Techniques, and Risks |
|
Part
I: Appendix I-H—Securities
Lending Activities |
|
Part
I: Appendix I-I—Additional
Information |
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Detailed
Part II table of contents precedes page II-1 |
|
Definitions
“1933
Act” – the Securities
Act of 1933, as amended
“1934
Act” – the Securities
Exchange Act of 1934, as amended
“1940
Act” – the Investment
Company Act of 1940, as amended
“Administrator”
or “Custodian”
or “Transfer Agent”
or “BNYM”
– The Bank of New York Mellon, 240 Greenwich Street, New York, New York 10286
“Advisor”
or “DBX”
– DBX Advisors LLC, 875 Third Avenue, New York, New York 10022
“ALPS”
or “Distributor”
– ALPS Distributors, Inc., 1290 Broadway, Suite 1000, Denver, Colorado 80203
“Board”
– Board of Trustees of the Trust
“Board
Members” – Members
of the Board of Trustees of the Trust
“Business
Day” – any day
on which the Exchange on which the fund is listed for trading is open for business
“Cash
Component” – deposit
of a specified cash payment
“Creation
Units” – shares
that have been aggregated into blocks
“Code”
– the Internal Revenue Code of 1986, as amended
“DTC”
– Depository Trust Company
“DWS”
– refers to the asset management activities conducted by DWS Group GmbH &
Co. KGaA or any of its subsidiaries, including the Advisor and other affiliated
investment advisors
“DWS
Group” – a separate,
publicly-listed financial services firm that is an indirect, majority-owned subsidiary
of Deutsche Bank AG.
“ETF”
– exchange-traded fund
“Exchange”
– NYSE Arca, Inc.
“Fitch”
– Fitch Ratings, an NRSRO
“Fund
Legal Counsel” –
Dechert LLP, 1095 Avenue of the Americas, New York, New York 10036
“fund”
or “series”
– Xtrackers International Real Estate ETF
“Independent
Board Members”–
Board Members who are not interested persons (as defined in the 1940 Act)
of the fund, the investment advisor or the distributor
“Independent
Registered Public Accounting Firm”
– Ernst & Young LLP, 5 Times Square, New York, New York 10036
“Independent
Trustee Legal Counsel”
– K&L Gates LLP, 1601 K Street, NW, Washington, DC 20006
“IOPV”
– Indicative Optimized Portfolio Value
“Moody’s”
– Moody’s Investors Service, Inc., an NRSRO
“NRSRO”
– a nationally recognized statistical rating organization
“S&P”
– S&P Global Ratings, an NRSRO
“SEC”
– the Securities and Exchange Commission
“Shares”
– shares of beneficial interest registered under the 1933 Act
“Trust”
– DBX ETF Trust
“Underlying
Index” – a specified
benchmark index
“Unitary
Advisory Fee” –
fee payable to the Advisor for its services under the Investment Advisory Agreement
with the fund and the Advisor’s commitment to pay substantially
all expenses of the fund, including the cost of transfer agency, custody, fund
administration, compensation paid to the Independent Board Members, legal,
audit and other services, except for the fee payments to
the Advisor under the Investment Advisory Agreement, interest expense, acquired
fund fees and expenses, taxes, brokerage expenses, distribution fees or expenses
(if any), litigation expenses and other extraordinary expenses
“funds”
– the US registered investment companies advised by DBX
Fund
Organization
DBX
ETF Trust was organized as a Delaware statutory trust on October 7, 2010 and is
authorized to have multiple series or portfolios. The Trust is an open-end management
investment company registered with the SEC under the 1940
Act. Additional information about the Trust is set forth in Part
II under “Fund
Organization.”
On
August 11, 2014, db X-trackers MSCI Asia Pacific ex Japan Hedged Equity Fund was
renamed Deutsche X-trackers MSCI Asia Pacific ex Japan Hedged Equity ETF.
On October 2, 2017, Deutsche X-trackers MSCI Asia Pacific ex Japan Hedged Equity
ETF was renamed Xtrackers MSCI Asia Pacific ex Japan Hedged Equity ETF.
On February 22, 2019, Xtrackers MSCI Asia Pacific ex Japan
Hedged Equity ETF was renamed Xtrackers International Real Estate ETF.
Management
of the Fund
Board
Members and Officers’ Identification and Background
The
identification and background of the Board Members and officers are set forth in
Part II—Appendix
II-A.
Board
Committees and Compensation
Compensation
paid to the Independent Board Members, for certain specified periods is set forth
in Part I—
Appendix I-C.
Information regarding the committees of the Board is set forth in Part
I—Appendix
I-B.
Board
Member Share Ownership and Control Persons
Information
concerning the ownership of fund shares by Board Members and officers, as a group,
as well as the dollar range value of each Board Member’s share ownership
in the fund and, on an aggregate basis, in all Xtrackers funds overseen by them,
by investors who control the fund, if any, and by investors who own 5%
or more of fund shares, if any, is set forth in Part
I—
Appendix I-A.
Portfolio
Management
Information
regarding the fund’s portfolio managers, including other accounts managed,
compensation, ownership of fund shares and possible conflicts of interest,
is set forth in Part I—Appendix
I-D and Part
II – Appendix II-B.
Service
Provider Compensation
Compensation
paid by the fund for investment advisory services and other expenses through the
Unitary Advisory Fee is set forth in Part
I—Appendix
I-E. The service provider
compensation is not applicable to new funds that have not completed a fiscal reporting
period. Fee rates are included in Part
II – Appendix II-C.
Portfolio
Transactions, Brokerage Commissions and Securities
Lending Activities
Portfolio
Turnover
The
portfolio turnover rates for the two most recent fiscal years are set forth in
Part I—Appendix
I-F. This section
does not apply to new funds that have not completed a fiscal
reporting period.
Brokerage
Commissions
Total
brokerage commissions paid by the fund for the three most recent fiscal years are
set forth in Part I—
Appendix I-F.
This section does not apply to new funds that have not completed a fiscal reporting
period.
The
fund's policy with respect to portfolio transactions and brokerage is set forth
under “Portfolio Transactions
” in Part
II of this SAI.
Securities
Lending Activities
Information
regarding securities lending activities of the fund, if any, during its most recent
fiscal year is set forth in Part
I—Appendix
I-H.
Additional
information regarding securities lending in general is set forth under “Lending
of Portfolio Securities”
in Part II
of this SAI.
Investments
Investments,
Practices and Techniques, and Risks
Part
I—Appendix
I-G includes a list of
the investments, practices and techniques, and risks which the fund
may employ (or be subject to) in pursuing its investment objective.
Part II—Appendix
II-E includes a description
of these investments, practices and techniques, and risks.
Investment
Restrictions
It
is possible that certain investment practices and/or techniques may not be permissible
for a fund based on its investment restrictions, as described herein.
Diversification
Status. Xtrackers International Real Estate ETF
is classified as a diversified fund. The fund’s election to be classified
as diversified under the 1940 Act may not be changed without the vote of a majority
of the outstanding voting securities (as defined herein) of the fund.
Currently,
under the 1940 Act, for a fund to be classified as a diversified investment company,
at least 75% of the value of the fund’s total assets must be represented
by cash and cash items (including receivables), government
securities, securities of other investment companies, and securities of other issuers,
which for the purposes of this calculation are limited in respect of any
one issuer to an amount (valued at the time of investment) not greater in value
than 5% of the fund’s total assets and to not more than 10% of the outstanding
voting securities of such issuer.
Fundamental
Policies
The
following fundamental policies may not be changed without the approval of a majority
of the outstanding voting securities of the fund which, under the 1940 Act and
the rules thereunder and as used in this SAI, means the lesser
of (1) 67% or more of the voting securities present at such meeting, if the holders
of more than 50% of the outstanding voting securities of the fund are present or
represented by proxy, or (2) more than 50% of the outstanding
voting securities of the fund.
As
a matter of fundamental policy, the fund may not do any of the following:
(1)
concentrate
its investments (i.e., invest 25% or more of its total assets in the securities
of a particular industry or group of industries), except that the fund
will concentrate to the extent that its underlying index
concentrates in the securities of such particular industry or group of industries.
For purposes of this limitation, securities of the U.S. government (including
its agencies and instrumentalities), repurchase agreements collateralized by U.S.
government securities, and securities of state or municipal governments
and their political sub-divisions are not considered to be issued by members of
any industry;
(2)
borrow
money, except that (i) the fund may borrow from banks for temporary or emergency
(not leveraging) purposes, including the meeting of redemption
requests which might otherwise require the untimely disposition of securities;
and (ii) the fund may, to the extent consistent with its investment
policies, enter into repurchase agreements, reverse repurchase agreements, forward
roll transactions and similar investment strategies and
techniques; to the extent that it engages in transactions described in (i) and
(ii), the fund will be limited so that no more than 33 1/3% of the value
of its total assets (including the amount borrowed) is derived from such transactions.
Any borrowings which come to exceed this amount will be
reduced in accordance with applicable law;
(3)
issue
any senior security, except as permitted under the 1940 Act, as amended, and as
interpreted, modified or otherwise permitted by regulatory authority
having jurisdiction, from time to time;
(4)
make
loans, except as permitted under the 1940 Act, as interpreted, modified or otherwise
permitted by regulatory authority having jurisdiction, from time to
time;
(5)
purchase
or sell real estate unless acquired as a result of ownership of securities or other
investments (but this restriction shall not prevent the fund from
investing in securities of companies engaged in the real estate business or securities
or other instruments backed by real estate or mortgages), or
commodities or commodity contracts (but this restriction shall not prevent the
fund from trading in futures contracts and options on futures contracts,
including options on currencies to the extent consistent
with the fund’s investment objectives and policies); or
(6)
engage
in the business of underwriting securities issued by other persons except, to the
extent that the fund may technically be deemed to be an underwriter
under the 1933 Act, the disposing of portfolio securities.
For
purposes of the concentration policy in investment restriction (1), municipal securities
with payments of principal or interest backed by the revenue of a specific
project are considered to be issued by a member of the industry
which includes such specific project.
Senior
securities may include any obligation or instrument issued by an investment company
evidencing indebtedness. The 1940 Act generally prohibits a fund from issuing
senior securities, although it provides allowances for certain borrowings and certain
other investments, such as short sales, reverse repurchase agreements,
and firm commitment agreements, when such investments are “covered”
or with appropriate earmarking or segregation of assets to cover such obligations.
Under
the 1940 Act, an investment company may only make loans if expressly permitted
by its investment policies.
Non-Fundamental
Policies
The
Board has adopted certain additional non-fundamental policies and restrictions
which are observed in the conduct of the fund’s affairs. They differ from
fundamental investment policies in that they may be changed or amended
by action of the Board without requiring prior notice to, or approval of, the shareholders.
As
a matter of non-fundamental policy, the fund may not do any of the following:
(1)
sell
securities short, unless the fund owns or has the right to obtain securities equivalent
in-kind and amount to the securities sold short at no added cost,
and provided that transactions in options, futures contracts, options on futures
contracts or other derivative instruments are not deemed to constitute
selling securities short;
(2)
purchase
securities on margin, except that the fund may obtain such short-term credits as
are necessary for the clearance of transactions; and provided that margin
deposits in connection with futures contracts, options on futures contracts or
other derivative instruments shall not constitute purchasing securities
on margin;
(3)
purchase
securities of open-end or closed-end investment companies except in compliance
with the 1940 Act;
(4)
invest
in direct interests in oil, gas or other mineral exploration programs or leases;
however, the fund may invest in the securities of issuers that engage in
these activities; and
(5)
invest
in illiquid securities if, as a result of such investment, more than 15% of the
fund’s net assets would be invested in illiquid securities.
If
any percentage restriction described above is complied with at the time of investment,
a later increase or decrease in percentage resulting from any change in value or
total or net assets will not constitute a violation of such restriction,
except that fundamental limitation (2) will be observed continuously in accordance
with applicable law.
For
purposes of non-fundamental policy (5), an illiquid security is any investment
that the fund reasonably expects cannot be sold or disposed of in current market
conditions in seven calendar days without the sale or disposition
significantly changing the market value of the investment.
The
fund has adopted a non-fundamental investment policy such that the fund may invest
in shares of other open-end management investment companies or unit investment
trusts subject to the limitations of Section 12(d)(1) of the 1940 Act, including
the rules, regulations and exemptive orders obtained thereunder; provided,
however, that if the fund has knowledge that its Shares are
purchased by another investment company investor in reliance on the provisions
of subparagraphs (F) or (G) of Section 12(d)(1) of the 1940 Act, the fund will
not acquire any securities of other open-end management investment
companies or unit investment trusts in reliance on the provisions of subparagraphs
(F) or (G) of Section 12(d)(1) of the 1940 Act.
Taxes
Important
information concerning the tax consequences of an investment in the fund is contained
in Part II—
Appendix II-F.
Independent
Registered Public Accounting Firm, Reports to Shareholders
and Financial Statements
The
financial highlights of the fund included in its prospectus and financial statements
incorporated by reference into this SAI have been so included or incorporated
by reference in reliance on the report of Ernst & Young
LLP, 5 Times Square, New York, New York 10036. Ernst & Young LLP is an independent
registered public accounting firm. The report is given on the authority of
said firm as experts in auditing and accounting. The independent
registered public accounting firm audits the
financial
statements of the fund and provides other audit, tax and related services. Shareholders
will receive annual audited financial statements and semi-annual unaudited
financial statements.
The
financial statements, together with the report of the Independent Registered Public
Accounting Firm, financial
Additional
Information
For
information on exchange, CUSIP number and fund fiscal year end information, see
Part I—Appendix
I-I.
Part
I: Appendix I-A—Board
Member Share Ownership and Control Persons
Board
Member Share Ownership in the fund
The
following tables show the dollar range of equity securities beneficially owned by each current Board Member in the
fund and in Xtrackers funds as of December 31, 2019.
Dollar
Range of Beneficial Ownership(1)
|
Xtrackers
International Real Estate ETF |
Independent
Board Member: |
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Aggregate
Dollar Range of Beneficial Ownership(1)
|
Funds
Overseen by
Board
Member in the
Xtrackers
Funds |
Independent
Board Member: |
|
|
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|
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(1)
The
dollar ranges are: None, $1 – $10,000, $10,001 – $50,000, $50,001 – $100,000, or over $100,000.
Ownership
in Securities of the Advisor and Related Companies
As
reported to the fund, the information in the table below reflects ownership by the current Independent Board Members
and their immediate family members of certain securities as of December 31, 2019. An immediate family member
can be a spouse, children residing in the same household, including step and adoptive children, and any dependents.
The securities represent ownership in the Advisor or Distributor and any persons (other than a registered investment
company) directly or indirectly controlling, controlled by, or under common control with the Advisor (including Deutsche
Bank AG and DWS Group) or the Distributor.
|
Owner
and
Relationship
to
Board
Member |
|
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Value
of
Securities
on an
Aggregate
Basis |
Percent
of
Class
on an
Aggregate
Basis |
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Control
Persons and Principal Holders of Securities
As
of August 31, 2020, all Board Members and officers owned, as a group, less than 1% of the outstanding shares of
the fund.
Although
the fund does not have information concerning the beneficial ownership of shares held in the names of DTC
participants, the following table identifies those DTC participants who owned of record 5% or more of the fund’s shares
as of August 31, 2020:
Xtrackers
International Real Estate ETF
|
|
Charles
Schwab & Co., Inc.
2423E
Lincoln Drive
Phoenix,
AZ 85016-1215 |
|
Part
I: Appendix I-B—Board
Committees and Meetings
Board
Leadership, Structure and Oversight Responsibilities
Board
Structure. The Board of the Xtrackers funds is responsible for oversight of the
funds, including oversight of the duties performed by the Advisor for the funds
under the investment advisory agreement (the “Investment
Advisory Agreement”).
The Board generally meets in regularly-scheduled meetings four times a year and may meet more often as
required.
Mr.
Byers serves as Chairman of the Board. The Board is comprised of Independent Board Members. The Independent Board
Members are advised by Independent Trustee Legal Counsel and are represented by such Independent Trustee Legal
Counsel at Board and committee meetings. The chairmen of the Audit Committee and Nominating Committee (each
of which consists solely of Independent Board Members) serve as liaisons between the Advisor and other service providers
and the other Independent Board Members. Each such chairman is an Independent Board Member.
The
Board regularly reviews its committee structure and membership and believes that its current structure is appropriate based
on the fact that the Independent Board Members constitute the Board, the role of the committee chairmen (who
are Independent Board Members), the assets and number of funds overseen by the Board Members, as well as
the nature of each fund’s business as an ETF, which is managed to track the performance of a specified index.
Risk
Oversight. The Xtrackers funds are subject to a number of risks, including operational,
investment and compliance risks. The Board, directly and through its committees,
as part of its oversight responsibilities, oversees the services provided by the
Advisor and the Trust’s other service providers in connection with the management and operations of
the funds, as well as their associated risks. Under the oversight of the Board, the Trust, the Advisor and other service
providers have adopted policies, procedures and controls to address these risks.
The
Board, directly and through its committees, receives and reviews information from the Advisor, other service providers,
the Trust’s Independent Registered Public Accounting Firm and Independent Trustee Legal Counsel to assist it
in its oversight responsibilities. This information includes, but is not limited to, reports regarding the funds’ investments,
including fund performance and investment practices, valuation of fund portfolio securities,
and compliance. The Board also reviews, and must approve any proposed changes to,
the funds’ investment objectives, policies and restrictions, and reviews
any areas of non-compliance with the funds’ investment policies and restrictions. The Audit Committee monitors
the Trust’s accounting policies, financial reporting and internal control system and reviews any internal audit reports
impacting the Trust. As part of its compliance oversight, the Board reviews the annual compliance report issued by
the Trust’s Chief Compliance Officer on the policies and procedures of the Trust and its service providers, proposed changes
to the policies and procedures and quarterly reports on any material compliance issues that arose during the period.
Board
Committees. The Board has two standing committees, the Audit Committee and the Nominating
Committee, and has delegated certain responsibilities to those committees.
|
Number
of
Meetings
in Last
Fiscal
Year |
|
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The
Audit Committee has the responsibility,
among
other things, to: (i) approve the
selection,
retention, termination and
compensation
of the Trust’s Independent
Registered
Public Accounting Firm; (ii) review
the
scope of the Independent Registered
Public
Accounting Firm’s audit activity; (iii)
review
the audited financial statements; and
(iv)
review with such Independent Registered
Public
Accounting Firm the adequacy and the
effectiveness
of the Trust’s internal controls. |
George
O. Elston
(Chairman),
Stephen R.
Byers
and J. David Officer |
|
Number
of
Meetings
in Last
Fiscal
Year |
|
|
|
|
The
Nominating Committee has the
responsibility,
among other things, to identify
and
recommend individuals for Board
membership,
and evaluate candidates for
Board
membership. The Board will consider
recommendations
for Board Members from
shareholders.
Nominations from shareholders
should
be in writing and sent to the Board, to
the
attention of the Chairman of the
Nominating
Committee, as described in Part II
SAI
Appendix II-A under the caption
“Shareholder
Communications to the Board.”
|
J.
David Officer (Chairman),
Stephen
R. Byers and
George
O. Elston |
Part
I: Appendix I-C—Board
Member Compensation
Each
Independent Board Member receives compensation for his or her services, which includes retainer fees and specified
amounts for various committee services and for the Board Chairman. No additional compensation is paid to
any Independent Board Member for travel time to meetings, attendance at directors’ educational seminars or conferences,
service on industry or association committees, participation as speakers at directors’
conferences or service on special fund industry director task forces or subcommittees.
Independent Board Members do not receive any employee benefits such as pension
or retirement benefits or health insurance from the fund or any fund in the Xtrackers fund complex.
Board
Members who are officers, directors, employees or stockholders of DBX or its affiliates receive no direct compensation from
the fund, although they are compensated as employees of DBX, or its affiliates, and as a result may be deemed to
participate in fees paid by the fund. The following table shows, for each current Independent Board Member, the aggregate
compensation from all of the funds in the Xtrackers fund complex during calendar year 2019.
Total
Compensation from Xtrackers Fund Complex
|
Total
Compensation from the
Xtrackers
Fund Complex(1) |
Independent
Board Member: |
|
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|
(1)
For
each Independent Board Member, total compensation from the Xtrackers fund complex represents compensation from
33 funds as of December 31, 2019.
(2)
Includes
$25,000 in annual retainer fees received by Mr. Byers as Chairman of the Xtrackers funds.
(3)
Includes
$15,000 in annual retainer fees received by Mr. Elston as Chairman of the Audit Committee.
Part
I: Appendix I-D—Portfolio
Management
Fund
Ownership of Portfolio Managers
The
following table shows the dollar range of fund shares owned beneficially and of record by the portfolio management team,
including investments by their immediate family members sharing the same household and amounts invested through
retirement and deferred compensation plans. This information is provided as of the fund's most recent fiscal year
end.
Xtrackers
International Real Estate ETF
Name
of Portfolio Manager |
Dollar
Range of
Fund
Shares Owned |
|
|
|
|
|
|
Conflicts
of Interest
In
addition to managing the assets of the fund, a portfolio manager may have responsibility for managing other client accounts
of the Advisor or its affiliates. The tables below show, per portfolio manager, the number and asset size of: (1)
SEC registered investment companies (or series thereof) other than the fund, (2) pooled investment vehicles that are
not registered investment companies and (3) other accounts (e.g., accounts managed for individuals or organizations) managed
by a portfolio manager. Total assets attributed to a portfolio manager in the tables below include total assets of
each account managed, although a portfolio manager may only manage a portion of such account’s assets. For a fund
subadvised by subadvisors unaffiliated with the Advisor, total assets of funds managed may only include assets allocated
to the portfolio manager and not the total assets of a fund managed. The tables also show the number of performance-based
fee accounts, as well as the total assets of the accounts for which the advisory fee is based on the
performance of the account. This information is provided as of the fund's most recent fiscal year end.
Xtrackers
International Real Estate ETF
Other
SEC Registered Investment Companies Managed:
Name
of
Portfolio
Manager |
Number
of
Registered
Investment
Companies
|
Total
Assets of
Registered
Investment
Companies
|
Number
of Investment
Company
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-Based
Fee
Accounts |
|
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Xtrackers
International Real Estate ETF
Other
Pooled Investment Vehicles Managed:
Name
of
Portfolio
Manager |
Number
of
Pooled
Investment
Vehicles
|
Total
Assets of
Pooled
Investment
Vehicles
|
Number
of Pooled
Investment
Vehicle
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
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|
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|
Xtrackers
International Real Estate ETF
Other
Accounts Managed:
Name
of
Portfolio
Manager |
|
Total
Assets
of
Other
Accounts
|
Number
of Other
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
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In
addition to the accounts above, an investment professional may manage accounts in a personal capacity that may include
holdings that are similar to, or the same as, those of the fund. The Advisor or Subadvisor, as applicable, has in
place a Code of Ethics that is designed to address conflicts of interest and that, among other things, imposes restrictions
on the ability of portfolio managers and other “access
persons” to invest in
securities that may be recommended or traded in the fund and other client accounts.
Part
I: Appendix I-E—Service
Provider Compensation
Under
the fund’s Investment Advisory Agreement, the Advisor is responsible for substantially all expenses of the fund,
including the cost of transfer agency, custody, fund administration, compensation paid to the Independent Board Members,
legal, audit and other services, except for the fee payments to the Advisor under the Investment Advisory Agreement,
interest expense, acquired fund fees and expenses, taxes, brokerage expenses, distribution fees or expenses (if
any), litigation expenses and other extraordinary expenses.
Xtrackers
International Real Estate ETF
|
Gross
Amount
Paid
to DBX
for
Advisory
Services
|
Amount
Waived
by
DBX for
Advisory
Services
|
|
|
|
|
|
|
|
|
|
(1)
Effective February 22, 2019, the Advisor’s Unitary Advisory Fee rate was reduced from 0.60% to 0.12% of the fund’s
average daily net assets.
The
following waiver is in effect:
The
Advisor has contractually agreed, through September 30, 2021, to waive its fees and/or reimburse fund expenses to
the extent necessary to prevent the operating expenses of the fund (excluding interest expense, taxes, brokerage expenses,
distribution fees or expenses, litigation expenses and other extraordinary expenses) from exceeding 0.10% of
the fund’s average daily net assets. This agreement may only be terminated by the fund’s Board (and may not be terminated
by the Advisor) prior to that time.
.
Part
I: Appendix I-F—Portfolio
Transactions and Brokerage Commissions
Variations
to the fund’s portfolio turnover rate may be due to, among other things, a fluctuating volume of shareholder purchase
and redemption orders, market conditions, and/or changes in the Advisor's investment outlook. The amount of
brokerage commissions paid by the fund may change from year to year because of, among other things, changing asset
levels, shareholder activity and/or portfolio turnover.
Portfolio
Turnover Rates
|
|
|
Xtrackers
International Real Estate ETF |
|
|
Brokerage
Commissions
|
|
Brokerage
Commissions
Paid
by Fund |
Xtrackers
International Real Estate ETF |
|
|
|
|
|
|
|
|
(1)
The increase in brokerage commissions from 2019 to 2020 is principally due to an increase in assets under management, resulting
in higher notional commissions charges.
(2)
The increase in brokerage commissions from 2018 to 2019 is principally due to a change in the fund’s Underlying Index,
resulting in higher levels of trading.
Brokerage
Commissions Paid to Affiliated Brokers
No
trades were effected for the accounts with broker dealers that are affiliated with the Advisor or Subadvisor, if applicable,
as of the end of its most recent fiscal year.
Listed
below are the regular brokers or dealers (as such term is defined in the 1940 Act) of the fund whose securities the
fund held as of the end of its most recent fiscal year and the dollar value of such securities.
Xtrackers
International Real Estate ETF
The
fund did not hold any securities of its regular brokers or dealers.
Transactions
for Research Services
No
transactions or related commissions were allocated to broker-dealer firms for research services.
Part
I: Appendix I-G—Investments,
Practices and Techniques, and Risks
Below
is a list of headings related to investments, practices and techniques, and risks which are further described in Appendix
II-E.
Xtrackers
International Real Estate ETF
Borrowing
Commodity
Pool Operator Exclusion
Derivatives
Equity
Securities
Foreign
Securities
Illiquid
Securities
Investment
Companies and Other Pooled Investment Vehicles
Lending
of Portfolio Securities
Repurchase
Agreements
Restricted
Securities/Rule 144A Securities
Reverse
Repurchase Agreements
Russian
Securities
Short-Term
Instruments and Temporary Investments
Part
I: Appendix I-H—Securities
Lending Activities
Pursuant
to an agreement between the fund and BNYM, BNYM is responsible for the administration and management of
the fund’s securities lending program, including the negotiation of the terms and conditions of any securities loan, ensuring
that securities loans are properly coordinated and documented with the fund’s custodian, ensuring that loaned securities
are daily valued and that the corresponding required cash collateral is delivered by the borrower(s), arranging for
the investment of cash collateral and arranging for the return of loaned securities upon the termination of the loan.
The
dollar amounts of income and fees and compensation paid to all service providers related to the fund that participated in
securities lending activities during the most recent fiscal year were as follows:
Securities
Lending Activities – Income and Fees for Fiscal Year 2020
|
Xtrackers
International
Real
Estate
ETF
|
Gross
income from securities lending activities (including income from
cash collateral
reinvestment)
|
|
Fees
and/or compensation for securities lending activities and related services |
Fees
paid to securities lending agent from a revenue split1
|
|
Fees
paid for any cash collateral management service (including fees deducted from a pooled
cash
collateral reinvestment vehicle) that are not included in the revenue split |
|
Administrative
fees not included in revenue split |
|
Indemnification
fee not included in revenue split |
|
Rebate
(paid to borrower) |
|
|
|
Other
fees not included in revenue split |
|
Aggregate
fees/compensation for securities lending activities and related services |
|
Net
income from securities lending activities |
|
1
Revenue split represents the share of revenue generated by the securities lending
program and paid to BNYM.
Part
I: Appendix I-I—Additional
Information
Fund
and its Fiscal Year End |
|
|
Xtrackers
International Real Estate ETF |
|
|
|
|
|
Statement
of Additional Information
October
1, 2020
Xtrackers
MSCI Emerging Markets Hedged Equity ETF
|
|
Xtrackers
MSCI EAFE Hedged Equity ETF
|
|
Xtrackers
MSCI Germany Hedged Equity ETF
|
|
Xtrackers
MSCI Japan Hedged Equity ETF
|
|
Xtrackers
MSCI Europe Hedged Equity ETF
|
|
Xtrackers
MSCI All World ex US Hedged Equity ETF
|
|
Xtrackers
MSCI All World ex US High Dividend Yield
Equity
ETF
|
|
Xtrackers
MSCI EAFE High Dividend Yield Equity ETF
|
|
Xtrackers
Eurozone Equity ETF
Cboe
BZX Exchange, Inc.: EURZ |
|
Xtrackers
MSCI Eurozone Hedged Equity ETF
|
|
Xtrackers
Japan JPX-Nikkei 400 Equity ETF
|
|
|
|
This combined Statement
of Additional Information (“SAI”)
is not a prospectus and should be read in conjunction with the prospectus for each
fund dated October 1, 2020, as supplemented, a copy of which may
be obtained without charge by calling 1-855-329-3837 (1-855-DBX-ETFS); by visiting
Xtrackers.com (the
Web site does not form a part of this SAI); or by writing to the Trust’s
distributor, ALPS Distributors, Inc. (the “Distributor”),
1290 Broadway, Suite 1000, Denver, Colorado 80203. This SAI is incorporated by
reference into the prospectus.
Portions
of the Annual Report to Shareholders of each fund are incorporated herein by reference,
and are hereby deemed to be part of this SAI. Reports to Shareholders
may also be obtained without charge by calling the number provided in the preceding
paragraph.
This
SAI is divided into two Parts—Part
I and Part II. Part I contains information that is specific to each fund,
while Part II contains information that generally applies to each of the funds
in the Xtrackers funds.
Statement
of Additional Information (SAI)—Part
I
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Detailed
Part II table of contents precedes page II-1 |
|
Definitions
“1933
Act” – the Securities
Act of 1933, as amended
“1934
Act” – the Securities
Exchange Act of 1934, as amended
“1940
Act” – the Investment
Company Act of 1940, as amended
“Administrator”
or “Custodian”
or “Transfer Agent”
or “BNYM”
– The Bank of New York Mellon, 240 Greenwich Street, New York, New York 10286
“Advisor”
or “DBX”
– DBX Advisors LLC, 875 Third Avenue, New York, New York 10022
“ALPS”
or “Distributor”
– ALPS Distributors, Inc., 1290 Broadway, Suite 1000, Denver, Colorado 80203
“Board”
– Board of Trustees of the Trust
“Board
Members” – Members
of the Board of Trustees of the Trust
“Business
Day” – any day
on which the Exchange on which the fund is listed for trading is open for business
“Cash
Component” – deposit
of a specified cash payment
“Creation
Units” – shares
that have been aggregated into blocks
“Code”
– the Internal Revenue Code of 1986, as amended
“DTC”
– Depository Trust Company
“DWS”
– refers to the asset management activities conducted by DWS Group GmbH &
Co. KGaA or any of its subsidiaries, including the Advisor and other affiliated
investment advisors
“DWS
Group” – a separate,
publicly-listed financial services firm that is an indirect, majority-owned subsidiary
of Deutsche Bank AG.
“ETF”
– exchange-traded fund
“Exchange”
– Cboe BZX Exchange, Inc. or NYSE Arca, Inc. as the context may require
“Fitch”
– Fitch Ratings, an NRSRO
“Fund
Legal Counsel” –
Dechert LLP, 1095 Avenue of the Americas, New York, New York 10036
“fund”
or “series”
– Xtrackers MSCI Emerging Markets Hedged Equity ETF, Xtrackers MSCI EAFE
Hedged Equity ETF, Xtrackers MSCI Germany Hedged Equity ETF, Xtrackers
MSCI Japan Hedged Equity ETF, Xtrackers MSCI Europe Hedged Equity ETF, Xtrackers
MSCI All World ex US Hedged Equity ETF, Xtrackers MSCI All World ex US
High Dividend Yield Equity ETF, Xtrackers MSCI EAFE High
Dividend Yield Equity ETF, Xtrackers Eurozone Equity ETF, Xtrackers MSCI Eurozone
Hedged Equity ETF and Xtrackers Japan JPX-Nikkei 400 Equity ETF as the context
may require
“Independent
Board Members”–
Board Members who are not interested persons (as defined in the 1940 Act)
of the fund, the investment advisor or the distributor
“Independent
Registered Public Accounting Firm”
– Ernst & Young LLP, 5 Times Square, New York, New York 10036
“Independent
Trustee Legal Counsel”
– K&L Gates LLP, 1601 K Street, NW, Washington, DC 20006
“IOPV”
– Indicative Optimized Portfolio Value
“Moody’s”
– Moody’s Investors Service, Inc., an NRSRO
“NRSRO”
– a nationally recognized statistical rating organization
“S&P”
– S&P Global Ratings, an NRSRO
“SEC”
– the Securities and Exchange Commission
“Shares”
– shares of beneficial interest registered under the 1933 Act
“Trust”
– DBX ETF Trust
“Underlying
Index” – a specified
benchmark index
“Unitary
Advisory Fee” –
fee payable to the Advisor for its services under the Investment Advisory Agreement
with each fund and the Advisor’s commitment to pay substantially
all expenses of each fund, including the cost of transfer agency, custody, fund
administration, compensation paid to the Independent Board Members, legal,
audit and other services, except for the fee payments
to
the Advisor under the Investment Advisory Agreement, interest expense, acquired
fund fees and expenses, taxes, brokerage expenses, distribution fees or expenses
(if any), litigation expenses and other extraordinary expenses
“funds”
– the US registered investment companies advised by DBX
Fund
Organization
DBX
ETF Trust was organized as a Delaware statutory trust on October 7, 2010 and is
authorized to have multiple series or portfolios. The Trust is an open-end management
investment company registered with the SEC under the 1940
Act. Additional information about the Trust is set forth in Part
II under “Fund
Organization.”
Effective
August 11, 2014, the Board of Trustees approved changes to the names of each fund
currently comprising the Trust. db X-trackers MSCI Emerging Markets Hedged
Equity Fund was renamed Deutsche X-trackers MSCI Emerging
Markets Hedged Equity ETF; db X-trackers MSCI EAFE Hedged Equity Fund was renamed
Deutsche X-trackers MSCI EAFE Hedged Equity ETF; db X-trackers MSCI
Germany Hedged Equity Fund was renamed Deutsche X-trackers MSCI Germany Hedged
Equity ETF; db X-trackers MSCI Japan Hedged Equity Fund was renamed
Deutsche X-trackers MSCI Japan Hedged Equity ETF; db X-trackers MSCI Europe Hedged
Equity Fund was renamed Deutsche X-trackers MSCI Europe Hedged Equity
ETF and db X-trackers MSCI All World ex US Hedged Equity Fund was renamed Deutsche
X-trackers MSCI All World ex US Hedged Equity ETF.
Effective
October 2, 2017, the Board of Trustees approved changes to the names of each fund
currently comprising the Trust. Deutsche X-trackers MSCI Emerging Markets
Hedged Equity ETF was renamed Xtrackers MSCI Emerging
Markets Hedged Equity ETF; Deutsche X-trackers MSCI EAFE Hedged Equity ETF was
renamed Xtrackers MSCI EAFE Hedged Equity ETF; Deutsche X-trackers
MSCI Germany Hedged Equity ETF was renamed Xtrackers MSCI Germany Hedged Equity;
Deutsche X-trackers MSCI Japan Hedged Equity ETF was renamed
Xtrackers MSCI Japan Hedged Equity ETF; Deutsche X-trackers MSCI Europe Hedged
Equity ETF was renamed Xtrackers MSCI Europe Hedged Equity ETF; Deutsche
X-trackers MSCI All World ex US Hedged Equity ETF was renamed Deutsche X-trackers
MSCI All World ex US Hedged Equity ETF; Deutsche X-trackers MSCI All
World ex US High Dividend Yield Hedged Equity ETF was renamed Xtrackers MSCI All
World ex US High Dividend Yield Hedged Equity ETF; Deutsche X-trackers
MSCI
EAFE High Dividend Yield Hedged Equity ETF was renamed Xtrackers MSCI EAFE High
Dividend Yield Hedged Equity ETF; Deutsche X-trackers MSCI Eurozone High
Dividend Yield Hedged Equity ETF was renamed Xtrackers MSCI Eurozone High Dividend
Yield Hedged Equity ETF; Deutsche X-trackers MSCI Eurozone Hedged Equity
ETF was renamed Xtrackers MSCI Eurozone Hedged Equity ETF and Deutsche X-trackers
Japan JPX-Nikkei 400 Equity ETF was renamed Xtrackers Japan JPX-Nikkei
400 Equity ETF.
Effective
October 27, 2017, Xtrackers MSCI Southern Europe Hedged Equity ETF was renamed
Xtrackers Eurozone Equity ETF.
Effective
February 13, 2018, Xtrackers MSCI All World ex US High Dividend Yield Hedged Equity
ETF was renamed Xtrackers MSCI All World ex US High Dividend Yield
Equity ETF, and Xtrackers MSCI EAFE High Dividend Yield Hedged Equity ETF was renamed
Xtrackers MSCI EAFE High Dividend Yield Equity ETF.
Management
of each Fund
Board
Members and Officers’ Identification and Background
The
identification and background of the Board Members and officers are set forth in
Part II—Appendix
II-A.
Board
Committees and Compensation
Compensation
paid to the Independent Board Members, for certain specified periods is set forth
in Part I—
Appendix I-C.
Information regarding the committees of the Board is set forth in Part
I—Appendix
I-B.
Board
Member Share Ownership and Control Persons
Information
concerning the ownership of fund shares by Board Members and officers, as a group,
as well as the dollar range value of each Board Member’s share ownership
in each fund and, on an aggregate basis, in all Xtrackers funds overseen by them,
by investors who control the fund, if any, and by investors who own 5%
or more of fund shares, if any, is set forth in Part
I—
Appendix I-A.
Portfolio
Management
Information
regarding each fund’s portfolio managers, including other accounts managed,
compensation, ownership of fund shares and possible conflicts of interest,
is set forth in Part I—Appendix
I-D and Part
II – Appendix II-B.
Service
Provider Compensation
Compensation
paid by each fund for investment advisory services and other expenses through the
Unitary Advisory Fee is set forth in Part
I—Appendix
I-E. The service provider
compensation is not applicable to new funds that have not completed a fiscal reporting
period. Fee rates are included in Part
II – Appendix II-C.
Portfolio
Transactions, Brokerage Commissions and Securities
Lending Activities
Portfolio
Turnover
The
portfolio turnover rates for the two most recent fiscal years are set forth in
Part I—Appendix
I-F. This section
does not apply to new funds that have not completed a fiscal
reporting period.
Brokerage
Commissions
Total
brokerage commissions paid by each fund for the three most recent fiscal years
are set forth in Part I—
Appendix I-F.
This section does not apply to new funds that have not completed a fiscal reporting
period.
Each
fund's policy with respect to portfolio transactions and brokerage is set forth
under “Portfolio Transactions
” in Part
II of this SAI.
Securities
Lending Activities
Information
regarding securities lending activities of each fund, if any, during its most recent
fiscal year is set forth in Part
I—Appendix
I-H.
Additional
information regarding securities lending in general is set forth under “Lending
of Portfolio Securities”
in Part II
of this SAI.
Investments
Investments,
Practices and Techniques, and Risks
Part
I—Appendix
I-G includes a list of
the investments, practices and techniques, and risks which each fund
may employ (or be subject to) in pursuing its investment objective.
Part II—Appendix
II-E includes a description
of these investments, practices and techniques, and risks.
Investment
Restrictions
It
is possible that certain investment practices and/or techniques may not be permissible
for a fund based on its investment restrictions, as described herein.
Diversification
Status. Xtrackers MSCI Germany Hedged Equity
ETF, Xtrackers MSCI EAFE High Dividend Yield Equity ETF and Xtrackers Eurozone
Equity ETF are classified as “non-diversified”
under the 1940 Act. A non-diversified fund is a fund that is not limited by the
1940 Act with regard to the percentage of its assets that may
be invested in the securities of a single issuer. The securities of a particular
issuer (or securities of issuers in particular industries) may dominate the underlying
index of such a fund and, consequently, the fund’s investment portfolio.
This may adversely affect the fund’s performance or subject the fund’s
shares to greater price volatility than that experienced by more diversified
investment companies.
Xtrackers
MSCI All World ex US Hedged Equity ETF, Xtrackers MSCI All World ex US High Dividend
Yield Equity ETF, Xtrackers MSCI Europe Hedged Equity ETF, Xtrackers MSCI
EAFE Hedged Equity ETF, Xtrackers MSCI Emerging Markets Hedged Equity ETF, Xtrackers
MSCI Japan Hedged Equity ETF, Xtrackers MSCI Eurozone Hedged Equity
ETF and Xtrackers Japan JPX-Nikkei 400 Equity ETF are classified as “diversified”
under the 1940 Act.
Currently,
under the 1940 Act, a “non-diversified”
investment company is a fund that is not “diversified,”
and for a fund to be classified as a “diversified”
investment company, at least 75% of the value of the fund’s total
assets must be represented by cash and cash items (including
receivables), government securities, securities of other investment companies,
and securities of other issuers, which for the purposes of this calculation are
limited in respect of any one issuer to an amount (valued at
the time of investment) not greater in value than 5% of the fund’s total
assets and to not more than 10% of the outstanding voting securities of such issuer.
In reliance
on
no-action relief furnished by the SEC, each fund may be diversified or non-diversified
at any given time, based on the composition of the index that the fund seeks to
track.
Fundamental
Policies
The
following fundamental policies may not be changed without the approval of a majority
of the outstanding voting securities of a fund which, under the 1940 Act and the
rules thereunder and as used in this SAI, means the lesser of
(1) 67% or more of the voting securities present at such meeting, if the holders
of more than 50% of the outstanding voting securities of a fund are present or
represented by proxy, or (2) more than 50% of the outstanding
voting securities of a fund.
As
a matter of fundamental policy, a fund may not do any of the following:
(1)
concentrate
its investments (i.e., invest 25% or more of its total assets in the securities
of a particular industry or group of industries), except that a fund will
concentrate to the extent that its underlying index concentrates in the securities
of such particular industry or group of industries. For purposes of this
limitation, securities of the U.S. government (including
its agencies and instrumentalities), repurchase agreements collateralized by U.S.
government securities, and securities of state or municipal governments
and their political sub-divisions are not considered to be issued by members of
any industry;
(2)
borrow
money, except that (i) each fund may borrow from banks for temporary or emergency
(not leveraging) purposes, including the meeting of redemption
requests which might otherwise require the untimely disposition of securities;
and (ii) each fund may, to the extent consistent with its investment
policies, enter into repurchase agreements, reverse repurchase agreements, forward
roll transactions and similar investment strategies and
techniques; to the extent that it engages in transactions described in (i) and
(ii), each fund will be limited so that no more than 33 1/3% of the value
of its total assets (including the amount borrowed) is derived from such transactions.
Any borrowings which come to exceed this amount will be
reduced in accordance with applicable law;
(3)
issue
any senior security, except as permitted under the 1940 Act, as amended, and as
interpreted, modified or otherwise permitted by regulatory authority
having jurisdiction, from time to time;
(4)
make
loans, except as permitted under the 1940 Act, as interpreted, modified or otherwise
permitted by regulatory authority having jurisdiction, from time to
time;
(5)
purchase
or sell real estate unless acquired as a result of ownership of securities or other
investments (but this restriction shall not prevent each fund
from investing in securities of companies engaged in the real estate business or
securities or other instruments backed by real estate or mortgages),
or commodities or commodity contracts (but this restriction shall not prevent each
fund from trading in futures contracts and options on futures contracts,
including options on currencies to the extent consistent with each fund’s
investment objectives and policies); or
(6)
engage
in the business of underwriting securities issued by other persons except, to the
extent that each fund may technically be deemed to be an underwriter
under the 1933 Act, the disposing of portfolio securities.
For
purposes of the concentration policy in investment restriction (1), municipal securities
with payments of principal or interest backed by the revenue of a specific
project are considered to be issued by a member of the industry
which includes such specific project.
Senior
securities may include any obligation or instrument issued by an investment company
evidencing indebtedness. The 1940 Act generally prohibits a fund from issuing
senior securities, although it provides allowances for certain borrowings and certain
other investments, such as short sales, reverse repurchase agreements,
and firm commitment agreements, when such investments are “covered”
or with appropriate earmarking or segregation of assets to cover such obligations.
Under
the 1940 Act, an investment company may only make loans if expressly permitted
by its investment policies.
Non-Fundamental
Policies
The
Board has adopted certain additional non-fundamental policies and restrictions
which are observed in the conduct of a fund’s affairs. They differ from fundamental
investment policies in that they may be changed or amended by action of
the Board without requiring prior notice to, or approval of, the shareholders.
As
a matter of non-fundamental policy, a fund may not do any of the following:
(1)
sell
securities short, unless the fund owns or has the right to obtain securities equivalent
in-kind and amount to the securities sold short at no added cost,
and provided that transactions in options, futures contracts, options on futures
contracts or other derivative instruments are not deemed to constitute
selling securities short;
(2)
purchase
securities on margin, except that the fund may obtain such short-term credits as
are necessary for the clearance of transactions; and provided that margin
deposits in connection with futures contracts, options on futures contracts or
other derivative instruments shall not constitute purchasing securities
on margin;
(3)
purchase
securities of open-end or closed-end investment companies except in compliance
with the 1940 Act;
(4)
invest
in direct interests in oil, gas or other mineral exploration programs or leases;
however, the fund may invest in the securities of issuers that engage in
these activities; and
(5)
invest
in illiquid securities if, as a result of such investment, more than 15% of the
fund’s net assets would be invested in illiquid securities.
If
any percentage restriction described above is complied with at the time of investment,
a later increase or decrease in percentage resulting from any change in value or
total or net assets will not constitute a violation of such restriction,
except that fundamental limitation (2) will be observed continuously in accordance
with applicable law.
For
purposes of non-fundamental policy (5), an illiquid security is any investment
that the fund reasonably expects cannot be sold or disposed of in current market
conditions in seven calendar days without the sale or disposition
significantly changing the market value of the investment.
Each
fund has adopted a non-fundamental investment policy such that each fund may invest
in shares of other open-end management investment companies or unit investment
trusts subject to the limitations of Section 12(d)(1) of the 1940 Act, including
the rules, regulations and exemptive orders obtained thereunder; provided,
however, that if a fund has knowledge that its Shares are
purchased by another investment company investor in reliance on the provisions
of subparagraphs (F) or (G) of Section 12(d)(1) of the 1940 Act, each fund will
not acquire any securities of other open-end management investment
companies or unit investment trusts in reliance on the provisions of subparagraphs
(F) or (G) of Section 12(d)(1) of the 1940 Act.
Taxes
Important
information concerning the tax consequences of an investment in each fund is contained
in Part II—
Appendix II-F.
Independent
Registered Public Accounting Firm, Reports to Shareholders
and Financial Statements
The
financial highlights of each fund included in its prospectus and financial statements
incorporated by reference into this SAI have been so included or incorporated
by reference in reliance on the report of Ernst & Young
LLP, 5 Times Square, New York, New York 10036. Ernst & Young LLP is an independent
registered public accounting firm. The report is given on the authority of
said firm as experts in auditing and accounting. The independent
registered public accounting firm audits the financial statements of each fund
and provides other audit, tax and related services. Shareholders will receive annual
audited financial statements and semi-annual unaudited financial
statements.
The
financial statements, together with the report of the Independent Registered Public
Accounting Firm, financial
Additional
Information
For
information on exchange, CUSIP number and fund fiscal year end information, see
Part I—Appendix
I-I.
Part
I: Appendix I-A—Board
Member Share Ownership and Control Persons
Board
Member Share Ownership in each fund
The
following tables show the dollar range of equity securities beneficially owned by each current Board Member in each
fund and in Xtrackers funds as of December 31, 2019.
Dollar
Range of Beneficial Ownership(1)
|
Xtrackers
MSCI
Emerging
Markets
Hedged
Equity
ETF
|
Xtrackers
MSCI
EAFE
Hedged
Equity
ETF |
Xtrackers
MSCI
Germany
Hedged
Equity
ETF
|
Xtrackers
MSCI
Japan
Hedged
Equity
ETF
|
Xtrackers
MSCI
Europe
Hedged
Equity
ETF
|
Independent
Board
Member:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI
All
World
ex
US
Hedged
Equity
ETF
|
Xtrackers
MSCI
All
World
ex
US
High
Dividend
Yield
Equity
ETF
|
Xtrackers
MSCI
EAFE
High
Dividend
Yield
Equity
ETF
|
Independent
Board
Member:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
Eurozone
Equity
ETF |
Xtrackers
MSCI
Eurozone
Hedged
Equity
ETF
|
Xtrackers
Japan
JPX
Nikkei
400
Equity
ETF |
Independent
Board
Member:
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate
Dollar Range of Beneficial Ownership(1)
|
Funds
Overseen by
Board
Member in the
Xtrackers
Funds |
Independent
Board Member: |
|
|
|
|
|
|
(1)
The
dollar ranges are: None, $1 – $10,000, $10,001 – $50,000, $50,001 – $100,000, or over $100,000.
Ownership
in Securities of the Advisor and Related Companies
As
reported to each fund, the information in the table below reflects ownership by the current Independent Board Members
and their immediate family members of certain securities as of December 31, 2019. An immediate family member
can be a spouse, children residing in the same household, including step and adoptive children, and any dependents.
The securities represent ownership in the Advisor or Distributor and any persons (other than a registered investment
company) directly or indirectly controlling, controlled by, or under common control with the Advisor (including Deutsche
Bank AG and DWS Group) or Distributor.
|
Owner
and
Relationship
to
Board
Member |
|
|
Value
of
Securities
on an
Aggregate
Basis |
Percent
of
Class
on an
Aggregate
Basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control
Persons and Principal Holders of Securities
As
of August 31, 2020, all Board Members and officers owned, as a group, less than 1% of the outstanding shares of
a fund.
Although
the fund does not have information concerning the beneficial ownership of shares held in the names of DTC
participants, the following table identifies those DTC participants who owned of record 5% or more of a fund’s shares
as of August 31, 2020:
Xtrackers
MSCI Emerging Markets Hedged Equity ETF
|
|
Charles
Schwab & Co., Inc.
2423
E. Lincoln Drive
Phoenix,
AZ 85016-1215 |
|
TD
Ameritrade
4700
Alliance Gateway Freeway
Fort
Worth, TX 76177 |
|
National
Financial Services LLC
499
Washington Blvd.
Jersey
City, NJ 07310 |
|
UBS
Financial Services Inc.
1000
Harbour Blvd.
Weehawken,
NJ 07086 |
|
|
|
Wells
Clearing Services LLC
2801
Market Street
St.
Louis, MO 63102 |
|
American
Enterprise Investment Services
901
3rd Ave. South
Minneapolis,
MN 55474 |
|
Morgan
Stanley Smith Barney LLC
1300
Thames St., 6th Floor
Baltimore,
MD 21231 |
|
Xtrackers
MSCI EAFE Hedged Equity ETF
|
|
Goldman
Sachs & Co. LLC
30
Hudson Street
Proxy
Department
Jersey
City, NJ 07302 |
|
Charles
Schwab & Co., Inc.
2423
E. Lincoln Drive
Phoenix,
AZ 85016-1215 |
|
National
Financial Services LLC
499
Washington Blvd.
Jersey
City, NJ 07310 |
|
American
Enterprise Investment Services
901
3rd Ave. South
Minneapolis,
MN 55474 |
|
Pershing
LLC
One
Pershing Plaza
Jersey
City, NJ 07399 |
|
Morgan
Stanley Smith Barney LLC
1300
Thames St., 6th Floor
Baltimore,
MD 21231 |
|
The
Bank of New York Mellon
535
William Penn Place
Suite
153-0400
Pittsburgh,
PA 15259 |
|
Xtrackers
MSCI Germany Hedged Equity ETF
|
|
Bank
of America
200
N. College Street
Charlotte,
NC 28255 |
|
National
Financial Services LLC
499
Washington Blvd.
Jersey
City, NJ 07310 |
|
Charles
Schwab & Co., Inc.
2423
E. Lincoln Drive
Phoenix,
AZ 85016-1215 |
|
|
|
J.P.
Morgan Securities LLC
500
Stanton Christiana Road, 2nd Fl.
Newark,
DE 19713-2107 |
|
Vanguard
Fiduciary Trust Company
Attn
Outside Funds K14
P.O.
Box 2600
Valley
Forge, PA 19482-2600 |
|
Morgan
Stanley Smith Barney LLC
1300
Thames St., 6th Floor
Baltimore,
MD 21231 |
|
Xtrackers
MSCI Japan Hedged Equity ETF
|
|
Morgan
Stanley Smith Barney LLC
1300
Thames St., 6th Floor
Baltimore,
MD 21231 |
|
Charles
Schwab & Co., Inc.
2423
E. Lincoln Drive
Phoenix,
AZ 85016-1215 |
|
J.P.
Morgan Chase Bank, NA
500
Stanton Christiana Road, 2nd Fl.
Newark,
DE 19713-2107 |
|
HSBC
Securities (USA) Inc.
452
Fifth Avenue
New
York, NY 10018 |
|
Vanguard
Fiduciary Trust Company
Attn
Outside Funds K14
P.O.
Box 2600
Valley
Forge, PA 19482-2600 |
|
Bank
of America
200
N. College Street
Charlotte,
NC 28255 |
|
Xtrackers
MSCI Europe Hedged Equity ETF
|
|
Morgan
Stanley Smith Barney LLC
1300
Thames St., 6th Floor
Baltimore,
MD 21231 |
|
Charles
Schwab & Co., Inc.
2423
E. Lincoln Drive
Phoenix,
AZ 85016-1215 |
|
The
Bank of New York Mellon
535
William Penn Place
Suite
153-0400
Pittsburgh,
PA 15259 |
|
|
|
J.P.
Morgan Chase Bank, NA
500
Stanton Christiana Road, 2nd Fl.
Newark,
DE 19713-2107 |
|
The
Northern Trust Company
801
S. Canal Street
Attn:
Capital Structures C1N
Chicago,
IL 60607 |
|
J.P.
Morgan Securities LLC
500
Stanton Christiana Road, 2nd Fl.
Newark,
DE 19713-2107 |
|
Xtrackers
MSCI All World ex US Hedged Equity ETF
|
|
Charles
Schwab & Co., Inc.
2423
E. Lincoln Drive
Phoenix,
AZ 85016-1215 |
|
Merrill
Lynch, Pierce, Fenner & Smith Inc.
101
Hudson St.
Jersey
City, NJ 07302-3997 |
|
RBC
Capital Markets, LLC
60
S. 6th St – P09
Minneapolis,
MN 55402-4400 |
|
American
Enterprise Investment Services
901
3rd Ave. South
Minneapolis,
MN 55474 |
|
J.P.
Morgan Securities LLC
500
Stanton Christiana Road, 2nd Fl.
Newark,
DE 19713-2107 |
|
LPL
Financial
Omnibus
Customer Account
Attn
Lindsay O’Toole
4707
Executive Drive
San
Diego, CA 92121 |
|
Xtrackers
MSCI All World ex US High Dividend Yield Equity ETF
|
|
Pershing
LLC
One
Pershing Plaza
Jersey
City, NJ 07399 |
|
TD
Ameritrade
4700
Alliance Gateway Freeway
Fort
Worth, TX 76177 |
|
J.P.
Morgan Securities LLC
500
Stanton Christiana Road, 2nd Fl.
Newark,
DE 19713-2107 |
|
|
|
Charles
Schwab & Co., Inc.
2423E.
Lincoln Drive
Phoenix,
AZ 85016-1215 |
|
Xtrackers
MSCI EAFE High Dividend Yield Equity ETF
|
|
Charles
Schwab & Co., Inc.
2423
E. Lincoln Drive
Phoenix,
AZ 85016-1215 |
|
Xtrackers
Eurozone Equity ETF
|
|
J.P.
Morgan Securities LLC
500
Stanton Christiana Road, 2nd Fl.
Newark,
DE 19713-2107 |
|
Charles
Schwab & Co., Inc.
2423
E. Lincoln Drive
Phoenix,
AZ 85016-1215 |
|
E*TRADE
Bank
671
North Glebe Road
Arlington,
VA 22203 |
|
Bank
of America
200
N. College Street
Charlotte,
NC 28255 |
|
Xtrackers
MSCI Eurozone Hedged Equity ETF
|
|
Charles
Schwab & Co., Inc.
2423
E. Lincoln Drive
Phoenix,
AZ 85016-1215 |
|
J.P.
Morgan Clearing Corp.
500
Stanton Christiana Road
Newark,
Delaware 19713 |
|
Citibank,
N.A.
3800
Citibank Center
Building
B/1st Floor/Zone 8
Tampa,
FL 33610-9122 |
|
Bank
of America
200
N. College Street
Charlotte,
NC 28255 |
|
Morgan
Stanley Smith Barney LLC
1300
Thames Street, 6th Fl.
Baltimore,
MD 21231 |
|
Merrill
Lynch, Pierce, Fenner & Smith Inc.
101
Hudson St.
Jersey
City, NJ 07302-3997 |
|
Xtrackers
Japan JPX Nikkei 400 Equity ETF
|
|
Bank
of America
200
N. College Street
Charlotte,
NC 28255 |
|
Morgan
Stanley Smith Barney LLC
1300
Thames Street, 6th Fl.
Baltimore,
MD 21231 |
|
Charles
Schwab & Co., Inc.
2423
E. Lincoln Drive
Phoenix,
AZ 85016-1215 |
|
National
Financial Services LLC
499
Washington Blvd.
Jersey
City, NJ 07310 |
|
Part
I: Appendix I-B—Board
Committees and Meetings
Board
Leadership, Structure and Oversight Responsibilities
Board
Structure. The Board of the Xtrackers funds is responsible for oversight of the
funds, including oversight of the duties performed by the Advisor for the funds
under the investment advisory agreement (the “Investment
Advisory Agreement”).
The Board generally meets in regularly-scheduled meetings four times a year and may meet more often as
required.
Mr.
Byers serves as Chairman of the Board. The Board is comprised of Independent Board Members. The Independent Board
Members are advised by Independent Trustee Legal Counsel and are represented by such Independent Trustee Legal
Counsel at Board and committee meetings. The chairmen of the Audit Committee and Nominating Committee (each
of which consists solely of Independent Board Members) serve as liaisons between the Advisor and other service providers
and the other Independent Board Members. Each such chairman is an Independent Board Member.
The
Board regularly reviews its committee structure and membership and believes that its current structure is appropriate based
on the fact that the Independent Board Members constitute the Board, the role of the committee chairmen (who
are Independent Board Members), the assets and number of funds overseen by the Board Members, as well as
the nature of each fund’s business as an ETF, which is managed to track the performance of a specified index.
Risk
Oversight. The Xtrackers funds are subject to a number of risks, including operational,
investment and compliance risks. The Board, directly and through its committees,
as part of its oversight responsibilities, oversees the services provided by the
Advisor and the Trust’s other service providers in connection with the management and operations of
the funds, as well as their associated risks. Under the oversight of the Board, the Trust, the Advisor and other service
providers have adopted policies, procedures and controls to address these risks.
The
Board, directly and through its committees, receives and reviews information from the Advisor, other service providers,
the Trust’s Independent Registered Public Accounting Firm and Independent Trustee Legal Counsel to assist it
in its oversight responsibilities. This information includes, but is not limited to, reports regarding the funds’ investments,
including fund performance and investment practices, valuation of fund portfolio securities,
and compliance. The Board also reviews, and must approve any proposed changes to,
the funds’ investment objectives, policies and restrictions, and reviews
any areas of non-compliance with the funds’ investment policies and restrictions. The Audit Committee monitors
the Trust’s accounting policies, financial reporting and internal control system and reviews any internal audit reports
impacting the Trust. As part of its compliance oversight, the Board reviews the annual compliance report issued by
the Trust’s Chief Compliance Officer on the policies and procedures of the Trust and its service providers, proposed changes
to the policies and procedures and quarterly reports on any material compliance issues that arose during the period.
Board
Committees. The Board has two standing committees, the Audit Committee and the Nominating
Committee, and has delegated certain responsibilities to those committees.
|
Number
of
Meetings
in Last
Fiscal
Year |
|
|
|
|
The
Audit Committee has the responsibility,
among
other things, to: (i) approve the
selection,
retention, termination and
compensation
of the Trust’s Independent
Registered
Public Accounting Firm; (ii) review
the
scope of the Independent Registered
Public
Accounting Firm’s audit activity; (iii)
review
the audited financial statements; and
(iv)
review with such Independent Registered
Public
Accounting Firm the adequacy and the
effectiveness
of the Trust’s internal controls. |
George
O. Elston
(Chairman),
Stephen R.
Byers
and J. David Officer |
|
Number
of
Meetings
in Last
Fiscal
Year |
|
|
|
|
The
Nominating Committee has the
responsibility,
among other things, to identify
and
recommend individuals for Board
membership,
and evaluate candidates for
Board
membership. The Board will consider
recommendations
for Board Members from
shareholders.
Nominations from shareholders
should
be in writing and sent to the Board, to
the
attention of the Chairman of the
Nominating
Committee, as described in Part II
SAI
Appendix II-A under the caption
“Shareholder
Communications to the Board.”
|
J.
David Officer (Chairman),
Stephen
R. Byers and
George
O. Elston |
Part
I: Appendix I-C—Board
Member Compensation
Each
Independent Board Member receives compensation for his or her services, which includes retainer fees and specified
amounts for various committee services and for the Board Chairman. No additional compensation is paid to
any Independent Board Member for travel time to meetings, attendance at directors’ educational seminars or conferences,
service on industry or association committees, participation as speakers at directors’
conferences or service on special fund industry director task forces or subcommittees.
Independent Board Members do not receive any employee benefits such as pension
or retirement benefits or health insurance from a fund or any fund in the Xtrackers fund complex.
Board
Members who are officers, directors, employees or stockholders of DBX or its affiliates receive no direct compensation from
the fund, although they are compensated as employees of DBX, or its affiliates, and as a result may be deemed to
participate in fees paid by a fund. The following table shows, for each current Independent Board Member, the aggregate
compensation from all of the funds in the Xtrackers fund complex during calendar year 2019.
Total
Compensation from Xtrackers Fund Complex
|
Total
Compensation from the
Xtrackers
Fund Complex(1) |
Independent
Board Member: |
|
|
|
|
|
|
(1)
For
each Independent Board Member, total compensation from the Xtrackers fund complex represents compensation from
33 funds as of December 31, 2019.
(2)
Includes
$25,000 in annual retainer fees received by Mr. Byers as Chairman of the Xtrackers funds.
(3)
Includes
$15,000 in annual retainer fees received by Mr. Elston as Chairman of the Audit Committee.
Part
I: Appendix I-D—Portfolio
Management
Fund
Ownership of Portfolio Managers
The
following table shows the dollar range of fund shares owned beneficially and of record by the portfolio management team,
including investments by their immediate family members sharing the same household and amounts invested through
retirement and deferred compensation plans. This information is provided as of each fund's most recent fiscal year
end.
Xtrackers
MSCI Emerging Markets Hedged Equity ETF
Name
of Portfolio Manager |
Dollar
Range of
Fund
Shares Owned |
|
|
|
|
|
|
Xtrackers
MSCI EAFE Hedged Equity ETF
Name
of Portfolio Manager |
Dollar
Range of
Fund
Shares Owned |
|
|
|
|
|
|
Xtrackers
MSCI Germany Hedged Equity ETF
Name
of Portfolio Manager |
Dollar
Range of
Fund
Shares Owned |
|
|
|
|
|
|
Xtrackers
MSCI Japan Hedged Equity ETF
Name
of Portfolio Manager |
Dollar
Range of
Fund
Shares Owned |
|
|
|
|
|
|
Xtrackers
MSCI Europe Hedged Equity ETF
Name
of Portfolio Manager |
Dollar
Range of
Fund
Shares Owned |
|
|
|
|
|
|
Xtrackers
MSCI All World ex US Hedged Equity ETF
Name
of Portfolio Manager |
Dollar
Range of
Fund
Shares Owned |
|
|
|
|
|
|
Xtrackers
MSCI All World ex US High Dividend Yield Equity ETF
Name
of Portfolio Manager |
Dollar
Range of
Fund
Shares Owned |
|
|
|
|
|
|
Xtrackers
MSCI EAFE High Dividend Yield Equity ETF
Name
of Portfolio Manager |
Dollar
Range of
Fund
Shares Owned |
|
|
|
|
|
|
Xtrackers
Eurozone Equity ETF
Name
of Portfolio Manager |
Dollar
Range of
Fund
Shares Owned |
|
|
|
|
|
|
Xtrackers
MSCI Eurozone Hedged Equity ETF
Name
of Portfolio Manager |
Dollar
Range of
Fund
Shares Owned |
|
|
|
|
|
|
Xtrackers
Japan JPX-Nikkei 400 Equity ETF
Name
of Portfolio Manager |
Dollar
Range of
Fund
Shares Owned |
|
|
|
|
|
|
Conflicts
of Interest
In
addition to managing the assets of each fund, a portfolio manager may have responsibility for managing other client accounts
of the Advisor or its affiliates. The tables below show, per portfolio manager, the number and asset size of: (1)
SEC registered investment companies (or series thereof) other than each fund, (2) pooled investment vehicles
that
are not registered investment companies and (3) other accounts (e.g., accounts managed for individuals or organizations) managed
by a portfolio manager. Total assets attributed to a portfolio manager in the tables below include total assets of
each account managed, although a portfolio manager may only manage a portion of such account’s assets. For a fund
subadvised by subadvisors unaffiliated with the Advisor, total assets of funds managed may only include assets allocated
to the portfolio manager and not the total assets of a fund managed. The tables also show the number of performance-based
fee accounts, as well as the total assets of the accounts for which the advisory fee is based on the
performance of the account. This information is provided as of each fund's most recent fiscal year end.
Xtrackers
MSCI Emerging Markets Hedged Equity ETF
Other
SEC Registered Investment Companies Managed:
Name
of
Portfolio
Manager |
Number
of
Registered
Investment
Companies
|
Total
Assets of
Registered
Investment
Companies
|
Number
of Investment
Company
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-Based
Fee
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI EAFE Hedged Equity ETF
Other
SEC Registered Investment Companies Managed:
Name
of
Portfolio
Manager |
Number
of
Registered
Investment
Companies
|
Total
Assets of
Registered
Investment
Companies
|
Number
of Investment
Company
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-Based
Fee
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI Germany Hedged Equity ETF
Other
SEC Registered Investment Companies Managed:
Name
of
Portfolio
Manager |
Number
of
Registered
Investment
Companies
|
Total
Assets of
Registered
Investment
Companies
|
Number
of Investment
Company
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-Based
Fee
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI Japan Hedged Equity ETF
Other
SEC Registered Investment Companies Managed:
Name
of
Portfolio
Manager |
Number
of
Registered
Investment
Companies
|
Total
Assets of
Registered
Investment
Companies
|
Number
of Investment
Company
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-Based
Fee
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI Europe Hedged Equity ETF
Other
SEC Registered Investment Companies Managed:
Name
of
Portfolio
Manager |
Number
of
Registered
Investment
Companies
|
Total
Assets of
Registered
Investment
Companies
|
Number
of Investment
Company
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-Based
Fee
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI All World ex US Hedged Equity ETF
Other
SEC Registered Investment Companies Managed:
Name
of
Portfolio
Manager |
Number
of
Registered
Investment
Companies
|
Total
Assets of
Registered
Investment
Companies
|
Number
of Investment
Company
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-Based
Fee
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI All World ex US High Dividend Yield Equity ETF
Other
SEC Registered Investment Companies Managed:
Name
of
Portfolio
Manager |
Number
of
Registered
Investment
Companies
|
Total
Assets of
Registered
Investment
Companies
|
Number
of Investment
Company
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-Based
Fee
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI EAFE High Dividend Yield Equity ETF
Other
SEC Registered Investment Companies Managed:
Name
of
Portfolio
Manager |
Number
of
Registered
Investment
Companies
|
Total
Assets of
Registered
Investment
Companies
|
Number
of Investment
Company
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-Based
Fee
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
Eurozone Equity ETF
Other
SEC Registered Investment Companies Managed:
Name
of
Portfolio
Manager |
Number
of
Registered
Investment
Companies
|
Total
Assets of
Registered
Investment
Companies
|
Number
of Investment
Company
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-Based
Fee
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI Eurozone Hedged Equity ETF
Other
SEC Registered Investment Companies Managed:
Name
of
Portfolio
Manager |
Number
of
Registered
Investment
Companies
|
Total
Assets of
Registered
Investment
Companies
|
Number
of Investment
Company
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-Based
Fee
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
Japan JPX-Nikkei 400 Equity ETF
Other
SEC Registered Investment Companies Managed:
Name
of
Portfolio
Manager |
Number
of
Registered
Investment
Companies
|
Total
Assets of
Registered
Investment
Companies
|
Number
of Investment
Company
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-Based
Fee
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI Emerging Markets Hedged Equity ETF
Other
Pooled Investment Vehicles Managed:
Name
of
Portfolio
Manager |
Number
of
Pooled
Investment
Vehicles
|
Total
Assets of
Pooled
Investment
Vehicles
|
Number
of Pooled
Investment
Vehicle
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI EAFE Hedged Equity ETF
Other
Pooled Investment Vehicles Managed:
Name
of
Portfolio
Manager |
Number
of
Pooled
Investment
Vehicles
|
Total
Assets of
Pooled
Investment
Vehicles
|
Number
of Pooled
Investment
Vehicle
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI Germany Hedged Equity ETF
Other
Pooled Investment Vehicles Managed:
Name
of
Portfolio
Manager |
Number
of
Pooled
Investment
Vehicles
|
Total
Assets of
Pooled
Investment
Vehicles
|
Number
of Pooled
Investment
Vehicle
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI Japan Hedged Equity ETF
Other
Pooled Investment Vehicles Managed:
Name
of
Portfolio
Manager |
Number
of
Pooled
Investment
Vehicles
|
Total
Assets of
Pooled
Investment
Vehicles
|
Number
of Pooled
Investment
Vehicle
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI Europe Hedged Equity ETF
Other
Pooled Investment Vehicles Managed:
Name
of
Portfolio
Manager |
Number
of
Pooled
Investment
Vehicles
|
Total
Assets of
Pooled
Investment
Vehicles
|
Number
of Pooled
Investment
Vehicle
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI All World ex US Hedged Equity ETF
Other
Pooled Investment Vehicles Managed:
Name
of
Portfolio
Manager |
Number
of
Pooled
Investment
Vehicles
|
Total
Assets of
Pooled
Investment
Vehicles
|
Number
of Pooled
Investment
Vehicle
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI All World ex US High Dividend Yield Equity ETF
Other
Pooled Investment Vehicles Managed:
Name
of
Portfolio
Manager |
Number
of
Pooled
Investment
Vehicles
|
Total
Assets of
Pooled
Investment
Vehicles
|
Number
of Pooled
Investment
Vehicle
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI EAFE High Dividend Yield Equity ETF
Other
Pooled Investment Vehicles Managed:
Name
of
Portfolio
Manager |
Number
of
Pooled
Investment
Vehicles
|
Total
Assets of
Pooled
Investment
Vehicles
|
Number
of Pooled
Investment
Vehicle
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
Eurozone Equity ETF
Other
Pooled Investment Vehicles Managed:
Name
of
Portfolio
Manager |
Number
of
Pooled
Investment
Vehicles
|
Total
Assets of
Pooled
Investment
Vehicles
|
Number
of Pooled
Investment
Vehicle
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI Eurozone Hedged Equity ETF
Other
Pooled Investment Vehicles Managed:
Name
of
Portfolio
Manager |
Number
of
Pooled
Investment
Vehicles
|
Total
Assets of
Pooled
Investment
Vehicles
|
Number
of Pooled
Investment
Vehicle
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
Japan JPX-Nikkei 400 Equity ETF
Other
Pooled Investment Vehicles Managed:
Name
of
Portfolio
Manager |
Number
of
Pooled
Investment
Vehicles
|
Total
Assets of
Pooled
Investment
Vehicles
|
Number
of Pooled
Investment
Vehicle
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI Emerging Markets Hedged Equity ETF
Other
Accounts Managed:
Name
of
Portfolio
Manager |
|
Total
Assets
of
Other
Accounts
|
Number
of Other
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI EAFE Hedged Equity ETF
Other
Accounts Managed:
Name
of
Portfolio
Manager |
|
Total
Assets
of
Other
Accounts
|
Number
of Other
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI Germany Hedged Equity ETF
Other
Accounts Managed:
Name
of
Portfolio
Manager |
|
Total
Assets
of
Other
Accounts
|
Number
of Other
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI Japan Hedged Equity ETF
Other
Accounts Managed:
Name
of
Portfolio
Manager |
|
Total
Assets
of
Other
Accounts
|
Number
of Other
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI Europe Hedged Equity ETF
Other
Accounts Managed:
Name
of
Portfolio
Manager |
|
Total
Assets
of
Other
Accounts
|
Number
of Other
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI All World ex US Hedged Equity ETF
Other
Accounts Managed:
Name
of
Portfolio
Manager |
|
Total
Assets
of
Other
Accounts
|
Number
of Other
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI All World ex US High Dividend Yield Equity ETF
Other
Accounts Managed:
Name
of
Portfolio
Manager |
|
Total
Assets
of
Other
Accounts
|
Number
of Other
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI EAFE High Dividend Yield Equity ETF
Other
Accounts Managed:
Name
of
Portfolio
Manager |
|
Total
Assets
of
Other
Accounts
|
Number
of Other
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI Eurozone Equity ETF
Other
Accounts Managed:
Name
of
Portfolio
Manager |
|
Total
Assets
of
Other
Accounts
|
Number
of Other
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI Eurozone Hedged Equity ETF
Other
Accounts Managed:
Name
of
Portfolio
Manager |
|
Total
Assets
of
Other
Accounts
|
Number
of Other
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
Japan JPX-Nikkei 400 Equity ETF
Other
Accounts Managed:
Name
of
Portfolio
Manager |
|
Total
Assets
of
Other
Accounts
|
Number
of Other
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
addition to the accounts above, an investment professional may manage accounts in a personal capacity that may include
holdings that are similar to, or the same as, those of each fund. The Advisor or Subadvisor, as applicable, has in
place a Code of Ethics that is designed to address conflicts of interest and that, among other things, imposes restrictions
on the ability of portfolio managers and other “access
persons” to invest in
securities that may be recommended or traded in each fund and other client accounts.
Part
I: Appendix I-E—Service
Provider Compensation
Under
each fund’s Investment Advisory Agreement, the Advisor is responsible for substantially all expenses of the fund,
including the cost of transfer agency, custody, fund administration, compensation paid to the Independent Board Members,
legal, audit and other services, except for the fee payments to the Advisor under the Investment Advisory Agreement,
interest expense, acquired fund fees and expenses, taxes, brokerage expenses, distribution fees or expenses (if
any), litigation expenses and other extraordinary expenses.
Xtrackers
MSCI Emerging Markets Hedged Equity ETF
|
Gross
Amount
Paid
to DBX
for
Advisory
Services
|
Amount
Waived
by
DBX for
Advisory
Services
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI EAFE Hedged Equity ETF
|
Gross
Amount
Paid
to DBX
for
Advisory
Services
|
Amount
Waived
by
DBX for
Advisory
Services
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI Germany Hedged Equity ETF
|
Gross
Amount
Paid
to DBX
for
Advisory
Services
|
Amount
Waived
by
DBX for
Advisory
Services
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI Japan Hedged Equity ETF
|
Gross
Amount
Paid
to DBX
for
Advisory
Services
|
Amount
Waived
by
DBX for
Advisory
Services
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI Europe Hedged Equity ETF
|
Gross
Amount
Paid
to DBX
for
Advisory
Services
|
Amount
Waived
by
DBX for
Advisory
Services
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI All World ex US Hedged Equity ETF
|
Gross
Amount
Paid
to DBX
for
Advisory
Services
|
Amount
Waived
by
DBX for
Advisory
Services
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI All World ex US High Dividend Yield Equity ETF
|
Gross
Amount
Paid
to DBX
for
Advisory
Services
|
Amount
Waived
by
DBX for
Advisory
Services
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI EAFE High Dividend Yield Equity ETF
|
Gross
Amount
Paid
to DBX
for
Advisory
Services
|
Amount
Waived
by
DBX for
Advisory
Services
|
|
|
|
|
|
|
|
|
|
Xtrackers
Eurozone Equity ETF
|
Gross
Amount
Paid
to DBX
for
Advisory
Services
|
Amount
Waived
by
DBX for
Advisory
Services
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI Eurozone Hedged Equity ETF
|
Gross
Amount
Paid
to DBX
for
Advisory
Services
|
Amount
Waived
by
DBX for
Advisory
Services
|
|
|
|
|
|
|
|
|
|
Xtrackers
Japan JPX-Nikkei 400 Equity ETF
|
Gross
Amount
Paid
to DBX
for
Advisory
Services
|
Amount
Waived
by
DBX for
Advisory
Services
|
|
|
|
|
|
|
|
|
|
Part
I: Appendix I-F—Portfolio
Transactions and Brokerage Commissions
Variations
to a fund’s portfolio turnover rate may be due to, among other things, a fluctuating volume of shareholder purchase
and redemption orders, market conditions, and/or changes in the Advisor's investment outlook. The amount of
brokerage commissions paid by a fund may change from year to year because of, among other things, changing asset
levels, shareholder activity and/or portfolio turnover.
Portfolio
Turnover Rates
|
|
|
Xtrackers
MSCI Emerging Markets Hedged Equity ETF |
|
|
Xtrackers
MSCI EAFE Hedged Equity ETF |
|
|
Xtrackers
MSCI Germany Hedged Equity ETF |
|
|
Xtrackers
MSCI Japan Hedged Equity ETF |
|
|
Xtrackers
MSCI Europe Hedged Equity ETF |
|
|
Xtrackers
MSCI All World ex US Hedged Equity ETF |
|
|
Xtrackers
MSCI All World ex US High Dividend Yield Equity ETF |
|
|
Xtrackers
MSCI EAFE High Dividend Yield Equity ETF |
|
|
Xtrackers
Eurozone Equity ETF |
|
|
Xtrackers
MSCI Eurozone Hedged Equity ETF |
|
|
Xtrackers
Japan JPX-Nikkei 400 Equity ETF |
|
|
(1)
The fund's higher portfolio turnover rate is due to an increase in total assets.
(2)
The fund's lower portfolio turnover rate is due to a decrease in total assets.
Brokerage
Commissions
|
|
Brokerage
Commissions
Paid
by Fund |
Xtrackers
MSCI Emerging Markets Hedged Equity
ETF
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI EAFE Hedged Equity ETF |
|
|
|
|
|
|
|
|
Xtrackers
MSCI Germany Hedged Equity ETF |
|
|
|
|
|
|
|
|
Xtrackers
MSCI Japan Hedged Equity ETF |
|
|
|
|
|
|
|
|
Xtrackers
MSCI Europe Hedged Equity ETF |
|
|
|
|
|
|
|
|
Xtrackers
MSCI All World ex US Hedged Equity ETF |
|
|
|
|
|
|
|
|
|
|
Brokerage
Commissions
Paid
by Fund |
Xtrackers
MSCI All World ex US High Dividend Yield
Equity
ETF |
|
|
|
|
|
|
|
|
Xtrackers
MSCI EAFE High Dividend Yield Equity
ETF
|
|
|
|
|
|
|
|
|
Xtrackers
Eurozone Equity ETF |
|
|
|
|
|
|
|
|
Xtrackers
MSCI Eurozone Hedged Equity ETF |
|
|
|
|
|
|
|
|
Xtrackers
Japan JPX-Nikkei 400 Equity ETF |
|
|
|
|
|
|
|
|
(1)
The funds experienced decreased aggregate brokerage commissions in 2018 due to a decreased level of trading related
to rebalances following a change to the strategies of certain funds.
(2)
The fund experienced increased aggregate brokerage commissions in 2020 due to an increase in total assets.
(3)
The fund experienced decreased aggregate brokerage commissions in 2020 due to a decrease in total assets.
Brokerage
Commissions Paid to Affiliated Brokers
No
trades were effected for the accounts with broker dealers that are affiliated with the Advisor or Subadvisor, if applicable,
as of the end of its most recent fiscal year.
Listed
below are the regular brokers or dealers (as such term is defined in the 1940 Act) of each fund whose securities each
fund held as of the end of its most recent fiscal year and the dollar value of such securities.
Xtrackers
MSCI Emerging Markets Hedged Equity ETF
The
fund did not hold any securities of its regular brokers or dealers.
Xtrackers
MSCI EAFE Hedged Equity ETF
Name
of Regular Broker or Dealer or Parent
(Issuer)
|
Securities
of Regular Broker Dealers |
|
|
Credit
Suisse Securities (USA) LLC |
|
|
|
Xtrackers
MSCI Germany Hedged Equity ETF
The
fund did not hold any securities of its regular brokers or dealers.
Xtrackers
MSCI Japan Hedged Equity ETF
The
fund did not hold any securities of its regular brokers or dealers.
Xtrackers
MSCI Europe Hedged Equity ETF
Name
of Regular Broker or Dealer or Parent
(Issuer)
|
Securities
of Regular Broker Dealers |
|
|
Credit
Suisse Securities (USA) LLC |
|
|
|
Xtrackers
MSCI All World ex US Hedged Equity ETF
Name
of Regular Broker or Dealer or Parent
(Issuer)
|
Securities
of Regular Broker Dealers |
Credit
Suisse Securities (USA) LLC |
|
|
|
Xtrackers
MSCI All World ex US High Dividend Yield Equity ETF
The
fund did not hold any securities of its regular brokers or dealers.
Xtrackers
MSCI EAFE High Dividend Yield Equity ETF
The
fund did not hold any securities of its regular brokers or dealers.
Xtrackers
Eurozone Equity ETF
The
fund did not hold any securities of its regular brokers or dealers.
Xtrackers
MSCI Eurozone Hedged Equity ETF
The
fund did not hold any securities of its regular brokers or dealers.
Xtrackers
Japan JPX-Nikkei 400 Equity ETF
The
fund did not hold any securities of its regular brokers or dealers.
Transactions
for Research Services
No
transactions or related commissions were allocated to broker-dealer firms for research services.
Part
I: Appendix I-G—Investments,
Practices and Techniques, and Risks
Below
is a list of headings related to investments, practices and techniques, and risks which are further described in Appendix
II-E.
Xtrackers
MSCI Emerging Markets Hedged Equity ETF
Borrowing
Chinese
Securities
Commodity
Pool Operator Exclusion
Derivatives
Equity
Securities
Foreign
Securities
Illiquid
Securities
Investment
Companies and Other Pooled Investment Vehicles
Lending
of Portfolio Securities
Repurchase
Agreements
Restricted
Securities/Rule 144A Securities
Reverse
Repurchase Agreements
Russian
Securities
Short-Term
Instruments and Temporary Investments
Xtrackers
MSCI EAFE Hedged Equity ETF
Commodity
Pool Operator Exclusion
Derivatives
Equity
Securities
Foreign
Securities
Illiquid
Securities
Investment
Companies and Other Pooled Investment Vehicles
Lending
of Portfolio Securities
Repurchase
Agreements
Restricted
Securities/Rule 144A Securities
Reverse
Repurchase Agreements
Short-Term
Instruments and Temporary Investments
Xtrackers
MSCI Germany Hedged Equity ETF
Commodity
Pool Operator Exclusion
Derivatives
Equity
Securities
Foreign
Securities
Illiquid
Securities
Investment
Companies and Other Pooled Investment Vehicles
Lending
of Portfolio Securities
Repurchase
Agreements
Restricted
Securities/Rule 144A Securities
Reverse
Repurchase Agreements
Short-Term
Instruments and Temporary Investments
Xtrackers
MSCI Japan Hedged Equity ETF
Commodity
Pool Operator Exclusion
Derivatives
Equity
Securities
Foreign
Securities
Illiquid
Securities
Investment
Companies and Other Pooled Investment Vehicles
Lending
of Portfolio Securities
Repurchase
Agreements
Restricted
Securities/Rule 144A Securities
Reverse
Repurchase Agreements
Short-Term
Instruments and Temporary Investments
Xtrackers
MSCI Europe Hedged Equity ETF
Commodity
Pool Operator Exclusion
Derivatives
Equity
Securities
Foreign
Securities
Illiquid
Securities
Investment
Companies and Other Pooled Investment Vehicles
Lending
of Portfolio Securities
Repurchase
Agreements
Restricted
Securities/Rule 144A Securities
Reverse
Repurchase Agreements
Short-Term
Instruments and Temporary Investments
Xtrackers
MSCI All World ex US Hedged Equity ETF
Borrowing
Chinese
Securities
Commodity
Pool Operator Exclusion
Derivatives
Equity
Securities
Foreign
Securities
Illiquid
Securities
Investment
Companies and Other Pooled Investment Vehicles
Lending
of Portfolio Securities
Repurchase
Agreements
Restricted
Securities/Rule 144A Securities
Reverse
Repurchase Agreements
Russian
Securities
Short-Term
Instruments and Temporary Investments
Xtrackers
MSCI All World ex US High Dividend Yield Equity ETF
Borrowing
Chinese
Securities
Commodity
Pool Operator Exclusion
Derivatives
Equity
Securities
Foreign
Securities
Illiquid
Securities
Investment
Companies and Other Pooled Investment Vehicles
Lending
of Portfolio Securities
Repurchase
Agreements
Restricted
Securities/Rule 144A Securities
Reverse
Repurchase Agreements
Russian
Securities
Short-Term
Instruments and Temporary Investments
Xtrackers
MSCI EAFE High Dividend Yield Equity ETF
Commodity
Pool Operator Exclusion
Derivatives
Equity
Securities
Foreign
Securities
Illiquid
Securities
Investment
Companies and Other Pooled Investment Vehicles
Lending
of Portfolio Securities
Repurchase
Agreements
Restricted
Securities/Rule 144A Securities
Reverse
Repurchase Agreements
Short-Term
Instruments and Temporary Investments
Xtrackers
Eurozone Equity ETF
Commodity
Pool Operator Exclusion
Derivatives
Equity
Securities
Foreign
Securities
Illiquid
Securities
Investment
Companies and Other Pooled Investment Vehicles
Lending
of Portfolio Securities
Repurchase
Agreements
Restricted
Securities/Rule 144A Securities
Reverse
Repurchase Agreements
Short-Term
Instruments and Temporary Investments
Xtrackers
MSCI Eurozone Hedged Equity ETF
Commodity
Pool Operator Exclusion
Derivatives
Equity
Securities
Foreign
Securities
Illiquid
Securities
Investment
Companies and Other Pooled Investment Vehicles
Lending
of Portfolio Securities
Repurchase
Agreements
Restricted
Securities/Rule 144A Securities
Reverse
Repurchase Agreements
Short-Term
Instruments and Temporary Investments
Xtrackers
Japan JPX-Nikkei 400 Equity ETF
Commodity
Pool Operator Exclusion
Derivatives
Equity
Securities
Foreign
Securities
Illiquid
Securities
Investment
Companies and Other Pooled Investment Vehicles
Lending
of Portfolio Securities
Repurchase
Agreements
Restricted
Securities/Rule 144A Securities
Reverse
Repurchase Agreements
Short-Term
Instruments and Temporary Investments
Part
I: Appendix I-H—Securities
Lending Activities
Pursuant
to an agreement between each fund and BNYM, BNYM is responsible for the administration and management of
each fund’s securities lending program, including the negotiation of the terms and conditions of any securities loan, ensuring
that securities loans are properly coordinated and documented with each fund’s custodian, ensuring that loaned
securities are daily valued and that the corresponding required cash collateral is delivered by the borrower(s), arranging
for the investment of cash collateral and arranging for the return of loaned securities upon the termination of
the loan.
The
dollar amounts of income and fees and compensation paid to all service providers related to the fund that participated in
securities lending activities during the most recent fiscal year were as follows:
Securities
Lending Activities – Income and Fees for Fiscal Year 2020
|
Xtrackers
MSCI
Emerging
Markets
Hedged
Equity
ETF |
Xtrackers
MSCI
EAFE
Hedged
Equity
ETF |
Xtrackers
MSCI
Germany
Hedged
Equity
ETF |
Xtrackers
MSCI
Japan
Hedged
Equity
ETF |
Xtrackers
MSCI
Europe
Hedged
Equity
ETF |
Gross
income from securities lending
activities
(including income from cash
collateral
reinvestment) |
|
|
|
|
|
Fees
and/or compensation for securities lending activities and related services |
Fees
paid to securities lending agent
from
a revenue split1
|
|
|
|
|
|
Fees
paid for any cash collateral
management
service (including fees
deducted
from a pooled cash collateral
reinvestment
vehicle) that are not
included
in the revenue split |
|
|
|
|
|
Administrative
fees not included in
revenue
split |
|
|
|
|
|
Indemnification
fees not included in
revenue
split |
|
|
|
|
|
Rebate
(paid to borrower) |
|
|
|
|
|
|
|
|
|
|
|
Other
fees not included in revenue split |
|
|
|
|
|
Aggregate
fees/compensation for
securities
lending activities and related
services
|
|
|
|
|
|
Net
income from securities lending
activities
|
|
|
|
|
|
1
Revenue split represents the share of revenue generated by the securities lending
program and paid to BNYM.
Securities
Lending Activities – Income and Fees for Fiscal Year 2020
|
Xtrackers
MSCI
All
World
ex US
Hedged
Equity
ETF
|
Xtrackers
MSCI
All
World
ex
US
High
Dividend
Yield
Equity
ETF
|
Xtrackers
MSCI
EAFE
High
Dividend
Yield
Equity
ETF
|
Gross
income from securities lending activities (including income from
cash
collateral reinvestment) |
|
|
|
Fees
and/or compensation for securities lending activities and related services |
Fees
paid to securities lending agent from a revenue split1
|
|
|
|
Fees
paid for any cash collateral management service (including fees
deducted
from a pooled cash collateral reinvestment vehicle) that are
not
included in the revenue split |
|
|
|
Administrative
fees not included in revenue split |
|
|
|
Indemnification
fees not included in revenue split |
|
|
|
Rebate
(paid to borrower) |
|
|
|
|
|
|
|
Other
fees not included in revenue split |
|
|
|
Aggregate
fees/compensation for securities lending activities and
related
services |
|
|
|
Net
income from securities lending activities |
|
|
|
1
Revenue split represents the share of revenue generated by the securities lending
program and paid to BNYM.
Securities
Lending Activities – Income and Fees for Fiscal Year 2020
|
Xtrackers
Eurozone
Equity
ETF
|
Xtrackers
MSCI
Eurozone
Hedged
Equity
ETF
|
Xtrackers
Japan
JPX-Nikkei
400
Equity
ETF
|
Gross
income from securities lending activities (including income from
cash
collateral
reinvestment) |
|
|
|
Fees
and/or compensation for securities lending activities and related services |
Fees
paid to securities lending agent from a revenue split1
|
|
|
|
Fees
paid for any cash collateral management service (including fees deducted
from
a pooled cash collateral reinvestment vehicle) that are not included in the
revenue
split |
|
|
|
Administrative
fees not included in revenue split |
|
|
|
Indemnification
fee not included in revenue split |
|
|
|
Rebate
(paid to borrower) |
|
|
|
|
|
|
|
Other
fees not included in revenue split |
|
|
|
Aggregate
fees/compensation for securities lending activities and related
services
|
|
|
|
Net
income from securities lending activities |
|
|
|
1
Revenue split represents the share of revenue generated by the securities lending program and paid to BNYM.
Part
I: Appendix I-I—Additional
Information
Fund
and its Fiscal Year End |
|
|
Xtrackers
MSCI Emerging Markets Hedged Equity
ETF
|
|
|
|
|
|
Xtrackers
MSCI EAFE Hedged Equity ETF |
|
|
|
|
|
Xtrackers
MSCI Germany Hedged Equity ETF |
|
|
|
|
|
Xtrackers
MSCI Japan Hedged Equity ETF |
|
|
|
|
|
Xtrackers
MSCI Europe Hedged Equity ETF |
|
|
|
|
|
Xtrackers
MSCI All World ex US Hedged Equity ETF |
|
|
|
|
|
Xtrackers
MSCI All World ex US High Dividend Yield
Equity
ETF |
|
|
|
|
|
Xtrackers
MSCI EAFE High Dividend Yield Equity ETF |
|
|
|
|
|
Xtrackers
Eurozone Equity ETF |
|
|
|
|
|
Xtrackers
MSCI Eurozone Hedged Equity ETF |
|
|
|
|
|
Xtrackers
Japan JPX-Nikkei 400 Equity ETF |
|
|
|
|
|
Statement
of Additional Information
October
1, 2020
DBX
ETF TRUST
Xtrackers
J.P. Morgan ESG USD High Yield Corporate Bond ETF |
Cboe
BZX Exchange, Inc.: ESHY |
Xtrackers
Bloomberg Barclays US Investment Grade Corporate ESG ETF |
Cboe
BZX Exchange, Inc.: ESCR |
This combined Statement
of Additional Information (“SAI”)
is not a prospectus and should be read in conjunction with the prospectus for each
fund dated October 1, 2020, as supplemented, a copy of which may
be obtained without charge by calling 1-855-329-3837 (1-855-DBX-ETFS); by visiting
Xtrackers.com (the
Web site does not form a part of this SAI); or by writing to the Trust’s
distributor, ALPS Distributors, Inc. (the “Distributor”),
1290 Broadway, Suite 1000, Denver, Colorado 80203. This SAI is incorporated by
reference into the prospectus.
Portions
of the Annual and Semi-Annual Reports to Shareholders of each fund are incorporated
herein by reference, and are hereby deemed to be part of this
SAI. Reports to Shareholders may also be obtained without charge by calling the
number provided in the preceding paragraph.
This
SAI is divided into two Parts—Part
I and Part II. Part I contains information that is specific to each fund,
while Part II contains information that generally applies to each of the funds
in the Xtrackers funds.
Statement
of Additional Information (SAI)—Part
I
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Detailed
Part II table of contents precedes page II-1 |
|
Definitions
“1933
Act” – the Securities
Act of 1933, as amended
“1934
Act” – the Securities
Exchange Act of 1934, as amended
“1940
Act” – the Investment
Company Act of 1940, as amended
“Administrator”
or “Custodian”
or “Transfer Agent”
or “BNYM”
– The Bank of New York Mellon, 240 Greenwich Street, New York, New York 10286
“Advisor”
or “DBX”
– DBX Advisors LLC, 875 Third Avenue, New York, New York 10022
“ALPS”
or “Distributor”
– ALPS Distributors, Inc., 1290 Broadway, Suite 1000, Denver, Colorado 80203
“Board”
– Board of Trustees of the Trust
“Board
Members” – Members
of the Board of Trustees of the Trust
“Business
Day” – any day
on which the Exchange on which the fund is listed for trading is open for business
“Cash
Component” – deposit
of a specified cash payment
“Creation
Units” – shares
that have been aggregated into blocks
“Code”
– the Internal Revenue Code of 1986, as amended
“DTC”
– Depository Trust Company
“DWS”
– refers to the asset management activities conducted by DWS Group GmbH &
Co. KGaA or any of its subsidiaries, including the Advisor and other affiliated
investment advisors
“DWS
Group” – a separate,
publicly-listed financial services firm that is an indirect, majority-owned subsidiary
of Deutsche Bank AG.
“ETF”
– exchange-traded fund
“Exchange”
– Cboe BZX Exchange, Inc.
“Fitch”
– Fitch Ratings, an NRSRO
“Fund
Legal Counsel” –
Dechert LLP, 1095 Avenue of the Americas, New York, New York 10036
“fund”
or “series”
– Xtrackers J.P. Morgan ESG USD High Yield Corporate Bond ETF and/or Xtrackers
Bloomberg Barclays US Investment Grade Corporate ESG ETF
as the context may require
“Independent
Board Members”–
Board Members who are not interested persons (as defined in the 1940 Act)
of the fund, the investment advisor or the distributor
“Independent
Registered Public Accounting Firm”
– Ernst & Young LLP, 5 Times Square, New York, New York 10036
“Independent
Trustee Legal Counsel”
– K&L Gates LLP, 1601 K Street, NW, Washington, DC 20006
“IOPV”
– Indicative Optimized Portfolio Value
“Moody’s”
– Moody’s Investors Service, Inc., an NRSRO
“NRSRO”
– a nationally recognized statistical rating organization
“S&P”
– S&P Global Ratings, an NRSRO
“SEC”
– the Securities and Exchange Commission
“Shares”
– shares of beneficial interest registered under the 1933 Act
“Trust”
– DBX ETF Trust
“Underlying
Index” – a specified
benchmark index
“Unitary
Advisory Fee” –
fee payable to the Advisor for its services under the Investment Advisory Agreement
with each fund and the Advisor’s commitment to pay substantially
all expenses of each fund, including the cost of transfer agency, custody, fund
administration, compensation paid to the Independent Board Members, legal,
audit and other services, except for the fee payments to
the Advisor under the Investment Advisory Agreement, interest expense, acquired
fund fees and expenses, taxes, brokerage expenses, distribution fees or expenses
(if any), litigation expenses and other extraordinary expenses
“funds”
– the US registered investment companies advised by DBX
Fund
Organization
DBX
ETF Trust was organized as a Delaware statutory trust on October 7, 2010 and is
authorized to have multiple series or portfolios. The Trust is an open-end management
investment company registered with the SEC under the 1940
Act. Additional information about the Trust is set forth in Part
II under “Fund
Organization.”
Effective
May 12, 2020, Xtrackers High Yield Corporate Bond – Interest Rate Hedged
ETF was renamed Xtrackers J.P. Morgan ESG USD High Yield Corporate Bond ETF.
Effective May 12, 2020, Xtrackers Investment Grade Bond –
Interest Rate Hedged ETF was renamed Xtrackers Bloomberg Barclays US Investment
Grade Corporate ESG ETF.
Management
of each Fund
Board
Members and Officers’ Identification and Background
The
identification and background of the Board Members and officers are set forth in
Part II—Appendix
II-A.
Board
Committees and Compensation
Compensation
paid to the Independent Board Members, for certain specified periods is set forth
in Part I—
Appendix I-C.
Information regarding the committees of the Board is set forth in Part
I—Appendix
I-B.
Board
Member Share Ownership and Control Persons
Information
concerning the ownership of fund shares by Board Members and officers, as a group,
as well as the dollar range value of each Board Member’s share ownership
in each fund and, on an aggregate basis, in all Xtrackers funds overseen by them,
by investors who control the fund, if any, and by investors who own 5%
or more of fund shares, if any, is set forth in Part
I—
Appendix I-A.
Portfolio
Management
Information
regarding each fund’s portfolio managers, including other accounts managed,
compensation, ownership of fund shares and possible conflicts of interest,
is set forth in Part I—Appendix
I-D and Part
II – Appendix II-B.
Service
Provider Compensation
Compensation
paid by each fund for investment advisory services and other expenses through the
Unitary Advisory Fee is set forth in Part
I—Appendix
I-E. The service provider
compensation is not applicable to new funds that have not completed a fiscal reporting
period. Fee rates are included in Part
II – Appendix II-C.
Portfolio
Transactions, Brokerage Commissions and Securities
Lending Activities
Portfolio
Turnover
The
portfolio turnover rates for the two most recent fiscal years are set forth in
Part I—Appendix
I-F. This section
does not apply to new funds that have not completed a fiscal
reporting period.
Brokerage
Commissions
Total
brokerage commissions paid by each fund for the three most recent fiscal years
are set forth in Part I—
Appendix I-F.
This section does not apply to new funds that have not completed a fiscal reporting
period.
Each
fund's policy with respect to portfolio transactions and brokerage is set forth
under “Portfolio Transactions
” in Part
II of this SAI.
Securities
Lending Activities
Information
regarding securities lending activities of each fund, if any, during its most recent
fiscal year is set forth in Part
I—Appendix
I-H.
Additional
information regarding securities lending in general is set forth under “Lending
of Portfolio Securities”
in Part II
of this SAI.
Investments
Investments,
Practices and Techniques, and Risks
Part
I—Appendix
I-G includes a list of
the investments, practices and techniques, and risks which each fund
may employ (or be subject to) in pursuing its investment objective.
Part II—Appendix
II-E includes a description
of these investments, practices and techniques, and risks.
Investment
Restrictions
It
is possible that certain investment practices and/or techniques may not be permissible
for a fund based on its investment restrictions, as described herein.
Diversification
Status. Xtrackers J.P. Morgan ESG USD High
Yield Corporate Bond ETF and Xtrackers Bloomberg Barclays US Investment Grade Corporate
ESG ETF are each classified as a diversified fund. The fund’s election
to be classified as diversified under the 1940 Act may not
be changed without the vote of a majority of the outstanding voting securities
(as defined herein) of the fund.
Currently,
under the 1940 Act, for a fund to be classified as a diversified investment company,
at least 75% of the value of the fund’s total assets must be represented
by cash and cash items (including receivables), government
securities, securities of other investment companies, and securities of other issuers,
which for the purposes of this calculation are limited in respect of any
one issuer to an amount (valued at the time of investment) not greater in value
than 5% of the fund’s total assets and to not more than 10% of the outstanding
voting securities of such issuer.
Fundamental
Policies
The
following fundamental policies may not be changed without the approval of a majority
of the outstanding voting securities of a fund which, under the 1940 Act and the
rules thereunder and as used in this SAI, means the lesser of
(1) 67% or more of the voting securities present at such meeting, if the holders
of more than 50% of the outstanding voting securities of a fund are present or
represented by proxy, or (2) more than 50% of the outstanding
voting securities of a fund.
As
a matter of fundamental policy, a fund may not do any of the following:
(1)
concentrate
its investments (i.e., invest 25% or more of its total assets in the securities
of a particular industry or group of industries), except that a fund will
concentrate to the extent that its underlying index concentrates in the securities
of such particular industry or group of industries. For purposes of this
limitation, securities of the U.S. government (including
its agencies and instrumentalities), repurchase agreements collateralized by U.S.
government securities, and securities of state or municipal
governments
and their political sub-divisions are not considered to be issued by members of
any industry;
(2)
borrow
money, except that (i) each fund may borrow from banks for temporary or emergency
(not leveraging) purposes, including the meeting of redemption
requests which might otherwise require the untimely disposition of securities;
and (ii) each fund may, to the extent consistent with its investment
policies, enter into repurchase agreements, reverse repurchase agreements, forward
roll transactions and similar investment strategies and
techniques; to the extent that it engages in transactions described in (i) and
(ii), each fund will be limited so that no more than 33 1/3% of the value
of its total assets (including the amount borrowed) is derived from such transactions.
Any borrowings which come to exceed this amount will be
reduced in accordance with applicable law;
(3)
issue
any senior security, except as permitted under the 1940 Act, as amended, and as
interpreted, modified or otherwise permitted by regulatory authority
having jurisdiction, from time to time;
(4)
make
loans, except as permitted under the 1940 Act, as interpreted, modified or otherwise
permitted by regulatory authority having jurisdiction, from time to
time;
(5)
purchase
or sell real estate unless acquired as a result of ownership of securities or other
investments (but this restriction shall not prevent each fund
from investing in securities of companies engaged in the real estate business or
securities or other instruments backed by real estate or mortgages),
or commodities or commodity contracts (but this restriction shall not prevent each
fund from trading in futures contracts and options on futures contracts,
including options on currencies to the extent consistent with each fund’s
investment objectives and policies); or
(6)
engage
in the business of underwriting securities issued by other persons except, to the
extent that each fund may technically be deemed to be an underwriter
under the 1933 Act, the disposing of portfolio securities.
For
purposes of the concentration policy in investment restriction (1), municipal securities
with payments of principal or interest backed by the revenue of a specific
project are considered to be issued by a member of the industry
which includes such specific project.
Senior
securities may include any obligation or instrument issued by an investment company
evidencing indebtedness. The 1940 Act generally prohibits a fund from issuing
senior securities, although it provides allowances for certain borrowings and certain
other investments, such as short sales, reverse repurchase agreements,
and firm commitment agreements, when such investments are “covered”
or with appropriate earmarking or segregation of assets to cover such obligations.
Under
the 1940 Act, an investment company may only make loans if expressly permitted
by its investment policies.
Non-Fundamental
Policies
The
Board has adopted certain additional non-fundamental policies and restrictions
which are observed in the conduct of a fund’s affairs. They differ from fundamental
investment policies in that they may be changed or amended by action of
the Board without requiring prior notice to, or approval of, the shareholders.
As
a matter of non-fundamental policy, a fund may not do any of the following:
(1)
sell
securities short, unless the fund owns or has the right to obtain securities equivalent
in-kind and amount to the securities sold short at no added cost,
and provided that transactions in options, futures contracts, options on futures
contracts or other derivative instruments are not deemed to constitute
selling securities short;
(2)
purchase
securities on margin, except that the fund may obtain such short-term credits as
are necessary for the clearance of transactions; and provided that margin
deposits in connection with futures contracts, options on futures contracts or
other derivative instruments shall not constitute purchasing securities
on margin;
(3)
purchase
securities of open-end or closed-end investment companies except in compliance
with the 1940 Act;
(4)
invest
in direct interests in oil, gas or other mineral exploration programs or leases;
however, the fund may invest in the securities of issuers that engage in
these activities; and
(5)
invest
in illiquid securities if, as a result of such investment, more than 15% of the
fund’s net assets would be invested in illiquid securities.
If
any percentage restriction described above is complied with at the time of investment,
a later increase or decrease in percentage resulting from any change in value or
total or net assets will not constitute a violation of such restriction,
except that fundamental limitation (2) will be observed continuously in accordance
with applicable law.
For
purposes of non-fundamental policy (5), an illiquid security is any investment
that the fund reasonably expects cannot be sold or disposed of in current market
conditions in seven calendar days without the sale or disposition
significantly changing the market value of the investment.
Each
fund has adopted a non-fundamental investment policy such that each fund may invest
in shares of other open-end management investment companies or unit investment
trusts subject to the limitations of Section 12(d)(1) of the 1940 Act, including
the rules, regulations and exemptive orders obtained thereunder; provided,
however, that if a fund has knowledge that its Shares are
purchased by another investment company investor in reliance on the provisions
of subparagraphs (F) or (G) of Section 12(d)(1) of the 1940 Act, each fund will
not acquire any securities of other open-end management investment
companies or unit investment trusts in reliance on the provisions of subparagraphs
(F) or (G) of Section 12(d)(1) of the 1940 Act.
Taxes
Important
information concerning the tax consequences of an investment in each fund is contained
in Part II—
Appendix II-F.
Independent
Registered Public Accounting Firm, Reports to Shareholders
and Financial Statements
The
financial highlights of each fund included in its prospectus and financial statements
incorporated by reference into this SAI have been so included or incorporated
by reference in reliance on the report of Ernst &
Young
LLP, 5 Times Square, New York, New York 10036. Ernst & Young LLP is an independent
registered public accounting firm. The report is given on the authority of
said firm as experts in auditing and accounting. The independent
registered public accounting firm audits the financial statements of each fund
and provides other audit, tax and related services. Shareholders will receive annual
audited financial statements and semi-annual unaudited financial
statements.
The
financial statements, together with the report of the Independent Registered Public
Accounting Firm, financial
Additional
Information
For
information on exchange, CUSIP number and fund fiscal year end information, see
Part I—Appendix
I-I.
Part
I: Appendix I-A—Board
Member Share Ownership and Control Persons
Board
Member Share Ownership in each fund
The
following tables show the dollar range of equity securities beneficially owned by each current Board Member in each
fund and in Xtrackers funds as of December 31, 2019.
Dollar
Range of Beneficial Ownership(1)
|
Xtrackers
J.P.
Morgan
ESG
USD High Yield
Corporate
Bond ETF |
Xtrackers
Bloomberg
Barclays
US
Investment Grade
Corporate
ESG ETF |
Independent
Board Member: |
|
|
|
|
|
|
|
|
|
|
|
Aggregate
Dollar Range of Beneficial Ownership(1)
|
Funds
Overseen by
Board
Member in the
Xtrackers
Funds |
Independent
Board Member: |
|
|
|
|
|
|
(1)
The
dollar ranges are: None, $1 – $10,000, $10,001 – $50,000, $50,001 – $100,000, or over $100,000.
Ownership
in Securities of the Advisor and Related Companies
As
reported to each fund, the information in the table below reflects ownership by the current Independent Board Members
and their immediate family members of certain securities as of December 31, 2019. An immediate family member
can be a spouse, children residing in the same household, including step and adoptive children, and any dependents.
The securities represent ownership in the Advisor or Distributor and any persons (other than a registered investment
company) directly or indirectly controlling, controlled by, or under common control with the Advisor (including Deutsche
Bank AG and DWS Group) or the Distributor.
|
Owner
and
Relationship
to
Board
Member |
|
|
Value
of
Securities
on an
Aggregate
Basis |
Percent
of
Class
on an
Aggregate
Basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control
Persons and Principal Holders of Securities
As
of August 31, 2020, all Board Members and officers owned, as a group, less than 1% of the outstanding shares of
a fund.
Although
the fund does not have information concerning the beneficial ownership of shares held in the names of DTC
participants, the following table identifies those DTC participants who owned of record 5% or more of a fund’s shares
as of August 31, 2020:
Xtrackers
J.P. Morgan ESG USD High Yield Corporate Bond ETF
|
|
UBS
Securities LLC
1000
Harbour Blvd., 5th Fl
Weehawken,
NJ 07086 |
|
J.P.
Morgan Securities LLC
500
Stanton Christiana Road, 2nd Fl.
Newark,
DE 19713-2107 |
|
Bank
of America
200
N. College Street
Charlotte,
NC 28255 |
|
Charles
Schwab & Co., Inc.
2423E.
Lincoln Drive
Phoenix,
AZ 85016-1215 |
|
Xtrackers
Bloomberg Barclays US Investment Grade Corporate ESG ETF
|
|
UBS
Securities LLC
1000
Harbour Blvd., 5th Fl.
Weehawken,
NJ 07086 |
|
J.P.
Morgan Securities LLC
500
Stanton Christiana Road, 2nd Fl.
Newark,
DE 19713-2107 |
|
Bank
of America
200
N. College Street
Charlotte,
NC 28255 |
|
Part
I: Appendix I-B—Board
Committees and Meetings
Board
Leadership, Structure and Oversight Responsibilities
Board
Structure. The Board of the Xtrackers funds is responsible for oversight of the
funds, including oversight of the duties performed by the Advisor for the funds
under the investment advisory agreement (the “Investment
Advisory Agreement”).
The Board generally meets in regularly-scheduled meetings four times a year and may meet more often as
required.
Mr.
Byers serves as Chairman of the Board. The Board is comprised of Independent Board Members. The Independent Board
Members are advised by Independent Trustee Legal Counsel and are represented by such Independent Trustee Legal
Counsel at Board and committee meetings. The chairmen of the Audit Committee and Nominating Committee (each
of which consists solely of Independent Board Members) serve as liaisons between the Advisor and other service providers
and the other Independent Board Members. Each such chairman is an Independent Board Member.
The
Board regularly reviews its committee structure and membership and believes that its current structure is appropriate based
on the fact that the Independent Board Members constitute the Board, the role of the committee chairmen (who
are Independent Board Members), the assets and number of funds overseen by the Board Members, as well as
the nature of each fund’s business as an ETF, which is managed to track the performance of a specified index.
Risk
Oversight. The Xtrackers funds are subject to a number of risks, including operational,
investment and compliance risks. The Board, directly and through its committees,
as part of its oversight responsibilities, oversees the services provided by the
Advisor and the Trust’s other service providers in connection with the management and operations of
the funds, as well as their associated risks. Under the oversight of the Board, the Trust, the Advisor and other service
providers have adopted policies, procedures and controls to address these risks.
The
Board, directly and through its committees, receives and reviews information from the Advisor, other service providers,
the Trust’s Independent Registered Public Accounting Firm and Independent Trustee Legal Counsel to assist it
in its oversight responsibilities. This information includes, but is not limited to, reports regarding the funds’ investments,
including fund performance and investment practices, valuation of fund portfolio securities,
and compliance. The Board also reviews, and must approve any proposed changes to,
the funds’ investment objectives, policies and restrictions, and reviews
any areas of non-compliance with the funds’ investment policies and restrictions. The Audit Committee monitors
the Trust’s accounting policies, financial reporting and internal control system and reviews any internal audit reports
impacting the Trust. As part of its compliance oversight, the Board reviews the annual compliance report issued by
the Trust’s Chief Compliance Officer on the policies and procedures of the Trust and its service providers, proposed changes
to the policies and procedures and quarterly reports on any material compliance issues that arose during the period.
Board
Committees. The Board has two standing committees, the Audit Committee and the Nominating
Committee, and has delegated certain responsibilities to those committees.
|
Number
of
Meetings
in Last
Fiscal
Year |
|
|
|
|
The
Audit Committee has the responsibility,
among
other things, to: (i) approve the
selection,
retention, termination and
compensation
of the Trust’s Independent
Registered
Public Accounting Firm; (ii) review
the
scope of the Independent Registered
Public
Accounting Firm’s audit activity; (iii)
review
the audited financial statements; and
(iv)
review with such Independent Registered
Public
Accounting Firm the adequacy and the
effectiveness
of the Trust’s internal controls. |
George
O. Elston
(Chairman),
Stephen R.
Byers
and J. David Officer |
|
Number
of
Meetings
in Last
Fiscal
Year |
|
|
|
|
The
Nominating Committee has the
responsibility,
among other things, to identify
and
recommend individuals for Board
membership,
and evaluate candidates for
Board
membership. The Board will consider
recommendations
for Board Members from
shareholders.
Nominations from shareholders
should
be in writing and sent to the Board, to
the
attention of the Chairman of the
Nominating
Committee, as described in Part II
SAI
Appendix II-A under the caption
“Shareholder
Communications to the Board.”
|
J.
David Officer (Chairman),
Stephen
R. Byers and
George
O. Elston |
Part
I: Appendix I-C—Board
Member Compensation
Each
Independent Board Member receives compensation for his or her services, which includes retainer fees and specified
amounts for various committee services and for the Board Chairman. No additional compensation is paid to
any Independent Board Member for travel time to meetings, attendance at directors’ educational seminars or conferences,
service on industry or association committees, participation as speakers at directors’
conferences or service on special fund industry director task forces or subcommittees.
Independent Board Members do not receive any employee benefits such as pension
or retirement benefits or health insurance from a fund or any fund in the Xtrackers fund complex.
Board
Members who are officers, directors, employees or stockholders of DBX or its affiliates receive no direct compensation from
the fund, although they are compensated as employees of DBX, or its affiliates, and as a result may be deemed to
participate in fees paid by a fund. The following table shows, for each current Independent Board Member, the aggregate
compensation from all of the funds in the Xtrackers fund complex during calendar year 2019.
Total
Compensation from Xtrackers Fund Complex
|
Total
Compensation from the
Xtrackers
Fund Complex(1) |
Independent
Board Member: |
|
|
|
|
|
|
(1)
For
each Independent Board Member, total compensation from the Xtrackers fund complex represents compensation from
33 funds as of December 31, 2019.
(2)
Includes
$25,000 in annual retainer fees received by Mr. Byers as Chairman of the Xtrackers funds.
(3)
Includes
$15,000 in annual retainer fees received by Mr. Elston as Chairman of the Audit Committee.
Part
I: Appendix I-D—Portfolio
Management
Fund
Ownership of Portfolio Managers
The
following table shows the dollar range of fund shares owned beneficially and of record by the portfolio management team,
including investments by their immediate family members sharing the same household and amounts invested through
retirement and deferred compensation plans. This information is provided as of each fund's most recent fiscal year
end.
Xtrackers
J.P. Morgan ESG USD High Yield Corporate Bond ETF
Name
of Portfolio Manager |
Dollar
Range of
Fund
Shares Owned |
|
|
|
|
|
|
|
|
Xtrackers
Bloomberg Barclays US Investment Grade Corporate ESG ETF
Name
of Portfolio Manager |
Dollar
Range of
Fund
Shares Owned |
|
|
|
|
|
|
|
|
Conflicts
of Interest
In
addition to managing the assets of each fund, a portfolio manager may have responsibility for managing other client accounts
of the Advisor or its affiliates. The tables below show, per portfolio manager, the number and asset size of: (1)
SEC registered investment companies (or series thereof) other than each fund, (2) pooled investment vehicles that
are not registered investment companies and (3) other accounts (e.g., accounts managed for individuals or organizations) managed
by a portfolio manager. Total assets attributed to a portfolio manager in the tables below include total assets of
each account managed, although a portfolio manager may only manage a portion of such account’s assets. For a fund
subadvised by subadvisors unaffiliated with the Advisor, total assets of funds managed may only include assets allocated
to the portfolio manager and not the total assets of a fund managed. The tables also show the number of performance-based
fee accounts, as well as the total assets of the accounts for which the advisory fee is based on the
performance of the account. This information is provided as of each fund's most recent fiscal year end.
Xtrackers
J.P. Morgan ESG USD High Yield Corporate Bond ETF
Other
SEC Registered Investment Companies Managed:
Name
of
Portfolio
Manager |
Number
of
Registered
Investment
Companies
|
Total
Assets of
Registered
Investment
Companies
|
Number
of Investment
Company
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-Based
Fee
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
Bloomberg Barclays US Investment Grade Corporate ESG ETF
Other
SEC Registered Investment Companies Managed:
Name
of
Portfolio
Manager |
Number
of
Registered
Investment
Companies
|
Total
Assets of
Registered
Investment
Companies
|
Number
of Investment
Company
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-Based
Fee
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
J.P. Morgan ESG USD High Yield Corporate Bond ETF
Other
Pooled Investment Vehicles Managed:
Name
of
Portfolio
Manager |
Number
of
Pooled
Investment
Vehicles
|
Total
Assets of
Pooled
Investment
Vehicles
|
Number
of Pooled
Investment
Vehicle
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
Bloomberg Barclays US Investment Grade Corporate ESG ETF
Other
Pooled Investment Vehicles Managed:
Name
of
Portfolio
Manager |
Number
of
Pooled
Investment
Vehicles
|
Total
Assets of
Pooled
Investment
Vehicles
|
Number
of Pooled
Investment
Vehicle
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
J.P. Morgan ESG USD High Yield Corporate Bond ETF
Other
Accounts Managed:
Name
of
Portfolio
Manager |
|
Total
Assets
of
Other
Accounts
|
Number
of Other
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
Bloomberg Barclays US Investment Grade Corporate ESG ETF
Other
Accounts Managed:
Name
of
Portfolio
Manager |
|
Total
Assets
of
Other
Accounts
|
Number
of Other
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
addition to the accounts above, an investment professional may manage accounts in a personal capacity that may include
holdings that are similar to, or the same as, those of each fund. The Advisor or Subadvisor, as applicable, has in
place a Code of Ethics that is designed to address conflicts of interest and that, among other things, imposes restrictions
on the ability of portfolio managers and other “access
persons” to invest in
securities that may be recommended or traded in each fund and other client accounts.
Part
I: Appendix I-E—Service
Provider Compensation
Under
each fund’s Investment Advisory Agreement, the Advisor is responsible for substantially all expenses of the fund,
including the cost of transfer agency, custody, fund administration, compensation paid to the Independent Board Members,
legal, audit and other services, except for the fee payments to the Advisor under the Investment Advisory Agreement,
interest expense, acquired fund fees and expenses, taxes, brokerage expenses, distribution fees or expenses (if
any), litigation expenses and other extraordinary expenses.
Xtrackers
J.P. Morgan ESG USD High Yield Corporate Bond ETF
|
Gross
Amount
Paid
to DBX
for
Advisory
Services(1)
|
Amount
Waived
by
DBX for
Advisory
Services
|
|
|
|
|
|
|
|
|
|
Xtrackers
Bloomberg Barclays US Investment Grade Corporate ESG ETF
|
Gross
Amount
Paid
to DBX
for
Advisory
Services(2)
|
Amount
Waived
by
DBX for
Advisory
Services
|
|
|
|
|
|
|
|
|
|
(1)
Effective May 12, 2020, the Advisor’s Unitary Advisory Fee rate was reduced from 0.35% to 0.20% of the fund’s average
daily net assets.
(2)
Effective May 12, 2020, the Advisor’s Unitary Advisory Fee rate was reduced from 0.25% to 0.15% of the fund’s average
daily net assets.
Part
I: Appendix I-F—Portfolio
Transactions and Brokerage Commissions
Variations
to a fund’s portfolio turnover rate may be due to, among other things, a fluctuating volume of shareholder purchase
and redemption orders, market conditions, and/or changes in the Advisor's investment outlook. The amount of
brokerage commissions paid by a fund may change from year to year because of, among other things, changing asset
levels, shareholder activity and/or portfolio turnover.
Portfolio
Turnover Rates
|
|
|
Xtrackers
J.P. Morgan ESG USD High Yield Corporate Bond ETF |
|
|
Xtrackers
Bloomberg Barclays US Investment Grade Corporate ESG ETF |
|
|
(1)
The increase in portfolio turnover rate from 2019 to 2020 is principally due to a change in the fund’s Underlying Index,
resulting in higher levels of trading.
Brokerage
Commissions
|
|
Brokerage
Commissions
Paid
by Fund |
Xtrackers
J.P. Morgan ESG USD High Yield Corporate
Bond
ETF |
|
|
|
|
|
|
|
|
Xtrackers
Bloomberg Barclays US Investment Grade
Corporate
ESG ETF |
|
|
|
|
|
|
|
|
Brokerage
Commissions Paid to Affiliated Brokers
No
trades were effected for the accounts with broker dealers that are affiliated with the Advisor or Subadvisor, if applicable,
as of the end of its most recent fiscal year.
Listed
below are the regular brokers or dealers (as such term is defined in the 1940 Act) of each fund whose securities each
fund held as of the end of its most recent fiscal year and the dollar value of such securities.
Xtrackers
J.P. Morgan ESG USD High Yield Corporate Bond ETF
The
fund did not hold any securities of its regular brokers or dealers.
Xtrackers
Bloomberg Barclays US Investment Grade Corporate ESG ETF
Name
of Regular Broker or Dealer or Parent
(Issuer)
|
Securities
of Regular Broker Dealers |
CitiGroup
Global Markets Inc. |
|
|
|
|
|
The
Bank of New York Mellon |
|
Transactions
for Research Services
No
transactions or related commissions were allocated to broker-dealer firms for research services.
Part
I: Appendix I-G—Investments,
Practices and Techniques, and Risks
Below
is a list of headings related to investments, practices and techniques, and risks which are further described in Appendix
II-E.
Xtrackers
J.P. Morgan ESG USD High Yield Corporate Bond ETF
Adjustable
Rate Securities
Commodity
Pool Operator Exclusion
Derivatives
Fixed
Income Securities
Foreign
Securities
Illiquid
Securities
Investment
Companies and Other Pooled Investment Vehicles
Lending
of Portfolio Securities
Repurchase
Agreements
Restricted
Securities/Rule 144A Securities
Reverse
Repurchase Agreements
Short
Sales
Short-Term
Instruments and Temporary Investments
Tax
Risks
Xtrackers
Bloomberg Barclays US Investment Grade Corporate ESG ETF
Adjustable
Rate Securities
Borrowing
Commodity
Pool Operator Exclusion
Derivatives
Fixed
Income Securities
Foreign
Securities
Illiquid
Securities
Investment
Companies and Other Pooled Investment Vehicles
Lending
of Portfolio Securities
Repurchase
Agreements
Restricted
Securities/Rule 144A Securities
Reverse
Repurchase Agreements
Short
Sales
Short-Term
Instruments and Temporary Investments
Tax
Risks
Part
I: Appendix I-H—Securities
Lending Activities
Pursuant
to an agreement between each fund and BNYM, BNYM is responsible for the administration and management of
each fund’s securities lending program, including the negotiation of the terms and conditions of any securities loan, ensuring
that securities loans are properly coordinated and documented with each fund’s custodian, ensuring that loaned
securities are daily valued and that the corresponding required cash collateral is delivered by the borrower(s), arranging
for the investment of cash collateral and arranging for the return of loaned securities upon the termination of
the loan.
The
dollar amounts of income and fees and compensation paid to all service providers related to the fund that participated in
securities lending activities during the most recent fiscal year were as follows:
Securities
Lending Activities – Income and Fees for Fiscal Year 2020
|
Xtrackers
J.P.
Morgan
ESG
USD High Yield
Corporate
Bond ETF |
Xtrackers
Bloomberg
Barclays
US
Investment
Grade
Corporate
ESG ETF |
Gross
income from securities lending activities (including income from
cash
collateral reinvestment) |
|
|
Fees
and/or compensation for securities lending activities and related services |
Fees
paid to securities lending agent from a revenue split1
|
|
|
Fees
paid for any cash collateral management service (including fees
deducted
from a pooled cash collateral reinvestment vehicle) that are not
included
in the revenue split |
|
|
Administrative
fees not included in revenue split |
|
|
Indemnification
fees not included in revenue split |
|
|
Rebate
(paid to borrower) |
|
|
|
|
|
Other
fees not included in revenue split |
|
|
Aggregate
fees/compensation for securities lending activities and
related
services |
|
|
Net
income from securities lending activities |
|
|
1
Revenue split represents the share of revenue generated by the securities lending program and paid to BNYM.
Part
I: Appendix I-I—Additional
Information
Fund
and its Fiscal Year End |
|
|
Xtrackers
J.P. Morgan ESG USD High Yield Corporate
Bond
ETF |
|
|
|
|
|
Xtrackers
Bloomberg Barclays US Investment Grade
Corporate
ESG ETF |
|
|
|
|
|
Statement
of Additional Information
October
1, 2020
DBX
ETF TRUST
Xtrackers
J.P. Morgan ESG Emerging Markets Sovereign ETF |
Cboe
BZX Exchange, Inc.: ESEB |
This Statement of
Additional Information (“SAI”)
is not a prospectus and should be read in conjunction with
the prospectus for the fund dated October 1, 2020, as supplemented, a copy of which
may be obtained without charge by calling 1-855-329-3837 (1-855-DBX-ETFS);
by visiting Xtrackers.com
(the Web site does not form a part of this SAI); or by writing to
the Trust’s distributor, ALPS Distributors, Inc. (the “Distributor”),
1290 Broadway, Suite 1000, Denver, Colorado 80203. This SAI is incorporated by
reference into the prospectus.
Portions
of the Annual and Semi-Annual Reports to Shareholders of the fund are incorporated
herein by reference, and are hereby deemed to be part of this SAI.
Reports to Shareholders may also be obtained without charge by calling the number
provided in the preceding paragraph.
This
SAI is divided into two Parts—Part
I and Part II. Part I contains information that is specific to the fund,
while Part II contains information that generally applies to each of the funds
in the Xtrackers funds.
Statement
of Additional Information (SAI)—Part
I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Detailed
Part II table of contents precedes page II-1 |
|
Definitions
“1933
Act” – the Securities
Act of 1933, as amended
“1934
Act” – the Securities
Exchange Act of 1934, as amended
“1940
Act” – the Investment
Company Act of 1940, as amended
“Administrator”
or “Custodian”
or “Transfer Agent”
or “BNYM”
– The Bank of New York Mellon, 240 Greenwich Street, New York, New York 10286
“Advisor”
or “DBX”
– DBX Advisors LLC, 875 Third Avenue, New York, New York 10022
“ALPS”
or “Distributor”
– ALPS Distributors, Inc., 1290 Broadway, Suite 1000, Denver, Colorado 80203
“Board”
– Board of Trustees of the Trust
“Board
Members” – Members
of the Board of Trustees of the Trust
“Business
Day” – any day
on which the Exchange on which the fund is listed for trading is open for business
“Cash
Component” – deposit
of a specified cash payment
“Creation
Units” – shares
that have been aggregated into blocks
“Code”
– the Internal Revenue Code of 1986, as amended
“DTC”
– Depository Trust Company
“DWS”
– refers to the asset management activities conducted by DWS Group GmbH &
Co. KGaA or any of its subsidiaries, including the Advisor and other affiliated
investment advisors
“DWS
Group” – a separate,
publicly-listed financial services firm that is an indirect, majority-owned subsidiary
of Deutsche Bank AG.
“ETF”
– exchange-traded fund
“Exchange”
– Cboe BZX Exchange, Inc.
“Fitch”
– Fitch Ratings, an NRSRO
“Fund
Legal Counsel” –
Dechert LLP, 1095 Avenue of the Americas, New York, New York 10036
“fund”
or “series”
– Xtrackers J.P. Morgan ESG Emerging Markets Sovereign ETF
“Independent
Board Members”–
Board Members who are not interested persons (as defined in the 1940 Act)
of the fund, the investment advisor or the distributor
“Independent
Registered Public Accounting Firm”
– Ernst & Young LLP, 5 Times Square, New York, New York 10036
“Independent
Trustee Legal Counsel”
– K&L Gates LLP, 1601 K Street, NW, Washington, DC 20006
“IOPV”
– Indicative Optimized Portfolio Value
“Moody’s”
– Moody’s Investors Service, Inc., an NRSRO
“NRSRO”
– a nationally recognized statistical rating organization
“S&P”
– S&P Global Ratings, an NRSRO
“SEC”
– the Securities and Exchange Commission
“Shares”
– shares of beneficial interest registered under the 1933 Act
“Trust”
– DBX ETF Trust
“Underlying
Index” – a specified
benchmark index
“Unitary
Advisory Fee” –
fee payable to the Advisor for its services under the Investment Advisory Agreement
with the fund and the Advisor’s commitment to pay substantially
all expenses of the fund, including the cost of transfer agency, custody, fund
administration, compensation paid to the Independent Board Members, legal,
audit and other services, except for the fee payments to
the Advisor under the Investment Advisory Agreement, interest expense, acquired
fund fees and expenses, taxes, brokerage expenses, distribution fees or expenses
(if any), litigation expenses and other extraordinary expenses
“funds”
– the US registered investment companies advised by DBX
Fund
Organization
DBX
ETF Trust was organized as a Delaware statutory trust on October 7, 2010 and is
authorized to have multiple series or portfolios. The Trust is an open-end management
investment company registered with the SEC under the 1940
Act. Additional information about the Trust is set forth in Part
II under “Fund
Organization.”
Effective
May 12, 2020, Xtrackers Emerging Markets Bond – Interest Rate Hedged ETF
was renamed Xtrackers J.P. Morgan ESG Emerging Markets Sovereign ETF.
Management
of the Fund
Board
Members and Officers’ Identification and Background
The
identification and background of the Board Members and officers are set forth in
Part II—Appendix
II-A.
Board
Committees and Compensation
Compensation
paid to the Independent Board Members, for certain specified periods is set forth
in Part I—
Appendix I-C.
Information regarding the committees of the Board is set forth in Part
I—Appendix
I-B.
Board
Member Share Ownership and Control Persons
Information
concerning the ownership of fund shares by Board Members and officers, as a group,
as well as the dollar range value of each Board Member’s share ownership
in the fund and, on an aggregate basis, in all Xtrackers funds overseen by them,
by investors who control the fund, if any, and by investors who own 5%
or more of fund shares, if any, is set forth in Part
I—
Appendix I-A.
Portfolio
Management
Information
regarding the fund’s portfolio managers, including other accounts managed,
compensation, ownership of fund shares and possible conflicts of interest,
is set forth in Part I—Appendix
I-D and Part
II – Appendix II-B.
Service
Provider Compensation
Compensation
paid by the fund for investment advisory services and other expenses through the
Unitary Advisory Fee is set forth in Part
I—Appendix
I-E. The service provider
compensation is not applicable to new funds that have not completed a fiscal reporting
period. Fee rates are included in Part
II – Appendix II-C.
Portfolio
Transactions, Brokerage Commissions and Securities
Lending Activities
Portfolio
Turnover
The
portfolio turnover rates for the two most recent fiscal years are set forth in
Part I—Appendix
I-F. This section
does not apply to new funds that have not completed a fiscal
reporting period.
Brokerage
Commissions
Total
brokerage commissions paid by the fund for the three most recent fiscal years are
set forth in Part I—
Appendix I-F.
This section does not apply to new funds that have not completed a fiscal reporting
period.
The
fund's policy with respect to portfolio transactions and brokerage is set forth
under “Portfolio Transactions
” in Part
II of this SAI.
Securities
Lending Activities
Information
regarding securities lending activities of the fund, if any, during its most recent
fiscal year is set forth in Part
I—Appendix
I-H.
Additional
information regarding securities lending in general is set forth under “Lending
of Portfolio Securities”
in Part II
of this SAI.
Investments
Investments,
Practices and Techniques, and Risks
Part
I—Appendix
I-G includes a list of
the investments, practices and techniques, and risks which the fund
may employ (or be subject to) in pursuing its investment objective.
Part II—Appendix
II-E includes a description
of these investments, practices and techniques, and risks.
Investment
Restrictions
It
is possible that certain investment practices and/or techniques may not be permissible
for a fund based on its investment restrictions, as described herein.
Diversification
Status. Xtrackers J.P. Morgan ESG Emerging
Markets Sovereign ETF is classified as “non-diversified”
under the 1940 Act. A non-diversified fund is a fund that is not limited by the
1940 Act with
regard
to the percentage of its assets that may be invested in the securities of a single
issuer. The securities of a particular issuer (or securities of issuers in particular
industries) may dominate the underlying index of such a fund and,
consequently, the fund’s investment portfolio. This may adversely affect
the fund’s performance or subject the fund’s shares to greater price
volatility than that experienced by more diversified investment companies.
Currently,
under the 1940 Act, a “non-diversified”
investment company is a fund that is not “diversified,”
and for a fund to be classified as a “diversified”
investment company, at least 75% of the value of the fund’s total
assets must be represented by cash and cash items (including
receivables), government securities, securities of other investment companies,
and securities of other issuers, which for the purposes of this calculation are
limited in respect of any one issuer to an amount (valued at
the time of investment) not greater in value than 5% of the fund’s total
assets and to not more than 10% of the outstanding voting securities of such issuer.
Pursuant to certain SEC staff positions, if a non-diversified fund’s
investments are in fact “diversified”
under the 1940 Act for a period of three years, the fund may be considered
“diversified”
and may not be able to convert to a
non-diversified
fund without the approval of shareholders.
Fundamental
Policies
The
following fundamental policies may not be changed without the approval of a majority
of the outstanding voting securities of the fund which, under the 1940 Act and
the rules thereunder and as used in this SAI, means the lesser
of (1) 67% or more of the voting securities present at such meeting, if the holders
of more than 50% of the outstanding voting securities of the fund are present or
represented by proxy, or (2) more than 50% of the outstanding
voting securities of the fund.
As
a matter of fundamental policy, the fund may not do any of the following:
(1)
concentrate
its investments (i.e., invest 25% or more of its total assets in the securities
of a particular industry or group of industries), except that the fund
will concentrate to the extent that its underlying index
concentrates in the securities of such particular industry or group of industries.
For purposes of this limitation, securities of the U.S. government (including
its agencies and instrumentalities), repurchase agreements collateralized by U.S.
government securities, and securities of state or municipal
governments
and their political sub-divisions are not considered to be issued by members of
any industry;
(2)
borrow
money, except that (i) the fund may borrow from banks for temporary or emergency
(not leveraging) purposes, including the meeting of redemption
requests which might otherwise require the untimely disposition of securities;
and (ii) the fund may, to the extent consistent with its investment
policies, enter into repurchase agreements, reverse repurchase agreements, forward
roll transactions and similar investment strategies and
techniques; to the extent that it engages in transactions described in (i) and
(ii), the fund will be limited so that no more than 33 1/3% of the value
of its total assets (including the amount borrowed) is derived from such transactions.
Any borrowings which come to exceed this amount will be
reduced in accordance with applicable law;
(3)
issue
any senior security, except as permitted under the 1940 Act, as amended, and as
interpreted, modified or otherwise permitted by regulatory authority
having jurisdiction, from time to time;
(4)
make
loans, except as permitted under the 1940 Act, as interpreted, modified or otherwise
permitted by regulatory authority having jurisdiction, from time to
time;
(5)
purchase
or sell real estate unless acquired as a result of ownership of securities or other
investments (but this restriction shall not prevent the fund from
investing in securities of companies engaged in the real estate business or securities
or other instruments backed by real estate or mortgages), or
commodities or commodity contracts (but this restriction shall not prevent the
fund from trading in futures contracts and options on futures contracts,
including options on currencies to the extent consistent
with the fund’s investment objectives and policies); or
(6)
engage
in the business of underwriting securities issued by other persons except, to the
extent that the fund may technically be deemed to be an underwriter
under the 1933 Act, the disposing of portfolio securities.
For
purposes of the concentration policy in investment restriction (1), (a) municipal
securities with payments of principal or interest backed by the revenue of a specific
project
are considered to be issued by a member of the industry which includes such specific
project and (b) securities of non-US sovereign entities are not considered
to be issued by members of any industry.
Senior
securities may include any obligation or instrument issued by an investment company
evidencing indebtedness. The 1940 Act generally prohibits a fund from issuing
senior securities, although it provides allowances for certain borrowings and certain
other investments, such as short sales, reverse repurchase agreements,
and firm commitment agreements, when such investments are “covered”
or with appropriate earmarking or segregation of assets to cover such obligations.
Under
the 1940 Act, an investment company may only make loans if expressly permitted
by its investment policies.
Non-Fundamental
Policies
The
Board has adopted certain additional non-fundamental policies and restrictions
which are observed in the conduct of the fund’s affairs. They differ from
fundamental investment policies in that they may be changed or amended
by action of the Board without requiring prior notice to, or approval of, the shareholders.
As
a matter of non-fundamental policy, the fund may not do any of the following:
(1)
sell
securities short, unless the fund owns or has the right to obtain securities equivalent
in-kind and amount to the securities sold short at no added cost,
and provided that transactions in options, futures contracts, options on futures
contracts or other derivative instruments are not deemed to constitute
selling securities short;
(2)
purchase
securities on margin, except that the fund may obtain such short-term credits as
are necessary for the clearance of transactions; and provided that margin
deposits in connection with futures contracts, options on futures contracts or
other derivative instruments shall not constitute purchasing securities
on margin;
(3)
purchase
securities of open-end or closed-end investment companies except in compliance
with the 1940 Act;
(4)
invest
in direct interests in oil, gas or other mineral exploration programs or leases;
however, the fund may invest in the securities of issuers that engage in
these activities; and
(5)
invest
in illiquid securities if, as a result of such investment, more than 15% of the
fund’s net assets would be invested in illiquid securities.
If
any percentage restriction described above is complied with at the time of investment,
a later increase or decrease in percentage resulting from any change in value or
total or net assets will not constitute a violation of such restriction,
except that fundamental limitation (2) will be observed continuously in accordance
with applicable law.
For
purposes of non-fundamental policy (5), an illiquid security is any investment
that the fund reasonably expects cannot be sold or disposed of in current market
conditions in seven calendar days without the sale or disposition
significantly changing the market value of the investment.
The
fund has adopted a non-fundamental investment policy such that the fund may invest
in shares of other open-end management investment companies or unit investment
trusts subject to the limitations of Section 12(d)(1) of the 1940 Act, including
the rules, regulations and exemptive orders obtained thereunder; provided,
however, that if the fund has knowledge that its Shares are
purchased by another investment company investor in reliance on the provisions
of subparagraphs (F) or (G) of Section 12(d)(1) of the 1940 Act, the fund will
not acquire any securities of other open-end management investment
companies or unit investment trusts in reliance on the provisions of subparagraphs
(F) or (G) of Section 12(d)(1) of the 1940 Act.
Taxes
Important
information concerning the tax consequences of an investment in the fund is contained
in Part II—
Appendix II-F.
Independent
Registered Public Accounting Firm, Reports to Shareholders
and Financial Statements
The
financial highlights of the fund included in its prospectus and financial statements
incorporated by reference into this SAI have been so included or incorporated
by reference in reliance on the report of Ernst &
Young
LLP, 5 Times Square, New York, New York 10036. Ernst & Young LLP is an independent
registered public accounting firm. The report is given on the authority of
said firm as experts in auditing and accounting. The independent
registered public accounting firm audits the financial statements of the fund and
provides other audit, tax and related services. Shareholders will receive annual
audited financial statements and semi-annual unaudited financial
statements.
The
financial statements, together with the report of the Independent Registered Public
Accounting Firm, financial
Additional
Information
For
information on exchange, CUSIP number and fund fiscal year end information, see
Part I—Appendix
I-I.
Part
I: Appendix I-A—Board
Member Share Ownership and Control Persons
Board
Member Share Ownership in the fund
The
following tables show the dollar range of equity securities beneficially owned by each current Board Member in the
fund and in Xtrackers funds as of December 31, 2019.
Dollar
Range of Beneficial Ownership(1)
|
Xtrackers
J.P. Morgan ESG Emerging Markets
Sovereign
ETF |
Independent
Board Member: |
|
|
|
|
|
|
|
Aggregate
Dollar Range of Beneficial Ownership(1)
|
Funds
Overseen by
Board
Member in the
Xtrackers
Funds |
Independent
Board Member: |
|
|
|
|
|
|
(1)
The
dollar ranges are: None, $1 – $10,000, $10,001 – $50,000, $50,001 – $100,000, or over $100,000.
Ownership
in Securities of the Advisor and Related Companies
As
reported to the fund, the information in the table below reflects ownership by the current Independent Board Members
and their immediate family members of certain securities as of December 31, 2019. An immediate family member
can be a spouse, children residing in the same household, including step and adoptive children, and any dependents.
The securities represent ownership in the Advisor or Distributor and any persons (other than a registered investment
company) directly or indirectly controlling, controlled by, or under common control with the Advisor (including Deutsche
Bank AG and DWS Group) or the Distributor.
|
Owner
and
Relationship
to
Board
Member |
|
|
Value
of
Securities
on an
Aggregate
Basis |
Percent
of
Class
on an
Aggregate
Basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control
Persons and Principal Holders of Securities
As
of August 31, 2020, all Board Members and officers owned, as a group, less than 1% of the outstanding shares of
the fund.
Although
the fund does not have information concerning the beneficial ownership of shares held in the names of DTC
participants, the following table identifies those DTC participants who owned of record 5% or more of the fund’s shares
as of August 31, 2020:
Xtrackers
J.P. Morgan ESG Emerging Markets Sovereign ETF
|
|
Pershing
LLC
One
Pershing Plaza
Jersey
City, NJ 07399 |
|
UBS
Securities LLC
1000
Harbour Blvd., 5th Fl.
Weehawken,
NJ 07086 |
|
TD
Ameritrade
4700
Alliance Gateway Freeway
Fort
Worth, TX 76177 |
|
Goldman
Sachs & Co. LLC
30
Hudson Street
Proxy
Department
Jersey
City, NJ 07302 |
|
Charles
Schwab & Co., Inc.
2423E.
Lincoln Drive
Phoenix,
AZ 85016-1215 |
|
Part
I: Appendix I-B—Board
Committees and Meetings
Board
Leadership, Structure and Oversight Responsibilities
Board
Structure. The Board of the Xtrackers funds is responsible for oversight of the
funds, including oversight of the duties performed by the Advisor for the funds
under the investment advisory agreement (the “Investment
Advisory Agreement”).
The Board generally meets in regularly-scheduled meetings four times a year and may meet more often as
required.
Mr.
Byers serves as Chairman of the Board. The Board is comprised of Independent Board Members. The Independent Board
Members are advised by Independent Trustee Legal Counsel and are represented by such Independent Trustee Legal
Counsel at Board and committee meetings. The chairmen of the Audit Committee and Nominating Committee (each
of which consists solely of Independent Board Members) serve as liaisons between the Advisor and other service providers
and the other Independent Board Members. Each such chairman is an Independent Board Member.
The
Board regularly reviews its committee structure and membership and believes that its current structure is appropriate based
on the fact that the Independent Board Members constitute the Board, the role of the committee chairmen (who
are Independent Board Members), the assets and number of funds overseen by the Board Members, as well as
the nature of each fund’s business as an ETF, which is managed to track the performance of a specified index.
Risk
Oversight. The Xtrackers funds are subject to a number of risks, including operational,
investment and compliance risks. The Board, directly and through its committees,
as part of its oversight responsibilities, oversees the services provided by the
Advisor and the Trust’s other service providers in connection with the management and operations of
the funds, as well as their associated risks. Under the oversight of the Board, the Trust, the Advisor and other service
providers have adopted policies, procedures and controls to address these risks.
The
Board, directly and through its committees, receives and reviews information from the Advisor, other service providers,
the Trust’s Independent Registered Public Accounting Firm and Independent Trustee Legal Counsel to assist it
in its oversight responsibilities. This information includes, but is not limited to, reports regarding the funds’ investments,
including fund performance and investment practices, valuation of fund portfolio securities,
and compliance. The Board also reviews, and must approve any proposed changes to,
the funds’ investment objectives, policies and restrictions, and reviews
any areas of non-compliance with the funds’ investment policies and restrictions. The Audit Committee monitors
the Trust’s accounting policies, financial reporting and internal control system and reviews any internal audit reports
impacting the Trust. As part of its compliance oversight, the Board reviews the annual compliance report issued by
the Trust’s Chief Compliance Officer on the policies and procedures of the Trust and its service providers, proposed changes
to the policies and procedures and quarterly reports on any material compliance issues that arose during the period.
Board
Committees. The Board has two standing committees, the Audit Committee and the Nominating
Committee, and has delegated certain responsibilities to those committees.
|
Number
of
Meetings
in Last
Fiscal
Year |
|
|
|
|
The
Audit Committee has the responsibility,
among
other things, to: (i) approve the
selection,
retention, termination and
compensation
of the Trust’s Independent
Registered
Public Accounting Firm; (ii) review
the
scope of the Independent Registered
Public
Accounting Firm’s audit activity; (iii)
review
the audited financial statements; and
(iv)
review with such Independent Registered
Public
Accounting Firm the adequacy and the
effectiveness
of the Trust’s internal controls. |
George
O. Elston
(Chairman),
Stephen R.
Byers
and J. David Officer |
|
Number
of
Meetings
in Last
Fiscal
Year |
|
|
|
|
The
Nominating Committee has the
responsibility,
among other things, to identify
and
recommend individuals for Board
membership,
and evaluate candidates for
Board
membership. The Board will consider
recommendations
for Board Members from
shareholders.
Nominations from shareholders
should
be in writing and sent to the Board, to
the
attention of the Chairman of the
Nominating
Committee, as described in Part II
SAI
Appendix II-A under the caption
“Shareholder
Communications to the Board.”
|
J.
David Officer (Chairman),
Stephen
R. Byers and
George
O. Elston |
Part
I: Appendix I-C—Board
Member Compensation
Each
Independent Board Member receives compensation for his or her services, which includes retainer fees and specified
amounts for various committee services and for the Board Chairman. No additional compensation is paid to
any Independent Board Member for travel time to meetings, attendance at directors’ educational seminars or conferences,
service on industry or association committees, participation as speakers at directors’
conferences or service on special fund industry director task forces or subcommittees.
Independent Board Members do not receive any employee benefits such as pension
or retirement benefits or health insurance from the fund or any fund in the Xtrackers fund complex.
Board
Members who are officers, directors, employees or stockholders of DBX or its affiliates receive no direct compensation from
the fund, although they are compensated as employees of DBX, or its affiliates, and as a result may be deemed to
participate in fees paid by the fund. The following table shows, for each current Independent Board Member, the aggregate
compensation from all of the funds in the Xtrackers fund complex during calendar year 2019.
Total
Compensation from Xtrackers Fund Complex
|
Total
Compensation from the
Xtrackers
Fund Complex(1) |
Independent
Board Member: |
|
|
|
|
|
|
(1)
For
each Independent Board Member, total compensation from the Xtrackers fund complex represents compensation from
33 funds as of December 31, 2019.
(2)
Includes
$25,000 in annual retainer fees received by Mr. Byers as Chairman of the Xtrackers funds.
(3)
Includes
$15,000 in annual retainer fees received by Mr. Elston as Chairman of the Audit Committee.
Part
I: Appendix I-D—Portfolio
Management
Fund
Ownership of Portfolio Managers
The
following table shows the dollar range of fund shares owned beneficially and of record by the portfolio management team,
including investments by their immediate family members sharing the same household and amounts invested through
retirement and deferred compensation plans. This information is provided as of the fund's most recent fiscal year
end.
Xtrackers
J.P. Morgan ESG Emerging Markets Sovereign ETF
Name
of Portfolio Manager |
Dollar
Range of
Fund
Shares Owned |
|
|
|
|
|
|
|
|
Conflicts
of Interest
In
addition to managing the assets of the fund, a portfolio manager may have responsibility for managing other client accounts
of the Advisor or its affiliates. The tables below show, per portfolio manager, the number and asset size of: (1)
SEC registered investment companies (or series thereof) other than the fund, (2) pooled investment vehicles that are
not registered investment companies and (3) other accounts (e.g., accounts managed for individuals or organizations) managed
by a portfolio manager. Total assets attributed to a portfolio manager in the tables below include total assets of
each account managed, although a portfolio manager may only manage a portion of such account’s assets. For a fund
subadvised by subadvisors unaffiliated with the Advisor, total assets of funds managed may only include assets allocated
to the portfolio manager and not the total assets of a fund managed. The tables also show the number of performance-based
fee accounts, as well as the total assets of the accounts for which the advisory fee is based on the
performance of the account. This information is provided as of the fund's most recent fiscal year end.
Xtrackers
J.P. Morgan ESG Emerging Markets Sovereign ETF
Other
SEC Registered Investment Companies Managed:
Name
of
Portfolio
Manager |
Number
of
Registered
Investment
Companies
|
Total
Assets of
Registered
Investment
Companies
|
Number
of Investment
Company
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-Based
Fee
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
J.P. Morgan ESG Emerging Markets Sovereign ETF
Other
Pooled Investment Vehicles Managed:
Name
of
Portfolio
Manager |
Number
of
Pooled
Investment
Vehicles
|
Total
Assets of
Pooled
Investment
Vehicles
|
Number
of Pooled
Investment
Vehicle
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
J.P. Morgan ESG Emerging Markets Sovereign ETF
Other
Accounts Managed:
Name
of
Portfolio
Manager |
|
Total
Assets
of
Other
Accounts
|
Number
of Other
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
addition to the accounts above, an investment professional may manage accounts in a personal capacity that may include
holdings that are similar to, or the same as, those of the fund. The Advisor or Subadvisor, as applicable, has in
place a Code of Ethics that is designed to address conflicts of interest and that, among other things, imposes restrictions
on the ability of portfolio managers and other “access
persons” to invest in
securities that may be recommended or traded in the fund and other client accounts.
Part
I: Appendix I-E—Service
Provider Compensation
Under
the fund’s Investment Advisory Agreement, the Advisor is responsible for substantially all expenses of the fund,
including the cost of transfer agency, custody, fund administration, compensation paid to the Independent Board Members,
legal, audit and other services, except for the fee payments to the Advisor under the Investment Advisory Agreement,
interest expense, acquired fund fees and expenses, taxes, brokerage expenses, distribution fees or expenses (if
any), litigation expenses and other extraordinary expenses.
Xtrackers
J.P. Morgan ESG Emerging Markets Sovereign ETF
|
Gross
Amount
Paid
to DBX
for
Advisory
Services(1)
|
Amount
Waived
by
DBX for
Advisory
Services
|
|
|
|
|
|
|
|
|
|
(1)
Effective May 12, 2020, the Advisor’s Unitary Advisory Fee rate was reduced from 0.45% to 0.35% of the fund’s average
daily net assets.
Part
I: Appendix I-F—Portfolio
Transactions and Brokerage Commissions
Variations
to the fund’s portfolio turnover rate may be due to, among other things, a fluctuating volume of shareholder purchase
and redemption orders, market conditions, and/or changes in the Advisor's investment outlook. The amount of
brokerage commissions paid by the fund may change from year to year because of, among other things, changing asset
levels, shareholder activity and/or portfolio turnover.
Portfolio
Turnover Rates
|
|
|
Xtrackers
J.P. Morgan ESG Emerging Markets Sovereign ETF |
|
|
Brokerage
Commissions
|
|
Brokerage
Commissions
Paid
by Fund |
Xtrackers
J.P. Morgan ESG Emerging Markets
Sovereign
ETF |
|
|
|
|
|
|
|
|
Brokerage
Commissions Paid to Affiliated Brokers
No
trades were effected for the accounts with broker dealers that are affiliated with the Advisor or Subadvisor, if applicable,
as of the end of its most recent fiscal year.
Listed
below are the regular brokers or dealers (as such term is defined in the 1940 Act) of the fund whose securities the
fund held as of the end of its most recent fiscal year and the dollar value of such securities.
Xtrackers
J.P. Morgan ESG Emerging Markets Sovereign ETF
The
fund did not hold any securities of its regular brokers or dealers.
Transactions
for Research Services
No
transactions or related commissions were allocated to broker-dealer firms for research services.
Part
I: Appendix I-G—Investments,
Practices and Techniques, and Risks
Below
is a list of headings related to investments, practices and techniques, and risks which are further described in Appendix
II-E.
Xtrackers
J.P. Morgan ESG Emerging Markets Sovereign ETF
Borrowing
Commodity
Pool Operator Exclusion
Derivatives
Fixed
Income Securities
Foreign
Securities
Illiquid
Securities
Investment
Companies and Other Pooled Investment Vehicles
Lending
of Portfolio Securities
Repurchase
Agreements
Restricted
Securities/Rule 144A Securities
Reverse
Repurchase Agreements
Short
Sales
Short-Term
Instruments and Temporary Investments
Tax
Risks
Part
I: Appendix I-H—Securities
Lending Activities
Pursuant
to an agreement between the fund and BNYM, BNYM is responsible for the administration and management of
the fund’s securities lending program, including the negotiation of the terms and conditions of any securities loan, ensuring
that securities loans are properly coordinated and documented with the fund’s custodian, ensuring that loaned securities
are daily valued and that the corresponding required cash collateral is delivered by the borrower(s), arranging for
the investment of cash collateral and arranging for the return of loaned securities upon the termination of the loan.
The
dollar amounts of income and fees and compensation paid to all service providers related to the fund that participated in
securities lending activities during the most recent fiscal year were as follows:
Securities
Lending Activities – Income and Fees for Fiscal Year 2020
|
Xtrackers
J.P.
Morgan
ESG
Emerging
Markets
Sovereign
ETF |
Gross
income from securities lending activities (including income from
cash collateral reinvestment) |
|
Fees
and/or compensation for securities lending activities and related services |
Fees
paid to securities lending agent from a revenue split(1)
|
|
Fees
paid for any cash collateral management service (including fees deducted from a pooled cash
collateral
reinvestment vehicle) that are not included in the revenue split |
|
Administrative
fees not included in revenue split |
|
Indemnification
fees not included in revenue split |
|
Rebate
(paid to borrower) |
|
|
|
Other
fees not included in revenue split |
|
Aggregate
fees/compensation for securities lending activities and related services |
|
Net
income from securities lending activities |
|
(1)
Revenue split represents the share of revenue generated by the securities lending program and paid to BNYM.
Part
I: Appendix I-I—Additional
Information
Fund
and its Fiscal Year End |
|
|
Xtrackers
J.P. Morgan ESG Emerging Markets
Sovereign
ETF |
|
|
|
|
|
Statement
of Additional Information
October
1, 2020
DBX
ETF TRUST
Xtrackers
Municipal Infrastructure Revenue Bond ETF |
|
This Statement of
Additional Information (“SAI”)
is not a prospectus and should be read in conjunction with
the prospectus for the fund dated October 1, 2020, as supplemented, a copy of which
may be obtained without charge by calling 1-855-329-3837 (1-855-DBX-ETFS);
by visiting Xtrackers.com
(the Web site does not form a part of this SAI); or by writing to
the Trust’s distributor, ALPS Distributors, Inc. (the “Distributor”),
1290 Broadway, Suite 1000, Denver, Colorado 80203. This SAI is incorporated by
reference into the prospectus.
Portions
of the Annual Report to Shareholders of the fund are incorporated herein by reference,
and are hereby deemed to be part of this SAI. Reports to Shareholders
may also be obtained without charge by calling the number provided in the preceding
paragraph.
This
SAI is divided into two Parts—Part
I and Part II. Part I contains information that is specific to the fund,
while Part II contains information that generally applies to each of the funds
in the Xtrackers funds.
Statement
of Additional Information (SAI)—Part
I
|
|
|
|
|
|
|
|
|
|
Portfolio
Transactions, Brokerage Commissions and Securities Lending Activities |
|
|
|
|
|
|
|
Independent
Registered Public Accounting Firm, Reports to Shareholders and Financial Statements |
|
|
|
Part
I: Appendix I-A—Board
Member Share Ownership and Control Persons |
|
Part
I: Appendix I-B—Board
Committees and Meetings |
|
Part
I: Appendix I-C—Board
Member Compensation |
|
Part
I: Appendix I-D—Portfolio
Management |
|
Part
I: Appendix I-E—Service
Provider Compensation |
|
Part
I: Appendix I-F—Portfolio
Transactions and Brokerage Commissions |
|
Part
I: Appendix I-G—Investments,
Practices and Techniques, and Risks |
|
Part
I: Appendix I-H—Securities
Lending Activities |
|
Part
I: Appendix I-I—Additional
Information |
|
|
|
Detailed
Part II table of contents precedes page II-1 |
|
Definitions
“1933
Act” – the Securities
Act of 1933, as amended
“1934
Act” – the Securities
Exchange Act of 1934, as amended
“1940
Act” – the Investment
Company Act of 1940, as amended
“Administrator”
or “Custodian”
or “Transfer Agent”
or “BNYM”
– The Bank of New York Mellon, 240 Greenwich Street, New York, New York 10286
“Advisor”
or “DBX”
– DBX Advisors LLC, 875 Third Avenue, New York, New York 10022
“ALPS”
or “Distributor”
– ALPS Distributors, Inc., 1290 Broadway, Suite 1000, Denver, Colorado 80203
“Board”
– Board of Trustees of the Trust
“Board
Members” – Members
of the Board of Trustees of the Trust
“Business
Day” – any day
on which the Exchange on which the fund is listed for trading is open for business
“Cash
Component” – deposit
of a specified cash payment
“Creation
Units” – shares
that have been aggregated into blocks
“Code”
– the Internal Revenue Code of 1986, as amended
“DTC”
– Depository Trust Company
“DWS”
– refers to the asset management activities conducted by DWS Group GmbH &
Co. KGaA or any of its subsidiaries, including the Advisor and other affiliated
investment advisors
“DWS
Group” – a separate,
publicly-listed financial services firm that is an indirect, majority-owned subsidiary
of Deutsche Bank AG.
“ETF”
– exchange-traded fund
“Exchange”
– NYSE Arca, Inc.
“Fitch”
– Fitch Ratings, an NRSRO
“Fund
Legal Counsel” –
Dechert LLP, 1095 Avenue of the Americas, New York, New York 10036
“fund”
or “series”
– Xtrackers Municipal Infrastructure Revenue Bond ETF
“Independent
Board Members”–
Board Members who are not interested persons (as defined in the 1940 Act)
of the fund, the investment advisor or the distributor
“Independent
Registered Public Accounting Firm”
– Ernst & Young LLP, 5 Times Square, New York, New York 10036
“Independent
Trustee Legal Counsel”
– K&L Gates LLP, 1601 K Street, NW, Washington, DC 20006
“IOPV”
– Indicative Optimized Portfolio Value
“Moody’s”
– Moody’s Investors Service, Inc., an NRSRO
“NRSRO”
– a nationally recognized statistical rating organization
“S&P”
– S&P Global Ratings, an NRSRO
“SEC”
– the Securities and Exchange Commission
“Shares”
– shares of beneficial interest registered under the 1933 Act
“Trust”
– DBX ETF Trust
“Underlying
Index” – a specified
benchmark index
“Unitary
Advisory Fee” –
fee payable to the Advisor for its services under the Investment Advisory Agreement
with the fund and the Advisor’s commitment to pay substantially
all expenses of the fund, including the cost of transfer agency, custody, fund
administration, compensation paid to the Independent Board Members, legal,
audit and other services, except for the fee payments to
the Advisor under the Investment Advisory Agreement, interest expense, acquired
fund fees and expenses, taxes, brokerage expenses, distribution fees or expenses
(if any), litigation expenses and other extraordinary expenses
“funds”
– the US registered investment companies advised by DBX
Fund
Organization
DBX
ETF Trust was organized as a Delaware statutory trust on October 7, 2010 and is
authorized to have multiple series or portfolios. The Trust is an open-end management
investment company registered with the SEC under the 1940
Act. Additional information about the Trust is set forth in Part
II under “Fund
Organization.”
Management
of the Fund
Board
Members and Officers’ Identification and Background
The
identification and background of the Board Members and officers are set forth in
Part II—Appendix
II-A.
Board
Committees and Compensation
Compensation
paid to the Independent Board Members, for certain specified periods is set forth
in Part I—
Appendix I-C.
Information regarding the committees of the Board is set forth in Part
I—Appendix
I-B.
Board
Member Share Ownership and Control Persons
Information
concerning the ownership of fund shares by Board Members and officers, as a group,
as well as the dollar range value of each Board Member’s share ownership
in the fund and, on an aggregate basis, in all Xtrackers funds overseen by them,
by investors who control the fund, if any, and by investors who own 5%
or more of fund shares, if any, is set forth in Part
I—
Appendix I-A.
Portfolio
Management
Information
regarding the fund’s portfolio managers, including other accounts managed,
compensation, ownership of fund shares and possible conflicts of interest,
is set forth in Part I—Appendix
I-D and Part
II – Appendix II-B.
Service
Provider Compensation
Compensation
paid by the fund for investment advisory services and other expenses through the
Unitary Advisory Fee is set forth in Part
I—Appendix
I-E. The service provider
compensation is not applicable to new funds that have not completed a fiscal reporting
period. Fee rates are included in Part
II – Appendix II-C.
Portfolio
Transactions, Brokerage Commissions and Securities
Lending Activities
Portfolio
Turnover
The
portfolio turnover rates for the two most recent fiscal years are set forth in
Part I—Appendix
I-F. This section
does not apply to new funds that have not completed a fiscal
reporting period.
Brokerage
Commissions
Total
brokerage commissions paid by the fund for the three most recent fiscal years are
set forth in Part I—
Appendix I-F.
This section does not apply to new funds that have not completed a fiscal reporting
period.
The
fund's policy with respect to portfolio transactions and brokerage is set forth
under “Portfolio Transactions
” in Part
II of this SAI.
Securities
Lending Activities
Information
regarding securities lending activities of the fund, if any, during its most recent
fiscal year is set forth in Part
I—Appendix
I-H.
Additional
information regarding securities lending in general is set forth under “Lending
of Portfolio Securities”
in Part II
of this SAI.
Investments
Investments,
Practices and Techniques, and Risks
Part
I—Appendix
I-G includes a list of
the investments, practices and techniques, and risks which the fund
may employ (or be subject to) in pursuing its investment objective.
Part II—Appendix
II-E includes a description
of these investments, practices and techniques, and risks.
Investment
Restrictions
It
is possible that certain investment practices and/or techniques may not be permissible
for a fund based on its investment restrictions, as described herein.
Diversification
Status. Xtrackers Municipal Infrastructure Revenue
Bond ETF is classified as a diversified fund. The fund’s election to be classified
as diversified under the
1940
Act may not be changed without the vote of a majority of the outstanding voting
securities (as defined herein) of the fund.
Currently,
under the 1940 Act, for a fund to be classified as a diversified investment company,
at least 75% of the value of the fund’s total assets must be represented
by cash and cash items (including receivables), government
securities, securities of other investment companies, and securities of other issuers,
which for the purposes of this calculation are limited in respect of any
one issuer to an amount (valued at the time of investment) not greater in value
than 5% of the fund’s total assets and to not more than 10% of the outstanding
voting securities of such issuer.
Fundamental
Policies
The
following fundamental policies may not be changed without the approval of a majority
of the outstanding voting securities of the fund which, under the 1940 Act and
the rules thereunder and as used in this SAI, means the lesser
of (1) 67% or more of the voting securities present at such meeting, if the holders
of more than 50% of the outstanding voting securities of the fund are present or
represented by proxy, or (2) more than 50% of the outstanding
voting securities of the fund.
As
a matter of fundamental policy, the fund may not do any of the following:
(1)
concentrate
its investments (i.e., invest 25% or more of its total assets in the securities
of a particular industry or group of industries), except that the fund
will concentrate to the extent that its underlying index
concentrates in the securities of such particular industry or group of industries.
For purposes of this limitation, securities of the U.S. government (including
its agencies and instrumentalities), repurchase agreements collateralized by U.S.
government securities, and securities of state or municipal governments
and their political sub-divisions are not considered to be issued by members of
any industry;
(2)
borrow
money, except that (i) the fund may borrow from banks for temporary or emergency
(not leveraging) purposes, including the meeting of redemption
requests which might otherwise require the untimely disposition of securities;
and (ii) the fund may, to the extent consistent with its investment
policies, enter into repurchase agreements, reverse repurchase agreements, forward
roll transactions and similar investment strategies
and
techniques; to the extent that it engages in transactions described in (i) and
(ii), the fund will be limited so that no more than 33 1/3% of the value
of its total assets (including the amount borrowed) is derived from such transactions.
Any borrowings which come to exceed this amount will be
reduced in accordance with applicable law;
(3)
issue
any senior security, except as permitted under the 1940 Act, as amended, and as
interpreted, modified or otherwise permitted by regulatory authority
having jurisdiction, from time to time;
(4)
make
loans, except as permitted under the 1940 Act, as interpreted, modified or otherwise
permitted by regulatory authority having jurisdiction, from time to
time;
(5)
purchase
or sell real estate unless acquired as a result of ownership of securities or other
investments (but this restriction shall not prevent the fund from
investing in securities of companies engaged in the real estate business or securities
or other instruments backed by real estate or mortgages), or
commodities or commodity contracts (but this restriction shall not prevent the
fund from trading in futures contracts and options on futures contracts,
including options on currencies to the extent consistent
with the fund’s investment objectives and policies); or
(6)
engage
in the business of underwriting securities issued by other persons except, to the
extent that the fund may technically be deemed to be an underwriter
under the 1933 Act, the disposing of portfolio securities.
For
purposes of the concentration policy in investment restriction (1), municipal securities
with payments of principal or interest backed by the revenue of a specific
project are considered to be issued by a member of the industry
which includes such specific project.
Senior
securities may include any obligation or instrument issued by an investment company
evidencing indebtedness. The 1940 Act generally prohibits a fund from issuing
senior securities, although it provides allowances for certain borrowings and certain
other investments, such as short sales, reverse repurchase agreements,
and firm commitment agreements, when such investments are “covered”
or with appropriate earmarking or segregation of assets to cover such obligations.
Under
the 1940 Act, an investment company may only make loans if expressly permitted
by its investment policies.
Under
normal circumstances, have at least 80% of its net assets, plus the amount of any
borrowings for investment purposes, invested in securities issued by municipalities
across the United States and its territories which are classified as “municipal
infrastructure revenue”
bonds based on the Underlying Index’s criteria, whose income is free from
regular federal income tax. The fund considers any investments in municipal securities
that pay interest subject to the AMT as part of the 80% of
the fund’s net assets that must be invested in municipal securities.
Non-Fundamental
Policies
The
Board has adopted certain additional non-fundamental policies and restrictions
which are observed in the conduct of the fund’s affairs. They differ from
fundamental investment policies in that they may be changed or amended
by action of the Board without requiring prior notice to, or approval of, the shareholders.
As
a matter of non-fundamental policy, the fund may not do any of the following:
(1)
sell
securities short, unless the fund owns or has the right to obtain securities equivalent
in-kind and amount to the securities sold short at no added cost,
and provided that transactions in options, futures contracts, options on futures
contracts or other derivative instruments are not deemed to constitute
selling securities short;
(2)
purchase
securities on margin, except that the fund may obtain such short-term credits as
are necessary for the clearance of transactions; and provided that margin
deposits in connection with futures contracts, options on futures contracts or
other derivative instruments shall not constitute purchasing securities
on margin;
(3)
purchase
securities of open-end or closed-end investment companies except in compliance
with the 1940 Act;
(4)
invest
in direct interests in oil, gas or other mineral exploration programs or leases;
however, the fund may invest in the securities of issuers that engage in
these activities; and
(5)
invest
in illiquid securities if, as a result of such investment, more than 15% of the
fund’s net assets would be invested in illiquid securities.
If
any percentage restriction described above is complied with at the time of investment,
a later increase or decrease in percentage resulting from any change in value or
total or net assets will not constitute a violation of such restriction,
except that fundamental limitation (2) will be observed continuously in accordance
with applicable law.
For
purposes of non-fundamental policy (5), an illiquid security is any investment
that the fund reasonably expects cannot be sold or disposed of in current market
conditions in seven calendar days without the sale or disposition
significantly changing the market value of the investment.
The
fund has adopted a non-fundamental investment policy such that the fund may invest
in shares of other open-end management investment companies or unit investment
trusts subject to the limitations of Section 12(d)(1) of the 1940 Act, including
the rules, regulations and exemptive orders obtained thereunder; provided,
however, that if the fund has knowledge that its Shares are
purchased by another investment company investor in reliance on the provisions
of subparagraphs (F) or (G) of Section 12(d)(1) of the 1940 Act, the fund will
not acquire any securities of other open-end management investment
companies or unit investment trusts in reliance on the provisions of subparagraphs
(F) or (G) of Section 12(d)(1) of the 1940 Act.
Taxes
Important
information concerning the tax consequences of an investment in the fund is contained
in Part II—
Appendix II-F.
Independent
Registered Public Accounting Firm, Reports to Shareholders
and Financial Statements
The
financial highlights of the fund included in its prospectus and financial statements
incorporated by reference into this SAI have been so included or incorporated
by reference in reliance on the report of Ernst & Young
LLP, 5 Times Square, New York, New York 10036. Ernst & Young LLP is an independent
registered public accounting firm. The report is given on the authority of
said firm as experts in auditing and accounting. The independent
registered public accounting firm audits the
financial
statements of the fund and provides other audit, tax and related services. Shareholders
will receive annual audited financial statements and semi-annual unaudited
financial statements.
The
financial statements, together with the report of the Independent Registered Public
Accounting Firm, financial
Additional
Information
For
information on exchange, CUSIP number and fund fiscal year end information, see
Part I—Appendix
I-I.
Part
I: Appendix I-A—Board
Member Share Ownership and Control Persons
Board
Member Share Ownership in the fund
The
following tables show the dollar range of equity securities beneficially owned by each current Board Member in the
fund and in Xtrackers funds as of December 31, 2019.
Dollar
Range of Beneficial Ownership(1)
|
Xtrackers
Municipal
Infrastructure
Revenue
Bond
ETF |
Independent
Board Member: |
|
|
|
|
|
|
|
Aggregate
Dollar Range of Beneficial Ownership(1)
|
Funds
Overseen by
Board
Member in the
Xtrackers
Funds |
Independent
Board Member: |
|
|
|
|
|
|
(1)
The
dollar ranges are: None, $1 – $10,000, $10,001 – $50,000, $50,001 – $100,000, or over $100,000.
Ownership
in Securities of the Advisor and Related Companies
As
reported to the fund, the information in the table below reflects ownership by the current Independent Board Members
and their immediate family members of certain securities as of December 31, 2019. An immediate family member
can be a spouse, children residing in the same household, including step and adoptive children, and any dependents.
The securities represent ownership in the Advisor or Distributor and any persons (other than a registered investment
company) directly or indirectly controlling, controlled by, or under common control with the Advisor (including Deutsche
Bank AG and DWS Group) or the Distributor.
|
Owner
and
Relationship
to
Board
Member |
|
|
Value
of
Securities
on an
Aggregate
Basis |
Percent
of
Class
on an
Aggregate
Basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control
Persons and Principal Holders of Securities
As
of August 31, 2020, all Board Members and officers owned, as a group, less than 1% of the outstanding shares of
the fund.
Although
the fund does not have information concerning the beneficial ownership of shares held in the names of DTC
participants, the following table identifies those DTC participants who owned of record 5% or more of the fund’s shares
as of August 31, 2020:
Xtrackers
Municipal Infrastructure Revenue Bond ETF
|
|
Charles
Schwab & Co., Inc.
2423E
Lincoln Drive
Phoenix,
AZ 85016-1215 |
|
Pershing
LLC
One
Pershing Plaza
Jersey
City, NJ 07399 |
|
Merrill
Lynch, Pierce, Fenner & Smith Inc.
101
Hudson St.
Jersey
City, NJ 07302-3997 |
|
TD
Ameritrade
4700
Alliance Gateway Freeway
Fort
Worth, TX 76177 |
|
National
Financial Services LLC
499
Washington Blvd.
Jersey
City, NJ 07310 |
|
Part
I: Appendix I-B—Board
Committees and Meetings
Board
Leadership, Structure and Oversight Responsibilities
Board
Structure. The Board of the Xtrackers funds is responsible for oversight of the
funds, including oversight of the duties performed by the Advisor for the funds
under the investment advisory agreement (the “Investment
Advisory Agreement”).
The Board generally meets in regularly-scheduled meetings four times a year and may meet more often as
required.
Mr.
Byers serves as Chairman of the Board. The Board is comprised of Independent Board Members. The Independent Board
Members are advised by Independent Trustee Legal Counsel and are represented by such Independent Trustee Legal
Counsel at Board and committee meetings. The chairmen of the Audit Committee and Nominating Committee (each
of which consists solely of Independent Board Members) serve as liaisons between the Advisor and other service providers
and the other Independent Board Members. Each such chairman is an Independent Board Member.
The
Board regularly reviews its committee structure and membership and believes that its current structure is appropriate based
on the fact that the Independent Board Members constitute the Board, the role of the committee chairmen (who
are Independent Board Members), the assets and number of funds overseen by the Board Members, as well as
the nature of each fund’s business as an ETF, which is managed to track the performance of a specified index.
Risk
Oversight. The Xtrackers funds are subject to a number of risks, including operational,
investment and compliance risks. The Board, directly and through its committees,
as part of its oversight responsibilities, oversees the services provided by the
Advisor and the Trust’s other service providers in connection with the management and operations of
the funds, as well as their associated risks. Under the oversight of the Board, the Trust, the Advisor and other service
providers have adopted policies, procedures and controls to address these risks.
The
Board, directly and through its committees, receives and reviews information from the Advisor, other service providers,
the Trust’s Independent Registered Public Accounting Firm and Independent Trustee Legal Counsel to assist it
in its oversight responsibilities. This information includes, but is not limited to, reports regarding the funds’ investments,
including fund performance and investment practices, valuation of fund portfolio securities,
and compliance. The Board also reviews, and must approve any proposed changes to,
the funds’ investment objectives, policies and restrictions, and reviews
any areas of non-compliance with the funds’ investment policies and restrictions. The Audit Committee monitors
the Trust’s accounting policies, financial reporting and internal control system and reviews any internal audit reports
impacting the Trust. As part of its compliance oversight, the Board reviews the annual compliance report issued by
the Trust’s Chief Compliance Officer on the policies and procedures of the Trust and its service providers, proposed changes
to the policies and procedures and quarterly reports on any material compliance issues that arose during the period.
Board
Committees. The Board has two standing committees, the Audit Committee and the Nominating
Committee, and has delegated certain responsibilities to those committees.
|
Number
of
Meetings
in Last
Fiscal
Year |
|
|
|
|
The
Audit Committee has the responsibility,
among
other things, to: (i) approve the
selection,
retention, termination and
compensation
of the Trust’s Independent
Registered
Public Accounting Firm; (ii) review
the
scope of the Independent Registered
Public
Accounting Firm’s audit activity; (iii)
review
the audited financial statements; and
(iv)
review with such Independent Registered
Public
Accounting Firm the adequacy and the
effectiveness
of the Trust’s internal controls. |
George
O. Elston
(Chairman),
Stephen R.
Byers
and J. David Officer |
|
Number
of
Meetings
in Last
Fiscal
Year |
|
|
|
|
The
Nominating Committee has the
responsibility,
among other things, to identify
and
recommend individuals for Board
membership,
and evaluate candidates for
Board
membership. The Board will consider
recommendations
for Board Members from
shareholders.
Nominations from shareholders
should
be in writing and sent to the Board, to
the
attention of the Chairman of the
Nominating
Committee, as described in Part II
SAI
Appendix II-A under the caption
“Shareholder
Communications to the Board.”
|
J.
David Officer (Chairman),
Stephen
R. Byers and
George
O. Elston |
Part
I: Appendix I-C—Board
Member Compensation
Each
Independent Board Member receives compensation for his or her services, which includes retainer fees and specified
amounts for various committee services and for the Board Chairman. No additional compensation is paid to
any Independent Board Member for travel time to meetings, attendance at directors’ educational seminars or conferences,
service on industry or association committees, participation as speakers at directors’
conferences or service on special fund industry director task forces or subcommittees.
Independent Board Members do not receive any employee benefits such as pension
or retirement benefits or health insurance from the fund or any fund in the Xtrackers fund complex.
Board
Members who are officers, directors, employees or stockholders of DBX or its affiliates receive no direct compensation from
the fund, although they are compensated as employees of DBX, or its affiliates, and as a result may be deemed to
participate in fees paid by the fund. The following table shows, for each current Independent Board Member, the aggregate
compensation from all of the funds in the Xtrackers fund complex during calendar year 2019.
Total
Compensation from Xtrackers Fund Complex
|
Total
Compensation from the
Xtrackers
Fund Complex(1) |
Independent
Board Member: |
|
|
|
|
|
|
(1)
For
each Independent Board Member, total compensation from the Xtrackers fund complex represents compensation from
33 funds as of December 31, 2019.
(2)
Includes
$25,000 in annual retainer fees received by Mr. Byers as Chairman of the Xtrackers funds.
(3)
Includes
$15,000 in annual retainer fees received by Mr. Elston as Chairman of the Audit Committee.
Part
I: Appendix I-D—Portfolio
Management
Fund
Ownership of Portfolio Managers
The
following table shows the dollar range of fund shares owned beneficially and of record by the portfolio management team,
including investments by their immediate family members sharing the same household and amounts invested through
retirement and deferred compensation plans. This information is provided as of the fund's most recent fiscal year
end.
Xtrackers
Municipal Infrastructure Revenue Bond ETF
Name
of Portfolio Manager |
Dollar
Range of
Fund
Shares Owned |
|
|
|
|
|
|
|
|
Conflicts
of Interest
In
addition to managing the assets of the fund, a portfolio manager may have responsibility for managing other client accounts
of the Advisor or its affiliates. The tables below show, per portfolio manager, the number and asset size of: (1)
SEC registered investment companies (or series thereof) other than the fund, (2) pooled investment vehicles that are
not registered investment companies and (3) other accounts (e.g., accounts managed for individuals or organizations) managed
by a portfolio manager. Total assets attributed to a portfolio manager in the tables below include total assets of
each account managed, although a portfolio manager may only manage a portion of such account’s assets. For a fund
subadvised by subadvisors unaffiliated with the Advisor, total assets of funds managed may only include assets allocated
to the portfolio manager and not the total assets of a fund managed. The tables also show the number of performance-based
fee accounts, as well as the total assets of the accounts for which the advisory fee is based on the
performance of the account. This information is provided as of the fund's most recent fiscal year end.
Xtrackers
Municipal Infrastructure Revenue Bond ETF
Other
SEC Registered Investment Companies Managed:
Name
of
Portfolio
Manager |
Number
of
Registered
Investment
Companies
|
Total
Assets of
Registered
Investment
Companies
|
Number
of Investment
Company
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-Based
Fee
Accounts |
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Xtrackers
Municipal Infrastructure Revenue Bond ETF
Other
Pooled Investment Vehicles Managed:
Name
of
Portfolio
Manager |
Number
of
Pooled
Investment
Vehicles
|
Total
Assets of
Pooled
Investment
Vehicles
|
Number
of Pooled
Investment
Vehicle
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
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Xtrackers
Municipal Infrastructure Revenue Bond ETF
Other
Accounts Managed:
Name
of
Portfolio
Manager |
|
Total
Assets
of
Other
Accounts
|
Number
of Other
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
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In
addition to the accounts above, an investment professional may manage accounts in a personal capacity that may include
holdings that are similar to, or the same as, those of the fund. The Advisor or Subadvisor, as applicable, has in
place a Code of Ethics that is designed to address conflicts of interest and that, among other things, imposes restrictions
on the ability of portfolio managers and other “access
persons” to invest in
securities that may be recommended or traded in the fund and other client accounts.
Part
I: Appendix I-E—Service
Provider Compensation
Under
the fund’s Investment Advisory Agreement, the Advisor is responsible for substantially all expenses of the fund,
including the cost of transfer agency, custody, fund administration, compensation paid to the Independent Board Members,
legal, audit and other services, except for the fee payments to the Advisor under the Investment Advisory Agreement,
interest expense, acquired fund fees and expenses, taxes, brokerage expenses, distribution fees or expenses (if
any), litigation expenses and other extraordinary expenses.
Xtrackers
Municipal Infrastructure Revenue Bond ETF
|
Gross
Amount
Paid
to DBX
for
Advisory
Services
|
Amount
Waived
by
DBX for
Advisory
Services
|
|
|
|
|
|
|
|
|
|
(1)
Effective February 12, 2019, the Advisor’s Unitary Advisory Fee rate was reduced from 0.30% to 0.15% of the fund’s
average daily net assets. Beginning November 30, 2018 through February 12, 2019, however, the Advisor received a
reduced Unitary Advisory Fee due to a voluntary expense limitation in effect during that period that limited the fund’s
operating expenses to 0.15% of the fund’s average daily net assets.
Part
I: Appendix I-F—Portfolio
Transactions and Brokerage Commissions
Variations
to the fund’s portfolio turnover rate may be due to, among other things, a fluctuating volume of shareholder purchase
and redemption orders, market conditions, and/or changes in the Advisor's investment outlook. The amount of
brokerage commissions paid by the fund may change from year to year because of, among other things, changing asset
levels, shareholder activity and/or portfolio turnover.
Portfolio
Turnover Rates
|
|
|
Xtrackers
Municipal Infrastructure Revenue Bond ETF |
|
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Brokerage
Commissions
|
|
Brokerage
Commissions
Paid
by Fund |
Xtrackers
Municipal Infrastructure Revenue Bond ETF |
|
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|
Brokerage
Commissions Paid to Affiliated Brokers
No
trades were effected for the accounts with broker dealers that are affiliated with the Advisor or Subadvisor, if applicable,
as of the end of its most recent fiscal year.
Listed
below are the regular brokers or dealers (as such term is defined in the 1940 Act) of the fund whose securities the
fund held as of the end of its most recent fiscal year and the dollar value of such securities.
Xtrackers
Municipal Infrastructure Revenue Bond ETF
The
fund did not hold any securities of its regular brokers or dealers.
Transactions
for Research Services
No
transactions or related commissions were allocated to broker-dealer firms for research services.
Part
I: Appendix I-G—Investments,
Practices and Techniques, and Risks
Below
is a list of headings related to investments, practices and techniques, and risks which are further described in Appendix
II-E.
Xtrackers
Municipal Infrastructure Revenue Bond ETF
Commodity
Pool Operator Exclusion
Delayed
Delivery Transactions
Fixed
Income Securities
Illiquid
Securities
Investment
Companies and Other Pooled Investment Vehicles
Lending
of Portfolio Securities
Municipal
Securities Risk
Repurchase
Agreements
Restricted
Securities/Rule 144A Securities
Reverse
Repurchase Agreements
Short-Term
Instruments and Temporary Investments
Tax
Risks
When-Issued
Securities
Part
I: Appendix I-H—Securities
Lending Activities
Pursuant
to an agreement between the fund and BNYM, BNYM is responsible for the administration and management of
the fund’s securities lending program, including the negotiation of the terms and conditions of any securities loan, ensuring
that securities loans are properly coordinated and documented with the fund’s custodian, ensuring that loaned securities
are daily valued and that the corresponding required cash collateral is delivered by the borrower(s), arranging for
the investment of cash collateral and arranging for the return of loaned securities upon the termination of the loan.
The
dollar amounts of income and fees and compensation paid to all service providers related to the fund that participated in
securities lending activities during the most recent fiscal year were as follows:
Xtrackers
Municipal Infrastructure Revenue Bond ETF
The
fund had no securities lending activity during its most recent fiscal year.
Part
I: Appendix I-I—Additional
Information
Fund
and its Fiscal Year End |
|
|
Xtrackers
Municipal Infrastructure Revenue Bond ETF |
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|
Statement
of Additional Information
October
1, 2020
DBX
ETF TRUST
Xtrackers
Harvest CSI 300 China A-Shares ETF |
|
Xtrackers
MSCI China A Inclusion Equity ETF |
|
Xtrackers
Harvest CSI 500 China A-Shares Small Cap ETF |
|
Xtrackers
MSCI All China Equity ETF |
|
This combined Statement
of Additional Information (“SAI”)
is not a prospectus and should be read in conjunction with the prospectus for each
fund dated October 1, 2020, as supplemented, a copy of which may
be obtained without charge by calling 1-855-329-3837 (1-855-DBX-ETFS); by visiting
Xtrackers.com (the
Web site does not form a part of this SAI); or by writing to the Trust’s
distributor, ALPS Distributors, Inc. (the “Distributor”),
1290 Broadway, Suite 1000, Denver, Colorado 80203. This SAI is incorporated by
reference into the prospectus.
Portions
of the Annual Report to Shareholders of each fund are incorporated herein by reference,
and are hereby deemed to be part of this SAI. Reports to Shareholders
may also be obtained without charge by calling the number provided in the preceding
paragraph.
This
SAI is divided into two Parts—Part
I and Part II. Part I contains information that is specific to each fund,
while Part II contains information that generally applies to each of the funds
in the Xtrackers funds.
Statement
of Additional Information (SAI)—Part
I
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Detailed
Part II table of contents precedes page II-1 |
|
Definitions
“1933
Act” – the Securities
Act of 1933, as amended
“1934
Act” – the Securities
Exchange Act of 1934, as amended
“1940
Act” – the Investment
Company Act of 1940, as amended
“Administrator”
or “Custodian”
or “Transfer Agent”
or “BNYM”
– The Bank of New York Mellon, 240 Greenwich Street, New York, New York 10286
“Advisor”
or “DBX”
– DBX Advisors LLC, 875 Third Avenue, New York, New York 10022
“ALPS”
or “Distributor”
– ALPS Distributors, Inc., 1290 Broadway, Suite 1000, Denver, Colorado 80203
“Board”
– Board of Trustees of the Trust
“Board
Members” – Members
of the Board of Trustees of the Trust
“Business
Day” – any day
on which the Exchange on which the fund is listed for trading is open for business
“Cash
Component” – deposit
of a specified cash payment
“Creation
Units” – shares
that have been aggregated into blocks
“Code”
– the Internal Revenue Code of 1986, as amended
“DTC”
– Depository Trust Company
“DWS”
– refers to the asset management activities conducted by DWS Group GmbH &
Co. KGaA or any of its subsidiaries, including the Advisor and other affiliated
investment advisors
“Subadvisor”
or “HGI”
– Harvest Global Investments Limited, 31/F One Exchange Square, 8 Connaught
Place, Central, Hong Kong
“DWS
Group” – a separate,
publicly-listed financial services firm that is an indirect, majority-owned subsidiary
of Deutsche Bank AG.
“ETF”
– exchange-traded fund
“Exchange”
– NYSE Arca, Inc.
“Fitch”
– Fitch Ratings, an NRSRO
“Fund
Legal Counsel” –
Dechert LLP, 1095 Avenue of the Americas, New York, New York 10036
“fund”
or “series”
– Xtrackers Harvest CSI 300 China A-Shares ETF, Xtrackers Harvest CSI 500
China A-Shares Small Cap ETF, Xtrackers MSCI China A Inclusion Equity ETF
and/or Xtrackers MSCI All China Equity ETF as the context may require
“Independent
Board Members”–
Board Members who are not interested persons (as defined in the 1940 Act)
of the fund, the investment advisor or the distributor
“Independent
Registered Public Accounting Firm”
– Ernst & Young LLP, 5 Times Square, New York, New York 10036
“Independent
Trustee Legal Counsel”
– K&L Gates LLP, 1601 K Street, NW, Washington, DC 20006
“IOPV”
– Indicative Optimized Portfolio Value
“Moody’s”
– Moody’s Investors Service, Inc., an NRSRO
“NRSRO”
– a nationally recognized statistical rating organization
“S&P”
– S&P Global Ratings, an NRSRO
“SEC”
– the Securities and Exchange Commission
“Shares”
– shares of beneficial interest registered under the 1933 Act
“Trust”
– DBX ETF Trust
“Underlying
Index” – a specified
benchmark index
“Unitary
Advisory Fee” –
fee payable to the Advisor for its services under the Investment Advisory Agreement
with each fund and the Advisor’s commitment to pay substantially
all expenses of each fund, including the payments to the subadvisor (as applicable),
the cost of transfer agency, custody, fund administration, compensation
paid to the Independent Board Members, legal, audit
and other services, except for the fee payments to the Advisor under the Investment
Advisory Agreement,
interest
expense, acquired fund fees and expenses, taxes, brokerage expenses, distribution
fees or expenses (if any), litigation expenses and other extraordinary expenses
“funds”
– the US registered investment companies advised by DBX
Fund
Organization
DBX
ETF Trust was organized as a Delaware statutory trust on October 7, 2010 and is
authorized to have multiple series or portfolios. The Trust is an open-end management
investment company registered with the SEC under the 1940
Act.
Effective
August 11, 2014, the Board of Trustees approved changes to the names of each fund
currently comprising the Trust. db X-trackers Harvest CSI 300 China A-Shares
ETF was renamed Deutsche X-trackers Harvest CSI 300 China
A-Shares ETF; db X-trackers Harvest CSI 500 China A-Shares Small Cap Fund was renamed
Deutsche X-trackers Harvest CSI 300 China A-Shares ETF and db X-trackers
Harvest MSCI All China Equity Fund was renamed Deutsche X-trackers MSCI All China
Equity ETF.
Effective
October 2, 2017, the Board of Trustees approved changes to the names of each fund
currently comprising the Trust. Deutsche X-trackers Harvest CSI 300 China
A-Shares ETF was renamed Xtrackers Harvest CSI 300 China
A-Shares ETF; Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap ETF
was renamed Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF; Deutsche
X-trackers CSI 300 China A-Shares Hedged Equity ETF was
renamed Xtrackers CSI 300 China A-Shares Hedged Equity ETF; and Deutsche X-trackers
MSCI All China Equity ETF was renamed Xtrackers MSCI All China Equity ETF.
Effective
June 1, 2018, Xtrackers CSI 300 China A-Shares Hedged Equity ETF was renamed Xtrackers
MSCI China A Inclusion Equity ETF.
Management
of each Fund
Board
Members and Officers’ Identification and Background
The
identification and background of the Board Members and officers are set forth in
Part II—Appendix
II-A.
Board
Committees and Compensation
Compensation
paid to the Independent Board Members, for certain specified periods is set forth
in Part I—
Appendix I-C.
Information regarding the committees of the Board is set forth in Part
I—Appendix
I-B.
Board
Member Share Ownership and Control Persons
Information
concerning the ownership of fund shares by Board Members and officers, as a group,
as well as the dollar range value of each Board Member’s share ownership
in each fund and, on an aggregate basis, in all Xtrackers funds overseen by them,
by investors who control the fund, if any, and by investors who own 5%
or more of fund shares, if any, is set forth in Part
I—
Appendix I-A.
Portfolio
Management
Information
regarding each fund’s portfolio managers, including other accounts managed,
compensation, ownership of fund shares and possible conflicts of interest,
is set forth in Part I—Appendix
I-D and Part
II – Appendix II-B.
Service
Provider Compensation
Compensation
paid by each fund for investment advisory services and other expenses through the
Unitary Advisory Fee is set forth in Part
I—Appendix
I-E. The service provider
compensation is not applicable to new funds that have not completed a fiscal reporting
period. Fee rates are included in Part
II – Appendix II-C.
Portfolio
Transactions, Brokerage Commissions and Securities
Lending Activities
Portfolio
Turnover
The
portfolio turnover rates for the two most recent fiscal years are set forth in
Part I—Appendix
I-F. This section
does not apply to new funds that have not completed a fiscal
reporting period.
Brokerage
Commissions
Total
brokerage commissions paid by each fund for the three most recent fiscal years
are set forth in Part I—
Appendix I-F.
This section does not apply to new funds that have not completed a fiscal reporting
period.
Each
fund's policy with respect to portfolio transactions and brokerage is set forth
under “Portfolio Transactions
” in Part
II of this SAI.
Securities
Lending Activities
Information
regarding securities lending activities of each fund, if any, during its most recent
fiscal year is set forth in Part
I—Appendix
I-H.
Additional
information regarding securities lending in general is set forth under “Lending
of Portfolio Securities”
in Part II
of this SAI.
Investments
Investments,
Practices and Techniques, and Risks
Part
I—Appendix
I-G includes a list of
the investments, practices and techniques, and risks which each fund
may employ (or be subject to) in pursuing its investment objective.
Part II—Appendix
II-E includes a description
of these investments, practices and techniques, and risks.
Investment
Restrictions
It
is possible that certain investment practices and/or techniques may not be permissible
for a fund based on its investment restrictions, as described herein.
Diversification
Status. Xtrackers MSCI China A Inclusion Equity
ETF and Xtrackers MSCI All China Equity ETF are classified as “non-diversified”
under the 1940 Act. A non-diversified fund is a fund that is not limited by the
1940 Act with regard to the percentage of its assets that may
be invested in the securities of a single issuer. The securities of a particular
issuer (or securities of issuers in particular industries) may dominate the underlying
index of such a fund and, consequently, the fund’s investment portfolio.
This may adversely affect the fund’s performance or subject the fund’s
shares to greater price volatility than that experienced by more diversified
investment companies.
Xtrackers
Harvest CSI 300 China A-Shares ETF and Xtrackers Harvest CSI 500 China A-Shares
Small Cap ETF are classified as “diversified”
under the 1940 Act.
Currently,
under the 1940 Act, a “non-diversified”
investment company is a fund that is not “diversified,”
and for a fund to be classified as a “diversified”
investment company, at least 75% of the value of the fund’s total
assets
must be represented by cash and cash items (including receivables), government
securities, securities of other investment companies, and securities of other
issuers, which for the purposes of this calculation are limited
in respect of any one issuer to an amount (valued at the time of investment) not
greater in value than 5% of the fund’s total assets and to not more than
10% of the outstanding voting securities of such issuer. For Xtrackers
Harvest CSI 300 China A-Shares ETF, Xtrackers MSCI China A Inclusion Equity ETF
and Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF, in reliance on
no-action relief furnished by the SEC, the fund may be diversified
or non-diversified at any given time, based on the composition of the index that
the fund seeks to track.
Fundamental
Policies
The
following fundamental policies may not be changed without the approval of a majority
of the outstanding voting securities of a fund which, under the 1940 Act and the
rules thereunder and as used in this SAI, means the lesser of
(1) 67% or more of the voting securities present at such meeting, if the holders
of more than 50% of the outstanding voting securities of a fund are present or
represented by proxy, or (2) more than 50% of the outstanding
voting securities of a fund.
As
a matter of fundamental policy, a fund may not do any of the following:
(1)
concentrate
its investments (i.e., invest 25% or more of its total assets in the securities
of a particular industry or group of industries), except that a fund will
concentrate to the extent that its Underlying Index concentrates in the securities
of such particular industry or group of industries. For purposes of this
limitation, securities of the U.S. government (including
its agencies and instrumentalities), repurchase agreements collateralized by U.S.
government securities, and securities of state or municipal governments
and their political sub-divisions are not considered to be issued by members of
any industry; except that municipal securities with payments
of principal or interest backed by revenue of a specific project related to a specific
industry are considered to be issued by that industry;
(2)
borrow
money, except that (i) each fund may borrow from banks for temporary or emergency
(not leveraging) purposes, including the meeting of redemption
requests which might otherwise require the untimely disposition of securities;
and (ii) each
fund
may, to the extent consistent with its investment policies, enter into repurchase
agreements, reverse repurchase agreements, forward roll
transactions and similar investment strategies and techniques; to the extent that
it engages in transactions described in (i) and (ii), each fund will be
limited so that no more than 33 1/3% of the value of its total assets (including
the amount borrowed) is derived from such transactions. Any borrowings
which come to exceed this amount will be reduced in accordance with applicable
law;
(3)
issue
any senior security, except as permitted under the 1940 Act, as amended, and as
interpreted, modified or otherwise permitted by regulatory authority
having jurisdiction, from time to time;
(4)
make
loans, except as permitted under the 1940 Act, as interpreted, modified or otherwise
permitted by regulatory authority having jurisdiction, from time to
time;
(5)
purchase
or sell real estate unless acquired as a result of ownership of securities or other
investments (but this restriction shall not prevent each fund
from investing in securities of companies engaged in the real estate business or
securities or other instruments backed by real estate or mortgages),
or commodities or commodity contracts (but this restriction shall not prevent each
fund from trading in futures contracts and options on futures contracts,
including options on currencies to the extent consistent with each fund’s
investment objectives and policies); or
(6)
engage
in the business of underwriting securities issued by other persons except, to the
extent that each fund may technically be deemed to be an underwriter
under the 1933 Act, the disposing of portfolio securities.
For
purposes of the concentration policy in investment restriction (1), municipal securities
with payments of principal or interest backed by the revenue of a specific
project are considered to be issued by a member of the industry
which includes such specific project.
Senior
securities may include any obligation or instrument issued by an investment company
evidencing indebtedness. The 1940 Act generally prohibits a fund from issuing
senior securities, although it provides allowances for certain borrowings and certain
other investments, such as short sales, reverse repurchase
agreements,
and firm commitment agreements, when such investments are “covered”
or with appropriate earmarking or segregation of assets to cover such obligations.
Under
the 1940 Act, an investment company may only make loans if expressly permitted
by its investment policies.
Non-Fundamental
Policies
The
Board has adopted certain additional non-fundamental policies and restrictions
which are observed in the conduct of a fund’s affairs. They differ from fundamental
investment policies in that they may be changed or amended by action of
the Board without requiring prior notice to, or approval of, the shareholders.
As
a matter of non-fundamental policy, a fund may not do any of the following:
(1)
sell
securities short, unless the fund owns or has the right to obtain securities equivalent
in-kind and amount to the securities sold short at no added cost,
and provided that transactions in options, futures contracts, options on futures
contracts or other derivative instruments are not deemed to constitute
selling securities short;
(2)
purchase
securities on margin, except that the fund may obtain such short-term credits as
are necessary for the clearance of transactions; and provided that margin
deposits in connection with futures contracts, options on futures contracts or
other derivative instruments shall not constitute purchasing securities
on margin;
(3)
purchase
securities of open-end or closed-end investment companies except in compliance
with the 1940 Act;
(4)
invest
in direct interests in oil, gas or other mineral exploration programs or leases;
however, the fund may invest in the securities of issuers that engage in
these activities; and
(5)
invest
in illiquid securities if, as a result of such investment, more than 15% of the
fund’s net assets would be invested in illiquid securities.
If
any percentage restriction described above is complied with at the time of investment,
a later increase or decrease in percentage resulting from any change in value or
total
or
net assets will not constitute a violation of such restriction, except that certain
percentage limitations will be observed continuously in accordance with applicable
law.
For
purposes of non-fundamental policy (5), an illiquid security is any investment
that the fund reasonably expects cannot be sold or disposed of in current market
conditions in seven calendar days without the sale or disposition
significantly changing the market value of the investment.
Each
fund has adopted a non-fundamental investment policy such that each fund may invest
in shares of other open-end management investment companies or unit investment
trusts subject to the limitations of Section 12(d)(1) of the 1940 Act, including
the rules, regulations and exemptive orders obtained thereunder; provided,
however, that if a fund has knowledge that its Shares are
purchased by another investment company investor in reliance on the provisions
of subparagraphs (F) or (G) of Section 12(d)(1) of the 1940 Act, each fund will
not acquire any securities of other open-end management investment
companies or unit investment trusts in reliance on the provisions of subparagraphs
(F) or (G) of Section 12(d)(1) of the 1940 Act.
Taxes
Important
information concerning the tax consequences of an investment in each fund is contained
in Part II—
Appendix II-F.
Independent
Registered Public Accounting Firm, Reports to Shareholders
and Financial Statements
The
financial highlights of each fund included in its prospectus and financial statements
incorporated by reference into this SAI have been so included or incorporated
by reference in reliance on the report of Ernst & Young
LLP, 5 Times Square, New York, New York 10036. Ernst & Young LLP is an independent
registered public accounting firm. The report is given on the authority of
said firm as experts in auditing and accounting. The independent
registered public accounting firm audits the financial statements of each fund
and provides other audit, tax and related services. Shareholders will receive annual
audited financial statements and semi-annual unaudited financial
statements.
The
financial statements, together with the report of the Independent Registered Public
Accounting Firm, financial
Additional
Information
For
information on exchange, CUSIP number and fund fiscal year end information, see
Part I—Appendix
I-I.
Part
I: Appendix I-A—Board
Member Share Ownership and Control Persons
Board
Member Share Ownership in each fund
The
following tables show the dollar range of equity securities beneficially owned by each current Board Member in each
fund and in Xtrackers funds as of December 31, 2019.
Dollar
Range of Beneficial Ownership(1)
|
Xtrackers
Harvest
CSI
300 China A-
Shares
ETF |
Xtrackers
MSCI
China
A Inclusion
Equity
ETF |
Xtrackers
Harvest
CSI
500 China A-
Shares
Small Cap
ETF
|
Xtrackers
MSCI
All
China Equity
ETF
|
Independent
Board Member: |
|
|
|
|
|
|
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Aggregate
Dollar Range of Beneficial Ownership(1)
|
Funds
Overseen by
Board
Member in the
Xtrackers
Funds |
Independent
Board Member: |
|
|
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|
(1)
The
dollar ranges are: None, $1 – $10,000, $10,001 – $50,000, $50,001 – $100,000, or over $100,000.
Ownership
in Securities of the Advisor and Related Companies
As
reported to each fund, the information in the table below reflects ownership by the current Independent Board Members
and their immediate family members of certain securities as of December 31, 2019. An immediate family member
can be a spouse, children residing in the same household, including step and adoptive children, and any dependents.
The securities represent ownership in the Advisor or Distributor and any persons (other than a registered investment
company) directly or indirectly controlling, controlled by, or under common control with the Advisor or Distributor
(including Deutsche Bank AG and DWS Group).
|
Owner
and
Relationship
to
Board
Member |
|
|
Value
of
Securities
on an
Aggregate
Basis |
Percent
of
Class
on an
Aggregate
Basis |
|
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Control
Persons and Principal Holders of Securities
As
of August 31, 2020, all Board Members and officers owned, as a group, less than 1% of the outstanding shares of
a fund.
Although
the fund does not have information concerning the beneficial ownership of shares held in the names of DTC
participants, the following table identifies those DTC participants who owned of record 5% or more of a fund’s shares
as of August 31, 2020:
Xtrackers
Harvest CSI 300 China A-Shares ETF
|
|
Brown
Brothers Harriman & Co.
525
Washington Blvd.
Jersey
City, NJ 07310 |
|
The
Northern Trust Company
801
S. Canal Street
Attn:
Capital Structures C1N
Chicago,
IL 60607 |
|
Citibank,
N.A.
3800
Citibank Center
Building
B/1st Floor/Zone 8
Tampa,
FL 33610-9122 |
|
The
Bank of New York Mellon
525
William Penn Place
Suite
153-0400
Pittsburgh,
PA 15259 |
|
HSBC
Securities (USA) Inc.
452
Fifth Avenue
New
York, NY 10018 |
|
Xtrackers
MSCI China A Inclusion Equity ETF
|
|
The
Bank of New York Mellon
525
William Penn Place
Suite
153-0400
Pittsburgh,
PA 15259 |
|
J.P.
Morgan Securities LLC
500
Stanton Christiana Road, 2nd Fl.
Newark,
DE 19713-2107 |
|
Bank
of America
200
N. College Street
Charlotte,
NC 28255 |
|
Xtrackers
Harvest CSI 500 China A-Shares Small Cap ETF
|
|
State
Street Bank & Trust Co.
1776
Heritage Drive
North
Quincy, MA 02171 |
|
TD
Ameritrade4700 Alliance Gateway FreewayFort
Worth,
TX 76177 |
|
Interactive
Brokers
8
Greenwich Office Park
Greenwich,
CT 06831 |
|
National
Financial Services LLC
499
Washington Blvd.
Jersey
City, NJ 07310 |
|
|
|
Charles
Schwab & Co., Inc.
2423
E. Lincoln Drive
Phoenix,
AZ 85016-1215 |
|
Merrill
Lynch, Pierce, Fenner & Smith Inc.
101
Hudson Street
Jersey
City, NJ 07302-3997 |
|
Vanguard
Fiduciary Trust Company
Attn:
Outside Funds K14
P.O.
Box 260
Valley
Forge, PA 19482-2600 |
|
Xtrackers
MSCI All China Equity ETF
|
|
Merrill
Lynch, Pierce, Fenner & Smith Inc.
101
Hudson Street
Jersey
City, NJ 07302-3997 |
|
J.P.
Morgan Securities LLC
500
Stanton Christiana Road, 2nd Fl.
Newark,
DE 19713-2107 |
|
TD
Ameritrade
4700
Alliance Gateway Freeway
Fort
Worth, TX 76177 |
|
Charles
Schwab & Co., Inc.
2423
E. Lincoln Drive
Phoenix,
AZ 85016-1215 |
|
Pershing
LLC
One
Pershing Plaza
Jersey
City, NJ 07399 |
|
RBC
Capital Markets, LLC
60
S. 6th St. – P09
Minneapolis,
MN 55402-4400 |
|
National
Financial Services LLC
499
Washington Blvd.
Jersey
City, NJ 07310 |
|
Part
I: Appendix I-B—Board
Committees and Meetings
Board
Leadership, Structure and Oversight Responsibilities
Board
Structure. The Board of the Xtrackers funds is responsible for oversight of the
funds, including oversight of the duties performed by the Advisor for the funds
under the investment advisory agreement (the “Investment
Advisory Agreement”).
The Board generally meets in regularly-scheduled meetings four times a year and may meet more often as
required.
Mr.
Byers serves as Chairman of the Board. The Board is comprised of Independent Board Members. The Independent Board
Members are advised by Independent Trustee Legal Counsel and are represented by such Independent Trustee Legal
Counsel at Board and committee meetings. The chairmen of the Audit Committee and Nominating Committee (each
of which consists solely of Independent Board Members) serve as liaisons between the Advisor and other service providers
and the other Independent Board Members. Each such chairman is an Independent Board Member.
The
Board regularly reviews its committee structure and membership and believes that its current structure is appropriate based
on the fact that the Independent Board Members constitute the Board, the role of the committee chairmen (who
are Independent Board Members), the assets and number of funds overseen by the Board Members, as well as
the nature of each fund’s business as an ETF, which is managed to track the performance of a specified index.
Risk
Oversight. The Xtrackers funds are subject to a number of risks, including operational,
investment and compliance risks. The Board, directly and through its committees,
as part of its oversight responsibilities, oversees the services provided by the
Advisor and the Trust’s other service providers in connection with the management and operations of
the funds, as well as their associated risks. Under the oversight of the Board, the Trust, the Advisor and other service
providers have adopted policies, procedures and controls to address these risks.
The
Board, directly and through its committees, receives and reviews information from the Advisor, other service providers,
the Trust’s Independent Registered Public Accounting Firm and Independent Trustee Legal Counsel to assist it
in its oversight responsibilities. This information includes, but is not limited to, reports regarding the funds’ investments,
including fund performance and investment practices, valuation of fund portfolio securities,
and compliance. The Board also reviews, and must approve any proposed changes to,
the funds’ investment objectives, policies and restrictions, and reviews
any areas of non-compliance with the funds’ investment policies and restrictions. The Audit Committee monitors
the Trust’s accounting policies, financial reporting and internal control system and reviews any internal audit reports
impacting the Trust. As part of its compliance oversight, the Board reviews the annual compliance report issued by
the Trust’s Chief Compliance Officer on the policies and procedures of the Trust and its service providers, proposed changes
to the policies and procedures and quarterly reports on any material compliance issues that arose during the period.
Board
Committees. The Board has two standing committees, the Audit Committee and the Nominating
Committee, and has delegated certain responsibilities to those committees.
|
Number
of
Meetings
in Last
Fiscal
Year |
|
|
|
|
The
Audit Committee has the responsibility,
among
other things, to: (i) approve the
selection,
retention, termination and
compensation
of the Trust’s Independent
Registered
Public Accounting Firm; (ii) review
the
scope of the Independent Registered
Public
Accounting Firm’s audit activity; (iii)
review
the audited financial statements; and
(iv)
review with such Independent Registered
Public
Accounting Firm the adequacy and the
effectiveness
of the Trust’s internal controls. |
George
O. Elston
(Chairman),
Stephen R.
Byers
and J. David Officer |
|
Number
of
Meetings
in Last
Fiscal
Year |
|
|
|
|
The
Nominating Committee has the
responsibility,
among other things, to identify
and
recommend individuals for Board
membership,
and evaluate candidates for
Board
membership. The Board will consider
recommendations
for Board Members from
shareholders.
Nominations from shareholders
should
be in writing and sent to the Board, to
the
attention of the Chairman of the
Nominating
Committee, as described in Part II
SAI
Appendix II-A under the caption
“Shareholder
Communications to the Board.”
|
J.
David Officer (Chairman),
Stephen
R. Byers and
George
O. Elston |
Part
I: Appendix I-C—Board
Member Compensation
Each
Independent Board Member receives compensation for his or her services, which includes retainer fees and specified
amounts for various committee services and for the Board Chairman. No additional compensation is paid to
any Independent Board Member for travel time to meetings, attendance at directors’ educational seminars or conferences,
service on industry or association committees, participation as speakers at directors’
conferences or service on special fund industry director task forces or subcommittees.
Independent Board Members do not receive any employee benefits such as pension
or retirement benefits or health insurance from a fund or any fund in the Xtrackers fund complex.
Board
Members who are officers, directors, employees or stockholders of DBX or its affiliates receive no direct compensation from
the fund, although they are compensated as employees of DBX, or its affiliates, and as a result may be deemed to
participate in fees paid by a fund. The following table shows, for each current Independent Board Member, the aggregate
compensation from all of the funds in the Xtrackers fund complex during calendar year 2019.
Total
Compensation from Xtrackers Fund Complex
|
Total
Compensation from the
Xtrackers
Fund Complex(1) |
Independent
Board Member: |
|
|
|
|
|
|
(1)
For
each Independent Board Member, total compensation from the Xtrackers fund complex represents compensation from
33 funds as of December 31, 2019.
(2)
Includes
$25,000 in annual retainer fees received by Mr. Byers as Chairman of the Xtrackers funds.
(3)
Includes
$15,000 in annual retainer fees received by Mr. Elston as Chairman of the Audit Committee.
Part
I: Appendix I-D—Portfolio
Management
Fund
Ownership of Portfolio Managers
The
following table shows the dollar range of fund shares owned beneficially and of record by the portfolio management team,
including investments by their immediate family members sharing the same household and amounts invested through
retirement and deferred compensation plans. This information is provided as of each fund's most recent fiscal year
end (except Xtrackers Harvest CSI 300 China A-Shares ETF and Xtrackers Harvest CSI 500 China A-Shares Small Cap
ETF). For Xtrackers Harvest CSI 300 China A-Shares ETF and Xtrackers Harvest CSI 500 China A-Shares Small Cap
ETF, the information for Hubert Shek is provided as of July 31, 2020, and the information for Kevin Sung and Tom Chan
is provided as of the funds’ most recent fiscal year end.
Xtrackers
Harvest CSI 300 China A-Shares ETF
Name
of Portfolio Manager |
Dollar
Range of
Fund
Shares Owned |
|
|
|
|
|
|
Xtrackers
MSCI China A Inclusion Equity ETF
Name
of Portfolio Manager |
Dollar
Range of
Fund
Shares Owned |
|
|
|
|
|
|
Xtrackers
Harvest CSI 500 China A-Shares Small Cap ETF
Name
of Portfolio Manager |
Dollar
Range of
Fund
Shares Owned |
|
|
|
|
|
|
Xtrackers
MSCI All China Equity ETF
Name
of Portfolio Manager |
Dollar
Range of
Fund
Shares Owned |
|
|
|
|
|
|
Conflicts
of Interest
In
addition to managing the assets of each fund, a portfolio manager may have responsibility for managing other client accounts
of the Advisor or its affiliates. The tables below show, per portfolio manager, the number and asset size of: (1)
SEC registered investment companies (or series thereof) other than each fund, (2) pooled investment vehicles that
are not registered investment companies and (3) other accounts (e.g., accounts managed for individuals or organizations) managed
by a portfolio manager. Total assets attributed to a portfolio manager in the tables below include total assets of
each account managed, although a portfolio manager may only manage a portion of such account’s assets. For a fund
subadvised by subadvisors unaffiliated with the Advisor, total assets of funds managed may only include assets allocated
to the portfolio manager and not the total assets of a fund managed. The tables also show the number of
performance-based
fee accounts, as well as the total assets of the accounts for which the advisory fee is based on the
performance of the account. This information is provided as of each fund's most recent fiscal year end (except Xtrackers
Harvest CSI 300 China A-Shares ETF and Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF). For Xtrackers
Harvest CSI 300 China A-Shares ETF and Xtrackers Harvest CSI 500 China A-Shares Small Cap ETF, the information
for Hubert Shek is provided as of July 31, 2020, and the information for Kevin Sung and Tom Chan is provided
as of the funds’ most recent fiscal year end.
Xtrackers
Harvest CSI 300 China A-Shares ETF
Other
SEC Registered Investment Companies Managed:
Name
of
Portfolio
Manager |
Number
of
Registered
Investment
Companies
|
Total
Assets of
Registered
Investment
Companies
|
Number
of Investment
Company
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-Based
Fee
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI China A Inclusion Equity ETF
Other
SEC Registered Investment Companies Managed:
Name
of
Portfolio
Manager |
Number
of
Registered
Investment
Companies
|
Total
Assets of
Registered
Investment
Companies
|
Number
of Investment
Company
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-Based
Fee
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
Harvest CSI 500 China A-Shares Small Cap ETF
Other
SEC Registered Investment Companies Managed:
Name
of
Portfolio
Manager |
Number
of
Registered
Investment
Companies
|
Total
Assets of
Registered
Investment
Companies
|
Number
of Investment
Company
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-Based
Fee
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI All China Equity ETF
Other
SEC Registered Investment Companies Managed:
Name
of
Portfolio
Manager |
Number
of
Registered
Investment
Companies
|
Total
Assets of
Registered
Investment
Companies
|
Number
of Investment
Company
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-Based
Fee
Accounts |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
Harvest CSI 300 China A-Shares ETF
Other
Pooled Investment Vehicles Managed:
Name
of
Portfolio
Manager |
Number
of
Pooled
Investment
Vehicles
|
Total
Assets of
Pooled
Investment
Vehicles
|
Number
of Pooled
Investment
Vehicle
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI China A Inclusion Equity ETF
Other
Pooled Investment Vehicles Managed:
Name
of
Portfolio
Manager |
Number
of
Pooled
Investment
Vehicles
|
Total
Assets of
Pooled
Investment
Vehicles
|
Number
of Pooled
Investment
Vehicle
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
Harvest CSI 500 China A-Shares Small Cap ETF
Other
Pooled Investment Vehicles Managed:
Name
of
Portfolio
Manager |
Number
of
Pooled
Investment
Vehicles
|
Total
Assets of
Pooled
Investment
Vehicles
|
Number
of Pooled
Investment
Vehicle
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI All China Equity ETF
Other
Pooled Investment Vehicles Managed:
Name
of
Portfolio
Manager |
Number
of
Pooled
Investment
Vehicles
|
Total
Assets of
Pooled
Investment
Vehicles
|
Number
of Pooled
Investment
Vehicle
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
Harvest CSI 300 China A-Shares ETF
Other
Accounts Managed:
Name
of
Portfolio
Manager |
|
Total
Assets
of
Other
Accounts
|
Number
of Other
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI China A Inclusion Equity ETF
Other
Accounts Managed:
Name
of
Portfolio
Manager |
|
Total
Assets
of
Other
Accounts
|
Number
of Other
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
Harvest CSI 500 China A-Shares Small Cap ETF
Other
Accounts Managed:
Name
of
Portfolio
Manager |
|
Total
Assets
of
Other
Accounts
|
Number
of Other
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI All China Equity ETF
Other
Accounts Managed:
Name
of
Portfolio
Manager |
|
Total
Assets
of
Other
Accounts
|
Number
of Other
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In
addition to the accounts above, an investment professional may manage accounts in a personal capacity that may include
holdings that are similar to, or the same as, those of each fund. The Advisor or Subadvisor, as applicable, has in
place a Code of Ethics that is designed to address conflicts of interest and that, among other things, imposes restrictions
on the ability of portfolio managers and other “access
persons” to invest in
securities that may be recommended or traded in each fund and other client accounts.
Part
I: Appendix I-E—Service
Provider Compensation
Under
each fund’s Investment Advisory Agreement, the Advisor is responsible for substantially all expenses of the fund,
including the cost of transfer agency, custody, fund administration, compensation paid to the Independent Board Members,
legal, audit and other services, except for the fee payments to the Advisor under the Investment Advisory Agreement,
interest expense, acquired fund fees and expenses, taxes, brokerage expenses, distribution fees or expenses (if
any), litigation expenses and other extraordinary expenses.
Xtrackers
Harvest CSI 300 China A-Shares ETF
|
Gross
Amount
Paid
to DBX
for
Advisory
Services
|
Amount
Waived
by
DBX for
Advisory
Services
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI China A Inclusion Equity ETF
|
Gross
Amount
Paid
to DBX
for
Advisory
Services
|
Amount
Waived
by
DBX for
Advisory
Services
|
|
|
|
|
|
|
|
|
|
Xtrackers
Harvest CSI 500 China A-Shares Small Cap ETF
|
Gross
Amount
Paid
to DBX
for
Advisory
Services
|
Amount
Waived
by
DBX for
Advisory
Services
|
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI All China Equity ETF
|
Gross
Amount
Paid
to DBX
for
Advisory
Services
|
Amount
Waived
by
DBX for
Advisory
Services
|
|
|
|
|
|
|
|
|
|
(1)
Effective June 1, 2018, the fund’s Unitary Advisory Fee was reduced from 0.70% to 0.60% of the fund’s average daily
net assets.
(2)
Effective July 17, 2018, the fund’s Unitary Advisory Fee was reduced from 0.60% to 0.50% of the fund’s average daily
net assets.
Xtrackers
MSCI All China Equity ETF
The
following waivers are in effect:
To
the extent the fund invests in the shares of an affiliated fund, the Advisor has contractually agreed, until November 14,
2021, to waive fees and/or reimburse the fund's expenses to limit the fund's current operating expenses (except for
interest expense, taxes, brokerage expenses, distribution fees or expenses, litigation expenses and other extraordinary expenses)
by an amount equal to the acquired fund's fees and expenses attributable to the fund's investments in the
affiliated funds. In addition, the Advisor has contractually agreed until September 30, 2021, to waive a portion of its
management fees to the extent necessary to prevent the operating expenses (except for interest expense, taxes, brokerage
expenses, distribution fees or expenses, litigation expenses and other extraordinary expenses) of the fund from
exceeding 0.50% of the fund’s average daily net assets. These agreements may only be terminated by the fund’s Board
(and may not be terminated by the Advisor) prior to that time.
Part
I: Appendix I-F—Portfolio
Transactions and Brokerage Commissions
Variations
to a fund’s portfolio turnover rate may be due to, among other things, a fluctuating volume of shareholder purchase
and redemption orders, market conditions, and/or changes in the Advisor's investment outlook. The amount of
brokerage commissions paid by a fund may change from year to year because of, among other things, changing asset
levels, shareholder activity and/or portfolio turnover.
Portfolio
Turnover Rates
|
|
|
Xtrackers
Harvest CSI 300 China A-Shares ETF |
|
|
Xtrackers
MSCI China A Inclusion Equity ETF |
|
|
Xtrackers
Harvest CSI 500 China A-Shares Small Cap ETF |
|
|
Xtrackers
MSCI All China Equity ETF |
|
|
(1)
Portfolio turnover decreased from 2019 to 2020 for Xtrackers MSCI China A Inclusion Equity ETF due to a decrease in
fund assets.
(2)
Portfolio turnover decreased from 2019 to 2020 for Xtrackers MSCI All China Equity ETF due to a decrease in fund assets.
Brokerage
Commissions
|
|
Brokerage
Commissions
Paid
by Fund |
Xtrackers
Harvest CSI 300 China A-Shares ETF |
|
|
|
|
|
|
|
|
Xtrackers
MSCI China A Inclusion Equity ETF |
|
|
|
|
|
|
|
|
Xtrackers
Harvest CSI 500 China A-Shares Small Cap
ETF
|
|
|
|
|
|
|
|
|
Xtrackers
MSCI All China Equity ETF |
|
|
|
|
|
|
|
|
(1)
Xtrackers Harvest CSI 300 China A-Shares ETF experienced increased aggregate brokerage
commissions in 2019 and 2020 due to an increase in total assets as well as an increase
in subscription and redemption activity.
(2)
Xtrackers MSCI China A Inclusion Equity ETF experienced increased aggregate brokerage
commissions in 2019 due to a change in the fund’s investment strategy in
addition to an increase in total assets as well as an increase in subscription
activity.
(3)
Xtrackers MSCI All China Equity ETF experienced decreased aggregate brokerage commissions
in 2020 due to a decrease in total assets.
Brokerage
Commissions Paid to Affiliated Brokers
No
trades were effected for the accounts with broker dealers that are affiliated with the Advisor or Subadvisor, if applicable,
as of the end of its most recent fiscal year.
Listed
below are the regular brokers or dealers (as such term is defined in the 1940 Act) of each fund whose securities each
fund held as of the end of its most recent fiscal year and the dollar value of such securities.
Xtrackers
Harvest CSI 300 China A-Shares ETF
The
fund did not hold any securities of its regular brokers or dealers.
Xtrackers
MSCI China A Inclusion Equity ETF
The
fund did not hold any securities of its regular brokers or dealers.
Xtrackers
Harvest CSI 500 China A-Shares Small Cap ETF
Name
of Regular Broker or Dealer or Parent
(Issuer)
|
Securities
of Regular Broker Dealers |
Sichuan
Road & Bridge Co. Ltd. |
|
Xtrackers
MSCI All China Equity ETF
The
fund did not hold any securities of its regular brokers or dealers.
Transactions
for Research Services
No
transactions or related commissions were allocated to broker-dealer firms for research services.
Part
I: Appendix I-G—Investments,
Practices and Techniques, and Risks
Below
is a list of headings related to investments, practices and techniques, and risks which are further described in Appendix
II-E.
Xtrackers
Harvest CSI 300 China A-Shares ETF
Borrowing
Chinese
Securities
Commodity
Pool Operator Exclusion
Derivatives
Equity
Securities
Foreign
Securities
Illiquid
Securities
Investment
Companies and Other Pooled Investment Vehicles
Lending
of Portfolio Securities
Repurchase
Agreements
Restricted
Securities/Rule 144A Securities
Reverse
Repurchase Agreements
Short-Term
Instruments and Temporary Investments
Xtrackers
MSCI China A Inclusion Equity ETF
Borrowing
Chinese
Securities
Commodity
Pool Operator Exclusion
Derivatives
Equity
Securities
Foreign
Securities
Illiquid
Securities
Investment
Companies and Other Pooled Investment Vehicles
Lending
of Portfolio Securities
Repurchase
Agreements
Restricted
Securities/Rule 144A Securities
Reverse
Repurchase Agreements
Short-Term
Instruments and Temporary Investments
Xtrackers
Harvest CSI 500 China A-Shares Small Cap ETF
Borrowing
Chinese
Securities
Commodity
Pool Operator Exclusion
Derivatives
Equity
Securities
Foreign
Securities
Illiquid
Securities
Investment
Companies and Other Pooled Investment Vehicles
Lending
of Portfolio Securities
Repurchase
Agreements
Restricted
Securities/Rule 144A Securities
Reverse
Repurchase Agreements
Short-Term
Instruments and Temporary Investments
Xtrackers MSCI
All China Equity ETF (and the Underlying Fund in which the fund invests)
Borrowing
Chinese
Securities
Commodity
Pool Operator Exclusion
Derivatives
Equity
Securities
Foreign
Securities
Illiquid
Securities
Investment
Companies and Other Pooled Investment Vehicles
Lending
of Portfolio Securities
Repurchase
Agreements
Restricted
Securities/Rule 144A Securities
Reverse
Repurchase Agreements
Short-Term
Instruments and Temporary Investments
Special
Taxation Risks for Funds that Invest in Underlying Funds
Part
I: Appendix I-H—Securities
Lending Activities
Pursuant
to an agreement between each fund and BNYM, BNYM is responsible for the administration and management of
each fund’s securities lending program, including the negotiation of the terms and conditions of any securities loan, ensuring
that securities loans are properly coordinated and documented with each fund’s custodian, ensuring that loaned
securities are daily valued and that the corresponding required cash collateral is delivered by the borrower(s), arranging
for the investment of cash collateral and arranging for the return of loaned securities upon the termination of
the loan.
The
dollar amounts of income and fees and compensation paid to all service providers related to the fund that participated in
securities lending activities during the most recent fiscal year were as follows:
Xtrackers
Harvest CSI 300 China A-Shares ETF
The
fund had no securities lending activity during its most recent fiscal year.
Xtrackers
Harvest CSI 500 China A-Shares Small Cap ETF
The
fund had no securities lending activity during its most recent fiscal year.
Securities
Lending Activities – Income and Fees for Fiscal Year 2020
|
Xtrackers
MSCI
China A
Inclusion
Equity
ETF |
Xtrackers
MSCI
All
China
Equity
ETF |
Gross
income from securities lending activities (including income from
cash collateral
reinvestment)
|
|
|
Fees
and/or compensation for securities lending activities and related services |
Fees
paid to securities lending agent from a revenue split1
|
|
|
Fees
paid for any cash collateral management service (including fees deducted from a
pooled
cash collateral reinvestment vehicle) that are not included in the revenue split |
|
|
Administrative
fees not included in revenue split |
|
|
Indemnification
fees not included in revenue split |
|
|
Rebate
(paid to borrower) |
|
|
|
|
|
Other
fees not included in revenue split |
|
|
Aggregate
fees/compensation for securities lending activities and related services |
|
|
Net
income from securities lending activities |
|
|
1
Revenue split represents the share of revenue generated by the securities lending program and paid to BNYM.
Part
I: Appendix I-I—Additional
Information
Fund
and its Fiscal Year End |
|
|
Xtrackers
Harvest CSI 300 China A-Shares ETF |
|
|
|
|
|
Xtrackers
MSCI China A Inclusion Equity ETF |
|
|
|
|
|
Xtrackers
Harvest CSI 500 China A-Shares Small Cap
ETF
|
|
|
|
|
|
Xtrackers
MSCI All China Equity ETF |
|
|
|
|
|
Statement
of Additional Information (SAI)—Part
II
Part
II of this SAI includes policies, investment techniques and information that apply
to the Xtrackers funds. Unless otherwise noted, the use of the term “fund”
applies to each of the Xtrackers funds of the Trust.
Management
of the Funds
Investment
Advisor. DBX Advisors LLC, located at 875 Third
Avenue, New York, New York 10022, serves as investment advisor to each fund pursuant
to an Investment Advisory Agreement between the Trust and the Advisor.
The Advisor is a Delaware limited liability company and was
registered as an investment advisor under the Investment Advisers Act of 1940,
as amended, in August 2010. DBX Advisors LLC was formed in June 2010 and
is an indirect, wholly-owned subsidiary of DWS Group GmbH
& Co. KGaA (“DWS
Group”).
Consent
Order. The recent Consent Order involving Deutsche
Bank AG (“DB”),
described below, does not involve the funds or DBX Advisors LLC or their advisory
affiliates (“DWS
Service Providers”).
The DWS Service Providers have informed the Board of Trustees (“Board”)
that, subject to the receipt of a permanent exemptive order
from the SEC (described below), the DWS Service Providers believe the Consent Order
will not have any material impact on the funds or the ability of the DWS
Service Providers to perform services for the funds. The SEC
has granted a temporary exemptive order permitting the DWS Service Providers to
continue to provide investment advisory services to the funds.
On
June 17, 2020, DB resolved with the Commodity Futures Trading Commission (“CFTC”)
charges stemming from alleged violations of various swap data reporting
requirements and corresponding supervision and other failures.
The matter, which was resolved by the issuance of a federal court order (“Consent
Order”), involved
unintentional conduct that resulted from a system outage that
prevented DB from reporting data in accordance with applicable CFTC requirements
for a period of five days in April 2016.
The
matter giving rise to the Consent Order did not arise out of any investment advisory,
fund management or distribution activities of any of the DWS Service Providers.
DWS Group GmbH & Co. KGaA (“DWS
Group”), of which
the DWS Service Providers are wholly-owned subsidiaries
(except for Harvest Global Management Limited which is partially owned by DWS Group),
is a separate publicly traded company but continues to be an affiliate
of
DB due to, among other things, DB’s 79.49% ownership interest in DWS Group.
Under the provisions of the Investment Company Act of 1940, as a result of
the Consent Order, the DWS Service Providers would not
be eligible to continue to provide investment advisory services to the funds absent
an order from the Securities and Exchange Commission (“SEC”).
On September 24, 2020, the SEC granted a temporary order, effective as
of the date of the Consent Order, permitting the DWS Service
Providers to continue to provide investment advisory services to registered investment
companies. DB and the DWS Service Providers also are seeking a permanent
order from the SEC. While there can be no assurance that the requested permanent
order will be granted, the SEC has granted this type of relief in the past.
Terms
of the Investment Advisory Agreement. Under the
Investment Advisory Agreement, the Advisor, subject to the supervision of the Board
and in conformity with the stated investment policies of each fund, manages
and administers the Trust and manages the duties of the investment
and reinvestment of each fund’s assets.
Under
the Investment Advisory Agreement, the Advisor is responsible for substantially
all expenses of the funds (including the payments to a Subadvisor, if any, the
cost of transfer agency, custody, fund administration, compensation
paid to the Independent Board Members in respect of the Independent Board Members’
service to the fund, legal, audit and other services) except for the fee payments
under the Investment Advisory Agreement, interest expense,
taxes, brokerage expenses, future distribution fees or expenses, litigation expenses
and other extraordinary expenses.
The
Investment Advisory Agreement with respect to each fund continues in effect for
two years from its effective date, and thereafter is subject to annual approval
by (i) the Board or (ii) the vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the applicable fund, provided that in
either event such continuance also is approved by a majority of the Board who are
not interested persons (as defined in the 1940 Act) of the applicable
fund, by a vote cast in person at a meeting called for the purpose of voting on
such approval.
The
Investment Advisory Agreement with respect to each fund is terminable without penalty,
on 60 days’ notice, by the Board or by a vote of the holders of a majority
of
the
applicable fund’s outstanding voting securities (as defined in the 1940 Act).
The Investment Advisory Agreement is also terminable upon 60 days’ notice
by the Advisor and will terminate automatically in the event of
its assignment (as defined in the 1940 Act).
The
annual Unitary Advisory Fee rate for each fund is set forth in Part
II – Appendix II-C.
Subadvisor
(applicable only to those funds that have a Subadvisory arrangement as described
in Part I). The Subadvisor
serves as Subadvisor to a fund pursuant to the terms of an Investment Sub-Advisory
Agreement between it and DBX (Subadvisory Agreement).
Harvest
Global Investments Limited (HGI), located at 31/F One Exchange Square, 8 Connaught
Place, Central, Hong Kong, serves as the investment Subadvisor to all the
assets of two funds. HGI is an investment advisor registered
with the SEC. In addition, HGI is an affiliate of DWS Group.
Terms
of the Subadvisory Agreements. Pursuant to the
terms of the applicable Subadvisory Agreement, a Subadvisor makes the investment
decisions, buys and sells securities, and conducts the research that leads to
these purchase and sale decisions for a fund. A Subadvisor is
also responsible for selecting brokers and dealers to execute portfolio transactions
and for negotiating brokerage commissions and dealer charges on behalf of
a fund. Under the terms of the Subadvisory Agreement, a
Subadvisor manages the investment and reinvestment of a fund's assets and provides
such investment advice, research and assistance as DBX may, from time to time,
reasonably request.
Each
Subadvisory Agreement provides that the Subadvisor will not be liable for any error
of judgment or mistake of law or for any loss suffered by a fund in connection
with matters to which the Subadvisory Agreement relates, except
a loss resulting from (a) the Subadvisor causing a fund to be in violation of any
applicable federal or state law, rule or regulation or any investment policy or
restriction set forth in a fund's prospectus or as may be provided
in writing by the Board or DBX, or (b) willful misconduct, bad faith or gross negligence
on the part of the Subadvisor in the performance of its duties or from
reckless disregard by the Subadvisor of its obligations and
duties under the Subadvisory Agreement.
A
Subadvisory Agreement continues from year to year only as long as such continuance
is specifically approved at least annually (a) by a majority of the Board Members
who are not parties to such agreement or interested
persons
of any such party, and (b) by the shareholders or the Board of the Registrant.
A Subadvisory Agreement may be terminated at any time upon 60 days’ written
notice by DBX or by the Board of the Registrant or by majority
vote of the outstanding shares of a fund, and will terminate automatically upon
assignment or upon termination of a fund’s Investment Advisory Agreement.
Under
each Subadvisory Agreement between DBX and a Subadvisor, DBX, not a fund, pays
the Subadvisor a Subadvisory fee based on the percentage of the assets
overseen by the Subadvisor or based on a percentage of
the fee received by DBX from a fund. The Subadvisor fee is paid directly by DBX
at specific rates negotiated between DBX and the Subadvisor. No fund is responsible
for paying the Subadvisor.
Codes
of Ethics. Each fund, the Advisor, the Distributor, and,
if applicable, each fund’s subadvisor(s) have adopted codes of ethics under
Rule 17j-1 under the 1940 Act. Board Members, officers of the Trust and employees
of the Advisor and the Distributor are permitted to make personal
securities transactions, including transactions in securities that may be purchased
or held by a fund, subject to requirements and restrictions set forth in the
applicable Code of Ethics. The Advisor’s Code of Ethics contains
provisions and requirements designed to identify and address certain conflicts
of interest between personal investment activities and the interests of a fund.
Among other things, the Advisor’s Code of Ethics prohibits certain
types of transactions absent prior approval, imposes time periods
during which personal transactions may not be made in certain securities, and requires
the submission of duplicate broker confirmations and quarterly reporting
of securities transactions. Additional restrictions apply to
portfolio managers, traders, research analysts and others involved in the investment
advisory process. Exceptions to these and other provisions of the Advisor’s
or Subadvisor’s Codes of Ethics may be granted in particular circumstances
after review by appropriate personnel.
Board
Members
Board
Members and Officers’ Identification and Background. The
identification and background of the Board Members and Officers of the Registrant
are set forth in Part
II—Appendix
II-A.
Board
Committees and Compensation. Information regarding
the Committees of the Board, as well as compensation paid to the Independent Board
Members
and
to Board Members who are not officers of the Registrant, for certain specified
periods, is set forth in Part I—Appendix
I-B and Part I—Appendix
I-C, respectively.
Other
Service Providers
Administrator.
BNYM serves as administrator for each fund. Pursuant to a Fund Administration and
Accounting Agreement and a Corporate Services Agreement with the
Trust, BNYM provides necessary administrative, tax and accounting and financial
reporting services for the maintenance and operations of the Trust and each fund.
In addition, BNYM makes available the office space, equipment,
personnel and facilities required to provide such services. As compensation for
these services, BNYM receives certain out-of-pocket costs, transaction fees and
asset-based fees which are accrued daily and paid monthly by
the Advisor from its management fee.
Custodian.
BNYM serves as custodian for each fund. Pursuant to a Custody Agreement with the
Trust, BNYM maintains in separate accounts cash, securities and other assets
of the Trust and each fund, keeps all necessary accounts and records and provides
other services. BNYM is required, upon the order of the Trust, to deliver securities
held by BNYM and to make payments for securities purchased
by the Trust for each fund. Also, pursuant to the Custody Agreement, BNYM is authorized
to appoint certain foreign custodians or foreign custody managers for
fund investments outside the US. As compensation for these services, BNYM receives
certain out-of-pocket costs, transaction fees and asset-based fees which are
accrued daily and paid monthly by the Advisor from its management
fee.
Transfer
Agent. BNYM serves as transfer agent for each fund.
Pursuant to a Transfer Agency and Service Agreement with the Trust, BNYM acts as
a transfer agent for each fund’s authorized and issued Shares and as the
dividend disbursing agent of the Trust. As compensation for
these services, BNYM receives certain out-of-pocket costs, transaction fees and
asset-based fees which are accrued daily and paid monthly by the Advisor from its
management fee.
Fund
Legal Counsel. Provides legal services to the funds.
Independent
Trustee Legal Counsel. Serves as legal counsel
to the Independent Board Members.
Distributor.
ALPS serves as the Distributor for each fund. The Distributor has entered into
a Distribution Agreement with the Trust pursuant to which it distributes Shares
of
each
fund. The Distribution Agreement continues for two years from its effective date
and is renewable annually. Shares are continuously offered for sale by the fund
through the Distributor only in Creation Units, as described in
the applicable Prospectus and below in the “Creation
and Redemption of Creation Units”
section of this SAI. Shares in less than Creation Units are not distributed by
the Distributor. The Distributor will deliver the applicable Prospectus
and, upon request, the SAI to Authorized Participants purchasing Creation Units
and will maintain records of both orders placed with it and confirmations
of acceptance furnished by it. The Distributor is a broker-dealer
registered under the 1934 Act, and a member of the Financial Industry Regulatory
Authority.
The
Distribution Agreement for each fund provides that it may be terminated at any
time, without the payment of any penalty, on at least 60 days’ prior written
notice to the other party following (i) the vote of a majority of the
Independent Board Members, or (ii) the vote of a majority of the outstanding voting
securities (as defined in the 1940 Act) of the relevant fund. The Distribution
Agreement will terminate automatically in the event of its
assignment (as defined in the 1940 Act).
Fund
Organization
Shares.
The Trust currently is comprised of separate investment series or portfolios called
funds. The Trust issues Shares of beneficial interest in each fund with no
par value. The Board may designate additional funds.
Each
Share issued by a fund has a pro rata interest in the assets of that fund. Shares
have no preemptive, exchange, subscription or conversion rights and are freely
transferable. Each Share is entitled to participate equally in
dividends and distributions declared by the Board with respect to the relevant
fund, and in the net distributable assets of such fund on liquidation. Each Share
has one vote with respect to matters upon which the shareholder
is entitled to vote. In any matter submitted to shareholders for a vote, each fund
shall hold a separate vote, provided that shareholders of all affected funds will
vote together when: (1) required by the 1940 Act or (2) the Trustees
determine that the matter affects the interests of more than one fund. Under Delaware
law, the Trust is not required to hold an annual meeting of shareholders
unless required to do so under the 1940 Act. The policy of
the Trust is not to hold an annual meeting of shareholders unless required to do
so under the 1940 Act. All Shares (regardless of the fund) have noncumulative voting
rights
in the election of Board Members. Under Delaware law, Trustees of the Trust may
be removed by vote of the shareholders.
Following
the creation of the initial Creation Unit(s) of Shares of a fund and immediately
prior to the commencement of trading in the fund’s Shares, a holder
of Shares may be a “control
person” of the fund,
as defined in the 1940 Act. The fund cannot predict the length of
time for which one or more shareholders may remain a control person of the fund.
Shareholders
may make inquiries by writing to DBX ETF Trust, c/o the Distributor, ALPS Distributors,
Inc., 1290 Broadway, Suite 1000, Denver, Colorado 80203, by email by
writing to dbxquestions@list.db.com or by telephone by calling 1-855-329-3837 or
1-855-DBX-ETFS (toll free).
Termination
of the Trust or a Fund. The Trust or a fund may
be terminated by a majority vote of the Board or the affirmative vote of a supermajority
of the holders of the Trust or such fund entitled to vote on termination.
Although the Shares are not automatically redeemable upon
the occurrence of any specific event, the Trust’s organizational documents
provide that the Board will have the unrestricted power to alter the number of
Shares in a Creation Unit. In the event of a termination of the Trust or
a fund, the Board, in its sole discretion, could determine to permit the Shares
to be redeemable in aggregations smaller than Creation Units or to be individually
redeemable. In such circumstance, the Trust may make redemptions
in kind, for cash or for a combination of cash or securities.
Purchase
and Redemption of Shares
Exchange
Listing and Trading
A
discussion of exchange listing and trading matters associated with an investment
in each fund is contained in the “Investing
in the Funds” section
of the fund’s Prospectus. The discussion below supplements, and should
be read in conjunction with, that section of the Prospectus.
Shares
of each fund are listed for trading and will trade throughout the day on the Exchange.
There can be no assurance that the requirements of the Exchange necessary
to maintain the listing of Shares of any fund will continue to be met. The Exchange
may, but is not required to, remove the Shares of a fund from listing if
(i) following the initial 12-month period beginning upon the
commencement of trading of fund Shares, there are fewer than 50 beneficial owners
of Shares of the fund
for
30 or more consecutive trading days, (ii) the value of the Underlying Index on
which a fund is based is no longer calculated or available, (iii) the IOPV of a
fund is no longer calculated or available or (iv) any other event shall occur
or condition shall exist that, in the opinion of the Exchange, makes
further dealings on the Exchange inadvisable. The Exchange will also remove Shares
of a fund from listing and trading upon termination of the fund.
In
order to provide additional information regarding the indicative value of Shares
of the fund, the Exchange or a market data vendor disseminates every 15 seconds
through the facilities of the Consolidated Tape Association or
other widely disseminated means an updated IOPV for the fund as calculated by an
information provider or market data vendor. The Trust is not involved in or responsible
for any aspect of the calculation or dissemination of
the IOPVs and makes no representation or warranty as to the accuracy of the IOPVs.
An
IOPV has a securities component and a cash component. The securities values included
in an IOPV are the values of the Deposit Securities for a fund. While the
IOPV reflects the current market value of the Deposit Securities required to be
deposited in connection with the purchase of a Creation Unit, it does not necessarily
reflect the precise composition of the current portfolio of
securities held by a fund at a particular point in time because the current portfolio
of the fund may include securities that are not a part of the current Deposit
Securities. Therefore, a fund’s IOPV disseminated during the
Exchange trading hours should not be viewed as a real-time update of the fund’s
NAV, which is calculated only once a day.
The
cash component included in an IOPV consists of estimated accrued interest, dividends
and other income, less expenses. If applicable, each IOPV also reflects
changes in currency exchange rates between the US dollar and
the applicable currency.
The
Trust reserves the right to adjust the Share prices of funds in the future to maintain
convenient trading ranges for investors. Any adjustments would be accomplished
through stock splits or reverse stock splits, which would have
no effect on the net assets of the fund.
DTC
as Securities Depository for Shares of the funds.
Shares of each fund are represented by securities registered in the name of DTC
or its nominee and deposited with, or on behalf of, DTC. DTC, a limited-purpose
trust company, was created to hold securities of
its participants (“DTC
Participants”) and to
facilitate
the
clearance and settlement of securities transactions among the DTC Participants
in such securities through electronic book-entry changes in accounts of the DTC
Participants, thereby eliminating the need for physical movement
of securities’ certificates. DTC Participants include securities brokers
and dealers, banks, trust companies, clearing corporations and certain other organizations,
some of whom (and/or their representatives) own DTC.
More specifically, DTC is owned by a number of its DTC Participants and by the
NYSE, NYSE Amex Equities and the Financial Industry Regulatory Authority. Access
to the DTC system is also available to others such as banks,
brokers, dealers and trust companies that clear through or maintain a custodial
relationship with a DTC Participant, either directly or indirectly (“Indirect
Participants ”).
Beneficial
ownership of Shares is limited to DTC Participants, Indirect Participants and persons
holding interests through DTC Participants and Indirect Participants. Ownership
of beneficial interests in Shares (owners of such beneficial interests are referred
to herein as “Beneficial
Owners”) is shown on,
and the transfer of ownership is effected only through, records maintained
by DTC (with respect to DTC Participants) and on the records
of DTC Participants (with respect to Indirect Participants and Beneficial Owners
that are not DTC Participants). Beneficial Owners will receive from or through
the DTC Participant a written confirmation relating to their purchase
of Shares. The laws of some jurisdictions may require that certain purchasers of
securities take physical delivery of such securities in definitive form. Such laws
may impair the ability of certain investors to acquire beneficial
interests in Shares.
Conveyance
of all notices, statements and other communications to Beneficial Owners is effected
as follows. Pursuant to the Depositary Agreement between the Trust and
DTC, DTC is required to make available to the Trust upon request and for a fee
to be charged to the Trust a listing of the Shares of each fund held by each DTC
Participant. The Trust shall inquire of each such DTC Participant
as to the number of Beneficial Owners holding Shares, directly or indirectly, through
such DTC Participant. The Trust shall provide each such DTC Participant with
copies of such notice, statement or other communication,
in such form, number and at such place as such DTC Participant may reasonably request,
in order that such notice, statement or communication may be transmitted
by such DTC Participant, directly or indirectly, to such
Beneficial Owners. In addition, the Trust shall pay to each such DTC Participant
a fair and reasonable amount
as
reimbursement for the expenses attendant to such transmittal, all subject to applicable
statutory and regulatory requirements.
The
Trust understands that under existing industry practice, in the event the Trust
requests any action of holders of Shares, or a Beneficial Owner desires to take
any action that DTC, as the record owner of all outstanding Shares, is
entitled to take, DTC would authorize the DTC Participants to take such action
and that the DTC Participants would authorize the Indirect Participants and Beneficial
Owners acting through such DTC Participants to take such
action and would otherwise act upon the instructions of Beneficial Owners owning
through them.
Share
distributions shall be made to DTC or its nominee, Cede & Co., as the registered
holder of all Shares of the Trust. DTC or its nominee, upon receipt of any such
distributions, shall credit immediately DTC Participants’ accounts
with payments in amounts proportionate to their respective beneficial interests
in Shares of each fund as shown on the records of DTC or its nominee. Payments
by DTC Participants to Indirect Participants and Beneficial Owners
of Shares held through such DTC Participants will be governed by standing instructions
and customary practices, as is now the case with securities held for the
accounts of customers in bearer form or registered in a “street
name,” and will be the
responsibility of such DTC Participants.
The
Trust has no responsibility or liability for any aspect of the records relating
to or notices to Beneficial Owners, or payments made on account of beneficial ownership
interests in such Shares, or for maintaining, supervising or
reviewing any records relating to such beneficial ownership interests, or for any
other aspect of the relationship between DTC and the DTC Participants or
the relationship between such DTC Participants and the Indirect
Participants and Beneficial Owners owning through such DTC Participants. DTC may
decide to discontinue providing its service with respect to Shares of the
Trust at any time by giving reasonable notice to the Trust and
discharging its responsibilities with respect thereto under applicable law. Under
such circumstances, the Trust shall take action to find a replacement for DTC to
perform its functions at a comparable cost.
Creation
and Redemption of Creation Units
General.
The Trust issues and sells Shares of each fund only in Creation Units on a continuous
basis through the Distributor, without a sales load, at the fund’s NAV next
determined
after receipt, on any Business Day, of an order in proper form. Information on
a fund’s Creation Units can be found in the Prospectus.
The
Board reserves the right to declare a split or a consolidation in the number of
Shares outstanding of any fund of the Trust, and to make a corresponding change
in the number of Shares constituting a Creation Unit, in the event
that the per Share price in the secondary market rises (or declines) to an amount
that falls outside the range deemed desirable by the Board.
As
of the date of this SAI, each Exchange observes the following holidays, as observed:
New Year’s Day, Dr. Martin Luther King, Jr. Day, Presidents’ Day, Good
Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving
Day and Christmas Day.
Fund
Deposit. The consideration for purchase of Creation Units
of a fund generally consists of the in-kind (except for Xtrackers MSCI China A
Inclusion Equity ETF, Xtrackers Harvest CSI 300 China A-Shares ETF, and Xtrackers
Harvest CSI 500 China A-Shares Small Cap ETF, which are
effected principally in cash) deposit of a designated portfolio of securities (i.e.,
the “Deposit Securities”),
which constitutes an optimized representation of the securities of
the relevant fund’s Underlying Index, and the Cash Component computed as
described below. Together, the Deposit Securities and the Cash Component constitute
the “Fund
Deposit,” which represents
the minimum initial and subsequent investment amount for a Creation Unit
of any fund.
The
Cash Component is an amount equal to the difference between the NAV of the Shares
(per Creation Unit) and the “Deposit
Amount,” which is an
amount equal to the market value of the Deposit Securities, and serves to
compensate for any difference between the NAV per Creation
Unit and the Deposit Amount. Payment of any stamp duty or other similar fees and
expenses payable upon transfer of beneficial ownership of the Deposit Securities
shall be the sole responsibility of the AP purchasing a Creation Unit.
The
Advisor makes available through the National Securities Clearing Corporation (“NSCC”)
on each Business Day, prior to the opening of business on the Exchange,
the list of names and the required number of Shares of each Deposit Security to
be included in the current Fund Deposit (based on information at the end
of the previous Business Day) for each fund. Such Fund Deposit
is applicable, subject to any adjustments as
described
below, in order to effect purchases of Creation Units of Shares of a given fund
until such time as the next-announced Fund Deposit is made available.
The
identity and number of Shares of the Deposit Securities pursuant to changes in
composition of a fund’s portfolio and changes as rebalancing adjustments
and corporate action events are reflected from time to time by
the Advisor with a view to the investment objective of the fund. The composition
of the Deposit Securities may also change in response to adjustments to the
weighting or composition of the component securities constituting
the relevant Underlying Index.
The
Trust reserves the right to permit or require the substitution of a “cash
in lieu” amount to be
added to the Cash Component to replace any Deposit Security that may not
be available in sufficient quantity for delivery or that may not be eligible for
transfer through the systems of DTC of the Clearing Process (discussed below).
The Trust also reserves the right to permit or require a “cash
in lieu”
amount where the delivery of the Deposit Security by the AP (as described below)
would be restricted under applicable securities laws or where the delivery of the
Deposit Security to the AP would result in the disposition
of the Deposit Security by the AP becoming restricted under applicable securities
laws, or in certain other situations. The adjustments described above will
reflect changes, known to the Advisor on the date of announcement
to be in effect by the time of delivery of the Fund Deposit, in the composition
of the subject index being tracked by the relevant fund, or resulting from stock
splits and other corporate actions. For Xtrackers MSCI China
A Inclusion Equity ETF, Xtrackers Harvest CSI 300 China A-Shares ETF, and Xtrackers
Harvest CSI 500 China A-Shares Small Cap ETF, Creation Units are purchased
principally for cash.
Role
of the Authorized Participant. Creation Units may be
purchased only by or through a DTC Participant that has entered into an Authorized
Participant Agreement with the Distributor (an authorized participant, or an “AP”),
which agreement has also been accepted by the Transfer Agent.
Such AP will agree, pursuant to the terms of such Authorized Participant Agreement
and on behalf of itself or any investor on whose behalf it will act, to certain
conditions, including that such AP will make available in advance
of each purchase of Shares an amount of cash sufficient to pay the Cash Component,
once the NAV of a Creation Unit is next determined after receipt of the
purchase order in proper form, together with the transaction
fee described below. The AP may require the investor to enter into an agreement
with such AP with
respect
to certain matters, including payment of the Cash Component. Investors who are
not APs must make appropriate arrangements with an AP. Investors should be aware
that their particular broker may not be a DTC Participant or
may not have executed an Authorized Participant Agreement and that orders to purchase
Creation Units may have to be placed by the investor’s broker through
an AP. As a result, purchase orders placed through an AP
may result in additional charges to such investor.
The
Trust does not expect the Distributor to enter into an Authorized Participant Agreement
with more than a small number of DTC Participants. A list of current APs
may be obtained from the Distributor.
Purchase
Order. To initiate an order for a Creation Unit, an
AP must submit an irrevocable order to purchase Shares of a fund in accordance
with the Authorized Participant Agreement. If accepted by the Distributor, the
Transfer Agent will notify the Advisor and the Custodian of
such order. If applicable, the Custodian will then provide such information to
the appropriate sub-custodian. For each applicable fund, the Custodian shall cause
the applicable sub-custodian to maintain an account into which the
AP shall deliver, on behalf of itself or the party on whose behalf it is acting,
the applicable securities included in the designated Fund Deposit (or the cash
value of all or a part of such securities, in the case of a permitted or
required cash purchase or “cash
in lieu” amount), with
any appropriate adjustments as advised by the Trust. Deposit
Securities located outside the United States must be delivered to an account maintained
at the applicable local sub-custodian. Those placing orders to purchase
Creation Units through an AP should allow sufficient time to
permit proper submission of the purchase order to the Distributor by the cut-off
time on such Business Day.
The
AP must also make available on or before the contractual settlement date, by means
satisfactory to the Trust, immediately available or same day funds estimated
by the Trust to be sufficient to pay the Cash Component next determined after acceptance
of the purchase order, together with the applicable purchase transaction
fee. Any excess funds will be returned following settlement of the issue of the
Creation Unit. Those placing orders should ascertain the applicable deadline
for cash transfers by contacting the operations department of the broker or depositary
institution effectuating the transfer of the Cash Component. This deadline
is likely to be significantly earlier than the closing time of
the regular trading session on the Exchange.
Investors
should be aware that an AP may require orders for purchases of Shares placed with
it to be in the particular form required by the individual AP.
Timing
of Submission of Purchase Orders. An AP must submit
an irrevocable purchase order before 4:00 p.m., Eastern time on any Business Day
in order to receive that day’s NAV. In the case of custom orders, the order
must be received by the Distributor no later than 3:00 p.m.,
Eastern time on the trade date. With respect to in-kind creations, a custom order
may be placed by an AP where cash replaces any Deposit Security which may
not be available in sufficient quantity for delivery or which may
not be eligible for trading by such AP or the investor for which it is acting or
other relevant reason. Orders to create Shares of a fund that are submitted on
the Business Day immediately preceding a holiday or day (other than a
weekend) when the markets in the relevant foreign market are closed may not be
accepted. The Distributor in its discretion may permit the submission of such orders
and requests by or through an AP at any time (including on
days on which the Exchange is not open for business) via communication through
the facilities of the Transfer Agent’s proprietary website maintained for
this purpose, provided such submission is permissible pursuant to the terms
of the applicable Authorized Participant Agreement. Purchase orders and redemption
requests, if accepted by the Trust, will be processed based on the NAV next
determined after such acceptance in accordance with the
Trust’s standard cut-off times as provided in the Authorized Participant
Agreement and disclosed in this SAI.
Acceptance
of Orders for Creation Unit. Subject to the
conditions that (i) an irrevocable purchase order has been submitted by the AP
(either on its own or another investor’s behalf) and (ii) arrangements satisfactory
to the Trust are in place for payment of the Cash Component and
any other cash amounts which may be due, the Trust will accept the order, subject
to its right (and the right of the Distributor and the Advisor) to reject any order
until acceptance.
Once
the Trust has accepted an order, upon next determination of the NAV of the Shares,
the Trust will confirm the issuance of a Creation Unit, against receipt of payment,
at such NAV. The Distributor will then transmit a confirmation
of acceptance to the AP that placed the order.
The
Trust reserves the absolute right to reject or revoke a creation order transmitted
to it by the Distributor in respect of any fund if (i) the order is not in proper
form; (ii) the investor(s) upon obtaining the Shares ordered, would
own 80% or more of the currently outstanding
Shares
of any fund; (iii) the Deposit Securities delivered do not conform to the identity
and number of Shares specified by the Advisor, as described above; (iv) acceptance
of the Deposit Securities would have certain adverse tax
consequences to the fund; (v) acceptance of the Fund Deposit would, in the opinion
of counsel, be unlawful; (vi) acceptance of the Fund Deposit would, in the
discretion of the Trust or the Advisor, have an adverse effect
on the Trust or the rights of Beneficial Owners; or (vii) circumstances outside
the control of the Trust, the Distributor and the Advisor make it impracticable
to process purchase orders. The Trust shall notify a prospective
purchaser of a Creation Unit and/or the AP acting on behalf of such purchaser of
its rejection of such order. The Trust, the Custodian, the sub-custodian and
the Distributor are under no duty, however, to give notification
of any defects or irregularities in the delivery of Portfolio Deposits nor shall
any of them incur any liability for failure to give such notification.
Issuance
of a Creation Unit. Except as provided herein, a
Creation Unit will not be issued until the transfer of good title to the Trust
of the Deposit Securities and the payment of the Cash Component and any other cash
amounts which may be due have been completed. When (if
applicable) the sub-custodian has confirmed to the Custodian that the securities
included in the Fund Deposit (or the cash value thereof) have been delivered to
the account of the relevant sub-custodian or sub-custodians, the
Distributor and the Advisor shall be notified of such delivery and the Trust will
issue and cause the delivery of the Creation Unit. Creation Units typically are
issued on a “T+2
basis” (i.e., two Business
Days after trade date).
To
the extent contemplated by an AP’s agreement with the Distributor, the Trust
will issue Creation Units to such AP notwithstanding the fact that the corresponding
Portfolio Deposits have not been received in part or in whole,
in reliance on the undertaking of the AP to deliver the missing Deposit Securities
as soon as possible, which undertaking shall be secured by such AP’s delivery
and maintenance of collateral having a value at least equal to
115%, which the Advisor may change from time to time, of the value of the missing
Deposit Securities in accordance with the Trust’s then-effective procedures.
The only collateral that is acceptable to the Trust is cash in
US dollars or an irrevocable letter of credit in form, and drawn on a bank, that
is satisfactory to the Trust. The cash collateral posted by the AP may be invested
at the risk of the AP, and income, if any, on invested cash collateral
will be paid to that AP. Information concerning the Trust’s current procedures
for collateralization of missing Deposit Securities is available from the Transfer
Agent.
The Authorized Participant Agreement will permit the Trust to buy the missing Deposit
Securities at any time and will subject the AP to liability for any shortfall
between the cost to the Trust of purchasing such securities and
the cash collateral or the amount that may be drawn under any letter of credit.
In
certain cases, APs may create and redeem Creation Units on the same trade date
and in these instances, the Trust reserves the right to settle these transactions
on a net basis or require a representation from the APs that
the creation and redemption transactions are for separate Beneficial Owners. All
questions as to the number of shares of each security in the Deposit Securities
and the validity, form, eligibility and acceptance for deposit of
any securities to be delivered shall be determined by the Trust, and the Trust’s
determination shall be final and binding.
Cash
Purchase Method. In the case of a cash purchase, the
investor must pay the cash equivalent of the Deposit Securities it would otherwise
be required to provide through an in-kind purchase, plus the same Cash
Component required to be paid by an in-kind purchaser. In
addition, to offset the Trust’s brokerage and other transaction costs associated
with using the cash to purchase the requisite Deposit Securities, the investor
will be required to pay a fixed purchase transaction fee, plus an additional
variable charge for cash purchases, which is expressed as a percentage of the value
of the Deposit Securities.
Creation
Transaction Fee. A standard creation transaction
fee is imposed to offset the transfer and other transaction costs associated with
the issuance of Creation Units. The standard creation transaction fee will be the
same regardless of the number of Creation Units purchased
by a purchaser on the same day. The AP may also be required to cover certain brokerage,
tax, foreign exchange, execution, price movement and other costs and
expenses related to the execution of trades resulting from such transaction (including
when the Trust permits an AP to substitute cash for some or all of the Deposit
Securities). APs will also bear the costs of transferring the
Deposit Securities to the Trust. Investors who use the services of a broker or
other such intermediary may be charged a fee for such services. Certain fees or
costs associated with creation transactions may be waived in certain
circumstances. Each fund’s standard creation transaction fee is set forth
in the Prospectus.
Redemption
of Creation Units. Shares of a fund may be
redeemed only in Creation Units at their NAV next determined after receipt of a
redemption request in proper form and only on a Business Day. The Trust will not
redeem Shares in amounts less than Creation Units. Beneficial Owners
also may sell Shares in the secondary market but must accumulate enough Shares
to constitute a Creation Unit in order to have such Shares redeemed by
the Trust. There can be no assurance, however, that there will
be sufficient liquidity in the public trading market at any time to permit assembly
of a Creation Unit. Investors should expect to incur brokerage and other costs
in connection with assembling a sufficient number of Shares to
constitute a redeemable Creation Unit.
Redemptions
are effected primarily in-kind, except for Xtrackers MSCI China A Inclusion Equity
ETF, Xtrackers Harvest CSI 300 China A-Shares ETF, and Xtrackers Harvest
CSI 500 China A-Shares Small Cap ETF, which are effected principally in cash. In
the case of in-kind redemptions, the Advisor makes available through the
NSCC, prior to the opening of business on the Exchange on
each Business Day, the identity and number of Shares that will be applicable (subject
to possible amendment or correction) to redemption requests received in proper
form (as defined below) on that day (“Fund
Securities”).
Fund Securities received on redemption may not be identical
to Deposit Securities that are applicable to creations of Creation Units. Each
fund reserves the right to honor a redemption request by delivering a basket of
securities or cash that differs from the Fund Securities.
Unless
cash redemptions are available or specified for a fund, the redemption proceeds
for a Creation Unit generally consist of Fund Securities plus cash in an amount
equal to the difference between the NAV of the Shares being
redeemed, as next determined after a receipt of a request in proper form, and the
value of the Fund Securities, less the redemption transaction fee described
below.
Redemption
Transaction Fee. A standard redemption transaction
fee is imposed to offset transfer and other transaction costs that may be incurred
by the relevant fund. The standard redemption transaction fees are set
forth in the Prospectus. The standard redemption transaction
fee will be the same regardless of the number of Creation Units redeemed by an
investor on the same day. The AP may also be required to cover certain
brokerage, tax, foreign exchange, execution, price movement
and other costs and expenses related to the execution of trades resulting from
such transaction (including when the Trust substitutes cash for some or
all of the Fund Securities), up to a maximum of 2% of
the
amount redeemed (including the standard redemption fee set forth in the Prospectus).
APs will also bear the costs of transferring the Fund Securities from the Trust
to their account or on their order. Investors who use the services
of a broker or other such intermediary may be charged a fee for such services.
Certain fees or costs associated with redemption transactions may be waived
in certain circumstances.
The
maximum redemption fee, as a percentage of the amount redeemed, is 2%. Redemption
requests for Creation Units of any fund must be submitted by or through
an AP. An AP must submit an irrevocable redemption request before 4:00 p.m., Eastern
time on any Business Day in order to receive that day’s NAV. In the
case of custom redemptions, the order must be received no later than 3:00 p.m.,
Eastern time. Investors other than through APs are responsible for making
arrangements for a redemption request to be made through
an AP. The Distributor will provide a list of current APs upon request.
Cash
transactions may have to be carried out over several days if the securities market
is relatively illiquid and may involve considerable brokerage fees and taxes. These
brokerage fees and taxes, which will be higher than if a fund
sold and redeemed its shares principally in-kind, will generally be passed on to
purchasers and redeemers of Creation Units in the form of creation and redemption
transaction fees. However, the funds cap the total fees that
may be charged in connection with the redemption of Creation Units at 2% of the
value of the Creation Units redeemed. To the extent transaction and other costs
associated with a redemption exceed that cap those transaction
costs will be borne by a fund’s remaining shareholders.
The
AP must transmit the request for redemption in the form required by the Trust or
the Transfer Agent in accordance with procedures set forth in the Authorized
Participant Agreement. Investors should be aware that their
particular broker may not have executed an Authorized Participant Agreement and
that, therefore, requests to redeem Creation Units may have to be placed by the
investor’s broker through an AP who has executed an Authorized
Participant Agreement in effect. At any time, there may be only a limited number
of broker-dealers that have an Authorized Participant Agreement. Investors
making a redemption request should be aware that such request
must be in the form specified by such AP. Investors making a request to redeem
Creation Units should allow sufficient time to permit proper submission of the
request by an AP and transfer of the Shares to the Trust’s Transfer
Agent;
such investors should allow for the additional time that may be required to effect
redemptions through their banks, brokers or other financial intermediaries if such
intermediaries are not APs.
A
redemption request is considered to be in “proper
form” if
(i) an AP has transferred or caused to be transferred to the Trust’s Transfer
Agent the Creation Unit being redeemed through the book-entry system of DTC so
as to be effective by the Exchange closing time on any Business
Day, (ii) a request in form satisfactory to the Trust is received from the AP on
behalf of itself or another redeeming investor within the time periods specified
above and (iii) all other procedures set forth in the Participant
Agreement are properly followed. If the Transfer Agent does not receive the investor’s
Shares through DTC’s facilities by 10:00 a.m., Eastern time, on the
Business Day next following the day that the redemption request
is received, the redemption request shall be rejected. Investors should be aware
that the deadline for such transfers of Shares through the DTC system may
be significantly earlier than the close of business on the Exchange. Those making
redemption requests should ascertain the deadline applicable to transfers of
Shares through the DTC system by contacting the operations
department of the broker or depositary institution effecting the transfer of the
Shares.
Upon
receiving a redemption request, the Transfer Agent shall notify the Trust of such
redemption request. The tender of an investor’s Shares for redemption and
the distribution of the cash redemption payment in respect of
Creation Units redeemed will be made through DTC and the relevant AP to the Beneficial
Owner thereof as recorded on the book-entry system of DTC or the DTC Participant
through which such investor holds, as the case may be, or by such other means specified
by the AP submitting the redemption request.
A
redeeming Beneficial Owner or AP acting on behalf of such Beneficial Owner must
maintain appropriate security arrangements with a qualified broker-dealer, bank
or other custody providers in each jurisdiction in which any
of the portfolio securities are customarily traded, to which account such portfolio
securities will be delivered.
If
neither the redeeming Beneficial Owner nor the AP acting on behalf of such redeeming
Beneficial Owner has appropriate arrangements to take delivery of Fund
Securities in the applicable non-US jurisdiction and it is not
possible to make other such arrangements, or if it is not possible to effect deliveries
of Fund Securities in such jurisdiction, the Trust may in its discretion exercise
its option to redeem such Shares in cash, and the redeeming
Beneficial
Owner will be required to receive its redemption proceeds in cash. In such case,
the investor will receive a cash payment equal to the NAV of its Shares based
on the NAV of Shares of the relevant fund next determined
after the redemption request is received in proper form (minus a redemption transaction
fee and additional variable charge for cash redemptions specified above,
to offset the Trust’s brokerage and other transaction costs associated
with the disposition of portfolio securities of the fund). Redemptions of Shares
for Fund Securities will be subject to compliance with applicable US federal
and state securities laws and each fund (whether or not it
otherwise permits cash redemptions) reserves the right to redeem Creation Units
for cash to the extent that the fund could not lawfully deliver specific Fund Securities
upon redemptions or could not do so without first registering
the Fund Securities under such laws.
In
the case of cash redemptions, proceeds will be paid to the AP redeeming Shares
on behalf of the redeeming investor as soon as practicable after the date of
redemption (within seven calendar days thereafter).
The
right of redemption may be suspended or the date of payment postponed with respect
to any fund (i) for any period during which the NYSE is closed (other than
customary weekend and holiday closings), (ii) for any period
during which trading on the NYSE is suspended or restricted, (iii) for any period
during which an emergency exists as a result of which disposal of the Shares of
the fund’s portfolio securities or determination of its NAV is not
reasonably practicable or (iv) in such other circumstance as is permitted by the
SEC.
An
AP submitting a redemption request is deemed to represent to the Trust that it
is in compliance with the requirements set forth in the Authorized Participant
Agreement. The Trust reserves the right to verify these representations
at its discretion, but will typically require verification with respect to a redemption
request from a fund in connection with higher levels of redemption activity
and/or short interest in the fund. If the AP, upon receipt of a verification request,
does not provide sufficient verification of its representations as determined
by the Trust, the redemption request will not be considered to
have been received in proper form and may be rejected by the Trust.
Taxation
on Creation and Redemptions of Creation Units. An
AP generally will recognize either gain or loss upon the exchange of Deposit Securities
for Creation Units. This gain or loss is calculated by taking the market
value of the Creation Units purchased over the AP’s
aggregate
basis in the Deposit Securities exchanged therefor. However, the Internal Revenue
Service (the “IRS”)
may apply the wash sales rules to determine that any loss realized upon the exchange
of Deposit Securities for Creation Units is not currently deductible. APs should
consult their own tax advisors.
Current
federal tax laws dictate that capital gain or loss realized from the redemption
of Creation Units will generally create long-term capital gain or loss if the AP
holds the Creation Units for more than one year, or short-term
capital gain or loss if the Creation Units were held for one year or less.
Compensation
of Financial Intermediaries
The
Distributor may also enter into agreements with securities dealers (“Soliciting
Dealers”) who will solicit
purchases of Creation Units of fund Shares. Such Soliciting
Dealers must also be APs.
The
Advisor may, from time to time and from its own resources, pay, defray or absorb
costs relating to distribution, including payments out of its own resources to
the Distributor, or to otherwise promote the sale of Shares. The
Advisor currently pays the Distributor, from the Advisor’s own resources,
for such purposes.
The
Advisor and/or its subsidiaries or affiliates (“Xtrackers
Entities”)
may pay certain broker-dealers and other financial intermediaries or solicitors
(“Intermediaries”)
for certain marketing or referral activities related to the fund
or other funds advised by the Advisor or its affiliates. Any payments made by Xtrackers
Entities will be made from their own assets and not from the assets of the
fund. Although a portion of Xtrackers Entities’ revenue comes
directly or indirectly in part from fees paid by the fund and other Xtrackers funds,
payments do not increase the price paid by investors for the purchase of shares
of, or the cost of owning, shares of the fund or other Xtrackers funds.
Xtrackers Entities may make payments for Intermediaries’ participating in
activities that are designed to make registered representatives, other professionals
and individual investors more knowledgeable about the fund or
for other activities, such as participation in marketing activities and presentations,
educational training programs, the support of technology platforms and/or reporting
systems (“Education
Costs”) or the referral
or introduction of investors to Xtrackers Entities. Xtrackers Entities
may also make payments to Intermediaries for certain printing,
publishing and mailing costs associated with the fund or materials relating to
other Xtrackers funds or exchange-traded funds in general (“Publishing
Costs”). In
addition, Xtrackers Entities may make payments to
Intermediaries
that make shares of the fund and certain other Xtrackers funds available to their
clients or for otherwise promoting the fund and other Xtrackers funds.
Payments of this type are sometimes referred to as revenue-sharing
payments. Payments to an Intermediary may be significant to the Intermediary, and
amounts that Intermediaries pay to your salesperson or other investment
professional may also be significant for your salesperson or other investment professional.
Because an Intermediary may make decisions about which investment
options or investment advisor it will recommend or make available to its clients
or contacts or what services to provide for various products based on
payments it receives or is eligible to receive, payments create conflicts of interest
between the Intermediary and its clients or contacts and these financial incentives
may cause the Intermediary to recommend the fund and other Xtrackers
funds or their investment advisor over other investments or to refer a contact
to the Xtrackers Entities. The same conflict of interest exists with respect to
your salesperson or other investment professional if he or she receives
similar payments from his or her Intermediary firm. Ask your salesperson or visit
your Intermediary’s website for more information.
Xtrackers
Entities may determine to make payments based on any number of metrics. For example,
Xtrackers Entities may make payments at year end or other intervals in
a fixed amount, based upon an Intermediary’s services at defined levels or
an amount based on the Intermediary’s net sales of one or more Xtrackers
funds in a year or other period, any of which arrangements may include
an agreed upon minimum or maximum payment, or any combination
of the foregoing. Any payments made by the Xtrackers Entities to an Intermediary
may create the incentive for an Intermediary to encourage customers to
buy shares of the fund or other Xtrackers funds.
Certain
Xtrackers Entities have established revenue sharing arrangements to make Payments
to Intermediaries that make fund shares available to their clients or otherwise
promote certain funds. Pursuant to these arrangements, Intermediaries have agreed
to promote certain funds to their customers and to not charge certain of
their customers any commissions on the purchase or sale of fund shares. Payments
made pursuant to these arrangements may vary in any year and may be different
for different Intermediaries. In certain cases, the Payments described
in the preceding sentence may be subject to certain minimum payment levels.
Each
fund has been advised that the Advisor, the Distributor and their affiliates expect
that the firms listed in Part
II—Appendix
II-D will receive revenue sharing payments
at different points during the coming year as described above.
Anti-Money
Laundering Requirements. The funds are subject
to the USA PATRIOT Act (the “Patriot
Act”). The Patriot
Act is intended to prevent the use of the US financial system in furtherance of
money laundering, terrorism or other illicit activities. Pursuant to requirements
under the Patriot Act, a fund may request information
from APs to enable it to form a reasonable belief that it knows the true identity
of its APs. This information will be used to verify the identity of APs or, in
some cases, the status of financial professionals; it will be
used only for compliance with the requirements of the Patriot Act. The funds reserve
the right to reject purchase orders from persons who have not submitted
information sufficient to allow a fund to verify their identity. Each
fund also reserves the right to redeem any amounts in a fund from persons whose
identity it is unable to verify on a timely basis. It is the funds’ policy
to cooperate fully with appropriate regulators in any investigations conducted
with respect to potential money laundering, terrorism or other illicit activities.
Investments
Investments,
Practices and Techniques, and Risks
Part
II - Appendix II-E includes a description of the investment
practices and techniques which a fund may employ in pursuing its investment objective,
as well as the associated risks. Descriptions in this SAI of a particular
investment practice or technique in which a fund may engage
(or a risk that a fund may be subject to) are meant to describe the spectrum of
investments that the Advisor (and/or subadvisor, if applicable) in its discretion
might, but is not required to, use in managing a fund. The Advisor (and/or
subadvisor, if applicable) may in its discretion at any time employ such practice
and technique for one or more funds but not for all funds advised by it. Furthermore,
it is possible that certain types of investment practices or
techniques described herein may not be available, permissible, economically feasible
or effective for their intended purposes in all markets. Certain practices,
techniques or investments may not be principal activities of
the fund, but, to the extent employed, could from time to time have a material
impact on a fund’s performance.
It
is possible that certain investment practices and/or techniques may not be
permissible for a fund based on its investment restrictions, as described
herein (also see Part I: Investments, Practices and Techniques, and
Risks) and in the fund’s prospectus.
Portfolio
Transactions
The
Advisor and/or subadvisor assume general supervision over placing orders on behalf
of the funds for the purchase and sale of portfolio securities. In selecting
brokers or dealers for any transaction in portfolio securities, the
Advisor’s and/or subadvisor’s policy is to make such selection based
on factors deemed relevant, including but not limited to, the breadth of the market
in the security, the price of the security, the reasonableness of the commission
or mark-up or mark-down, if any, execution capability, settlement capability, back
office efficiency and the financial condition of the broker or dealer, both for
the specific transaction and on a continuing basis. The overall
reasonableness of brokerage commissions paid is evaluated by the Advisor and/or
subadvisor based upon their knowledge of available information as to the general
level of commissions paid by other institutional investors for
comparable services. Brokers may also be selected because of their ability to handle
special or difficult executions, such as may be involved in large block trades,
less liquid securities, broad distributions, or other circumstances.
The Trust has adopted policies and procedures that prohibit the consideration of
sales of the funds’ Shares as a factor in the selection of a broker or a
dealer to execute its portfolio transactions.
Purchases
and sales of fixed-income securities and certain over-the-counter securities are
effected on a net basis, without the payment of brokerage commissions. Transactions
in fixed income and certain over-the-counter securities
are generally placed by the Advisor with the principal market makers for these
securities unless the Advisor reasonably believes more favorable results are
available elsewhere. Transactions with dealers serving as
market makers reflect the spread between the bid and asked prices. Purchases of
underwritten issues will include an underwriting fee paid to the underwriter. Money
market instruments are normally purchased in principal transactions
directly from the issuer or from an underwriter or market maker.
To
the extent applicable and consistent with Section 28(e) of the 1934 Act, as amended,
and interpretations thereunder, the Advisor and/or subadvisor may cause a fund
to pay a higher commission than otherwise obtainable from
other brokers or dealers in return for brokerage or
research
services and products if the Advisor and/or subadvisor determines in good faith
that the commission is reasonable in relation to the services and products
utilized. In addition to agency transactions, the Advisor and/or
subadvisor may receive brokerage or research services and products in connection
with certain riskless principal transactions, in accordance with applicable SEC
and other regulatory guidelines. In both instances, these services
and products may include but are not limited to: economic, industry, or company
research reports or investment recommendations; subscriptions to certain
financial publications; market data such as stock quotes, last
sale prices, trading volumes and similar data; databases and software, including,
but not limited to, quantitative analytical software; and products and services
that assist in effecting transactions and functions incidental thereto,
including services of third-party computer systems directly related to brokerage
activities and routing settlement instructions. The Advisor and/or subadvisor
may use brokerage or research services and products furnished
by brokers, dealers or service providers in servicing all client accounts, and
not all services and products may necessarily be used in connection with
the account that paid the commissions or spreads to the
broker or dealer.
The
funds’ purchase and sale orders for securities may be combined with those
of other investment companies, clients or accounts that the Advisor and/or subadvisor
manage or advise and for which they have brokerage placement
authority. If purchases or sales of portfolio securities of the funds and one or
more other accounts managed or advised by the Advisor and/or subadvisor
are considered at or about the same time, transactions in
such securities are allocated among the funds and the other accounts in a manner
deemed equitable to all by the Advisor and/or subadvisor. In some cases, this
procedure could have a detrimental effect on the price or
volume of the security as far as the funds are concerned. However, in other cases,
it is possible that the ability to participate in volume transactions and to
negotiate lower transaction costs will be beneficial to the
funds. The Advisor and/or subadvisor from time to time deals, trades and invests
for their own account in the types of securities in which the funds may invest.
The Advisor and/or subadvisor may effect trades on behalf of
and for the account of the funds with brokers or dealers that are affiliated with
the Advisor and/or subadvisor, in conformity with the 1940 Act and SEC rules and
regulations. Under these provisions, any commissions paid to affiliated
brokers or dealers must be reasonable and fair compared to the commissions charged
by other brokers or dealers in comparable transactions. The funds will not
deal
with affiliates in principal transactions unless permitted by applicable SEC rule
or regulation or by SEC exemptive order.
Portfolio
Turnover. Portfolio turnover rate is defined by the
SEC as the ratio of the lesser of sales or purchases to the monthly average value
of such securities owned during the year, excluding all securities whose remaining
maturities at the time of acquisition were one year or less.
Portfolio
turnover may vary from year to year as well as within a year. High turnover rates
may result in comparatively greater brokerage expenses and higher taxes (if
you are investing in a taxable account). The overall reasonableness
of brokerage commissions is evaluated by the Advisor and/or subadvisor, if applicable,
based upon their knowledge of available information as to the general level
of commissions paid by the other institutional investors for
comparable services.
Portfolio
Holdings Information
The
Trust has adopted a policy regarding the disclosure of information about the Trust’s
portfolio holdings. The Board must approve all material amendments to this
policy.
Each
fund’s portfolio holdings are publicly disseminated each day the funds are
open for business through financial reporting and news services, including publicly
accessible Internet web sites. In addition, a basket composition
file, which includes the security names and share quantities to deliver in exchange
for fund shares, together with estimates and actual cash components, is publicly
disseminated daily prior to the opening of the Exchanges via
the NSCC. The basket represents one Creation Unit of each fund. The Trust, the
Advisor and the Administrator will not disseminate non-public information
concerning the Trust.
Net
Asset Value
Each
fund offers and issues Shares at their net asset value (“NAV”)
per Share only in aggregations of a specified number of Shares (“Creation
Units”), generally in
exchange for a basket of securities and other instruments
included in its Underlying Index (the “Deposit
Securities”),
together with the Cash Component. For Xtrackers Harvest CSI 300 China A-Shares
ETF, Xtrackers MSCI China A Inclusion Equity ETF, and Xtrackers Harvest
CSI 500 China A-Shares Small Cap ETF, each fund offers
and
issues Shares at their NAV per Share only in Creation Units, generally in exchange
for a specified amount of cash totaling the NAV of the Creation Units. Shares trade
in the secondary market at market prices that may be at,
above or below NAV. Information on the Exchange on which each fund trades is set
forth in Part I – Appendix I-I.
Proxy
Voting
Each
fund has delegated proxy voting responsibilities to the Advisor, subject to the
Board’s general oversight. Each fund has delegated proxy voting to the Advisor
with the direction that proxies should be voted consistent with each
fund’s best economic interests. The Advisor has adopted its own Proxy Voting
Policies and Procedures (Policies), and Proxy Voting Guidelines (Guidelines) for
this purpose. The Policies address, among other things, conflicts
of interest that may arise between the interests of a fund, and the interests of
the Advisor and its affiliates. The Policies and Guidelines are included in Part
II—
Appendix II-G.
You
may obtain information about how each fund voted proxies related to its portfolio
securities during the 12-month period ended June 30 by visiting the SEC’s
website at www.sec.gov or by visiting our website at dws.com/en-us/resources/proxy-voting.
Miscellaneous
The
funds’ prospectuses and this SAI omit certain information contained in the
Trust’s Registration Statement filed with the SEC under the 1933 Act and
reference is hereby made to the Registration Statement for further information
with respect to the funds, and the securities offered hereby.
Ratings
Of Investments
Bonds
and Commercial Paper Ratings
Set
forth below are descriptions of ratings (as of the date of each rating agency’s
annual ratings publication) which represent opinions as to the quality of the securities.
It should be emphasized, however, that ratings are relative and
subjective and are not absolute standards of quality.
If
a fixed income security is rated differently among the three major ratings agencies
(i.e., Moody’s Investor Services, Inc., Fitch Investors Services, Inc., and
S&P Global Ratings), portfolio management would rely on the highest
credit rating for purposes of the fund’s investment policies.
Moody’s
Investors Service, Inc. Global Long-Term Rating Scale
Moody’s
long-term ratings are assigned to issuers or obligations with an original maturity
of one year or more and reflect both on the likelihood of a default or impairment
on contractual financial obligations and the expected financial
loss suffered in the event of default or impairment.
Aaa
Obligations rated Aaa are judged to be of the highest quality, subject to the lowest
level of credit risk.
Aa
Obligations rated Aa are judged to be of high quality and are subject to very low
credit risk.
A
Obligations rated A are judged to be upper-medium grade and are subject to low
credit risk.
Baa
Obligations rated Baa are judged to be medium-grade and subject to moderate credit
risk and as such may possess certain speculative characteristics.
Ba
Obligations rated Ba are judged to be speculative and are subject to substantial
credit risk.
B
Obligations rated B are considered speculative and are subject to high credit risk.
Caa
Obligations rated Caa are judged to be speculative of poor standing and are subject
to very high credit risk.
Ca
Obligations rated Ca are highly speculative and are likely in, or very near, default,
with some prospect of recovery of principal and interest.
C
Obligations rated C are the lowest rated and are typically in default, with little
prospect for recovery of principal or interest.
Note:
Moody’s appends numerical modifiers 1, 2, and 3 to each generic rating classification
from Aa through Caa. The modifier 1 indicates that the obligation ranks in the
higher end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a ranking in the lower end of
that generic rating category.
Additionally,
a “(hyb)”
indicator is appended to all ratings of hybrid securities issued by banks, insurers,
finance companies, and securities firms.
By
their terms, hybrid securities allow for the omission of scheduled dividends, interest,
or principal payments, which can potentially result in impairment if such an
omission occurs. Hybrid securities may also be subject to
contractually allowable write-downs of principal that could result in impairment.
Together with the hybrid indicator, the long-term obligation rating assigned to
a hybrid security is an expression of the relative credit risk associated
with that security.
Moody’s
Investors Service, Inc. Global Short-Term Rating Scale
Moody’s
short-term ratings are assigned to obligations with an original maturity of thirteen
months or less and reflect both on the likelihood of a default or impairment
on contractual financial obligations and the expected financial
loss suffered in the event of default or impairment.
P-1
Issuers (or supporting institutions) rated Prime-1 have a superior ability to repay
short-term debt obligations.
P-2
Issuers (or supporting institutions) rated Prime-2 have a strong ability to repay
short-term debt obligations.
P-3
Issuers (or supporting institutions) rated Prime-3 have an acceptable ability to
repay short-term obligations.
NP
Issuers (or supporting institutions) rated Not Prime do not fall within any of
the Prime rating categories.
Moody’s
Investors Service, Inc. US Municipal Short-Term Debt and Demand Obligation
Ratings
Short-Term
Obligation Ratings
The
Municipal Investment Grade (MIG) scale is used to rate US municipal cash flow notes,
bond anticipation notes and certain other short-term obligations, which typically
mature in three years or less. Under certain circumstances,
the MIG scale is used for bond anticipation notes with maturities of up to five
years.
MIG
1 This designation denotes superior credit quality. Excellent
protection is afforded by established cash flows, highly reliable liquidity support,
or demonstrated broad-based access to the market for refinancing.
MIG
2 This designation denotes strong credit quality. Margins
of protection are ample, although not as large as in the preceding group.
MIG
3 This designation denotes acceptable credit quality. Liquidity
and cash-flow protection may be narrow, and market access for refinancing is likely
to be less well-established.
SG
This designation denotes speculative-grade credit quality. Debt instruments in
this category may lack sufficient margins of protection.
Demand
Obligation Ratings
In
the case of variable rate demand obligations (VRDOs), a two-component rating is
assigned. The components are a long-term rating and a short-term demand obligation
rating. The long-term rating addresses the issuer’s ability to
meet scheduled principal and interest payments. The short-term demand obligation
rating addresses the ability of the issuer or the liquidity provider to make payments
associated with the purchase-price-upon-demand feature (“demand
feature”) of the VRDO.
The short-term demand obligation rating uses the Variable Municipal Investment
Grade (VMIG) scale.
The
rating transitions on the VMIG scale differ from those on the Prime scale to reflect
the risk that external liquidity support will terminate if the issuer's long-term
rating drops below investment grade.
VMIG
1 This designation denotes superior credit quality. Excellent
protection is afforded by the superior short-term credit strength of the liquidity
provider and structural and legal protections that ensure the timely payment of
purchase price upon demand.
VMIG
2 This designation denotes strong credit quality. Good
protection is afforded by the strong short-term credit strength of the liquidity
provider and structural and legal protections that ensure the timely payment of
purchase price upon demand.
VMIG
3 This designation denotes acceptable credit quality. Adequate
protection is afforded by the satisfactory short-term credit strength of the liquidity
provider and structural and legal protections that ensure the timely payment
of purchase price upon demand.
SG
This designation denotes speculative-grade credit quality. Demand features rated
in this category may be supported by a liquidity provider that does not have a
sufficiently strong short-term rating or may lack the structural
or legal protections necessary to ensure the timely payment of purchase price upon
demand.
S&P
Global Ratings Long-Term Issue Credit Ratings
Investment
Grade
AAA
An obligation rated 'AAA' has the highest rating assigned
by S&P Global Ratings. The obligor's capacity to meet its financial commitments
on the obligation is extremely strong.
AA
An obligation rated 'AA' differs from the highest-rated
obligations only to a small degree. The obligor's capacity to meet its financial
commitments on the obligation is very strong.
A
An obligation rated 'A' is somewhat more susceptible to
the adverse effects of changes in circumstances and economic conditions than obligations
in higher-rated categories. However, the obligor's capacity to meet its
financial commitments on the obligation is still strong.
BBB
An obligation rated 'BBB' exhibits adequate protection
parameters. However, adverse economic conditions or changing circumstances are
more likely to weaken the obligor’s capacity to meet its financial commitments
on the obligation.
Speculative
Grade
Obligations
rated 'BB', 'B', 'CCC', 'CC', and 'C' are regarded as having significant speculative
characteristics. 'BB' indicates the least degree of speculation and 'C'
the highest. While such obligations will likely have some quality and protective
characteristics, these may be outweighed by large uncertainties or major exposure
to adverse conditions.
BB
An obligation rated 'BB' is less vulnerable to nonpayment
than other speculative issues. However, it faces major ongoing uncertainties or
exposure to adverse business, financial, or economic conditions that could
lead to the obligor's inadequate capacity to meet its financial
commitments on the obligation.
B
An obligation rated 'B' is more vulnerable to nonpayment than obligations rated
'BB', but the obligor currently has the capacity to meet its financial commitments
on the obligation. Adverse business, financial, or economic conditions
will likely impair the obligor's capacity or willingness to meet its financial
commitments on the obligation.
CCC
An obligation rated 'CCC' is currently vulnerable to nonpayment and is dependent
upon favorable business, financial, and economic conditions for the obligor to
meet its financial commitments on the obligation. In the event
of
adverse business, financial, or economic conditions, the obligor is not likely
to have the capacity to meet its financial commitments on the obligation.
CC
An obligation rated 'CC' is currently highly vulnerable to nonpayment. The 'CC'
rating is used when a default has not yet occurred but S&P Global Ratings expects
default to be a virtual certainty, regardless of the anticipated
time to default.
C
An obligation rated 'C' is currently highly vulnerable to nonpayment, and the obligation
is expected to have lower relative seniority or lower ultimate recovery compared
with obligations that are rated higher.
D
An obligation rated 'D' is in default or in breach of an imputed promise. For non-hybrid
capital instruments, the 'D' rating category is used when payments on an
obligation are not made on the date due, unless S&P Global
Ratings believes that such payments will be made within five business days in the
absence of a stated grace period or within the earlier of the stated grace period
or 30 calendar days. The 'D' rating also will be used upon the
filing of a bankruptcy petition or the taking of similar action and where default
on an obligation is a virtual certainty, for example due to automatic stay provisions.
A rating on an obligation is lowered to 'D' if it is subject to
a distressed exchange offer.
Plus
(+) or Minus (-) Ratings from 'AA' to 'CCC' may be
modified by the addition of a plus (+) or minus (-) sign to show relative standing
within the rating categories.
S&P
Global Ratings Short-Term Issue Credit Ratings
A-1
A short-term obligation rated 'A-1' is rated in the highest category by S&P
Global Ratings. The obligor's capacity to meet its financial commitments on the
obligation is strong. Within this category, certain obligations
are designated with a plus sign (+). This indicates that the obligor's capacity
to meet its financial commitments on these obligations is extremely strong.
A-2
A short-term obligation rated 'A-2' is somewhat more susceptible to the adverse
effects of changes in circumstances and economic conditions than obligations in
higher rating categories. However, the obligor's capacity to meet its
financial commitments on the obligation is satisfactory.
A-3
A short-term obligation rated 'A-3' exhibits adequate protection parameters. However,
adverse economic conditions or changing circumstances are more likely to weaken
an obligor’s capacity to meet its financial commitments on
the obligation.
B
A short-term obligation rated 'B' is regarded as vulnerable and has significant
speculative characteristics. The obligor currently has the capacity to meet its
financial commitments; however, it faces major ongoing uncertainties
that could lead to the obligor's inadequate capacity to meet its financial commitments.
C
A short-term obligation rated 'C' is currently vulnerable to nonpayment and is
dependent upon favorable business, financial, and economic conditions for the obligor
to meet its financial commitments on the obligation.
D
A short-term obligation rated 'D' is in default or in breach of an imputed promise.
For non-hybrid capital instruments, the 'D' rating category is used when payments
on an obligation are not made on the date due, unless S&P
Global Ratings believes that such payments will be made within any stated grace
period. However, any stated grace period longer than five business days will be
treated as five business days. The 'D' rating also will be used upon
the filing of a bankruptcy petition or the taking of a similar action and where
default on an obligation is a virtual certainty, for example due to automatic stay
provisions. A rating on an obligation is lowered to 'D' if it is subject
to a distressed exchange offer.
SPUR
(S&P Underlying Rating) A SPUR is an opinion about
the stand-alone capacity of an obligor to pay debt service on a credit-enhanced
debt issue, without giving effect to the enhancement that applies to it. These
ratings are published only at the request of the debt issuer or obligor
with the designation SPUR to distinguish them from the credit-enhanced rating that
applies to the debt issue. S&P Global Ratings maintains surveillance of an
issue with a published SPUR.
S&P
Global Ratings Municipal Short-Term Note Ratings
An
S&P Global Ratings US municipal note rating reflects S&P Global Ratings’
opinion about the liquidity factors and market access risks unique to the notes.
Notes due in three years or less will likely receive a note rating. Notes
with an original maturity of more than three years will most likely receive a long-term
debt rating. In determining which type of rating, if any, to assign, S&P Global
Ratings’ analysis will review the following considerations:
•
Amortization
schedule—the
larger the final maturity relative to other maturities, the more likely it will
be treated as a note; and
•
Source
of payment—the
more dependent the issue is on the market for its refinancing, the more likely
it will be treated as a note.
Note
rating symbols are as follows:
SP-1
Strong capacity to pay principal and interest. An issue determined to possess a
very strong capacity to pay debt service is given a plus (+) designation.
SP-2
Satisfactory capacity to pay principal and interest, with some vulnerability to
adverse financial and economic changes over the term of the notes.
SP-3
Speculative capacity to pay principal and interest.
D
‘D’ is assigned upon failure to pay the note when due, completion
of a distressed exchange offer, or the filing of a bankruptcy petition or the taking
of similar action and where default on an obligation is a virtual certainty,
for example due to automatic stay provisions.
S&P
Global Ratings Dual Ratings
Dual
ratings may be assigned to debt issues that have a put option or demand feature.
The first component of the rating addresses the likelihood of repayment of
principal and interest as due, and the second component of
the rating addresses only the demand feature. The first component of the rating
can relate to either a short-term or long-term transaction and accordingly use
either short-term or long-term rating symbols. The second component
of the rating relates to the put option and is assigned a short-term rating symbol
(for example, 'AAA/A-1+' or 'A-1+/A-1'). With US municipal short-term demand
debt, the US municipal short-term note rating symbols are used for the first component
of the rating (for example, 'SP-1+/A-1+').
S&P
Global Market Intelligence Earnings and Dividend Rankings for Common Stocks
S&P
Global Market Intelligence, an affiliate of S&P Global Ratings, has provided
Earnings and Dividend Rankings, commonly referred to as Quality Rankings, on common
stocks since 1956. Quality Rankings reflect the long-term growth
and stability of a company’s earnings and dividends.
The
Quality Rankings System attempts to capture the long-term growth and stability
of earnings and dividends record in a single system. In assessing Quality Rankings,
S&P Global Market Intelligence recognizes that earnings and
dividend performance is the end result of the interplay of various factors such
as products and industry position, corporate resources and financial policy. Over
the long run, the record of earnings and dividend performance has
a considerable bearing on the relative quality of stocks.
The
rankings, however, do not profess to reflect all of the factors, tangible or intangible,
that bear on stock quality.
The
rankings are generated by a computerized system and are based on per-share earnings
and dividend records of the most recent 10 years – a period long enough to
measure significant secular (long-term) growth, capture indications
of changes in trend as they develop, encompass the full peak-to-peak range of the
business cycle, and include a bull and a bear market. Basic scores are
computed for earnings and dividends, and then adjusted as indicated by a set of
predetermined modifiers for change in the rate of growth, stability within long-term
trend, and cyclicality. Adjusted scores for earnings and dividends
are then combined to yield a final ranking.
The
ranking system makes allowance for the fact that corporate size generally imparts
certain advantages from an investment standpoint. Conversely, minimum size limits
(in sales volume) are set for the various rankings. However, the
system provides for making exceptions where the score reflects an outstanding earnings
and dividend record. The following table shows the letter classifications
and brief descriptions of Quality Rankings.
The
ranking system grants some exceptions to the pure quantitative rank. Thus, if a
company has not paid any dividend over the past 10 years, it is very unlikely that
it will rank higher than A-. In addition, companies may receive a
bonus score based on their sales volume higher sales are viewed as better for stability.
If a company omits a dividend on preferred stock, it will receive a rank of no
better than C that year. If a company pays a dividend on the
common stock, it is highly unlikely that the rank will be below B-, even if it
has incurred losses. In addition, if a company files for bankruptcy, the model’s
rank is automatically changed to D.
Fitch
Ratings Long-Term Ratings
Investment
Grade
AAA:
Highest credit quality. ‘AAA’ ratings denote the lowest expectation
of default risk. They are assigned only in cases of exceptionally strong capacity
for payment of financial commitments. This capacity is highly unlikely to be adversely
affected by foreseeable events.
AA:
Very high credit quality. ‘AA’ ratings denote expectations of very
low default risk. They indicate very strong capacity for payment of financial commitments.
This capacity is not significantly vulnerable to foreseeable events.
A:
High credit quality. ‘A’ ratings denote expectations of low default
risk. The capacity for payment of financial commitments is considered strong. This
capacity may, nevertheless, be more vulnerable to adverse business or
economic conditions than is the case for higher ratings.
BBB:
Good credit quality. ‘BBB’ ratings indicate that expectations of default
risk are currently low. The capacity for payment of financial commitments is considered
adequate, but adverse business or economic conditions are
more likely to impair this capacity.
Speculative
Grade
BB:
Speculative. ‘BB’ ratings indicate an elevated vulnerability to default
risk, particularly in the event of adverse changes in business or economic conditions
over time; however, business or financial flexibility exists that supports
the servicing of financial commitments.
B:
Highly speculative. ‘B’ ratings indicate that material default risk
is present, but a limited margin of safety remains. Financial commitments are currently
being met; however, capacity for continued payment is vulnerable to deterioration
in the business and economic environment.
CCC:
Substantial credit risk. Default is a real possibility.
CC:
Very high levels of credit risk. Default of some kind appears probable.
C:
Near default. A default or default-like process has begun, or the issuer is in
standstill, or for a closed funding vehicle, payment capacity is irrevocably impaired.
Conditions that are indicative of a ‘C’ category rating for an issuer
include:
a.
the issuer has entered into a grace or cure period following non-payment of a material
financial obligation;
b.
the issuer has entered into a temporary negotiated waiver or standstill agreement
following a payment default on a material financial obligation;
c.
the formal announcement by the issuer or their agent of a distressed debt exchange;
d.
a closed financing vehicle where payment capacity is irrevocably impaired such
that it is not expected to pay interest and/or principal in full during the life
of the transaction, but where no payment default is imminent.
RD:
Restricted default. ‘RD’ ratings indicate an issuer that in Fitch’s
opinion has experienced:
a.
an uncured payment default or distressed debt exchange on a bond, loan or other
material financial obligation, but
b.
has not entered into bankruptcy filings, administration, receivership, liquidation,
or other formal winding-up procedure, and
c.
has not otherwise ceased operating.
This
would include:
i.
the selective payment default on a specific class or currency of debt;
ii.
the uncured expiry of any applicable grace period, cure period or default forbearance
period following a payment default on a bank loan, capital markets security or
other material financial obligation;
iii.
the extension of multiple waivers or forbearance periods upon a payment default
on one or more material financial obligations, either in series or in parallel;
ordinary execution of a distressed debt exchange on one or more material
financial obligations.
D:
Default. ‘D’ ratings indicate an issuer that in Fitch’s opinion
has entered into bankruptcy filings, administration, receivership, liquidation
or other formal winding-up procedure or that has otherwise ceased business.
Default
ratings are not assigned prospectively to entities or their obligations; within
this context, non-payment on an instrument that contains a deferral feature or
grace period will generally not be considered a default until after the
expiration of the deferral or grace period, unless a default is otherwise driven
by bankruptcy or other similar circumstance, or by a distressed debt exchange.
In
all cases, the assignment of a default rating reflects Fitch’s opinion as
to the most appropriate rating category consistent with the rest of its universe
of ratings, and may differ from the definition of default under the terms
of an issuer’s financial obligations or local commercial practice.
Within
rating categories, Fitch may use modifiers. The modifiers “+”
or “-”
may be appended to a rating to denote relative status within major rating categories.
For example, the rating category ‘AA’ has three notch-specific rating
levels (‘AA+’; ‘AA’; ‘AA–‘; each a rating
level). Such suffixes are not added to ‘AAA’ ratings and ratings below
the ‘CCC’ category. For the short-term rating category of ‘F1’,
a ‘+’ may be appended.
Fitch
Ratings Short-Term Ratings
F1:
Highest Short-Term Credit Quality. Indicates the strongest intrinsic capacity for
timely payment of financial commitments; may have an added “+”
to denote any exceptionally strong credit feature.
F2:
Good Short-Term Credit Quality. Good intrinsic capacity for timely payment of financial
commitments.
F3:
Fair Short-Term Credit Quality. The intrinsic capacity for timely payment of financial
commitments is adequate.
B:
Speculative Short-Term Credit Quality. Minimal capacity for timely payment of financial
commitments, plus heightened vulnerability to near term adverse changes
in financial and economic conditions.
C:
High Short-Term Default risk. Default is a real possibility.
RD:
Restricted Default. Indicates an entity that has defaulted on one or more of its
financial commitments, although it continues to meet other financial obligations.
Typically applicable to entity ratings only.
D:
Default. Indicates a broad-based default event for an entity, or the default of
a short-term obligation.
Part
II: Appendix II-A—Board
Members and Officers
Identification
and Background
The
Board has responsibility for the overall management and operations of the funds, including general supervision of
the duties performed by the Advisor and other service providers. Each Board Member serves until his or her successor is
duly elected or appointed and qualified. Each officer serves until he or she resigns, is removed, dies, retires or becomes
disqualified.
The
Trust currently has three Board Members. The three Independent Board Members have no affiliation or business connection
with the Advisor or any of its affiliated persons and do not own any stock or other securities issued by the
Advisor.
The
Independent Board Members of the Trust, their term of office and length of time served, their principal business occupations
during the past five years, the number of portfolios in the fund complex (defined below) overseen by each
Independent Board Member, and other directorships, if any, held by the Board Members are shown below. The fund
complex includes all registered open- and closed-end funds (including all of their portfolios) advised by the Advisor and
any registered funds that have an investment advisor that is an affiliated person of the Advisor. As of the date of this
SAI, the fund complex consists of the funds in the Trust, as well as the registered funds advised by affiliates of the
Advisor.
Shareholder
Communications to the Board. Shareholders may send communications to the Trust’s
Board by addressing the communications directly to the Board (or individual Board
Members) and/or otherwise clearly indicating in the salutation that the communication
is for the Board (or individual Board Members). The shareholder may send the communication
to either the Trust’s office or directly to such Board members c/o 875 Third Avenue, New York, NY 10022.
Other shareholder communications received by the Trust not directly addressed and sent to the Board will be reviewed
and generally responded to by management. Such communications will be forwarded to the Board at management’s discretion
based on the matters contained therein.
Independent
Board Members
Name,
Year of Birth,
Position
with
the Trust and Length
of
Time Served(1)
|
Business
Experience and
Directorships
During the Past 5 Years |
Number
of
Portfolios
in
Fund
Complex
Overseen
|
Other
Directorships
Held
by
Board
Member |
Stephen
R. Byers
(1953)Chairman
since 2016,
and
Board Member since
2011
(formerly, Lead
Independent
Board
Member,
2015-2016) |
Independent
Director (2011- present);
Independent
Consultant (2014-present);
Director
of Investment Management, the
Dreyfus
Corporation (2000-2006) and Vice
Chairman
and Chief Investment Officer, the
Dreyfus
Corporation (2002-2006). |
|
The
Arbitrage Funds, Sierra
Income
Corporation, Mutual
Fund
Directors Forum |
George
O. Elston (1964)
Board
Member since 2011,
Chairman
of the Audit
Committee
since 2015 |
Chief
Financial Officer, Enzyvant (2018-
present);
Chief Executive Officer, 2X
Oncology,
Inc. (2017-2018); Senior Vice
President
and Chief Financial Officer, Juniper
Pharmaceuticals,
Inc. (2014-2016); Senior
Vice
President and Chief Financial Officer,
KBI
BioPharma Inc. (2013-2014); Managing
Partner,
Chatham Street Partners (2010-
2013).
|
|
|
J.
David Officer (1948)
Board
Member since 2011,
Chairman
of the Nominating
Committee
since 2015 |
Independent
Director (2010-present); Vice
Chairman,
the Dreyfus Corporation (2006-
2009);
President, The Dreyfus Family of
Funds,
Inc. (2006-2009). |
|
(Chairman
of) Ilex
Management
Ltd; Old
Westbury
Funds |
Officers(2)
Name,
Year of Birth, Position
with
the Trust and Length of
Time
Served(4)
|
Business
Experience and
Directorships
During the Past 5 Years |
Freddi
Klassen(5)
(1975)
President
and Chief Executive
Officer,
2016-present |
Director(3)
in DWS and Chief Operating Officer in the Americas for the Traditional Asset
Classes
Department (2014–present); Manager and Chief Operating Officer of DWS
Investment
Management Americas, Inc. (2018–present) and the Advisor (2016–
present);
Global Chief Operating Officer for Equities Technology in the Investment Bank
Division
at Deutsche Bank AG (2013-2014); Chief Operating Officer for Exchange
Traded
Funds and Systematic Funds in Europe (2008-2013). |
Luke
Oliver(5)
(1980)
Chief
Operating Officer, 2019-
present
|
Managing
Director(3)
in DWS (2017-present); Director(3)
in DWS (2009-2017); Head of
Passive
Americas Asset Management Platform (2019-present); Manager, Chief
Executive
Officer and Chief Investment Officer of the Advisor (2019-present); Head of
ETF
Capital Markets, Americas (2012-2018); Lead Portfolio Manager of PowerShares
DB
ETFs (2009-2012). |
Diane
Kenneally(6)
(1966)
Treasurer,
Chief Financial
Officer
and Controller, 2019-
present
|
Director(3)
in DWS; Chief Financial Officer and Treasurer for DWS US registered
investment
companies advised by DWS Investment Management Americas, Inc.
(2018-present);
Treasurer and Chief Financial Officer, The European Equity Fund, Inc.,
The
New Germany Fund, Inc. and The Central and Eastern Europe Fund, Inc. (2018-
present);
formerly: Assistant Treasurer for the DWS funds (2007-2018). |
Frank
Gecsedi(5)
(1967)
Chief
Compliance Officer,
2010-present
|
Director(3)
in DWS Compliance Department (2016-present), Vice President in the
Deutsche
Asset Management Compliance Department at Deutsche Bank AG (2013-
2016)
and Chief Compliance Officer of the Advisor (2010-present); Chief Compliance
Officer
of DWS Distributors, Inc. (2019-present); Vice President in Deutsche Bank’s
Global
Markets Legal, Risk and Capital Division (2010-2012). |
Bryan
Richards(5)
(1978)
Vice
President, 2016-present |
Managing
Director(3)
in DWS (2018-present); Director(3)
in DWS (2014-2018); Portfolio
Manager
in the Passive Asset Management Department at DWS (2011-present);
Primary
Portfolio Manager for the PowerShares DB Commodity ETFs (2011-2015). |
John
Millette(6)
(1962)
Secretary,
2020-present |
Director(3)
in DWS US Retail Legal (2003-present); Vice President and Secretary of
DWS
US registered investment companies advised by DWS Investment Management
Americas,
Inc. (1999-present); Chief Legal Officer, DWS Investment Management
Americas,
Inc. (2015-present); Director and Vice President of DWS Trust Company
(2016-present);
Secretary, The European Equity Fund, Inc., The New Germany Fund,
Inc.
and The Central and Eastern Europe Fund, Inc. (2011-present); formerly: Secretary
of
Deutsche Investment Management Americas Inc. (2015-2017); Assistant Secretary
of
DBX ETF Trust (2019-2020); Assistant Secretary (July 14, 2006-December 31, 2010)
and
Secretary (January 31, 2006-July 13, 2006), The European Equity Fund, Inc., The
New
Germany Fund, Inc. and The Central and Eastern Europe Fund, Inc. |
Caroline
Pearson (6)
(1962)
Assistant
Secretary, 2020-
present
|
Managing
Director(3) in
DWS US Retail Legal; Chief Legal Officer of DWS US
registered
investment companies advised by DWS Investment Management Americas,
Inc.
(2010-present); Chief Legal Officer, DBX Advisors LLC and DBX Strategic Advisors
LLC
(2020-present); Chief Legal Officer, The European Equity Fund, Inc., The New
Germany
Fund, Inc. and The Central and Eastern Europe Fund, Inc. (2012-present);
formerly:
Secretary, Deutsche AM Distributors, Inc. (2002-2017); and Secretary,
Deutsche
AM Service Company (2010-2017). |
Paul
Antosca(6)
(1957)
Assistant
Treasurer, 2019-
present
|
Director(3)
in DWS; Assistant Treasurer for DWS US registered investment companies
advised
by DWS Investment Management Americas, Inc. (2007-present). |
Jeffrey
Berry(6)
(1959)
Assistant
Treasurer, 2019-
present
|
|
Sheila
Cadogan(6)
(1966)
Assistant
Treasurer, 2019-
present
|
Director(3)
in DWS; Assistant Treasurer for DWS US registered investment companies
advised
by DWS Investment Management Americas, Inc. (2017-present); Director and
Vice
President, DWS Trust Company (2018-present); Assistant Treasurer, The European
Equity
Fund, Inc., The New Germany Fund, Inc. and The Central and Eastern Europe
Fund,
Inc. (2018-present). |
Christina
A. Morse(7)
(1964)
Assistant
Secretary, 2017-
present
|
Vice
President at BNY Mellon-Asset Servicing (2014-present); Vice President and
Counsel
at Lord Abbett & Co. LLC (2013-2014). |
Name,
Year of Birth, Position
with
the Trust and Length of
Time
Served(4)
|
Business
Experience and
Directorships
During the Past 5 Years |
Michelle
Goveia-Pine(6) (1970)
Interim
Anti-Money Laundering
Compliance
Officer, since July
9,
2020 |
Director(3)
in DWS; Interim AML Officer, DWS Trust Company (since July 28, 2020);
and
Interim AML Officer of DWS US registered investment companies advised by
DWS
Investment Management Americas, Inc. (since July 10, 2020); Interim AML
Officer,
The European Equity Fund, Inc., The New Germany Fund, Inc. and The Central
and
Eastern Europe Fund, Inc. (since July 24, 2020). |
(1)
The
length of time served is represented by the year in which the Board Member joined the Board.
(2)
As
a result of their respective positions held with the Advisor and its affiliates, these individuals are considered “interested
persons” of the
Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from
the fund.
(3)
Executive
title, not a board directorship.
(4)
The
length of time served is represented by the year in which the officer was first elected to the Trust in such capacity.
(5)
Address:
875 Third Avenue, New York, New York 10022.
(6)
Address:
One International Place, Boston, Massachusetts 02110.
(7)
Address:
BNY Mellon Asset Servicing, Atlantic Terminal Office Tower, 2 Hanson Place, Brooklyn, NY 11217.
Certain
officers hold similar positions for other investment companies for which DBX or an affiliate serves as the Advisor.
Board
Member Qualifications
The
Board has concluded that, based on each Board Member’s experience, qualifications and attributes, each Board Member
should serve as a Board Member. Following is a brief summary of the information that led to this conclusion:
Mr.
Byers gained extensive experience with a variety of financial, accounting, management, regulatory and operational issues
facing registered investment companies through his more than 30 years of experience on the boards and/or in
senior management of such companies as The Arbitrage Funds, Sierra Income Corporation, Mutual Fund Directors Forum,
College of William and Mary - Graduate School of Business, Lighthouse Growth Advisors LLC, Founders Asset Management,
LLC, The Dreyfus Corporation, Gruntal & Co., LLC, Painewebber, Citibank/Citicorp and American Airlines. Mr.
Byers possesses a strong understanding of the regulatory framework under which registered investment companies must
operate and can provide management input and investment guidance to the Board.
Through
Mr. Elston’s prior positions on the boards and in senior management of such companies as Juniper Pharmaceuticals, Inc.,
KBI BioPharma, Inc., Celldex Therapeutics, Inc., Optherion, Inc. and Elusys Therapeutics, Mr. Elston has experience with
a variety of financial, management, regulatory and operational issues as well as experience with marketing and distribution.
Mr. Elston also has experience as a managing partner of Chatham Partners LLC, as the Senior Vice President and
Chief Financial Officer at Juniper Pharmaceuticals, Inc. and as the Chief Executive Officer at 2X Oncology, Inc. and
Chief Financial Officer of Enzyvant.
Mr.
Officer has over 30 years of experience in the financial services industry and related fields, including his positions on
the boards and/or in senior management of such companies as Ilex Partners (Asia), LLC, Old Westbury Funds, MAN
Long/Short Fund, GLG Investment Series Trust, The Bank of New York Mellon, The Dreyfus Corporation, Laurel Capital
Advisors and Bank of New England. In addition to his experience with financial, investment and regulatory matters,
Mr. Officer has extensive accounting knowledge through his education and experience as a principal financial officer,
principal accounting officer, controller, public accountant or auditor at his previous positions.
Part
II: Appendix II-B—Portfolio
Management Compensation
For
funds advised by DBX or its Affiliates
Each
Portfolio Manager is responsible for various functions related to portfolio management, including, but not limited to,
investing cash inflows, coordinating with members of his or her team to focus on certain asset classes, implementing investment
strategy, researching and reviewing investment strategy and overseeing members of his or her portfolio management
team with more limited responsibilities.
Compensation
of Portfolio Managers
The
Advisor and its affiliates are part of DWS. The brand DWS represents DWS Group GmbH & Co. KGaA (“DWS
Group”)
and any of its subsidiaries such as DWS Investment Management Americas, Inc. and RREEF America L.L.C. which
offer advisory services. As employees of DWS, portfolio managers are paid on a total compensation basis, which
includes Fixed Pay (base salary) and Variable Compensation, as follows:
•
Fixed
Pay (FP) is the key and primary element of compensation for the majority of DWS employees and reflects the
value of the individual’s role and function within the organization. It rewards factors that an employee brings to
the organization such as skills and experience, while reflecting regional and divisional (i.e., DWS) specifics. FP levels
play a significant role in ensuring competitiveness of the Advisor and its affiliates in the labor market, thus benchmarking
provides a valuable input when determining FP levels.
•
Variable
Compensation (VC) is a discretionary compensation element that enables the Advisor and its affiliates to
provide additional reward to employees for their performance and behaviors, while reflecting DWS affordability and
the financial situation of Deutsche Bank AG (the “Bank”)
and DWS. VC aims to:
Recognize
that every employee contributes to the DWS Group’s success through the DWS Group and/or Bank component
of VC (Group Component);
Reflect
individual performance, investment performance, behaviors and culture through discretionary individual VC
(Individual Component); and
Reward
outstanding contributions at the junior levels through the discretionary Recognition Award.
Employee
seniority as well as divisional and regional specifics determine which VC elements are applicable for a given employee
and the conditions under which they apply. Both group and individual components may be awarded in shares or
other share-based instruments and other deferral arrangements.
•
VC
can be delivered via cash, restricted equity awards, and/or restricted incentive awards or restricted compensation. Restricted
compensation may include:
Notional
fund investments;
Restricted
equity, notional equity;
Restricted
cash; or
Such
other form as DWS may decide in its sole discretion.
•
VC
comprises a greater proportion of total compensation as an employee’s seniority and total compensation level increase.
Proportion of VC delivered via a long-term incentive award, which is subject to performance conditions and
forfeiture provisions, will increase significantly as the amount of the VC increases.
•
Additional
forfeiture and claw back provisions, including complete forfeiture and claw back of VC may apply in certain
events if an employee is an InstVV [CRD IV EU Directive4] Material Risk Taker.
•
For
key investment professionals, in particular, a portion of any long-term incentives will be in the form of notional investments
aligned, where possible, to a suite of flagship funds managed by the DWS ETF platform.
To
evaluate their investment professionals in light of and consistent with the compensation principles set forth above, the
Advisor and its affiliates review investment performance for all accounts managed in relation to a fund’s underlying index:
•
Quantitative
measures (e.g. tracking error and tracking difference) are utilized to measure performance.
•
Qualitative
measures (e.g., adherence to, as well as contributions to, the enhancement of the investment process) are
included in the performance review.
•
Other
factors (e.g., non-investment related performance, teamwork, adherence to compliance rules, risk management and
“living the values”
of the Advisor and its affiliates) are included as part of a discretionary component of the review
process, giving management the ability to consider additional markers of performance on a subjective basis.
•
Furthermore,
it is important to note that DWS Group functions within a controlled environment based upon the risk
limits established by DWS Group's Risk division, in conjunction with DWS Group management. Because risk
consideration is inherent in all business activities, performance assessment factors in an employee’s ability to
assess and manage risk.
Conflicts
Real,
potential or apparent conflicts of interest may arise when a portfolio manager has day-to-day portfolio management responsibilities
with respect to more than one fund or account, including the following:
•
Certain
investments may be appropriate for a fund and also for other clients advised by the Advisor and their affiliates,
including other client accounts managed by a fund’s portfolio management team. Investment decisions for
a fund and other clients are made with a view to achieving their respective investment objectives and after consideration
of such factors as their current holdings, availability of cash for investment and the size of their investments
generally. A particular security may be bought or sold for only one client or in different amounts and at
different times for more than one but less than all clients. Likewise, because clients of the Advisor and their affiliates
may have differing investment strategies, a particular security may be bought for one or more clients when
one or more other clients are selling the security. The investment results achieved for a fund may differ from
the results achieved for other clients of the Advisor and their affiliates. In addition, purchases or sales of the
same security may be made for two or more clients on the same day. In such event, such transactions will be
allocated among the clients in a manner believed by the Advisor and their affiliates to be most equitable to each
client, generally utilizing a pro rata allocation methodology. In some cases, the allocation procedure could potentially
have an adverse effect or positive effect on the price or amount of the securities purchased or sold by
a fund. Purchase and sale orders for a fund may be combined with those of other clients of the Advisor and their
affiliates in the interest of achieving the most favorable net results to a fund and the other clients.
•
To
the extent that a portfolio manager has responsibilities for managing multiple client accounts, a portfolio manager will
need to divide time and attention among relevant accounts. The Advisor and their affiliates attempt to minimize these
conflicts by aligning its portfolio management teams by investment strategy and by employing similar investment models
across multiple client accounts.
•
In
some cases, an apparent conflict may arise where the Advisor has an incentive, such as a performance-based fee,
in managing one account and not with respect to other accounts it manages. The Advisor and their affiliates will
not determine allocations based on whether it receives a performance-based fee from the client. Additionally, the
Advisor has in place supervisory oversight processes to periodically monitor performance deviations for accounts with
like strategies.
•
The
Advisor and its affiliates and the investment team of a fund may manage other mutual funds and separate accounts
on a long only or a long-short basis. The simultaneous management of long and short portfolios creates potential
conflicts of interest including the risk that short sale activity could adversely affect the market value of the
long positions (and vice versa), the risk arising from sequential orders in long and short positions, and the risks
associated with receiving opposing orders at the same time. The Advisor has adopted procedures that it believes
are reasonably designed to mitigate these and other potential conflicts of interest. Included in these procedures
are specific guidelines developed to provide fair and equitable treatment for all clients whose accounts are
managed by each fund’s portfolio management team. The Advisor and the portfolio management team have established
monitoring procedures, a protocol for supervisory reviews, as well as compliance oversight to ensure that
potential conflicts of interest relating to this type of activity are properly addressed.
The
Advisor is owned by the DWS Group, a multinational global financial services firm that is a majority-owned subsidiary of
Deutsche Bank AG. Therefore, the Advisor is affiliated with a variety of entities that provide, and/or engage in commercial banking,
insurance, brokerage, investment banking, financial advisory, broker-dealer activities (including sales and trading), hedge
funds, real estate and private equity investing, in addition to the provision of investment management services to
institutional and individual investors. Since Deutsche Bank AG, its affiliates, directors, officers and employees (the “Firm”)
are engaged in businesses and have interests in addition to managing asset management accounts, such wide
ranging activities involve real, potential or apparent conflicts of interest. These interests and activities include potential
advisory, transactional and financial activities and other interests in securities and companies that may be directly
or indirectly purchased or sold by the Firm for its clients’ advisory accounts. The Advisor may take investment positions
in securities in which other clients or related persons within the Firm have different investment positions. There
may be instances in which the Advisor and their affiliates are purchasing or selling for their client accounts, or pursuing
an outcome in the context of a workout or restructuring with respect to, securities in which the Firm is undertaking
the same or differing strategy in other businesses or other client accounts. These are considerations of which
advisory clients should be aware and which will cause conflicts that could be to the disadvantage of the Advisor, and
their affiliate’s advisory clients, including the fund. The Advisor has instituted business and compliance policies, procedures
and disclosures that are designed to identify, monitor and mitigate conflicts of interest and, as appropriate, to
report them to a fund’s Board.
For
funds advised by HGI
Compensation
HGI
compensates the funds’ portfolio managers for their management of the funds. HGI pays portfolio managers (i) fixed
base salaries, which are linked to job function, responsibilities and financial services industry peer comparison, and
(ii) variable compensation, which is linked to investment performance, individual contributions to the team, and the
overall financial results of the firm. Variable compensation may include a cash bonus, as well as potential participation in
a variety of long-term incentive programs. There is no material difference in the method used to calculate the portfolio manager’s
compensation with respect to the funds and other accounts managed by the portfolio manager. HGI maintains competitive
salaries for all employees, based on independent research of the investment management industry.
Conflicts
Real,
potential or apparent conflicts of interest may arise when a portfolio manager has day-to-day portfolio management responsibilities
with respect to more than one fund or account, including the following:
•
Certain
investments may be appropriate for a fund and also for other clients advised by the Advisor, including other
client accounts managed by a fund’s portfolio management team. Investment decisions for a fund and other
clients are made with a view to achieving their respective investment objectives and after consideration of
such factors as their current holdings, availability of cash for investment and the size of their investments generally. A
particular security may be bought or sold for only one client or in different amounts and at different times for more
than one but less than all clients. Likewise, because clients of the Advisor may have differing investment strategies,
a particular security may be bought for one or more clients when one or more other clients are selling the
security. The investment results achieved for a fund may differ from the results achieved for other clients of the
Advisor. In addition, purchases or sales of the same security may be made for two or more clients on the same
day. In such event, such transactions will be allocated among the clients in a manner believed by the Advisor to
be most equitable to each client, generally utilizing a pro rata allocation methodology. In some cases, the allocation procedure
could potentially have an adverse effect or positive effect on the price or amount of the securities purchased
or sold by a fund. Purchase and sale orders for a fund may be combined with those of other clients of
the Advisor in the interest of achieving the most favorable net results to a fund and the other clients.
•
To
the extent that a portfolio manager has responsibilities for managing multiple client accounts, a portfolio manager will
need to divide time and attention among relevant accounts. The Advisor attempts to minimize these conflicts by
aligning its portfolio management teams by investment strategy and by employing similar investment models across
multiple client accounts.
•
In
some cases, an apparent conflict may arise where the Advisor has an incentive, such as a performance-based fee,
in managing one account and not with respect to other accounts it manages. The Advisor will not determine allocations
based on whether it receives a performance-based fee from the client. Additionally, the Advisor has in
place supervisory oversight processes to periodically monitor performance deviations for accounts with like strategies.
•
The
Advisor and its affiliates and the investment team of a fund may manage other mutual funds and separate accounts
on a long only or a long-short basis. The simultaneous management of long and short portfolios creates potential
conflicts of interest including the risk that short sale activity could adversely affect the market value of the
long positions (and vice versa), the risk arising from sequential orders in long and short positions, and the risks
associated with receiving opposing orders at the same time. The Advisor has adopted procedures that it believes
are reasonably designed to mitigate these and other potential conflicts of interest. Included in these procedures
are specific guidelines developed to provide fair and equitable treatment for all clients whose accounts are
managed by each fund’s portfolio management team. The Advisor and the portfolio management team have established
monitoring procedures, a protocol for supervisory reviews, as well as compliance oversight to ensure that
potential conflicts of interest relating to this type of activity are properly addressed.
HGI
is affiliated with DWS Group, a multinational global financial services firm that is a majority-owned subsidiary of Deutsche
Bank AG. Therefore, the Advisor is affiliated with a variety of entities that provide, and/or engage in commercial banking,
insurance, brokerage, investment banking, financial advisory, broker-dealer activities (including sales and trading), hedge
funds, real estate and private equity investing, in addition to the provision of investment management services to
institutional and individual investors. Since Deutsche Bank AG, its affiliates, directors, officers and employees (the “Firm”)
are engaged in businesses and have interests in addition to managing asset management accounts, such wide
ranging activities involve real, potential or apparent conflicts of interest. These interests and activities include potential
advisory, transactional and financial activities and other interests in securities and companies that may be directly
or indirectly purchased or sold by the Firm for its clients’ advisory accounts. The Advisor may take investment positions
in securities in which other clients or related persons within the Firm have different investment positions. There
may be instances in which the Advisor is purchasing or selling for its client accounts, or pursuing an outcome in
the context of a workout or restructuring with respect to, securities in which the Firm is undertaking the same or differing
strategy in other businesses or other client accounts. These are considerations of which advisory clients should
be aware and which will cause conflicts that could be to the disadvantage of the Advisor’s advisory clients, including
the fund. The Advisor has instituted business and compliance policies, procedures and disclosures that are designed
to identify, monitor and mitigate conflicts of interest and, as appropriate, to report them to a fund’s Board.
Part
II: Appendix II-C—Contractual
Fee Rates of Service Providers
Fees
payable to DBX for investment advisory services
The
Unitary Advisory Fee for each fund, at the annual percentage rate of daily net assets, is indicated below:
|
Unitary
Advisory Fee Rate |
MSCI
Currency Hedged Funds |
|
Xtrackers
MSCI All World ex US Hedged Equity ETF |
|
Xtrackers
MSCI EAFE Hedged Equity ETF |
|
Xtrackers
MSCI Emerging Markets Hedged Equity
ETF
|
|
Xtrackers
MSCI Europe Hedged Equity ETF |
|
Xtrackers
MSCI Eurozone Hedged Equity ETF |
|
Xtrackers
MSCI Germany Hedged Equity ETF |
|
Xtrackers
MSCI Japan Hedged Equity ETF |
|
|
|
Xtrackers
International Real Estate ETF |
|
|
|
Xtrackers
Eurozone Equity ETF |
|
Xtrackers
FTSE Developed Ex US Comprehensive
Factor
ETF |
|
Xtrackers
Japan JPX-Nikkei 400 Equity ETF |
|
Xtrackers
MSCI ACWI ex USA ESG Leaders Equity
ETF
|
|
Xtrackers
MSCI All World ex US High Dividend Yield
Equity
ETF |
|
Xtrackers
MSCI EAFE ESG Leaders Equity ETF |
|
Xtrackers
MSCI EAFE High Dividend Yield Equity ETF |
|
Xtrackers
MSCI Emerging Markets ESG Leaders
Equity
ETF |
|
Xtrackers
MSCI Kokusai Equity ETF |
|
Xtrackers
MSCI USA ESG Leaders Equity ETF |
|
Xtrackers
Russell 1000 Comprehensive Factor ETF |
|
Xtrackers
Russell 1000 US Quality at a Reasonable
Price
ETF |
|
Xtrackers
S&P 500 ESG ETF |
|
|
|
Xtrackers
Harvest CSI 300 China A-Shares ETF |
|
Xtrackers
Harvest CSI 500 China A-Shares Small Cap
ETF
|
|
Xtrackers
MSCI All China Equity ETF |
|
Xtrackers
MSCI China A Inclusion Equity ETF |
|
|
|
Xtrackers
Bloomberg Barclays US Investment Grade
Corporate
ESG ETF |
|
Xtrackers
High Beta High Yield Bond ETF |
|
|
Unitary
Advisory Fee Rate |
Xtrackers
J.P. Morgan ESG Emerging Markets
Sovereign
ETF |
|
Xtrackers
J.P. Morgan ESG USD High Yield Corporate
Bond
ETF |
|
Xtrackers
Low Beta High Yield Bond ETF |
|
Xtrackers
Municipal Infrastructure Revenue Bond
ETF
|
|
Xtrackers
Short Duration High Yield Bond ETF |
|
Xtrackers
USD High Yield Corporate Bond ETF |
|
Part
II: Appendix II-D—Firms
With Which DBX Has Revenue Sharing Arrangements
The
list of financial representatives below is as of the date of this SAI. Any additions, modifications or deletions to the
list of financial representatives identified below that have occurred since the date of this SAI are not reflected. You
can ask your financial representative if it receives revenue sharing payments from the Advisor, the Distributor and/or
their affiliates.
Pershing
LLC
TD
Ameritrade, Inc.
Part
II: Appendix II-E—Investments,
Practices and Techniques, and Risks
To
the extent that a fund invests in an Underlying Fund, or one or more affiliated funds, certain of these risks would also
apply to that fund.
Adjustable
Rate Securities. The interest rates paid on the adjustable rate securities in which
a fund invests generally are readjusted at periodic intervals, usually by reference
to a predetermined interest rate index. Adjustable rate securities include US Government
securities and securities of other issuers. Some adjustable rate securities are backed by pools of
mortgage loans. There are three main categories of interest rate indices: those based on US Treasury securities, those
derived from a calculated measure such as a cost of funds index and those based on a moving average of mortgage
rates. Commonly used indices include the one-year, three-year and five-year constant maturity Treasury rates,
the three-month Treasury bill rate, the 180-day Treasury bill rate, rates on longer-term Treasury securities, the 11th
District Federal Home Loan Bank Cost of Funds, the National Median Cost of Funds, the one-month, three-month, six-month
or one-year London Interbank Offered Rate (LIBOR), the prime rate of a specific bank or commercial paper rates.
As with fixed-rates securities, changes in market interest rates and changes in the issuer’s creditworthiness may
affect the value of adjustable rate securities.
Some
indices, such as the one-year constant maturity Treasury rate, closely mirror changes in market interest rate levels.
Others, such as the 11th District Home Loan Bank Cost of Funds index (Cost of Funds Index), tend to lag behind changes
in market rate levels and tend to be somewhat less volatile. To the extent that the Cost of Funds index may reflect
interest changes on a more delayed basis than other indices, in a period of rising interest rates, any increase may
produce a higher yield later than would be produced by such other indices, and in a period of declining interest rates,
the Cost of Funds index may remain higher for a longer period of time than other market interest rates, which may
result in a higher level of principal prepayments on adjustable rate securities which adjust in accordance with the
Cost of Funds index than adjustable rate securities which adjust in accordance with other indices. In addition, dislocations
in the member institutions of the 11th District Federal Home Loan Bank in recent years have caused and may
continue to cause the Cost of Funds index to change for reasons unrelated to changes in general interest rate levels.
Furthermore, any movement in the Cost of Funds index as compared to other indices based upon specific interest
rates may be affected by changes in the method used to calculate the Cost of Funds index.
If
prepayments of principal are made on the securities during periods of rising interest rates, a fund generally will be able
to reinvest such amounts in securities with a higher current rate of return. However, a fund will not benefit from increases
in interest rates to the extent that interest rates rise to the point where they cause the current coupon of adjustable
rate securities held as investments by a fund to exceed the maximum allowable annual or lifetime reset limits
(cap rates) for a particular adjustable rate security. Also, a fund’s net asset value could vary to the extent that current
yields on adjustable rate securities are different than market yields during interim periods between coupon reset
dates.
During
periods of declining interest rates, the coupon rates may readjust downward, resulting in lower yields to a fund.
Further, because of this feature, the value of adjustable rate securities is unlikely to rise during periods of declining interest
rates to the same extent as fixed-rate instruments. Interest rate declines may result in accelerated prepayment of
adjustable rate securities, and the proceeds from such prepayments must be reinvested at lower prevailing interest rates.
The
United Kingdom’s Financial Conduct Authority has announced plans to phase out the use of LIBOR by the end of
2021. There remains uncertainty regarding the future utilization of LIBOR and the nature of any replacement rate. Concerted
industry efforts are underway to identify and establish a replacement rate to LIBOR. As such, the potential effect
of a transition away from LIBOR on a fund or the instruments in which a fund invests, including any instrument that
does not include a provision specifying the replacement reference rate if LIBOR is no longer available (a “fallback
provision”),
cannot yet be determined. The transition process may involve, among other things, the risk of increased volatility
or illiquidity in markets for instruments that currently rely on LIBOR and may also result in a reduction in the value
of certain instruments held by a fund or reduce the effectiveness of related fund transactions such as hedges. Any
such effects of the transition away from LIBOR, as well as other unforeseen effects, could result in losses to a fund.
Borrowing.
Under the 1940 Act, a fund is required to maintain continuous asset coverage of 300% with respect to permitted
borrowings and to sell (within three days) sufficient portfolio holdings to restore such coverage if it should decline
to less than 300% due to market fluctuations or otherwise, even if such liquidation of a fund's holdings may be
disadvantageous from an investment standpoint.
Credit
Facility. To the extent that a fund and other affiliated funds (“Participants”)
participate, a fund may share in a revolving credit facility provided by a syndication
of banks. A fund may borrow money under a credit facility for temporary or emergency
purposes, including the funding of shareholder redemption requests, that otherwise might require the untimely
disposition of securities. Participants are charged an annual commitment fee as well as other fees associated with
the credit facility, paid by the Advisor out of a fund’s unitary advisory fee, which is allocated based on net assets, among
each of the Participants. Interest is charged to a fund on its borrowings at current commercial rates. A fund can
prepay loans at any time and may at any time terminate, or from time to time reduce, without the payment of a premium
or penalty, its commitment under the credit facility subject to compliance with certain conditions.
Borrowing
may exaggerate changes in the net asset value of fund shares and in the return on a fund’s portfolio. Borrowing will
cost a fund interest expense and other fees, which may reduce a fund’s return. A fund is required to maintain continuous
asset coverage with respect to its borrowings and may be required to sell some of its holdings to reduce debt
and restore coverage at times when it is not advantageous to do so. There is no assurance that a borrowing strategy
will be successful. Upon the expiration of the term of a fund’s existing credit arrangement, the lender may not
be willing to extend further credit to a fund or may only be willing to do so at an increased cost to a fund. If a fund is
not able to extend its credit arrangement, it may be required to liquidate holdings to repay amounts borrowed from the
lender. In addition, if a fund’s assets increase, there is no assurance that the lender will be willing to make additional
loans to a fund in order to allow it to borrow the amounts desired by a fund to facilitate
redemptions.
Chinese
Securities. A-Shares are issued by companies incorporated in mainland China and
are traded in RMB on the SZSE and SSE. Under current regulations in the PRC, foreign
investors can invest in the domestic PRC securities markets through certain market
access programs. These programs include the QFII or RQFII licenses obtained from the
CSRC. QFII and RQFII investors have also registered to invest foreign freely convertible currencies (in the case of
a QFII) and RMB (in the case of an RQFII) in the PRC for the purpose of investing in the PRC’s domestic securities markets.
Currently,
there are two stock exchanges in mainland China, the SSE and SZSE. The SSE and SZSE are supervised by
the CSRC and are highly automated with trading and settlement executed electronically. The SSE and SZSE are smaller,
periodically less liquid, and substantially more volatile than the major securities markets in the United States.
The
SSE commenced trading on December 19, 1990, and the SZSE commenced trading on July 3, 1991. The SSE and
SZSE divide listed shares into two classes: A-Shares and B-Shares. Companies whose shares are traded on the SSE
and SZSE that are incorporated in mainland China may issue both A-Shares and B-Shares. In China, the A-Shares and
B-Shares of an issuer may only trade on one exchange. A-Shares and B-Shares may both be listed on either the SSE
or the ZSE. Both classes represent an ownership interest comparable to a share of common stock and all shares are
entitled to substantially the same rights and benefits associated with ownership. A-Shares are traded on the SSE and
SZE in RMB.
A
fund may invest in B-Shares, which are equity securities issued by companies incorporated in China and are denominated and
traded in U.S. dollars and Hong Kong dollars (“HKD”)
on the SSE and SZSE, respectively. B-Shares are available to foreign investors.
H-Shares are equity securities issued by companies incorporated in mainland China and are denominated and
traded in HKD on the Hong Kong Stock Exchange and other foreign exchanges.
A
fund may also invest in red chips and P chips, which are equity securities issued by companies incorporated outside of
mainland China and listed on the Hong Kong Stock Exchange. Companies that issue Red chips generally base their businesses
in mainland China and are controlled, either directly or indirectly, by the state, provincial or municipal governments of
the PRC. Companies that issue P chips generally are non-state-owned Chinese companies incorporated outside of
mainland China that satisfy the following criteria: (i) the company is controlled by PRC individuals, (ii) the company derives
more than 80% of its revenue from the PRC and (iii) the company allocates more than 60% of its assets in
the
PRC. Securities listed in the United States and Singapore are considered to be Chinese companies if they satisfy two
out of three of the following criteria: (i) the company is based in the PRC, (ii) the company derives more than 50%
of its revenue from activities conducted in the PRC and (iii) the company has more than 50% of its assets in the
PRC.
A
fund may be exposed to securities listed on the Small and Medium Enterprise (SME) board and the ChiNext market of
the Shenzhen Stock Exchange. Listed companies on the SME board and/or the ChiNext market are usually of an emerging
nature with smaller operating scale. They are subject to higher fluctuation in stock prices and liquidity and have
higher risks and turnover ratios than companies listed on the main board of the Shenzhen Stock Exchange. Securities listed
on the SME board and/or ChlNext may be overvalued and such exceptionally high valuation may not be sustainable. Stock
prices may be more susceptible to manipulation due to fewer circulating shares. It may be more common and faster
for companies listed on the SME board and/or ChiNext to delist. This may have an adverse impact on a fund if the
companies that they invest in are delisted. Also, the rules and regulations regarding companies listed on ChlNext market
are less stringent in terms of profitability and share capital than those on the main board and SME board. Investments
in the SME board and/or ChlNext market may result in significant losses for a fund and its investors.
A-Share
Market Suspension Risk. A-Shares may only be purchased from, or sold to, certain
funds from time to time where the relevant A-Shares may be sold or purchased on
the SSE and SZSE, as appropriate. Given that the A-Share market is considered volatile
and unstable (with the risk of suspension of a particular stock or government intervention), the
creation and redemption of Creation Units may also be disrupted. Such suspensions may be widespread and, on some
occasions, have affected a majority of listed issuers in China. A participating dealer may not be able to create Creation
Units of a fund if A-Shares are not available or not available in sufficient amounts.
A-Share
Tax Risk. Uncertainties in the Chinese tax rules governing taxation of income and
gains from investments in A-Shares could result in unexpected tax liabilities for
a fund. China generally imposes withholding tax at a rate of 10% on dividends and
interest derived by nonresident enterprises (including QFIIs and RQFIIs) from issuers resident in China.
China also imposes withholding tax at a rate of 10% on capital gains derived by nonresident enterprises from investments
in an issuer resident in China, subject to an exemption or reduction pursuant to domestic law or a double taxation
agreement or arrangement.
Since
the respective inception of Shanghai Connect and Shenzhen Connect, foreign investors (including the funds) investing
in A-Shares listed on the SSE through Shanghai Connect and those listed on the SZSE through Shenzhen Connect
would be temporarily exempt from the PRC corporate income tax and value-added tax on the gains on disposal of
such A-Shares. Dividends would be subject to PRC corporate income tax on a withholding basis at 10%, unless reduced
under a double tax treaty with China upon application to and obtaining approval from the competent tax authority.
Since
November 17, 2014, the corporate income tax for QFIIs and RQFIIs, with respect to capital gains, has been temporarily
lifted. The withholding tax relating to the realized gains from shares in land-rich companies prior to November 17,
2014 has been paid by the Xtrackers Harvest ETFs, while realized gains from shares in non-land-rich companies prior
to November 17, 2014 were granted by treaty relief pursuant to the PRC-US Double Taxation Agreement. During 2015,
revenue authorities in the PRC made arrangements for the collection of capital gains taxes for investments realized
between November 17, 2009 and November 16, 2014. A fund could be subject to tax liability for any tax payments
for which reserves have not been made or that were not previously withheld. The impact of any such tax liability
on a fund’s return could be substantial. A fund may also be liable to the Advisor or Subadvisor for any tax that is
imposed on the Advisor or Subadvisor by the PRC with respect to the fund’s investments. If a fund’s direct investments
in A-Shares through the Advisor’s or Subadvisor’s Stock Connect investments
and/or Subadvisor’s RQFII quota become subject to repatriation restrictions,
the fund may be unable to satisfy distribution requirements applicable to Registered Investment
Companies (“RIC”)
under the Internal Revenue Code, and be subject to tax at the fund level. In the event such
restrictions are imposed, a fund may borrow funds to the extent necessary to distribute to shareholders income sufficient
to maintain the fund’s status as a RIC.
The
current PRC tax laws and regulations and interpretations thereof may be revised or amended in the future, including with
respect to the possible liability of a fund for the taxation of income and gains from investments in A-Shares through
Stock Connect or obligations of an RQFII. The withholding taxes on dividends, interest and capital gains may in
principle be subject to a reduced rate under an applicable tax treaty, but the application of such treaties in the case of
an RQFII acting for a foreign investor such as the funds is also uncertain. Finally, it is also unclear whether an RQFII would
also be eligible for PRC Business Tax (BT) exemption, which has been granted to QFIIs, with respect to gains derived
prior to May 1, 2016. In practice, the BT has not been collected. However, the imposition of such taxes on a fund
could have a material adverse effect on a fund’s returns. Since May 1, 2016, RQFIIs are exempt from PRC value-added tax,
which replaced the PRC Business Tax with respect to gains realized from the disposal of securities, including A-Shares.
The
PRC rules for taxation of RQFIIs (and QFIIs) are evolving and certain tax regulations to be issued by the PRC State
Administration of Taxation and/or PRC Ministry of Finance to clarify the subject matter may apply retrospectively, even
if such rules are adverse to a fund and their shareholders. The applicability of reduced treaty rates of withholding in
the case of an RQFII acting for a foreign investor such as the fund is also uncertain.
The
PRC tax authorities are not currently enforcing the collection of withholding tax on capital gains, and at present such
taxes likely will not be collected through withholding. If the PRC begins applying tax rules regarding the taxation of
income from A-Shares investments to RQFIIs and/or begins collecting capital gains taxes on such investments (whether
made through Stock Connect or an RQFII), a fund could be subject to withholding tax liability in excess of the
amount reserved (if any). The impact of any such tax liability on a fund’s return could be substantial. A fund will be
liable to the Advisor and/or Subadvisor for any Chinese tax that is imposed on the Advisor and/or the Subadvisor with
respect to the fund’s investments.
As
described below under “Taxes,”
each fund may elect, for US federal income tax purposes, to treat PRC taxes (including
withholding taxes) paid by a fund as paid by its shareholders. Even if a fund is qualified to make that election and
does so, however, your ability to claim a credit for certain PRC taxes may be limited under general US tax principles.
In
addition, to the extent a fund invests in swaps and other derivative instruments, such investments may be less tax-efficient
from a US tax perspective than direct investment in A-Shares and may be subject to special US federal income
tax rules that could adversely affect a fund. Also each fund may be required to periodically adjust its positions in
those instruments to comply with certain regulatory requirements which may further cause these investments to be
less efficient than a direct investment in A-Shares.
The
PRC government has implemented a number of tax reform policies in recent years. The current tax laws and regulations
may be revised or amended in the future. Any revision or amendment in tax laws and regulations may affect
the after-taxation profit of PRC companies and foreign investors in such companies, such as each fund.
Disclosure
of Interests and Short Swing Profit Rule. A fund may be subject to shareholder disclosure
of interest regulations promulgated by the CSRC. To the extent they are applicable,
these regulations currently would require a fund to make certain public disclosures
when the fund and parties acting in concert with the fund acquire 5% or more of the issued securities
of a listed company (which include A-Shares of the listed company). If the reporting requirement is triggered, a
fund would be required to report information which includes, but is not limited to: (a) information about a fund (and parties
acting in concert with the fund) and the type and extent of its holdings in the company; (b) a statement of a fund’s
purposes for the investment and whether the Fund intends to increase its holdings over the following 12-month period;
(c) a statement of a fund’s historical investments in the company over the previous six months; (d) the time of,
and other information relating to, the transaction that triggered a fund’s holding in the listed company reaching the
5% reporting threshold; and (e) other information that may be required by the CSRC or the stock exchange. Additional information
may be required if a fund and its concerted parties constitute the largest shareholder or actual controlling shareholder
of the listed company. The report must be made to the CSRC, the stock exchange, the invested company, and
the CSRC local representative office where the listed company is located. Each fund would also be required to make
a public announcement through a media outlet designated by the CSRC. The public announcement must contain the
same content as the official report. The public announcement may require a fund to disclose its holdings to the public,
which could have an adverse effect on the performance of the fund.
The
relevant PRC regulations presumptively treat all affiliated investors and investors under common control as parties acting
in concert. As such, under a conservative interpretation of these regulations, a fund may be deemed as a “concerted
party”
of other funds managed by the Advisor, Subadvisor or their affiliates and therefore may be subject to the risk that
the fund’s holdings may be required to be reported in the aggregate with the holdings of such other funds should the
aggregate holdings trigger the reporting threshold under the PRC law.
If
the 5% shareholding threshold is triggered by a fund and parties acting in concert with the fund, the fund would be
required to file its report within three days of the date the threshold is reached. During the time limit for filing the report,
a trading freeze applies and a fund would not be permitted to make subsequent trades in the invested company’s securities.
Any such trading freeze may undermine the fund’s performance, if the fund would otherwise make trades during
that period but is prevented from doing so by the regulations.
Once
a fund and parties acting in concert reach the 5% trading threshold as to any listed company, any subsequent incremental
increase or decrease of 5% or more will trigger a further reporting requirement and an additional three-day trading
freeze, and also an additional freeze on trading within two days of the fund’s report and announcement of the incremental
change. These trading freezes may undermine a fund’s performance as described above. Also, SSE requirements currently
require a fund and parties acting in concert, once they have reached the 5% threshold, to disclose whenever their
shareholding drops below this threshold (even as a result of trading which is less than the 5% incremental change that
would trigger a reporting requirement under the relevant CSRC regulation). Under interim measures adopted in July
2015, 5% holders of the securities of listed companies may be temporarily prohibited from selling such securities for
a period of six months.
CSRC
regulations also contain additional disclosure (and tender offer) requirements that apply when an investor and parties
acting in concert reach thresholds of 20% and greater than 30% shareholding in a company.
Subject
to the interpretation of PRC courts and PRC regulators, the operation of the PRC short swing profit rule may be
applicable to the trading of a fund with the result that where the holdings of the fund (possibly with the holdings of
other investors deemed as concert parties of the fund) exceed 5% of the total issued shares of a listed company, the
fund may not reduce its holdings in the company within six months of the last purchase of shares of the company. If
a fund violates the rule, it may be required by the listed company to return any profits realized from such trading to the
listed company. In addition, the rule limits the ability of the fund to repurchase securities of the listed company within
six months of such sale. Moreover, under PRC civil procedures, a fund’s assets may be frozen to the extent of
the claims made by the company in question. These risks may greatly impair the performance of the fund.
Economic,
political and social risks of the PRC. The economy of China, which has been in a
state of transition from a planned economy to a more market oriented economy, differs
from the economies of most developed countries in many respects, including the
level of government involvement, its state of development, its growth rate, control of foreign
exchange, and allocation of resources.
Although
the majority of productive assets in China are still owned by the PRC government at various levels, in recent years,
the PRC government has implemented economic reform measures emphasizing utilization of market forces in
the development of the economy of China and a high level of management autonomy. The economy of China has experienced
significant growth in recent decades, but growth has been uneven both geographically and among various sectors
of the economy. Economic growth has also been accompanied by periods of high inflation. The PRC government has
implemented various measures from time to time to control inflation and restrain the rate of economic growth.
For
several decades, the PRC government has carried out economic reforms to achieve decentralization and utilization of
market forces to develop the economy of the PRC. These reforms have resulted in significant economic growth and
social progress. There can, however, be no assurance that the PRC government will continue to pursue such economic
policies or, if it does, that those policies will continue to be successful. Any such adjustment and modification of
those economic policies may have an adverse impact on the securities markets in the PRC as well as the portfolio securities
of a fund. Further, the PRC government may from time to time adopt corrective measures to control the growth
of the PRC economy which may also have an adverse impact on the capital growth and performance of a
fund.
Political changes, social instability and adverse diplomatic developments in the PRC could result in the imposition of
additional government restrictions including expropriation of assets, confiscatory taxes or nationalization of some or
all of the property held by the underlying issuers of a fund’s portfolio securities.
Government
Intervention and Restriction Risk. Governments and regulators may intervene in the
financial markets, such as by the imposition of trading restrictions, a ban on
“naked”
short selling or the suspension of short selling for certain stocks. This may affect
the operation and market making activities of each fund, and may have an unpredictable impact
on a fund. Furthermore, such market interventions may have a negative impact on the market sentiment which may
in turn affect the performance of an Underlying Index and as a result the performance of a fund.
Investing
through Stock Connect. In seeking to track its underlying index, a fund may also
invest in A-Shares listed and traded through Stock Connect. Stock Connect is a
securities trading and clearing program between either the Shanghai Stock Exchange
(“SSE”)
or Shenzhen Stock Exchange (“SZSE”),
and any of the Stock Exchange of Hong Kong Limited (“SEHK”),
China Securities Depository and Clearing Corporation Limited (“CSDCC”)
and Hong Kong Securities Clearing Company Limited designed to permit mutual stock
market access between mainland China and Hong Kong by allowing investors to trade
and settle shares on each market via their local exchanges. Trading through Stock
Connect is subject to a daily quota (“Daily
Quota”), which limits
the maximum daily net purchases on any particular day by Hong Kong investors (and
foreign investors trading through Hong Kong) trading People’s Republic of China (“PRC”)
listed securities (“Northbound”)
and PRC investors trading Hong Kong listed securities (“Southbound”)
trading through the relevant Stock Connect. Accordingly, each fund’s direct
investments in A-Shares will be limited by the Daily Quotas that limit total purchases
through Stock Connect.
A
fund may invest in A-Shares listed and traded on the SSE and SZSE through Stock Connect, or on such other stock exchanges
in China which participate in Stock Connect from time to time. Trading through Stock Connect is subject to
a number of restrictions that may affect a fund’s investments and returns. Although no individual investment quotas or
licensing requirements apply to investors in Stock Connect, trading through Stock Connect is subject to the Daily Quota.
The Daily Quota does not belong to a fund and is utilized by all investors on a first-come-first-serve basis. As such,
buy orders for A-Shares would be rejected once the Daily Quota is exceeded (although the funds will be permitted to
sell A-Shares regardless of the Daily Quota balance). The Daily Quota may restrict a fund’s ability to invest in A-Shares
through Stock Connect on a timely basis, which could affect the funds’ ability to
effectively pursue its investment strategy. The Daily Quota is also subject to
change.
In
addition, investments made through Stock Connect are subject to trading, clearance and settlement procedures that
are untested in the PRC, which could pose risks to a fund. Moreover, Stock Connect A-Shares generally may not be
sold, purchased or otherwise transferred other than through Stock Connect in accordance with applicable rules. A
primary feature of Stock Connect is the application of the home market’s laws and rules applicable to investors in A-Shares
(i.e. the PRC). Therefore, a fund’s investments in Stock Connect A-Shares are subject to PRC securities regulations
and listing rules, among other restrictions. A primary feature of Stock Connect is the application of the home
market’s laws and rules applicable to investors in A-Shares (i.e. the PRC). Therefore, a fund’s investments in Stock
Connect A-Shares are subject to PRC securities regulations and listing rules, among other restrictions.
While
A-shares must be designated as eligible to be traded under Stock Connect (such eligible A-Shares listed on the SSE,
the “SSE Securities,”
and such eligible A-Shares listed on the SZSE, the “SZSE
Securities”), those
A-Shares may also lose such designation, and if this occurs, such A-Shares may
be sold but could no longer be purchased through Stock Connect. With respect to
sell orders under Stock Connect, the Stock Exchange of Hong Kong (“SEHK”)
carries out pre-trade checks to ensure an investor has sufficient A-Shares in its
account before the market opens on the trading day. Accordingly, if there are insufficient
A-Shares in an investor’s account before the market opens on the trading
day, the sell order will be rejected, which may adversely impact a fund’s performance.
In
addition, Stock Connect will only operate on days when both the Chinese and Hong Kong markets are open for trading
and when banking services are available in both markets on the corresponding settlement days. Therefore, an
investment in A-Shares through Stock Connect may subject a fund to the risk of price fluctuations on days when the
Chinese markets are open, but Stock Connect is not trading. Each of the SEHK, SSE and SZSE reserves the right to
suspend trading under Stock Connect under certain circumstances. Where such a suspension of trading is effected,
a
fund’s ability to access A-Shares through Stock Connect will be adversely affected. In addition, if one or both of the Chinese
and Hong Kong markets are closed on a US trading day, the funds may not be able to acquire or dispose of A-Shares
through Stock Connect in a timely manner, which could adversely affect the funds’ performance.
A
fund’s investments in A-Shares though Stock Connect are held by its custodian in accounts in Central Clearing and Settlement
System (“CCASS”)
maintained by the Hong Kong Securities Clearing Company Limited (“HKSCC”),
which in turn holds the A-Shares, as the nominee holder, through an omnibus securities
account in its name registered with the CSDCC. The precise nature and rights of
a fund as the Beneficial Owner of the SSE Securities or SZSE Securities through
HKSCC as nominee is not well defined under PRC law. There is a lack of a clear definition of, and distinction between,
legal ownership and beneficial ownership under PRC law and there have been few cases involving a nominee account
structure in the PRC courts. The exact nature and methods of enforcement of the rights and interests of a fund
under PRC law is also uncertain. In the unlikely event that HKSCC becomes subject to winding up proceedings in
Hong Kong, there is a risk that the SSE Securities or SZSE Securities may not be regarded as held for the beneficial ownership
of a fund or as part of the general assets of HKSCC available for general distribution to its creditors.
Notwithstanding
the fact that HKSCC does not claim proprietary interests in the SSE Securities or SZSE Securities held
in its omnibus stock account in the CSDCC, the CSDCC as the share registrar for SSE- or SZSE-listed companies will
still treat HKSCC as one of the shareholders when it handles corporate actions in respect of such SSE Securities or
SZSE Securities. HKSCC monitors the corporate actions affecting SSE Securities and SZSE Securities and keeps participants
of CCASS informed of all such corporate actions that require CCASS participants to take steps in order to
participate in them. A fund will therefore depend on HKSCC for both settlement and notification and implementation of
corporate actions.
The
HKSCC is responsible for the clearing, settlement and the provisions of depositary, nominee and other related services
of the trades executed by Hong Kong market participants and investors. Accordingly, investors do not hold SSE
Securities or SZSE Securities directly – they are held through their brokers’ or custodians’ accounts with CCASS.
The HKSCC and the CSDCC establish clearing links and each has become a participant of the
other to facilitate clearing and settlement of cross-border trades. Should CSDCC
default and the CSDCC be declared as a defaulter, HKSCC’s liabilities in
Stock Connect under its market contracts with clearing participants will be limited to assisting clearing participants
in pursuing their claims against the CSDCC. In that event, a fund may suffer delays in the recovery process or
may not be able to fully recover its losses from the CSDCC.
Market
participants are able to participate in Stock Connect subject to meeting certain information technology capability, risk
management and other requirements as may be specified by the relevant exchange and/or clearing house. Further, the
“connectivity”
in Stock Connect requires the routing of orders across the borders of Hong Kong and the PRC. This
requires the development of new information technology systems on the part of the SEHK and exchange participants. There
is no assurance that these systems will function properly or will continue to be adapted to changes and developments in
both markets. In the event that the relevant systems fail to function properly, trading in A-Shares through Stock Connect
could be disrupted, and a fund’s ability to achieve its investment objective may be adversely affected.
Finally,
according to Caishui [2014] 81 (“Circular
81”) and Caishui [2016]
127 (“Circular 127”),
while foreign investors currently are exempt from paying capital gains or business
taxes (later, value-added tax) on income and gains from investments in Stock Connect
A-Shares, these PRC tax rules could be changed, which could result in unexpected tax liabilities
for a fund. Dividends derived from A-Shares are subject to a 10% PRC withholding income tax generally. PRC
stamp duty is also payable for transactions in A-Shares through Stock Connect. Currently, PRC stamp duty on A-Shares
transactions is only imposed on the seller, but not on the purchaser, at the tax rate of 0.1% of the total sales value.
Circular 81 and Circular 127 stipulate that PRC business tax (and, subsequently, PRC value-added tax) is temporarily exempted
on capital gains derived by Hong Kong market participants (including the funds) from the trading of A-Shares through
Stock Connect. According to Caishui [2016] No. 36, the PRC value-added tax reform in the PRC will be expanded to
all industries, including financial services, starting May 1, 2016. The PRC business tax exemption prescribed in Circular
81 is grandfathered under the value-added tax regime. The Stock Connect program is a relatively new program. Further
developments are likely and there can be no assurance as to the program’s continued existence or whether future
developments regarding the program may restrict or adversely affect a fund’s investments or returns. In addition,
the
application and interpretation of the laws and regulations of Hong Kong and the PRC, and the rules, policies or guidelines
published or applied by relevant regulators and exchanges in respect of the Stock Connect program are uncertain,
and they may have a detrimental effect on a fund’s investments and returns.
PRC
Broker and PRC Custodian Risk. The Subadvisor is responsible for selecting PRC Brokers
to execute transactions for Xtrackers Harvest CSI 300 China A-Shares ETF and Xtrackers
Harvest CSI 500 China A-Shares ETF and the Advisor is responsible for selecting
PRC Brokers to execute transactions for Xtrackers MSCI China A Inclusion Equity ETF in the
PRC markets. As a matter of practice, only one PRC Broker can be appointed in respect of each stock exchange in
the PRC. Thus, each fund will rely on only one PRC Broker for each stock exchange (the SSE and SZSE) in the PRC, which
may be the same PRC Broker. As such a fund will rely on a limited number of PRC Brokers to execute transactions on
behalf of each fund. If a single PRC Broker is appointed, each fund may not necessarily pay the lowest commission available
in the market. However, in their selection of a PRC Broker(s), the Advisor and/or Subadvisor will consider factors
such as the competitiveness of commission rates, size of the relevant orders and execution standards. Should, for
any reason, a fund’s ability to use one or more of the relevant PRC Brokers be affected, this could disrupt the operations
of the fund and affect the ability of the fund to track its Underlying Index, causing a premium or a discount to
the trading price of the fund’s Shares.
With
respect to the funds which invest in A-Shares through the Subadvisor’s RQFII license, the Subadvisor is responsible for
selecting a custodian in the PRC to custody its assets pursuant to local Chinese laws and regulations (the “PRC
Custodian”).
According to the RQFII regulations and market practice, the securities and cash accounts for a fund in the
PRC are to be maintained by the PRC Custodian in the joint names of the Subadvisor as the RQFII holder and each
fund. Each fund’s PRC Custodian is the Bank of China Limited. The PRC Custodian maintains a fund’s RMB deposit
accounts and oversees each fund’s investments in A-Shares in the PRC to ensure their compliance with the rules
and regulations of the CSRC and the People’s Bank of China. A-Shares that are traded on the SSE or SZSE are dealt
and held in book-entry form through the China Securities Depository and Clearing Corporation Limited (“CSDCC”).
A-Shares purchased by the Subadvisor, in its capacity as an RQFII, on behalf of
a fund, may be received by the CSDCC and credited to a securities trading account
maintained by the PRC Custodian in the names of the fund and the Subadvisor as
the RQFII. If the Advisor obtains an RQFII license in the future with respect to the Xtrackers MSCI China A Inclusion Equity
ETF, the same considerations would apply.
The
assets held or credited in a fund’s securities trading account(s) maintained by the PRC Custodian are segregated and
independent from the proprietary assets of the PRC Custodian. However, under PRC law, cash deposited in a fund’s
cash account(s) maintained with the PRC Custodian will not be segregated but will be a debt owing from the PRC
Custodian to the fund as a depositor. Such cash will be co-mingled with cash that belongs to other clients or creditors
of the PRC Custodian. In the event of bankruptcy or liquidation of the PRC Custodian, a fund will not have any
proprietary rights to the cash deposited in such cash account(s), and the fund will become an unsecured creditor, ranking
pari passu with all other unsecured creditors, of the PRC Custodian.
There
is a risk that each fund may suffer losses from the default, bankruptcy or disqualification of the PRC Broker(s) or
PRC Custodian. In such event, a fund may be adversely affected in the execution of any transaction or face difficulty and/or
encounter delays in recovering its assets, or may not be able to recover it in full or at all. Each fund may also incur
losses due to the acts or omissions of the PRC Brokers and/or the PRC Custodian in the execution or settlement of
any transaction or in the transfer of any funds or securities. Subject to the applicable laws and regulations in the PRC,
the Advisor and the Subadvisor will make arrangements to ensure that the PRC Brokers and PRC Custodian have
appropriate procedures to properly safe-keep a fund’s assets. This risk is applicable to Xtrackers MSCI All China Equity
ETF to the extent the fund invests in Xtrackers China A-Shares ETFs.
PRC
Laws and Regulations Risk. The regulatory and legal framework for capital markets
and joint stock companies in the PRC may not be as well developed as those of developed
countries. PRC laws and regulations affecting securities markets are relatively
new and evolving, and because of the limited volume of published cases and judicial interpretation and
their non-binding nature, interpretation and enforcement of these regulations involve significant uncertainties. In addition,
as the PRC legal system develops, no assurance can be given that changes in such laws and regulations, their
interpretation or their enforcement will not have a material adverse effect on their business operations.
Renminbi
(RMB). RMB is the official
currency in the People’s Republic of China.
Future
Movements in RMB Exchange Rates Risk. The exchange rate of RMB ceased to be pegged
to US dollars on July 21, 2005, resulting in a more flexible RMB exchange rate
system. China Foreign Exchange Trading System, authorized by the PBOC, promulgates
the central parity rate of RMB against US dollars, Euro, Yen, pound sterling and Hong Kong dollar
at 9:15 a.m. on each business day, which will be the daily central parity rate for transactions on the Inter-bank Spot
Foreign Exchange Market and OTC transactions of banks. The exchange rate of RMB against the above-mentioned currencies
fluctuates within a range above or below such central parity rate. As the exchange rates are based primarily on
market forces, the exchange rates for RMB against other currencies, including US dollars and Hong Kong dollars, are
susceptible to movements based on external factors. There can be no assurance that such exchange rates will not
fluctuate widely against US dollars, Hong Kong dollars or any other foreign currency in the future. From 1994 to July
2005, the exchange rate for RMB against US dollar and the Hong Kong dollar was relatively stable. Following July 2005,
the appreciation of RMB accelerated until being subject to alternating periods of devaluation, appreciation and stability
beginning in 2015. Although the PRC government has constantly reiterated its intention to maintain the stability of
RMB, it may introduce measures (such as a reduction in the rate of export tax refund) to address the concerns of the
PRC’s trading partners. Therefore, the possibility that the appreciation of RMB will be further accelerated cannot be
excluded. On the other hand, there can be no assurance that RMB will not be subject to devaluation.
Offshore
RMB (“CNH”)
Market Risk. The onshore RMB (“CNY”)
is the only official currency of the PRC and is used in all financial transactions
between individuals, state and corporations in the PRC. Hong Kong is the first jurisdiction to
allow accumulation of RMB deposits outside the PRC. Since June 2010, the offshore RMB (“CNH”)
is traded officially, regulated jointly by the Hong Kong Monetary Authority and
the PBOC. While both CNY and CNH represent RMB, they are traded in different and
separated markets. The two RMB markets operate independently where the flow between
them is highly restricted. Though the CNH is a proxy of the CNY, they do not necessarily have the same exchange
rate and their movement may not be in the same direction. This is because these currencies act in separate jurisdictions,
which leads to separate supply and demand conditions for each, and therefore separate but related currency markets.
The
current size of RMB-denominated financial assets outside the PRC is limited. As of October 2019, the total amount of
RMB (CNH) deposits held by institutions authorized to engage in RMB banking business in Hong Kong amounted to
approximately RMB 36.4 billion. In addition, participating authorized institutions are also required by the Hong Kong Monetary
Authority to maintain a total amount of RMB (in the form of cash and its settlement account balance with a
Renminbi clearing bank) of no less than 25% of their RMB deposits, which further limits the availability of RMB that
participating authorized institutions can utilize for conversion services for their customers. RMB business participating banks
do not have direct RMB liquidity support from PBOC. Only the Renminbi clearing bank has access to onshore liquidity
support from PBOC (subject to annual and quarterly quotas imposed by PBOC) to square open positions of participating
banks for limited types of transactions, including open positions resulting from conversion services for corporations
relating to cross-border trade settlement. The Renminbi clearing bank is not obliged to square for participating banks
any open positions resulting from other foreign exchange transactions or conversion services and the participating banks
will need to source RMB from the offshore market to square such open positions. Although it is expected that the
offshore RMB market will continue to grow in depth and size, its growth is subject to many constraints as a result of
PRC laws and regulations on foreign exchange. There is no assurance that new PRC regulations will not be promulgated or
the Settlement Agreement will not be terminated or amended in the future which will have the effect of restricting availability
of RMB offshore.
RMB
Exchange Controls and Restrictions Risk. It should be noted that the RMB is currently
not a freely convertible currency as it is subject to foreign exchange control
policies and repatriation restrictions imposed by the PRC government. There is
no assurance that there will always be RMB available in sufficient amounts for a fund to remain fully invested. Since
1994, the conversion of RMB into US dollars has been based on rates set by the PBOC, which are set daily based
on the previous day’s PRC interbank foreign exchange market rate. On July 21, 2005, the PRC government introduced
a managed floating exchange rate system to allow the value of RMB to fluctuate within a regulated band based
on market supply and demand and by reference to a basket of currencies. In addition, a market maker system was
introduced to the interbank spot foreign exchange market. In July 2008, China announced that its exchange rate regime
was further transformed into a managed floating mechanism based on market supply and demand. Given the
domestic
and overseas economic developments, the PBOC decided to further improve the RMB exchange rate regime in
June 2010 to enhance the flexibility of the RMB exchange rate. In 2012 and 2014, the PBOC subsequently decided to
expand the daily trading band and may seek to do so again in the future.
However
it should be noted that the PRC government’s policies on exchange control and repatriation restrictions are subject
to change, and any such change may adversely impact each fund. There can be no assurance that the RMB exchange
rate will not fluctuate widely against the US dollar or any other foreign currency in the future. Foreign exchange transactions
under the capital account, including principal payments in respect of foreign currency-denominated obligations, currently
continue to be subject to significant foreign exchange controls and require the approval of the SAFE. On the
other hand, the existing PRC foreign exchange regulations have significantly reduced government foreign exchange controls
for transactions under the current account, including trade and service related foreign exchange transactions and
payment of dividends. Nevertheless, neither the Advisor nor the Subadvisor can predict whether the PRC government will
continue its existing foreign exchange policy or when the PRC government will allow free conversion of the RMB to
foreign currencies. Certain investments of Xtrackers MSCI All China Equity ETF may be denominated in RMB and the
fund will be exposed to the risks associated with RMB through its primary investments in the Underlying fund and
through its investments in the Xtrackers Harvest ETFs.
RMB
Trading and Settlement Risk. The trading and settlement of RMB-denominated securities
are recent developments in Hong Kong and there is no assurance that problems will
not be encountered with the systems or that other logistical problems will not
arise.
Repatriation
Risk. SAFE regulates
and monitors the repatriation of funds out of the PRC by RQFIIs. Repatriations by RQFIIs
in respect of an open-ended RQFII fund, such as the Xtrackers Harvest CSI 300 China A-Shares ETF, Xtrackers Harvest
CSI 500 China A-Shares Small Cap ETF and, potentially, Xtrackers MSCI China A Inclusion Equity ETF, conducted in
RMB are currently permitted daily and are not subject to repatriation restrictions or prior approval from SAFE, although authenticity
and compliance reviews will be conducted by the PRC Custodian (as that term is defined below), and monthly
reports on remittances and repatriations will be submitted to SAFE by the PRC Custodian. There is no assurance, however,
that PRC and RQFII rules and regulations will not change or that repatriation restrictions will not be imposed in
the future. Further, such changes to the PRC and RQFII rules and regulations may take effect retroactively. Any restrictions
on repatriation of the invested capital and net profits may impact a fund’s ability to meet redemption requests. Furthermore,
as the Custodian’s or the PRC Custodian’s review on authenticity and compliance is conducted on each repatriation,
the repatriation may be delayed or even rejected by the Custodian or the PRC Custodian in case of non-compliance with
the RQFII regulations. In such case, it is expected that redemption proceeds will be paid as soon as practicable and
after the completion of the repatriation of the funds concerned. It should be noted that the actual time required for
the completion of the relevant repatriation will be beyond the Advisor’s and the Subadvisor’s control.
Restricted
Markets Risk. A fund’s investments in A-Shares may be subject to limitations
or restrictions on foreign ownership or holdings imposed by the PRC. Such legal
and regulatory restrictions or limitations may have adverse effects on the liquidity
and performance of each fund’s portfolio holdings as compared to the performance of its Underlying Index.
This may increase the risk of tracking error.
RQFII
Late Settlement Risk. Each
of the funds will be required to remit RMB from Hong Kong to the PRC to settle the
purchase of A-Shares by a fund from time to time through the RQFII program. In the event such remittance is disrupted,
a fund will not be able to fully replicate its Underlying Index by investing in the relevant A-Shares, which may
lead to increased tracking error. This risk is applicable to Xtrackers MSCI All China Equity ETF to the extent it invests
in Xtrackers China A-Shares ETFs.
RQFII
Program Risk. (Xtrackers Harvest CSI 300 China A-Shares ETF and Xtrackers Harvest
CSI 500 China A-Shares Small Cap ETF) Xtrackers MSCI China A Inclusion Equity ETF
intends to invest directly in A-Shares through Stock Connect, but, in the future,
may also utilize any RQFII license applied for by and granted to the Advisor and/or a Subadvisor. Each
fund is not an RQFII, but with respect to Xtrackers Harvest CSI 300 China A-Shares ETF and X-trackers Harvest CSI
500 China will utilize the Subadvisor’s RQFII license granted under RQFII regulations.
Under
current regulations in the PRC, foreign investors can invest in the domestic PRC securities markets through certain
market-access programs. These programs include the QFII or RQFII licenses obtained from the CSRC. QFII and
RQFII investors have also registered to invest foreign freely convertible currencies (in the case of a QFII) and RMB
(in the case of an RQFII) in the PRC for the purpose of investing in the PRC’s domestic securities markets. Neither
the Fund nor the Advisor is an RQFII. Rather, the Fund expects to invest in the Underlying Fund, which invests directly
in A-Shares through Stock Connect, but may, in the future, utilize a RQFII license granted to the Advisor and/or a
Subadvisor. The fund may also invest in the Xtrackers Harvest ETFs, which are subadvised by HGI, an RQFII, and invest
directly in A-Shares via the RQFII license granted to HGI pursuant to RQFII regulations.
In
addition, the Subadvisor’s (or, if applicable in the future, the Advisor’s) RQFII status could be suspended or revoked.
There can be no assurance that the Subadvisor (or, in the future, the Advisor) will continue
to maintain its RQFII status. Because each fund will not be able to invest directly
in A-Shares beyond the limits that may be imposed by Stock Connect, the size of
a fund’s direct investments in A-Shares may be limited. In the event the Subadvisor (or, if applicable in
the future, the Advisor) is unable to maintain its RQFII status unless the Subadvisor (or, in the future, the Advisor) is
able to obtain sufficient exposure to A-Shares, it may be necessary for a fund to limit or suspend creations of Creation Units.
In such event it is possible that the trading price of a fund’s Shares on the Exchange will be at a significant premium
to the NAV (which may also increase tracking error of the fund). In extreme circumstances, a fund may incur significant
loss due to limited investment capabilities, or may not be able fully to implement or pursue its investment objectives
or strategies, due to RQFII investment restrictions, illiquidity of the PRC’s securities markets, and delay or disruption
in execution of trades or in settlement of trades.
Pursuant
to PRC and RQFII regulations, each of CSRC and SAFE is vested with the power to impose regulatory sanctions if
the Advisor and/or Subadvisor, in its capacity as RQFII, or the PRC Custodian (as that term is defined below) violates any
provision of the RQFII regulations. Any such violations could result in the revocation of the Subadvisor’s (or, if applicable
in the future, the Advisor’s) license or other regulatory sanctions and may adversely impact a fund’s ability to
access A-Shares.
The
current RQFII regulations also include rules on investment restrictions applicable to a fund, which may adversely affect
the fund’s liquidity and performance. In addition, because transaction sizes for RQFIIs are relatively large, the corresponding
heightened risk of exposure to decreased market liquidity and significant price volatility could lead to possible
adverse effects on the timing and pricing of acquisition or disposal of securities.
The
regulations which regulate investments by RQFIIs in the PRC and the repatriation of capital from RQFII investments are
relatively new. The application and interpretation of such investment regulations are therefore relatively untested and
there is no certainty as to how they will be applied as the PRC authorities and regulators have been given wide discretion
in such investment regulations and there is no precedent or certainty as to how such discretion may be exercised
now or in the future.
On
May 7, 2020, the People's Bank of China (“PBOC”)
and SAFE jointly issued the Regulations on Funds of Securities and Futures Investment
by Foreign· Institutional Investors (PBOC & SAFE Announcement [2020] No. 2) (the “Regulations”)
which came into effect on June 6, 2020. The Regulations supersede certain post-registration
rules applicable to QFII and RQFII regimes. One of the key changes of the Regulations
is the removal of quota restrictions on investment. However, as of the date of
this SAI, this is a relatively new development, and there is no guarantee that the quotas will
continue to be relaxed.
Commodity
Pool Operator Exclusion. Pursuant to a claim for exclusion filed with the National
Futures Association (“NFA”)
on behalf of each fund, the Trust is not deemed to be a “commodity
pool operator” (“CPO”),
under the CEA, and it is not subject to registration or regulation as such under
the CEA. The Advisor is not deemed to be a “commodity
trading advisor”
with respect to its services as an investment advisor to each fund. Under CFTC Regulations, the Advisor
would need to register with the CFTC as a CPO if a fund is unable to comply with certain trading and marketing limitations
on its investments in futures and certain other instruments. With respect to investments in swap transactions, commodity
futures, commodity options or certain other derivatives used for purposes other than bona fide hedging purposes,
the Trust, on behalf of the fund must meet one of the following tests under the amended regulations in order
to claim an exclusion from the definition of a CPO. First, the aggregate initial margin and premiums required to
establish
a fund’s positions in such investments may not exceed five percent of the liquidation value of the fund’s portfolio
(after accounting for unrealized profits and unrealized losses on any such investments). Alternatively, the aggregate
net notional value of such instruments, determined at the time of the most recent position established, may
not exceed one hundred percent (100%) of the liquidation value of the fund’s portfolio (after accounting for unrealized
profits and unrealized losses on any such positions). In addition to meeting one of the
foregoing trading limitations, a fund may not market itself as a commodity pool
or otherwise as a vehicle for trading in the commodity futures, commodity options
or swaps and derivatives markets. In the event that the Advisor is required to register as a CPO with
respect to a fund, the disclosure and operations of the fund would need to comply with all applicable CFTC regulations.
Compliance with these additional registration and regulatory requirements could increase operational expenses.
Other potentially adverse regulatory initiatives could also develop.
Costs
of Buying or Selling Fund Shares.
Buying or selling fund shares involves two types of costs that apply to all securities
transactions. When buying or selling shares of a fund through a broker, you will incur a brokerage commission or
other charges imposed by brokers as determined by that broker. In addition, you will also incur the cost of the “spread”
– that is, the difference between what professional investors are willing to pay for fund shares (the “bid”
price) and the price at which they are willing to sell fund shares (the “ask”
price). Because of the costs inherent in buying or selling fund shares, frequent
trading may detract significantly from investment results and an investment in
fund shares may not be advisable for investors who anticipate regularly making small investments.
Delayed
Delivery Transactions. Delayed delivery transactions, also referred to as forward
commitments, involve commitments by the fund to dealers or issuers to acquire or
sell securities at a specified future date beyond the customary settlement for
such securities. These commitments may fix the payment price and interest rate to be received or paid on the investment.
The fund may purchase securities on a delayed delivery basis to the extent that it can anticipate having available
cash on the settlement date. Delayed delivery agreements will not be used as a speculative or leverage technique.
Investment
in securities on a delayed delivery basis may increase the fund’s exposure to market fluctuation and may increase
the possibility that the fund will incur short-term gains subject to federal taxation or short-term losses if the fund
must engage in portfolio transactions in order to honor a delayed delivery commitment. Until the settlement date,
the fund will segregate liquid assets of a dollar value sufficient at all times to make payment for the delayed delivery
transactions. Such segregated liquid assets will be marked-to market daily, and the amount segregated will be
increased if necessary to maintain adequate coverage of the delayed delivery commitments.
The
delayed delivery securities, which will not begin to accrue interest or dividends until the settlement date, will be recorded
as an asset of the fund and will be subject to the risk of market fluctuation. The purchase price of the delayed delivery
securities is a liability of the fund until settlement. The fund may enter into buy/sell back transactions (a form of
delayed delivery agreement). In a buy/sell back transaction, the fund enters a trade to sell securities at one price and
simultaneously enters a trade to buy the same securities at another price for settlement at a future date.
Derivatives.
A derivative is a financial contract, the value of which depends on, or is derived from, the value of an underlying
asset such as a security or an index. A fund may invest in stock index futures contracts and other derivatives. Compared
to conventional securities, derivatives can be more sensitive to changes in interest rates or to sudden fluctuations
in market prices and thus a fund’s losses may be greater if it invests in derivatives than if it invests only in
conventional securities.
Currency
Transactions. Certain of the funds may enter into foreign currency futures contracts
and forward currency contracts designed to offset a fund’s exposure to non-US
currency. A forward foreign currency exchange contract (“forward
contract”) involves
an obligation to purchase or sell a specific currency at a future date, which may be any fixed
number of days from the date of the contract agreed upon by the parties, at a price set at the time of the contract. These
contracts are principally traded in the interbank market conducted directly between currency traders (usually large,
commercial banks) and their customers. A forward contract generally has no margin deposit requirement, and no
commissions are charged at any stage for trades.
A
non-deliverable forward contract (“NDF”)
is a forward contract where there is no physical settlement of two currencies at
maturity. NDFs are contracts between parties in which a net settlement amount based on the change in the specified foreign
exchange rate is paid by one party to the other. Each fund’s obligations with respect to each NDF is accrued on
a daily basis and an amount of cash or liquid securities at least equal to such amount maintained in an account at the
Trust’s custodian bank. The risk of loss with respect to NDFs generally is limited to the net amount of payments that
a fund is contractually obligated to make or receive.
A
foreign currency futures contract is a contract involving an obligation to deliver or acquire the specified amount of a
specific currency, at a specified price and at a specified future time. Futures contracts may be settled on a net cash payment
basis rather than by the sale and delivery of the underlying currency.
Currency
exchange transactions involve a significant degree of risk and the markets in which currency exchange transactions are
effected are highly volatile, specialized and technical. Significant changes, including changes in liquidity and prices, can
occur in such markets within very short periods of time, often within minutes. Currency exchange trading risks include,
but are not limited to, exchange rate risk, maturity gap, interest rate risk, and potential interference by foreign governments
through regulation of local exchange markets, foreign investment or particular transactions in foreign currency.
If a fund utilizes foreign currency transactions at an inappropriate time, such transactions may not serve their
intended purpose of improving the correlation of the fund’s return with the performance of its Underlying Index and
may lower the fund’s return. A fund could experience losses if the value of any currency forwards and futures positions
is poorly correlated with its other investments or if it could not close out its positions because of an illiquid market.
Such contracts are subject to the risk that the counterparty will default on its obligations. In addition, a fund will
incur transaction costs, including trading commissions, in connection with certain foreign currency transactions.
General
Characteristics of Futures and Options. A
fund may enter into futures and options contracts to simulate investment in the
respective Underlying Index, to facilitate trading or to reduce transaction costs. A fund may only enter into futures
contracts and options that are traded on a US or non-US exchange. No fund will use futures or options for speculative
purposes.
Futures
contracts provide for the future sale by one party and purchase by another party of a specified amount of a specific
instrument or index at a specified future time and at a specified price. Each fund may enter into futures contracts to
purchase securities indexes when the Advisor and/or Subadvisor, as applicable, anticipate purchasing the underlying securities
and believe prices will rise before the purchase will be made. To the extent required by law, liquid assets committed
to futures contracts will be maintained.
A
call option gives a holder the right to purchase a specific security at a specified price (“exercise
price”) within a
specified period of time. A put option gives a holder the right to sell a specific security
at a specified exercise price within a specified period of time. The initial purchaser
of a call option pays the “writer”
a premium, which is paid at the time of purchase and is retained by the writer
whether or not such option is exercised. Each Fund may purchase put options to
hedge its portfolio against the risk of a decline in the market value of securities held and may purchase call
options to hedge against an increase in the price of securities it is committed to purchase. Each Fund may write put
and call options along with a long position in options to increase its ability to hedge against a change in the market value
of the securities it holds or is committed to purchase.
Investments
in futures contracts and other investments that contain leverage may require a fund to maintain liquid assets.
Generally, each fund maintains an amount of liquid assets equal to its obligations relative to the position involved, adjusted
daily on a marked-to-market basis. With respect to futures contracts that are contractually required to “cash-settle,”
each fund maintains liquid assets in an amount at least equal to each fund’s
daily marked-to-market obligation (i.e., each fund’s daily net liability,
if any), rather than the contracts’ notional value (i.e., the value of the underlying asset). By
maintaining assets equal to its net obligation under cash-settled futures contracts, the fund may employ leverage to
a greater extent than if each fund set aside assets equal to the futures contracts’ full notional value. A fund bases its
asset maintenance policies on methods permitted by the staff of the SEC and may modify these policies in the future
to comply with any changes in the guidance articulated from time to time by the SEC or its staff.
There
are several risks accompanying the utilization of futures contracts and options on futures contracts. First, a position
in futures contracts and options on futures contracts may be closed only on the exchange on which the contract was
made (or a linked exchange). While each fund plans to utilize futures contracts only if an active market exists for such
contracts, there is no guarantee that a liquid market will exist for the contract at a specified time. While each Fund
plans to utilize futures contracts only if an active market exists for such contracts, there is no guarantee that a liquid
market will exist for the contract at a specified time. Furthermore, because, by definition, futures contracts project
price levels in the future and not current levels of valuation, market circumstances may result in a discrepancy between
the price of the stock index future and the movement in the Underlying Index. In the event of adverse price movements,
a fund would continue to be required to make daily cash payments to maintain its required margin. In such
situations, if a fund has insufficient cash, it may have to sell portfolio securities to meet daily margin requirements at
a time when it may be disadvantageous to do so. In addition, each fund may be required to deliver the instruments underlying
the futures contracts it has sold.
The
risk of loss in trading futures contracts or uncovered call options in some strategies (e.g., selling uncovered stock index
futures contracts) is potentially unlimited. The funds do not plan to invest in futures and options to a significant extent
or use futures and options contracts in this way. The risk of a futures position may still be large as traditionally measured
due to the low margin deposits required. In many cases, a relatively small price movement in a futures contract
may result in immediate and substantial loss or gain to the investor relative to the size of a required margin deposit.
A fund, however, may utilize futures and options contracts in a manner designed to limit their risk exposure to
levels comparable to a direct investment in the types of stocks in which they invest.
A
fund’s use of futures and options on futures involves the risk of imperfect or even negative correlation to the Underlying
Index if the index underlying the futures contract differs from the Underlying Index. There
is also the risk of loss by a fund of margin deposits in the event of bankruptcy
of a broker with whom a fund has an open position in the futures contract or option.
The purchase of put or call options will be based upon predictions by the Advisor and/or Subadvisor, as
applicable, as to anticipated trends which could prove to be incorrect.
Because
the futures market generally imposes less burdensome margin requirements than the securities market, an
increased amount of participation by speculators in the futures market could result in price fluctuations. Certain financial
futures exchanges limit the amount of fluctuation permitted in futures contract prices during a single trading day.
The daily limit establishes the maximum amount by which the price of a futures contract may vary either up or down
from the previous day’s settlement price at the end of a trading session. Once the daily limit has been reached in
a particular type of contract, no trades may be made on that day at a price beyond that limit. It is possible that futures
contract prices could move to the daily limit for several consecutive trading days with little or no trading, thereby preventing
prompt liquidation of futures positions and subjecting each fund to substantial losses. In the event of adverse price
movements, each fund would be required to make daily cash payments of variation margin.
Options
on Futures Contracts. An option on a futures contract, as contrasted with the direct
investment in such a contract, gives the purchaser the right, in return for the
premium paid, to assume a position in the underlying futures contract at a specified
exercise price at any time prior to the expiration date of the option. Upon exercise of an option, the
delivery of the futures position by the writer of the option to the holder of the option will be accompanied by delivery
of the accumulated balance in the writer’s futures margin account that represents the amount by which the market
price of the futures contract exceeds (in the case of a call) or is less than (in the case of a put) the exercise price
of the option on the futures contract. The potential for loss related to the purchase of an option on a futures contract
is limited to the premium paid for the option plus transaction costs. Because the value of the option is fixed at
the point of sale, there are no daily cash payments by the purchaser to reflect changes in the value of the underlying contract;
however, the value of the option changes daily and that change would be reflected in the NAV of each fund. The
potential for loss related to writing call options is unlimited. The potential for loss related to writing put options is
limited to the agreed upon price per Share, also known as the strike price, less the premium received from writing the
put.
Each
fund may purchase and write put and call options on futures contracts that are traded on an exchange as a hedge against
changes in value of its portfolio securities, or in anticipation of the purchase of securities, and may enter into closing
transactions with respect to such options to terminate existing positions. There is no guarantee that such closing
transactions can be effected.
Upon
entering into a futures contract, a fund will be required to deposit with the broker an amount of cash or cash equivalents
known as “initial margin,”
which is in the nature of a performance bond or good faith deposit on the contract and
is returned to each fund upon termination of the futures contract, assuming all contractual obligations have been satisfied.
Subsequent payments, known as “variation
margin,” to and from
the broker will be made daily as the price of the index underlying the futures
contract fluctuates, making the long and short positions in the futures contract more
or less valuable, a process known as “marking-to-market.”
At any time prior to the expiration of a futures contract, each fund may elect
to close the position by taking an opposite position, which will operate to terminate each fund’s existing
position in the contract.
Swap
Agreements. Over-the-counter (“OTC”)
swap agreements are contracts between parties in which one party agrees to make
periodic payments to the other party based on the change in market value or level of a specified rate, index
or asset. In return, the other party agrees to make periodic payments to the first party based on the return of a
different specified rate, index or asset. Swap agreements will usually be performed on a net basis, with each fund receiving
or paying only the net amount of the two payments. The net amount of the excess, if any, of a fund’s obligations over
its entitlements with respect to each swap is accrued on a daily basis and an amount of liquid assets having an aggregate
value at least equal to the accrued excess will be maintained by each fund. Cleared swaps are transacted through
futures commission merchants (“FCMs”)
that are members of central clearinghouses with the clearinghouse serving as a
central counterparty similar to transactions in futures contracts. The use of interest-rate and index swaps is
a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio
security transactions. These transactions generally do not involve the delivery of securities or other underlying assets
or principal.
The
risk of loss with respect to OTC swaps generally is limited to the net amount of payments that the fund is contractually obligated
to make. Swap agreements are subject to the risk that the swap counterparty will default on its obligations. If
such a default occurs, a fund will have contractual remedies pursuant to the agreements related to the transaction. However,
such remedies may be subject to bankruptcy and insolvency laws which could affect such fund’s rights as a
creditor (e.g., a fund may not receive the net amount of payments that it contractually is entitled to receive). Central clearing
through FCMs is expected to decrease counterparty risk and increase liquidity compared to un-cleared swaps because
central clearing interposes a central clearinghouse as the counterpart to each participant’s swap. However, central
clearing does not eliminate counterparty risk or illiquidity risk entirely. In addition depending on the size of a fund
and other factors, the margin required under the rules of a clearinghouse and by a clearing member FCM may be
in excess of the collateral required to be posted by a fund to support its obligations under a similar un-cleared swap.
It is expected, however, that regulators will adopt rules imposing certain margin requirements, including minimums, on
un-cleared swaps in the near future, which could reduce the distinction.
Regulations
Impacting Derivatives and the Lending of Portfolio Securities. Regulations
adopted by the Board of Governors of the Federal Reserve System, the Federal Deposit
Insurance Corporation, the Office of the Comptroller of the Currency and other
regulators throughout the world, which recently took effect with respect to the funds, requires counterparties that
are part of US or foreign global systemically important banking organizations to include contractual restrictions on
close-out and cross default in agreements relating to qualified financial contracts. Securities lending agreements are
included in the category of qualified financial contracts (as well as repurchase agreements and agreements relating to
swaps, currency forwards and other derivatives). The restrictions prevent the funds from closing out a qualified financial
contract during a specified time period (e.g., two days) if the counterparty is subject to resolution proceedings and
prohibit the funds from exercising default rights during that period due to a receivership or similar proceeding of an
affiliate of the counterparty. Implementation of these requirements may increase credit and other risks to the funds.
Proposed
SEC Regulatory Changes. In
November 2019, the SEC published a proposed rulemaking related to the use or derivatives
and certain other transactions by registered investment companies that would, if adopted, for the most part
rescind the guidance of the SEC and its staff regarding asset segregation and cover transactions. Instead of
complying
with current guidance, funds would need to trade derivatives and other transaction that create future payment or
delivery obligations (except reverse repurchase agreements and similar financing transactions) subject to a value-at-risk (“VaR”)
leverage limit, certain other derivatives risk management program and testing requirements and requirements related
to board reporting. These new requirements would apply unless a fund is qualified as a “limited
derivatives user,”
as defined in the SEC’s proposal. A fund trading reverse repurchase agreements or similar financing transactions would
need to aggregate the amount of indebtedness associated with the reverse repurchase agreements or similar financing
transactions with the aggregate amount of any senior securities representing indebtedness when calculating the
fund’s asset coverage ratio. Reverse repurchase agreements or similar financing transactions would not be included in
the calculation of whether a fund is a limited derivatives user, but for funds subject to the VaR testing, reverse repurchase
agreements and similar financing transaction would be included for purposes of such testing. Any new requirements,
if adopted, may increase the cost of a fund's investments and cost of doing business, which could adversely
affect investors.
Equity
Securities. An investment in a fund should be made with an understanding of the
risks inherent in an investment in equity securities, including the risk that the
financial condition of issuers may become impaired or that the general condition
of the stock market may deteriorate (either of which may cause a decrease in the value of the portfolio securities
and thus in the value of Shares of a fund). Common stocks are susceptible to general stock market fluctuations and
to volatile increases and decreases in value as market confidence and perceptions of their issuers change. These investor
perceptions are based on various and unpredictable factors, including expectations regarding government, economic,
monetary and fiscal policies, inflation and interest rates, economic expansion or contraction, and global or
regional political, economic or banking crises. Holders of common stocks incur more risks than holders of preferred stocks
and debt obligations because common stockholders generally have rights to receive payments from stock issuers
inferior to the rights of creditors, or holders of debt obligations or preferred stocks. Further, unlike debt securities, which
typically have a stated principal amount payable at maturity (the value of which, however, is subject to market fluctuations
prior to maturity), or preferred stocks, which typically have a liquidation preference and which may have stated
optional or mandatory redemption provisions, common stocks have neither a fixed principal amount nor a maturity.
Although
most of the securities in each Underlying Index are listed on a national securities exchange, the principal trading
market for some may be in the over-the-counter market. The existence of a liquid trading market for certain securities
may depend on whether dealers will make a market in such securities.
Dividend-paying
stocks may underperform non-dividend paying stocks (and the stock market as a whole) over any period
of time. In addition, issuers of dividend-paying stocks may have discretion to defer or stop paying dividends for
a stated period of time, or the anticipated acceleration of dividends may not occur as a result of, among other things,
a sharp rise in interest rates or an economic downturn. If the dividend-paying stocks held by the fund reduce or
stop paying dividends, the fund’s ability to generate income may be adversely affected.
Changes
in the dividend policies of companies in a fund’s portfolio and capital resources available for these companies’ dividend
payments may adversely affect the fund. Depending upon market conditions, dividend-paying stocks that meet
the fund’s investment criteria may not be widely available and/or may be highly concentrated in only a few market sectors.
In
addition, in the current economic environment, global markets are experiencing a very high level of volatility and an
increased risk of corporate failures. The insolvency or other corporate failures of any one or more of the constituents of
the Underlying Index may have an adverse effect on an Underlying Index’s and, therefore, a fund’s performance.
Tracking
Stocks. A tracking stock is a separate class of common stock whose value is linked
to a specific business unit or operating division within a larger company and which
is designed to “track”
the performance of such business unit or division. The tracking stock may pay dividends
to shareholders independent of the parent company. The parent company, rather than
the business unit or division, generally is the issuer of tracking stock. However, holders of the tracking
stock may not have the same rights as holders of the company’s common stock.
Fixed
Income Securities. An investment in a fund should also be made with an understanding
of the risks inherent in an investment in fixed income securities or bonds. A bond
is an interest-bearing security issued by a company, governmental unit or, in some
cases, a non-US entity. The issuer of a bond has a contractual obligation to pay interest at
a stated rate on specific dates and to repay principal (the bond’s face value) periodically or on a specified maturity date.
An issuer may have the right to redeem or “call”
a bond before maturity, in which case the investor may have to reinvest the proceeds
at lower market rates. Most bonds bear interest income at a “coupon”
rate that is fixed for the life of the bond. The value of a fixed rate bond usually
rises when market interest rates fall, and falls when market interest rates rise.
Accordingly, a fixed rate bond’s yield (income as a percent of the bond’s current value) may differ from
its coupon rate as its value rises or falls. Other types of bonds bear income at an interest rate that is adjusted periodically.
Because of their adjustable interest rates, the values of “floating-rate”
or “variable-rate”
bonds generally fluctuate less in response to market interest rate movements than
the value of similar fixed rate bonds. The funds may treat some of these bonds
as having a shorter maturity for purposes of calculating the weighted average maturity of
its investment portfolio. In addition, bonds may be senior or subordinated obligations. Senior obligations generally have
the first claim on a corporation’s earnings and assets and, in the event of liquidation, are paid before subordinated obligations.
Bonds may be unsecured (backed only by the issuer’s general creditworthiness) or secured (also backed by
specified collateral).
Negative
Interest Rates. In a low or negative interest rate environment, debt instruments
may trade at negative yields, which means the purchaser of the instrument may receive
at maturity less than the total amount invested. In addition, in a negative interest
rate environment, if a bank charges negative interest, instead of receiving interest on deposits, a
depositor must pay the bank fees to keep money with the bank. To the extent a fund holds a negatively-yielding debt
instrument or has a bank deposit with a negative interest rate, the fund would generate a negative return on that
investment.
In
response to recent market volatility and economic uncertainty, the US government and certain foreign central banks have
taken steps to stabilize markets by, among other things, reducing interest rates. As a result, interest rates in the
United States are at historically low levels, and certain European countries and Japan have pursued negative interest rate
policies. If negative interest rates become more prevalent in the market and/or if low or negative interest rates persist
for a sustained period of time, some investors may seek to reallocate assets to other income-producing assets, such
as investment-grade and higher-yield debt instruments, or equity investments that pay a dividend, absent other market
risks that may make such alternative investments unattractive. This increased demand for higher yielding assets may
cause the price of such instruments to rise while triggering a corresponding decrease in yield over time, thus reducing
the value of such alternative investments. In addition, a move to higher yielding investments may cause investors,
including a fund (to the extent permitted by its investment objective and strategies), to seek fixed-income investments
with longer maturities and/or potentially reduced credit quality in order to seek the desired level of yield. These
considerations may limit a fund’s ability to locate fixed-income instruments containing the desired risk/return profile.
Changing interest rates, including, but not limited to, rates that fall below zero, could have unpredictable effects on
the markets and may expose fixed-income and related markets to heightened volatility and potential illiquidity.
Foreign
Securities. To the extent a fund invests in stocks of non-US issuers, certain of
the fund’s investments in such stocks may be in the form of American Depositary
Receipts (“ADRs”),
Global Depositary Receipts (“GDRs”)
and Non-Voting Depositary Receipts (“NVDRs”)
(collectively, “Depositary
Receipts”). Depositary
Receipts are receipts, typically issued by a bank or trust issuer, which evidence
ownership of underlying securities issued by a non-US issuer. For ADRs, the depository
is typically a US financial institution and the underlying securities are issued by a non- US issuer.
For other forms of Depositary Receipts, the depository may be a non-US or a US entity, and the underlying securities
may be issued by a non-US or a US issuer. Depositary Receipts are not necessarily denominated in the same
currency as their underlying securities. Generally, ADRs, issued in registered form, are designed for use in the US
securities markets, NVDRs are designed for use in the Thai securities market and GDRs are tradable both in the United
States and in Europe and are designed for use throughout the world.
In
general, Depositary Receipts will be sponsored, but a fund may invest in unsponsored ADRs under certain circumstances. The
issuers of unsponsored Depositary Receipts are not obligated to disclose material information in the United States. Therefore
there may be less information available regarding such issuers and there may be no correlation between available
information and the market value of the Depositary Receipts.
Investing
in the securities of non-US issuers involves special risks and considerations not typically associated with investing
in US issuers. These include differences in accounting, auditing and financial reporting standards, the possibility of
expropriation or confiscatory taxation, adverse changes in investment or exchange control regulations, political instability which
could affect US investments in non-US countries, and potential restrictions on the flow of international capital. Non-US
issuers may be subject to less governmental regulation than US issuers. Moreover, individual non-US economies may
differ favorably or unfavorably from the US economy in such respects as growth of gross domestic product, rate of
inflation, capital reinvestment, resource self-sufficiency and balance of payment positions.
Illiquid
Securities. Illiquid securities are investments that a fund reasonably expects cannot
be sold or disposed of in current market conditions in seven calendar days or less
without the sale or disposition significantly changing the market value of the
investment, as determined pursuant to the fund’s liquidity risk management program (LRM Program) adopted
pursuant to Rule 22e-4 under the 1940 Act. Under a fund’s LRM Program, the fund may not hold more than 15%
of its net assets in illiquid securities. The LRM Program administrator is responsible for determining the liquidity classification
of a fund’s investments and monitoring compliance with the 15% limit on illiquid securities. Historically, illiquid
securities have included securities subject to contractual or legal restrictions on resale because they have not been
registered under the 1933 Act, securities which are otherwise not readily marketable and repurchase agreements having
a maturity of longer than seven days. Securities which have not been registered under the 1933 Act are referred to
as private placements or restricted securities and are purchased directly from the issuer or in the secondary market. Non-publicly
traded securities (including Rule 144A Securities) may involve a high degree of business and financial risk
and may result in substantial losses. These securities may be less liquid than publicly traded securities, and it may
take longer to liquidate these positions than would be the case for publicly traded securities. Companies whose securities
are not publicly traded may not be subject to the disclosure and other investor protection requirements applicable
to companies whose securities are publicly traded. Certain securities may be deemed to be illiquid as a result
of the Advisor’s receipt from time to time of material, non-public information about an issuer, which may limit the
Advisor’s ability to trade such securities for the account of any of its clients, including a fund. In some instances, these
trading restrictions could continue in effect for a substantial period of time. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and a fund might be unable to dispose of illiquid securities promptly
or at reasonable prices and might thereby experience difficulty funding redemptions and other cash needs. An
investment in illiquid securities is subject to the risk that should a fund desire to sell any of these securities when a
ready buyer is not available at a price that is deemed to be representative of their value, the value of a fund’s net assets
could be adversely affected.
An
investment in illiquid securities is also subject to the risk of delays on resale and uncertainty in valuation. A fund might
also have to register such illiquid securities in order to dispose of them, resulting in additional expense and delay.
A fund selling its securities in a registered offering may be deemed to be an “underwriter”
for purposes of Section 11 of the 1933 Act. In such event, a fund may be liable
to purchasers of the securities under Section 11 if the registration statement
prepared by the issuer, or the prospectus forming a part of it, is materially inaccurate or misleading,
although a fund may have a due diligence defense. Adverse market conditions could impede such a public offering
of securities.
Investment
Companies and Other Pooled Investment Vehicles. A fund may acquire securities of
other registered investment companies and other pooled investment vehicles (collectively,
investment funds) to the extent that such investments are consistent with its investment
objective, policies, strategies and restrictions and the limitations of the 1940
Act. Pursuant to the 1940 Act, a fund’s investment in investment companies is limited to, subject to certain exceptions:
(i) 3% of the total outstanding voting stock of any one investment company; (ii) 5% of the fund’s total assets
with respect to any one investment company; and (iii) 10% of the fund’s total assets with respect to investment companies
in the aggregate. To the extent allowed by law or regulation, each fund may invest its assets in the securities of
investment companies that are money market funds, including those advised by the Advisor or otherwise affiliated with
the Advisor, in excess of the limits discussed above. Investment funds may include money market mutual funds operated
in accordance with Rule 2a-7, closed-end funds, and exchange-traded funds (ETFs) (including investment funds
managed by the Advisor and its affiliates). A fund will indirectly bear its proportionate share of any management fees
and other expenses paid by such other investment funds.
Because
a fund may acquire securities of funds managed by the Advisor or an affiliate of the Advisor, the Advisor may have
a conflict of interest in selecting funds. The Advisor considers such conflicts of interest as part of its investment process
and has established practices designed to minimize such conflicts. The Advisor, any subadvisor and any affiliates of
the Advisor, as applicable, earn fees at varying rates for providing services to underlying affiliated funds. The Advisor and
any subadvisor may, therefore, have a conflict of interest in selecting underlying affiliated funds advised by the Advisor
or an affiliate and in determining whether to invest in an unaffiliated fund from which they will not receive any
fees. However, the Advisor and any subadvisor to a fund will select investments that it believes are appropriate to
meet the fund’s investment objectives.
ETFs
and closed-end funds trade on a securities exchange and their shares may trade at a premium or discount to their
net asset value. A fund will incur brokerage costs when it buys and sells shares of ETFs and closed-end funds. ETFs
that seek to track the composition and performance of a specific index may not replicate exactly the performance of
their specified index because of trading costs and operating expenses incurred by the ETF. At times, there may not
be an active trading market for shares of some ETFs and closed-end funds and trading of ETF and closed-end fund
shares may be halted or delisted by the listing exchange.
To
the extent consistent with its investment objective, policies, strategies and restrictions, a fund may invest in commodity-related
ETFs. Certain commodity-related ETFs may not be registered as investment companies under the 1940
Act and shareholders of such commodity-related ETFs, including the investing affiliated fund, will not have the regulatory
protections provided to investors in registered investment companies. Commodity-related ETFs may invest in
commodities directly (such as purchasing gold) or they may seek to track a commodities index by investing in commodity-linked
derivative instruments. Commodity-related ETFs are subject to the risks associated with the commodities or
commodity-linked derivative instruments in which they invest. A fund’s ability to invest in commodity-related ETFs may
be limited by its intention to qualify as a regulated investment company under the Code. In addition, under recent amendments
to rules of the Commodity Futures Trading Commission (CFTC), a fund’s investment in commodity-related ETFs
may subject the fund and/or the Advisor to certain registration, disclosure and reporting requirements of the CFTC.
The Advisor will monitor a fund’s use of commodity-related ETFs to determine whether the fund and/or the Advisor
will need to comply with CFTC rules.
Lending
of Portfolio Securities. To generate additional income, a fund may lend a percentage
of its investment securities to approved institutional borrowers who need to borrow
securities in order to complete certain transactions, such as covering short sales,
avoiding failures to deliver securities or completing arbitrage operations, in exchange for collateral in
the form of cash or US government securities. By lending its investment securities, a fund attempts to increase its
net investment income through the receipt of interest on the loan. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would belong to a fund. A fund may lend its investment securities
so long as the terms, structure and the aggregate amount of such loans are not inconsistent with the 1940 Act
or the rules and regulations or interpretations of the SEC thereunder, which currently require that (a) the borrower pledge
and maintain with a fund collateral consisting of liquid, unencumbered assets having a value at all times not less
than 100% of the value of the securities loaned, (b) the borrower add to such collateral whenever the price of the
securities loaned rises or the value of non-cash collateral declines (i.e., the borrower “marks
to the market” on
a daily basis), (c) the loan be made subject to termination by a fund at any time, and
(d) a fund receives a reasonable return on the loan (consisting of the return achieved
on investment of the cash collateral, less the rebate owed to borrowers, plus distributions
on the loaned securities and any increase in their market value). A fund may pay reasonable fees
in connection with loaned securities, pursuant to written contracts, including fees paid to a fund’s custodian and fees
paid to a securities lending agent, including a securities lending agent that is an affiliate of the Advisor. Voting rights
may pass with the loaned securities, but if an event occurs that the Advisor determines to be a material event affecting
an investment on loan, the loan must be called and the securities voted. Cash collateral received by a fund may
be invested in a money market fund managed by the Advisor (or one of its affiliates).
A
fund is subject to all investment risks associated with the reinvestment of any cash collateral received, including, but
not limited to, interest rate, credit and liquidity risk associated with such investments. To the extent the value or return
of a fund’s investments of the cash collateral declines below the amount owed to a borrower, a fund may incur losses
that exceed the amount it earned on lending the security. If the borrower defaults on its obligation to return securities
lent because of insolvency or other reasons, a fund could experience delays and costs in recovering the
securities
lent or gaining access to collateral. If a fund is not able to recover securities lent, a fund may sell the collateral and
purchase a replacement investment in the market, incurring the risk that the value of the replacement security is
greater than the value of the collateral. However, loans will be made only to borrowers selected by a fund’s delegate after
a commercially reasonable review of relevant facts and circumstances, including the creditworthiness of the borrower.
In
the case of securities lending transactions, payments in lieu of dividends are not qualified dividend income.
Municipal
Securities Risk. Municipal securities are subject to the risk that litigation, legislation
or other political events, local business or economic conditions, credit rating
downgrades or the bankruptcy, of the issuer could have a significant effect on
an issuer’s ability to make payments of principal and/or interest or otherwise affect the value of such securities. In
addition, there is a risk that, as a result of the recent economic crisis, the ability of any issuer to pay, when due, the
principal or interest on its municipal bonds may be materially affected. Certain municipalities may have difficulty meeting
their obligations due to, among other reasons, changes in underlying demographics.
Municipal
securities can be significantly affected by political changes as well as uncertainties in the municipal market related
to government regulation, taxation, legislative changes or the rights of municipal security holders. Because many
municipal securities are issued to finance similar projects, especially those relating to education, health care, transportation,
utilities and water and sewer, conditions in those sectors can affect the overall municipal market. In addition,
changes in the financial condition of an individual municipal insurer can affect the overall municipal market. A
number of municipalities have had significant financial problems recently, and these and other municipalities could, potentially,
continue to experience significant financial problems resulting from lower tax revenues and/or decreased aid
from state and local governments in the event of an economic downturn. This could potentially decrease the fund’s income
or hurt its ability to preserve capital and liquidity. Municipal securities may include revenue bonds, which are generally
backed by revenue from a specific project or tax. The issuer of a revenue bond makes interest and principal payments
from revenues generated from a particular source or facility, such as a tax on particular property or revenues generated
from a municipal water or sewer utility or an airport. Revenue bonds generally are not backed by the full faith
and credit and general taxing power of the issuer. Municipal securities backed by current or anticipated revenues from
a specific project or specific assets can be negatively affected by the discontinuance of the taxation supporting the
project or assets or the inability to collect revenues for the project or from the assets due to factors such as lower property
tax collections as a result of lower home values, lower sales tax revenues as a result of consumers cutting back
spending and lower income tax revenue as a result of a higher unemployment rate. In addition, since some municipal
obligations may be secured or guaranteed by banks and other institutions, the risk to the fund could increase if
the banking or financial sector suffers an economic downturn and/or if the credit ratings of the institutions issuing the
guarantee are downgraded or at risk of being downgraded by a national rating organization. Municipal instruments may
be susceptible to periods of economic stress, which could affect the market values and marketability of many or
all municipal obligations of issuers in a state, US territory, or possession. For example, the COVID-19 pandemic has
significantly stressed the financial resources of many municipal issuers, which may impair a municipal issuer’s ability
to meet its financial obligations when due and could adversely impact the value of its bonds, which could negatively impact
the performance of a fund.
The
market for municipal bonds may be less liquid than for taxable bonds. There may also be less publicly available information
on the financial condition of issuers of municipal securities than for public corporations. This means that it
may be harder to buy and sell municipal securities, especially on short notice, and municipal securities may be more difficult
for the fund to value accurately than securities of public corporations. Since the fund invests a significant portion
of its portfolio in municipal securities, the fund’s portfolio may have greater exposure to liquidity risk than a fund
that invests in non-municipal securities. In addition, the value and liquidity of many municipal securities have decreased
as a result of the recent financial crisis, which has also adversely affected many municipal securities issuers and
may continue to do so. The markets for many credit instruments, including municipal securities, have experienced periods
of illiquidity and extreme volatility since the latter half of 2007. In response to the global economic downturn, governmental
cost burdens may be reallocated among federal, state and local governments. In addition, issuers of municipal
securities may seek protection under the bankruptcy laws. For example, Chapter 9 of the United States Code
(the “Bankruptcy Code”)
provides a financially distressed municipality protection from its creditors while it develops and
negotiates a plan for reorganizing its debts. “Municipality”
is defined broadly by the Bankruptcy Code as a “political
subdivision
or public agency or instrumentality of a state”
and may include various issues of securities in which the fund invests. The reorganization
of a municipality’s debts may include extending debt maturities, reducing the amount of
principal or interest, refinancing the debt or taking other measures, which may significantly affect the rights of creditors
and the value of the securities issued by the municipality and the value of the fund’s investments.
Some
longer-term municipal securities give the investor the right to “put”
or sell the security at par (face value) within a specified number of days following
the investor’s request – usually one to seven days. This demand feature enhances a
security’s liquidity by shortening its effective maturity and enables it to trade at a price equal to or very close to par.
If a demand feature terminates prior to being exercised, the fund would hold the longer-term
security, which could experience substantially more volatility. Municipal securities
are subject to credit and market risk. Generally, prices of higher quality issues
tend to fluctuate more with changes in market interest rates than prices of lower quality issues and
prices of longer maturity issues tend to fluctuate more than prices of shorter maturity issues.
Prices
and yields on municipal securities are dependent on a variety of factors, including general money-market conditions, the
financial condition of the issuer, general conditions of the municipal securities market, the size of a particular offering,
the maturity of the obligation and the rating of the issue. A number of these factors, including the ratings of particular
issues, are subject to change from time to time. Available information about the financial condition of an issuer
of municipal securities may not be as extensive as that which is made available by corporations whose securities are
publicly traded. As a result, municipal securities may be more difficult to value than securities of public corporations.
Many
state and local governments that issue municipal securities are currently under significant economic and financial stress
and may not be able to satisfy their obligations. The taxing power of any governmental entity may be limited and
an entity’s credit may depend on factors which are beyond the entity’s control.
Electric
Utilities Bond Risk. The electric utilities industry has been experiencing, and
will continue to experience, increased competitive pressures. Federal legislation
may open transmission access to any electricity supplier, although it is not presently
known to what extent competition will evolve. Other risks include: (a) the availability and cost of fuel; (b) the
availability and cost of capital; (c) the effects of conservation on energy demand; (d) the effects of rapidly changing environmental,
safety and licensing requirements, and other federal, state and local regulations, (e) timely and sufficient rate
increases and governmental limitations on rates charged to customers; (f) the effects of opposition to nuclear power;
(g) increases in operating costs; and (h) obsolescence of existing equipment, facilities and products.
Industrial
Development Bond Risk. Industrial developments bonds are revenue bonds issued by
or on behalf of public authorities to obtain funds to finance various public and/or
privately operated facilities, including those for business and manufacturing,
housing, sports, pollution control, airport, mass transit, port and parking facilities. These bonds are
normally secured only by the revenues from the project and not by state or local government tax payments. Consequently, the
credit quality of these securities is dependent upon the ability of the user of the facilities financed by the bonds and
any guarantor to meet its financial obligations. Payment of interest on and repayment of principal of such bonds are
the responsibility of the user and/or any guarantor. These bonds are subject to a wide variety of risks, many of which
relate to the nature of the specific project. Generally, the value and credit quality of these bonds are sensitive to
the risks related to an economic slowdown.
Lease
Obligations Risk. Lease
obligations may have risks not normally associated with general obligation or other revenue
bonds. Leases and installment purchase or conditional sale contracts (which may provide for title to the leased asset
to pass eventually to the issuer) have developed as a means for governmental issuers to acquire property and equipment
without the necessity of complying with the constitutional statutory requirements generally applicable for the
issuance of debt. Certain lease obligations contain “nonappropriation”
clauses that provide that the governmental issuer has no obligation to make future
payments under the lease or contract unless money is appropriated for that purpose
by the appropriate legislative body on an annual or other periodic basis. Consequently, continued lease payments on
those lease obligations containing “non-appropriation”
clauses are dependent on future legislative actions. If these legislative actions
do not occur, the holders of the lease obligation may experience difficulty in exercising their rights, including
disposition of the property. In such circumstances, the fund might not recover the full principal amount of the
obligation.
Municipal
Bond Tax Risk. There is no guarantee that the fund’s income will be exempt
from federal or state income taxes. Events occurring after the date of issuance
of a municipal bond or after the fund’s acquisition of a municipal bond may
result in a determination that interest on that bond is includible in gross income for US federal income tax purposes
retroactively to its date of issuance. Such a determination may cause a portion of prior distributions by the fund
to its shareholders to be taxable to those shareholders in the year of receipt. Federal or state changes in income or
AMT rates or in the tax treatment of municipal bonds may make municipal bonds less attractive as investments and
cause them to lose value.
Municipal
Market Disruption Risk. The value of municipal securities may be affected by uncertainties
in the municipal market related to legislation or litigation involving the taxation
of municipal securities or the rights of municipal securities holders in the event
of a bankruptcy. Proposals to restrict or eliminate the federal income tax exemption for interest on
municipal securities are introduced before Congress from time to time. Proposals also may be introduced before state
legislatures that would affect the state tax treatment of a municipal fund’s distributions. If such proposals were enacted,
the availability of municipal securities and the value of a municipal fund’s holdings would be affected. Municipal bankruptcies
are relatively rare, and certain provisions of the US Bankruptcy Code governing such bankruptcies are unclear
and remain untested. Further, the application of state law to municipal issuers could produce varying results among
the states or among municipal securities issuers within a state. These legal uncertainties could affect the municipal
securities market generally, certain specific segments of the market, or the relative credit quality of particular securities.
There is also the possibility that as a result of litigation or other conditions, the power or ability of issuers to
meet their obligations for the payment of interest and principal on their municipal securities may be materially affected
or their obligations may be found to be invalid or unenforceable. Such litigation or conditions may from time to
time have the effect of introducing uncertainties in the market for municipal securities or certain segments thereof, or
of materially affecting the credit risk with respect to particular bonds. Adverse economic, business, legal or political developments
might affect all or a substantial portion of the fund’s municipal securities in the same manner. Any of these
effects could have a significant impact on the prices of some or all of the municipal securities held by the fund.
Resource
Recovery Bond Risk. Resource recovery bonds are a type of revenue bond issued to
build facilities such as solid waste incinerators or waste-to-energy plants. Typically,
a private corporation is involved, at least during the construction phase, and
the revenue stream is secured by fees or rents paid by municipalities for use of the facilities. These
bonds are normally secured only by the revenues from the project and not by state or local government tax receipts.
Consequently, the credit quality of these securities is dependent upon the ability of the user of the facilities financed
by the bonds and any guarantor to meet its financial obligations. The viability of a resource recovery project, environmental
protection regulations, and project operator tax incentives may affect the value and credit quality of resource
recovery bonds.
Special
Tax Bond Risk. Special tax bonds are usually backed and payable through a single
tax, or series of special taxes such as incremental property taxes. The failure
of the tax levy to generate adequate revenue to pay the debt service on the bonds
may cause the value of the bonds to decline. Adverse conditions and developments affecting a
particular project may result in lower revenues to the issuer of the municipal securities, which may adversely affect the
value of the fund’s portfolio.
Transportation
Bond Risk. Transportation bonds may be issued to finance the construction of airports,
toll roads, highways or other transit facilities. Airport bonds are dependent on
the general stability of the airline industry and on the stability of a specific
carrier who uses the airport as a hub. Air traffic generally follows broader economic trends and is also affected
by the price and availability of fuel. Toll road bonds are also affected by the cost and availability of fuel as well as
toll levels, the presence of competing roads and the general economic health of an area. Fuel costs and availability also
affect other transportation-related securities, as do the presence of alternate forms of transportation, such as public
transportation. Municipal securities that are issued to finance a particular transportation project often depend solely
on revenues from that project to make principal and interest payments. Adverse conditions and developments affecting
a particular project may result in lower revenues to the issuer of the municipal securities.
Water
and Sewer Bond Risk. Water and sewer revenue bonds are often considered to have
relatively secure credit as a result of their issuer’s importance, monopoly
status and generally unimpeded ability to raise rates. Despite this, lack of water
supply due to insufficient rain, run-off or snow pack is a concern that has led to past defaults. Further, public
resistance to rate increases, costly environmental litigation, and federal environmental mandates are challenges faced
by issuers of water and sewer bonds.
Repurchase
Agreements. A repurchase agreement is an instrument under which the purchaser (i.e.,
a fund) acquires the security and the seller agrees, at the time of the sale, to
repurchase the security at a mutually agreed upon time and price, thereby determining
the yield during the purchaser’s holding period. Repurchase agreements may be construed to
be collateralized loans by the purchaser to the seller secured by the securities transferred to the purchaser. If a repurchase
agreement is construed to be a collateralized loan, the underlying securities will not be considered to be owned
by each fund but only to constitute collateral for the seller’s obligation to pay the repurchase price, and, in the event
of a default by the seller, each fund may suffer time delays and incur costs or losses in connection with the disposition
of the collateral.
In
any repurchase transaction, collateral for a repurchase agreement may include cash items, obligations issued by the
US government or its agencies or instrumentalities and any other debt security that the Advisor and/or Subadvisor, as
applicable, determines at the time the repurchase agreement is entered into: (i) is issued by an issuer that has an exceptionally
strong capacity to meet its financial obligations; and (ii) is sufficiently liquid that it can be sold at approximately its
carrying value in the ordinary course of business within seven calendar days. Collateral, however, is not limited to the
foregoing and may include for example obligations rated below the highest category by NRSROs. Collateral for a
repurchase agreement may also include securities that a fund could not hold directly without the repurchase obligation.
Repurchase
agreements pose certain risks for a fund that utilizes them. Such risks are not unique to the funds but are
inherent in repurchase agreements. The funds seek to minimize such risks but such risks cannot be eliminated. Lower
quality collateral and collateral with longer maturities may be subject to greater price fluctuations than higher quality
collateral and collateral with shorter maturities. If the repurchase agreement counterparty were to default, lower
quality collateral may be more difficult to liquidate than higher quality collateral. Should the counterparty default and
the amount of collateral not be sufficient to cover the counterparty’s repurchase obligation, a fund would retain the
status of an unsecured creditor of the counterparty (i.e., the position the fund would normally be in if it were to hold,
pursuant to its investment policies, other unsecured debt securities of the defaulting counterparty) with respect to
the amount of the shortfall. As an unsecured creditor, a fund would be at risk of losing some or all of the principal and
income involved in the transaction.
Restricted
Securities/Rule 144A Securities. The funds may invest in securities offered pursuant
to Rule 144A under the 1933 Act (“Rule
144A securities”), which
are restricted securities. They may be less liquid and more difficult to value
than other investments because such securities may not be readily marketable in broad public markets. The funds
may not be able to sell a restricted security promptly or at a reasonable price. Although there is a substantial institutional
market for Rule 144A securities, it is not possible to predict exactly how the market for Rule 144A securities will
develop. A restricted security that was liquid at the time of purchase may subsequently become illiquid and its value
may decline as a result. Restricted securities that are deemed illiquid will count towards a fund’s limitation on illiquid
securities. In addition, transaction costs may be higher for restricted securities than for more liquid securities. The
funds may have to bear the expense of registering Rule 144A securities for resale and the risk of substantial delays
in effecting the registration.
Reverse
Repurchase Agreements. Reverse Repurchase agreements involve the sale of securities
with an agreement to repurchase the securities at an agreed-upon price, date and
interest payment and have the characteristics of borrowing. Generally the effect
of such transactions is that a fund can recover all or most of the cash invested in the portfolio securities
involved during the term of the reverse repurchase agreement, while in many cases a fund is able to keep some
of the interest income associated with those securities. Such transactions are advantageous only if a fund has an
opportunity to earn a rate of interest on the cash derived from these transactions that is greater than the interest cost
of obtaining the same amount of cash. Opportunities to realize earnings from the use of the proceeds equal to or
greater than the interest required to be paid may not always be available and a fund intends to use the reverse repurchase
technique only when the Advisor and/or Subadvisor, as applicable, believes it will be advantageous to a
fund.
The use of reverse repurchase agreements may exaggerate any interim increase or decrease in the value of a fund’s
assets. A fund’s exposure to reverse repurchase agreements will be covered by assets having a value equal to
or greater than such commitments. Each fund maintains liquid assets in connection with reverse repurchase agreements. Under
the 1940 Act, reverse repurchase agreements are considered borrowings.
Russian
Securities. As a result of political and military actions undertaken by Russia in
recent years, the US and the European Union have instituted sanctions against certain
Russian officials and Bank Rossiya. These sanctions, and any additional sanctions
or other intergovernmental actions that may be undertaken against Russia in the future, may result
in the devaluation of Russian currency, a downgrade in the Russia’s credit rating, and a decline in the value and liquidity
of Russian securities. These sanctions could result in the immediate freeze of Russian securities, impairing the
ability of a fund to buy, sell, receive, or deliver those securities. Retaliatory action by the Russian government could
involve the seizure of US and/or European residents’ assets, and any such actions are likely to impair the value and
liquidity of such assets. Any or all of these potential results could push Russia’s economy into a recession. These sanctions,
and the continued disruption of the Russian economy, could have a negative effect on the performance of a
fund to the extent their Underlying Indexes and their portfolios contain the securities of Russian issuers.
Short
Sales. When a fund makes a short sale, it borrows the security sold short and delivers
it to the broker-dealer through which it made the short sale. Each fund may have
to pay a fee to borrow particular securities and is often obligated to turn over
any payments received on such borrowed securities to the lender of the securities. Each fund secures
its obligation to replace the borrowed security by depositing collateral with the broker-dealer, usually in cash, US
Government securities or other liquid securities similar to those borrowed. With respect to uncovered short positions, the
funds are required to deposit similar collateral with its custodian, if necessary, to the extent that the value of both collateral
deposits in the aggregate is at all times equal to at least 150% of the current market value of the securities sold
short (100% of the current market value if a security is held in the account that is convertible or exchangeable into
the security sold short within 90 days without restriction other than the payment of money). Depending on arrangements made
with the broker-dealer from which a fund borrowed the security, regarding payment received by the fund on such
security, the fund may not receive any payments (including interest) on its collateral deposited with such broker-dealer. Because
making short sales in securities that it does not own exposes a fund to the risks associated with those securities,
such short sales involve speculative exposure risk. Each fund will incur a loss as a result of a short sale if the
price of the security increases between the date of the short sale and the date on which the fund replaces the borrowed
security. Each fund will realize a gain on a short sale if the security declines in price between those dates. There
can be no assurance that the funds will be able to close out a short sale position at any particular time or at an acceptable
price.
Each
fund may also make short sales “against
the box” without being
subject to such limitations. In a short sale “against-the-box,”
at the time of the sale, a fund owns or has the immediate and unconditional right to acquire the identical
security at no additional cost. If a fund makes a short sale against the box, the fund would not immediately deliver
the securities sold and would not receive the proceeds from the sale. The seller is said to have a short position in
the securities sold until it delivers the securities sold, at which time it receives the proceeds of the sale. To secure its
obligation to deliver securities sold short, a fund will deposit in escrow in a separate account with the custodian an
equal amount of the securities sold short or securities convertible into or exchangeable for such securities. Each fund
can close out its short position by purchasing and delivering an equal amount of the securities sold short, rather than
by delivering securities already held by the fund because the fund might want to continue to receive interest and
dividend payments on securities in its portfolio that are convertible into the securities sold short.
Short-Term
Instruments and Temporary Investments. Short-term instruments, including money market
instruments, may be used on an ongoing basis to provide liquidity or for other
reasons, including to the extent necessary to help each fund track its underlying
index. Money market instruments are generally short-term investments that may include but
are not limited to: (i) Shares of money market funds (including those advised by the Advisor and/or Subadvisor, as
applicable); (ii) obligations issued or guaranteed by the US government, its agencies or instrumentalities (including government-sponsored
enterprises); (iii) negotiable certificates of deposit (“CDs”),
bankers’ acceptances, fixed-time deposits and other obligations of US and
non-US banks (including non-US branches) and similar institutions; (iv) commercial paper
rated, at the date of purchase, “Prime-1”
by Moody’s Investors Service, Inc. or “A-1”
by Standard & Poor’s Financial Services LLC (“S&P”),
or if unrated, of comparable quality as determined by the Advisor and/or Subadvisor,
as
applicable; (v) non-convertible corporate debt securities (e.g., bonds and debentures) with remaining maturities at the
date of purchase of not more than 397 days and that satisfy the credit quality requirements set forth in Rule 2a-7 under
the 1940 Act; (vi) repurchase agreements; and (vii) short-term US dollar-denominated obligations of non-US banks
(including US branches) that, in the opinion of the Advisor and/or Subadvisor, as applicable, are of comparable quality
to obligations of US banks which may be purchased by a fund. Any of these instruments may be purchased on
a current or forward-settled basis. Time deposits are non-negotiable deposits maintained in banking institutions for
specified periods of time at stated interest rates. Bankers’ acceptances are time drafts drawn on commercial banks by
borrowers, usually in connection with international transactions.
Special
Taxation Risks for Funds that Invest in Underlying Funds. To the extent a fund invests
in an Underlying Fund, the fund’s exposure to the portfolio investments of
such Underlying Fund through its investment in the Underlying Fund’s shares
may be less tax efficient than the fund investing directly in the Underlying Fund’s portfolio investments. The
fund will not be able to offset its taxable income and gains with losses incurred by the Underlying Fund because the
Underlying Fund is treated as a corporation for US federal income tax purposes. The fund’s sales of shares in the Underlying
Fund, including those resulting from changes in the fund’s allocation of assets, could cause the recognition of
additional taxable gains. A portion of any such gains may be short-term capital gains, which will be taxable as ordinary dividend
income when distributed to the fund’s shareholders.
Further,
certain losses recognized on sales of shares in an Underlying Fund may be deferred indefinitely under the wash
sale rules. Any loss realized by the fund on a disposition of shares in an Underlying Fund held for six months or less
will be treated as a long-term capital loss to the extent of any amounts treated as distributions to the fund of net long-term
capital gain with respect to the Underlying Fund’s shares (including any amounts credited to the fund as undistributed
capital gains). Short-term capital gains earned by the Underlying Fund will be treated as ordinary dividends when
distributed to the fund and therefore may not be offset by any short-term capital losses incurred by the fund. The
fund’s short-term capital losses might instead offset long-term capital gains realized by the fund, which would otherwise
be eligible for reduced US federal income tax rates when distributed to individual and certain other non-corporate shareholders.
To
the extent a fund invests in an Xtrackers China A-Shares ETF, such investment poses additional taxation risk. Specifically, if
the Chinese government imposes restrictions on the Xtrackers China A-Shares ETF’s ability to repatriate monies associated
with investment in A-Shares, the Xtrackers China A-Shares ETF could fail to qualify for US federal income tax
treatment as a regulated investment company. Under those circumstances, the Xtrackers China A-Shares ETF would
be subject to tax as a regular corporation, and the fund would not be able to treat non-US income taxes paid by
the Xtrackers China A-Shares ETFs as paid by the fund’s shareholders.
Tax
Risks. As with any investment, you should consider how your investment in Shares
of the fund will be taxed. The tax information in the Prospectus and this SAI is
provided as general information. You should consult your own tax professional about
the tax consequences of an investment in Shares of the fund.
When-Issued
Securities. A fund may purchase when-issued securities. Purchasing securities on
a “when-issued”
basis means that the date for delivery of and payment for the securities is not
fixed at the date of purchase, but is set after the securities are issued. The
payment obligation and, if applicable, the interest rate that will be received on the
securities are fixed at the time the buyer enters into the commitment. The fund will only make commitments to purchase
such securities with the intention of actually acquiring such securities, but the fund may sell these securities before
the settlement date if it is deemed advisable.
Securities
purchased on a when-issued basis and the securities held in the fund’s portfolio are subject to changes in market
value based upon the public’s perception of the creditworthiness of the issuer and, if applicable, the changes in
the level of interest rates. Therefore, if the fund is to remain substantially fully invested at the same time that it has purchased
securities on a when-issued basis, there will be a possibility that the market value of the fund’s assets will fluctuate
to a greater degree. Furthermore, when the time comes for the fund to meet its obligations under when-issued commitments,
the fund will do so by using then available cash flow, by sale of the segregated liquid assets, by sale of
other securities, or although it would not normally expect to do so, by directing the sale of when-issued securities themselves
(which may have a market value greater or less than the fund’s payment obligation).
Investment
in securities on a when-issued basis may increase the fund’s exposure to market fluctuation and may increase
the possibility that the fund will incur short-term gains subject to federal taxation or short-term losses if the fund
must sell another security in order to honor a when-issued commitment. The fund will employ techniques designed to
reduce such risks. If the fund purchases a when-issued security, the fund will segregate liquid assets in an amount equal
to the when-issued commitment. If the market value of such segregated assets declines, additional liquid assets will
be segregated on a daily basis so that the market value of the segregated assets will equal the amount of the fund’s
when-issued commitments.
Part
II: Appendix II-F—Taxes
The
following is intended to be a general summary of certain federal income tax consequences of investing in a fund. This
discussion does not address all aspects of taxation (including state, local, and foreign taxes) that may be relevant to
particular shareholders in light of their own investment or tax circumstances, or to particular types of shareholders (including
insurance companies, tax-deferred retirement plans, financial institutions or broker-dealers, foreign corporations, and
persons who are not citizens or residents of the United States) that are subject to special treatment under the US
federal income tax laws. Current and prospective investors are therefore advised to consult with their tax advisors before
making an investment in a fund. This summary is based on the laws in effect on the date of this SAI and on existing
judicial and administrative interpretations thereof, all of which are subject to change, possibly with retroactive effect.
Regulated
Investment Company Qualifications. Each fund intends to qualify for treatment as
a separate RIC under Subchapter M of the Code. To qualify for treatment as a RIC,
each fund must annually distribute at least 90% of its investment company taxable
income (which includes dividends, interest and net short-term capital gains) and meet several
other requirements. Among such other requirements are the following: (i) at least 90% of each fund’s annual gross
income must be derived from dividends, interest, payments with respect to securities loans, gains from the sale
or other disposition of stock or securities or non-US currencies, other income (including, but not limited to, gains from
options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or
currencies, and net income derived from interests in qualified publicly-traded partnerships (i.e., partnerships that are
traded on an established securities market or tradable on a secondary market, other than partnerships that derive 90%
of their income from interest, dividends, capital gains and other traditionally permitted mutual fund income); and
(ii) at the close of each quarter of each fund’s taxable year, (a) at least 50% of the market value of each fund’s
total assets must be represented by cash and cash items, US government securities, securities
of other RICs and other securities, with such other securities limited for purposes
of this calculation in respect of any one issuer to an amount not greater than
5% of the value of the fund’s assets and not greater than 10% of the outstanding voting securities
of such issuer, and (b) not more than 25% of the value of each fund’s total assets may be invested in the securities
(other than US government securities or the securities of other RICs) of any one issuer, or two or more issuers
of which 20% or more of the voting stock is held by the fund and that are engaged in the same or similar trades
or businesses or related trades or businesses, or the securities of one or more qualified publicly-traded partnerships. The
Treasury Department is authorized to promulgate regulations under which gains from foreign currencies (and options,
futures, and forward contracts on foreign currency) would constitute qualifying income for purposes of the test
described in (i) above only if such gains are directly related to investing in securities. To date, such regulations have
not been issued.
Although
in general the passive loss rules of the Code do not apply to RICs, such rules do apply to a RIC with respect to
items attributable to an interest in a qualified publicly-traded partnership. A fund’s investments in partnerships, if any,
including in qualified publicly-traded partnerships, may result in a fund being subject to state, local, or non-US income,
franchise or withholding tax liabilities.
Taxation
of Regulated Investment Companies. As a RIC, a fund will not be subject to US federal
income tax on the portion of its taxable investment income and capital gains that
it distributes to its shareholders, provided that it satisfies a minimum distribution
requirement. To satisfy the minimum distribution requirement, a fund must distribute to
its shareholders an amount at least equal to the sum of (i) 90% of its “investment
company taxable income”
(i.e., taxable income other than its net realized long-term capital gain over its
net realized short-term capital loss), plus or minus certain adjustments, and (ii)
90% of its net tax-exempt income for the taxable year. A fund will be subject to income
tax at regular corporation rates on any taxable income or gains that it does not distribute to its shareholders. If
a fund fails to qualify for any taxable year as a RIC or fails to meet the distribution requirement, all of its taxable income
will be subject to tax at regular corporate income tax rates without any deduction for distributions to shareholders, and
such distributions generally will be taxable to shareholders as ordinary dividends to the extent of the fund’s current and
accumulated earnings and profits. In such event, distributions to individuals should be eligible to be treated as qualified
dividend income and distributions to corporate shareholders generally should be eligible for the dividends received
deduction. Although each fund intends to distribute substantially all of its net investment income and its capital
gains for each taxable year, each fund will be subject to US federal income taxation to the extent any such
income
or gains are not distributed. If a fund fails to qualify as a RIC in any year, it must pay out its earnings and profits
accumulated in that year in order to qualify again as a RIC. If a fund fails to qualify as a RIC for a period greater than
two taxable years, the fund may be required to recognize any net built-in gains with respect to certain of its assets
(i.e., the excess of the aggregate gains, including items of income, over aggregate losses that would have been
realized with respect to such assets if the fund had been liquidated) if it qualifies as a RIC in a subsequent year.
If
a fund does not on a timely basis receive applicable government approvals in the PRC to repatriate funds associated with
direct investment in A-Shares, the fund may be unable to satisfy the minimum distribution requirement described above.
Excise
Tax. A fund will be subject to a 4% excise tax on certain undistributed income if
it does not generally distribute to its shareholders in each calendar year an amount
at least equal to the sum of (i) 98% of its ordinary income for the calendar year
(taking into account certain deferrals and elections) plus (ii) 98.2% of its capital gain net income (reduced by
certain ordinary losses) for the 12 months ended October 31 of such year. For this purpose, however, any ordinary income
or capital gain net income retained by a fund that is subject to corporate income tax in the taxable year ending within
the relevant calendar year will be considered to have been distributed. In addition, the minimum amounts that must
be distributed in any year to avoid the excise tax will be increased or decreased to reflect any under-distribution or
over-distribution, as the case may be, from the previous year. Each fund intends to declare and distribute dividends and
distributions in the amounts and at the times necessary to avoid the application of this 4% excise tax.
If
a fund does not on a timely basis receive applicable government approvals in the PRC to repatriate funds associated with
direct investment in A-Shares, a fund may be unable to avoid the excise tax.
Fund
Losses. If a fund has a “net
capital loss” (that
is, capital losses in excess of capital gains) for a taxable year, the excess of
the fund’s net short-term capital losses over its net long-term capital gains is treated as a short-term capital
loss arising on the first day of the fund’s next taxable year, and the excess (if any) of the fund’s net long-term
capital losses over its net short-term capital gains is treated as a long-term capital
loss arising on the first day of the fund’s next taxable year. These losses
can be carried forward indefinitely to offset capital gains, if any, in years following the
year of the loss.
Under
certain circumstances, a fund may elect to treat certain losses as though they were incurred on the first day of
the taxable year following the taxable year in which they were actually incurred.
Taxation
of US Shareholders. Dividends and other distributions by a fund are generally treated
under the Code as received by the shareholders at the time the dividend or distribution
is made. However, any dividend or distribution declared by a fund in October, November
or December of any calendar year and payable to shareholders of record on a specified
date in such a month shall be deemed to have been received by each shareholder on December 31 of such
calendar year and to have been paid by the fund not later than such December 31, provided such dividend is actually
paid by the fund during January of the following calendar year.
Each
fund intends to distribute annually to its shareholders substantially all of its investment company taxable income and
any net realized long-term capital gains in excess of net realized short-term capital losses (including any capital loss
carryovers). However, if a fund retains for investment an amount equal to all or a portion of its net long-term capital
gains in excess of its net short-term capital losses (including any capital loss carryovers), it will be subject to a
corporate tax (currently at a maximum rate of 21%) on the amount retained. In that event, the fund may report such retained
amounts as undistributed capital gains in a notice to its shareholders who (a) will be required to include in income
for US federal income tax purposes, as long-term capital gains, their proportionate Shares of the undistributed amount,
(b) will be entitled to credit their proportionate Shares of the US federal income tax paid by the fund on the undistributed
amount against their US federal income tax liabilities, if any, and to claim refunds to the extent their credits
exceed their liabilities, if any, and (c) will be entitled to increase their tax basis, for US federal income tax purposes,
in their Shares by an amount equal to 79% of the amount of undistributed capital gains included in the shareholder’s
income. Organizations or persons not subject to US federal income tax on such capital gains will be entitled
to a refund of their pro rata Share of such taxes paid by the fund upon filing appropriate returns or claims for refund
with the IRS.
Distributions
of net realized long-term capital gains, if any, that a fund reports as capital gains dividends are taxable as
long-term capital gains, whether paid in cash or in Shares and regardless of how long a shareholder has held Shares of
the fund. All other dividends of a fund (including dividends from short-term capital gains) from its current and accumulated earnings
and profits (“regular
dividends”) are generally
subject to tax as ordinary income, subject to the discussion of qualified dividend
income below.
If
an individual receives a regular dividend qualifying for the long-term capital gains rates and such dividend constitutes an
“extraordinary dividend,”
and the individual subsequently recognizes a loss on the sale or exchange of stock in respect
of which the extraordinary dividend was paid, then the loss will be long-term capital loss to the extent of such
extraordinary dividend. An “extraordinary
dividend” on common
stock for this purpose is generally a dividend (i) in an amount greater than or
equal to 10% of the taxpayer’s tax basis (or trading value) in a Share of stock, aggregating dividends
with ex-dividend dates within an 85-day period or (ii) in an amount greater than 20% of the taxpayer’s tax basis
(or trading value) in a Share of stock, aggregating dividends with ex- dividend dates within a 365-day period.
Distributions
in excess of a fund’s current and accumulated earnings and profits will, as to each shareholder, be treated as
a tax-free return of capital to the extent of a shareholder’s basis in Shares of the fund, and as a capital gain thereafter
(if the shareholder holds Shares of the fund as capital assets). Shareholders receiving
dividends or distributions in the form of additional Shares should generally be
treated for US federal income tax purposes as receiving a distribution in an amount
equal to the amount of money that the shareholders receiving cash dividends or distributions will receive and
should generally have a cost basis in the Shares received equal to such amount.
Investors
considering buying Shares just prior to a dividend or capital gain distribution should be aware that, although the
price of Shares purchased at that time may reflect the amount of the forthcoming distribution, such dividend or distribution
may nevertheless be taxable to them. If a fund is the holder of record of any security on the record date for
any dividends payable with respect to such security, such dividends will be included in the fund’s gross income not
as of the date received but as of the later of (a) the date such security became ex-dividend with respect to such dividends
(i.e., the date on which a buyer of the security would not be entitled to receive the declared, but unpaid, dividends);
or (b) the date the fund acquired such security. Accordingly, in order to satisfy its income distribution requirements, a
fund may be required to pay dividends based on anticipated earnings, and shareholders may receive dividends in an
earlier year than would otherwise be the case.
In
certain situations, a fund may, for a taxable year, defer all or a portion of its capital losses, currency losses and certain
other ordinary losses until the next taxable year in computing its investment company taxable income and net
capital gain, which will defer the recognition of such realized losses. Such deferrals and other rules regarding gains and
losses may affect the tax character of shareholder distributions.
An
additional 3.8% Medicare tax is imposed on certain net investment income (including ordinary dividends and capital gain
distributions received from a fund and net gains from redemptions or other taxable dispositions of fund Shares) of
US individuals, estates and trusts to the extent that such person’s “modified
adjusted gross income”
(in the case of an individual) or “adjusted
gross income” (in the
case of an estate or trust) exceeds certain threshold amounts.
Sales
of Shares. Upon the sale or exchange of Shares of a fund, a shareholder will realize
a taxable gain or loss equal to the difference between the amount realized and
the shareholder’s basis in Shares of a fund. A redemption of Shares by a
fund will be treated as a sale for this purpose. Such gain or loss will be treated as capital gain or loss if the Shares are
capital assets in the shareholder’s hands and will be long-term capital gain or loss if the Shares are held for more than
one year and short-term capital gain or loss if the Shares are held for one year or less. Any loss realized on a sale or
exchange will be disallowed to the extent the Shares disposed of are replaced, including replacement through the reinvesting
of dividends and capital gains distributions in the fund, within a 61-day period beginning 30 days before and
ending 30 days after the disposition of the Shares. In such a case, the basis of the Shares acquired will be increased to
reflect the disallowed loss. Any loss realized by a shareholder on the sale of a fund Share held by the shareholder for
six months or less will be treated for US federal income tax purposes as a long-term capital loss to the extent of any
distributions or deemed distributions of long-term capital gains received by the shareholder with respect to such Share.
If
a shareholder incurs a sales charge in acquiring Shares of a fund, disposes of those Shares within 90 days and then acquires,
prior to February 1 of the following calendar year, shares in a mutual fund for which the otherwise applicable sales
charge is reduced by reason of a reinvestment right (e.g., an exchange privilege), the original sales charge will not
be taken into account in computing gain/loss on the original Shares to the extent the subsequent sales charge is reduced.
Instead, the disregarded portion of the original sales charge will be added to the tax basis of the newly acquired
Shares. Furthermore, the same rule also applies to a disposition of the newly acquired Shares made within 90
days of the second acquisition. This provision prevents shareholders from immediately deducting the sales charge by
shifting their investments within a family of mutual funds.
Legislation
passed by Congress requires reporting of adjusted cost basis information for covered securities, which generally
include shares of a RIC acquired after January 1, 2012, to the Internal Revenue Service and to taxpayers.
Shareholders
should contact their financial intermediaries with respect to reporting of cost basis and available elections for
their accounts.
Back-Up
Withholding. In certain cases, withholding will be required at the applicable withholding
rate (currently 24%), from any distributions paid to a shareholder who: (i) has
failed to provide a correct taxpayer identification number; (ii) is subject to
back-up withholding by the IRS; (iii) has failed to certify that such shareholder is not subject to back-up withholding;
or (iv) has not certified that such shareholder is a US person (including a US resident alien). Back-up withholding
is not an additional tax and any amount withheld may be credited against a shareholder’s US federal income
tax liability.
Sections
351 and 362. The Trust, on behalf of each fund, has the right to reject an order
for a purchase of Shares of the fund if the purchaser (or group of purchasers)
would, upon obtaining the Shares so ordered, own 80% or more of the outstanding
Shares of a given Fund and if, pursuant to Sections 351 and 362 of the Code, that fund would have a
basis in the securities different from the market value of such securities on the date of deposit. If a fund’s basis in
such securities on the date of deposit was less than market value on such date, the fund,
upon disposition of the securities, would recognize more taxable gain or less taxable
loss than if its basis in the securities had been equal to market value. It is
not anticipated that the Trust will exercise the right of rejection except in a case where the Trust determines
that accepting the order could result in material adverse tax consequences to a fund or its shareholders. The
Trust also has the right to require information necessary to determine beneficial Share ownership for purposes of
the 80% determination.
Investment
in the Underlying Funds. A fund’s exposure to securities through an underlying
fund (i.e., the Underlying Funds) may be less tax efficient than a direct investment
in securities. The fund will not be able to offset its taxable income and gains
with losses incurred by the underlying fund because the underlying fund(s) are treated as corporations for
US federal income tax purposes. The fund’s sales of shares of an underlying fund, including those resulting from changes
in the fund’s allocation of assets, could cause the recognition of additional taxable gains. A portion of any such
gains may be short-term capital gains, which will be taxable as ordinary dividend income when distributed to the
fund’s shareholders. Further, certain losses recognized on sales of shares of the underlying fund may be deferred indefinitely
under the wash sale rules. Any loss realized by the fund on a disposition of shares of the underlying fund held
for six months or less will be treated as a long-term capital loss to the extent of any amounts treated as distributions to
the fund of net long-term capital gain with respect to the underlying fund’s shares (including any amounts credited to
the fund as undistributed capital gains). Short-term capital gains earned by the underlying fund will be treated as ordinary
dividends when distributed to the fund and therefore may not be offset by any short-term capital losses incurred
by the fund. The fund’s short-term capital losses might instead offset long-term capital gains realized by the fund,
which would otherwise be eligible for reduced US federal income tax rates when distributed to individual and certain
other non-corporate shareholders.
Taxation
of Certain Derivatives. A fund’s transactions in zero coupon securities, non-US
currencies, forward contracts, options and futures contracts (including options,
futures contracts and forward contracts on non-US currencies), to the extent permitted,
will be subject to special provisions of the Code (including provisions relating to “hedging
transactions”
and “straddles”)
that, among other things, may affect the character of gains and losses realized by the fund (i.e., may affect
whether gains or losses are ordinary or capital), accelerate recognition of income to the fund and defer fund
losses.
These rules could therefore affect the character, amount and timing of distributions to shareholders. These provisions
also (a) will require a fund to mark-to-market certain types of the positions in its portfolio (i.e., treat them as
if they were closed out at the end of each year) and (b) may cause a fund to recognize income without receiving cash
with which to pay dividends or make distributions in amounts necessary to satisfy the distribution requirements for
avoiding income and excise taxes. Each fund will monitor its transactions, will make the appropriate tax elections and
will make the appropriate entries in its books and records when it acquires any zero coupon security, non-US currency,
forward contract, option, futures contract or hedged investment in order to mitigate the effect of these rules and
prevent disqualification of the fund as a RIC.
A
fund’s investment in so-called “Section
1256 contracts,” such
as regulated futures contracts, most non-US currency forward contracts traded in
the interbank market and options on most security indexes, are subject to special tax rules.
All Section 1256 contracts held by a fund at the end of its taxable year are required to be marked to their market value,
and any unrealized gain or loss on those positions will be included in the fund’s income as if each position had been
sold for its fair market value at the end of the taxable year. The resulting gain or loss will be combined with any gain
or loss realized by the fund from positions in Section 1256 contracts closed during the taxable year. Provided such
positions were held as capital assets and were not part of a “hedging
transaction” nor part
of a “straddle,”
60% of the resulting net gain or loss will be treated as long-term capital gain
or loss, and 40% of such net gain or loss will be treated as short-term capital
gain or loss, regardless of the period of time the positions were actually held by the fund.
As
a result of entering into swap contracts, a fund may make or receive periodic net payments. A fund may also make or
receive a payment when a swap is terminated prior to maturity through an assignment of the swap or other closing transaction.
Periodic net payments will generally constitute ordinary income or deductions, while termination of a swap
will generally result in capital gain or loss (which will be a long-term capital gain or loss if the fund has been a party
to the swap for more than one year). With respect to certain types of swaps, a fund may be required to currently recognize
income or loss with respect to future payments on such swaps or may elect under certain circumstances to
mark such swaps to market annually for tax purposes as ordinary income or loss. The tax treatment of many types of
credit default swaps is uncertain.
Qualified
Dividend Income. Distributions by a fund of investment company taxable income (including
any short-term capital gains), whether received in cash or Shares, will be taxable
either as ordinary income or as qualified dividend income, eligible for the reduced
maximum rate to individuals of either 15% or 20% (depending on whether the individual’s income
exceeds certain threshold amounts) to the extent the fund receives qualified dividend income on the securities it
holds and the fund reports the distribution as qualified dividend income. Distributions by a fund of its net short-term capital
gains will be taxable as ordinary income. Capital gain distributions consisting of a fund’s net capital gains will be
taxable as long-term capital gains. Qualified dividend income is, in general, dividend income from taxable US corporations (but
generally not from US REITs) and certain non-US corporations (e.g., non-US corporations that are not “passive
foreign investment companies”
and which are incorporated in a possession of the US or in certain countries with a comprehensive
tax treaty with the US, or the stock of which is readily tradable on an established securities market in
the US). Under current IRS guidance, the United States has appropriate comprehensive income tax treaties with the
following countries: Australia, Austria, Bangladesh, Barbados, Belgium, Bulgaria, Canada, China (but not with Hong Kong,
which is treated as a separate jurisdiction for US tax purposes), Cyprus, the Czech Republic, Denmark, Egypt, Estonia,
Finland, France, Germany, Greece, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kazakhstan,
Latvia, Lithuania, Luxembourg, Malta, Mexico, Morocco, the Netherlands, New Zealand, Norway, Pakistan, the
Philippines, Poland, Portugal, Romania, Russia, Slovak Republic, Slovenia, South Africa, South Korea, Spain, Sri Lanka,
Sweden, Switzerland, Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, the United Kingdom, and Venezuela.
A
dividend from a fund will not be treated as qualified dividend income to the extent that (i) the shareholder has not held
the Shares on which the dividend was paid for 61 days during the 121-day period that begins on the date that is
60 days before the date on which the Shares become ex-dividend with respect to such dividend or the fund fails to
satisfy those holding period requirements with respect to the securities it holds that paid the dividends distributed to
the shareholder (or, in the case of certain preferred stocks, the holding requirement of 91 days during the 181-day period
beginning on the date that is 90 days before the date on which the stock becomes ex- dividend with respect to
such dividend); (ii) the fund or the shareholder is under an obligation (whether pursuant to a short sale or otherwise)
to
make related payments with respect to substantially similar or related property; or (iii) the shareholder elects to treat
such dividend as investment income under Section 163(d)(4)(B) of the Code. Dividends received by a fund from a
REIT or another RIC may be treated as qualified dividend income only to the extent the dividend distributions are attributable
to qualified dividend income received by such REIT or other RIC. It is expected that dividends received by
a fund from a REIT and distributed to a shareholder generally will be taxable to the shareholder as ordinary income and
eligible for a special 20% deduction by shareholders if so reported by the fund.
If
you lend your fund Shares pursuant to securities lending arrangements you may lose the ability to use non-US tax credits
passed through by the fund or to treat fund dividends (paid while the Shares are held by the borrower) as qualified
dividends. Consult your financial intermediary or tax advisor. If you enter into a short sale with respect to Shares
of the fund, substitute payments made to the lender of such Shares may not be deductible. Consult your financial
intermediary or tax advisor.
Corporate
Dividends Received Deduction. Distributions reported to shareholders as derived
from a Fund’s dividend income, if any, that would be eligible for the dividends
received deduction if a Fund were not a regulated investment company may be eligible
for the dividends received deduction for corporate shareholders. The dividends received deduction,
if available, is reduced to the extent the shares with respect to which the dividends are received are treated as
debt-financed under federal income tax law and is eliminated if the shares are deemed to have been held for less than
a minimum period, generally 46 days. The dividends received deduction also may be reduced as a result of a Fund’s
securities lending activities, hedging activities or a high portfolio turnover rate or as a result of certain derivative transactions
entered into by a Fund.
Excess
Inclusion Income. Under current law, the fund serves to block unrelated business
taxable income from being realized by their tax-exempt Shareholders. Notwithstanding
the foregoing, a tax-exempt shareholder could realize unrelated business taxable
income by virtue of its investment in the fund if shares in the fund constitute debt-financed property in
the hands of the tax-exempt shareholder within the meaning of Code Section 514(b). Certain types of income received by
the fund from REITs, real estate mortgage investment conduits, taxable mortgage pools or other investments may cause
the fund to designate some or all of its distributions as “excess
inclusion income.” To
fund shareholders, such excess inclusion income may (i) constitute taxable income,
as “unrelated business
taxable income” for
those shareholders who would otherwise be tax-exempt such as individual retirement
accounts, 401(k) accounts, Keogh plans, pension plans and certain charitable entities;
(ii) not be offset by otherwise allowable deductions for tax purposes; (iii) not be eligible
for reduced US withholding for non-US shareholders even from tax treaty countries; and (iv) cause the fund to
be subject to tax if certain “disqualified
organizations” as defined
by the Code are fund shareholders. If a charitable remainder annuity trust or a
charitable remainder unitrust (each as defined in Code Section 664) has UBTI for a taxable year,
a 100% excise tax on the UBTI is imposed on the trust.
Non-US
Investments. Under Section 988 of the Code, gains or losses attributable to fluctuations
in exchange rates between the time a fund accrues income or receivables or expenses
or other liabilities denominated in a currency other than the fund’s “functional
currency” and the time
the fund actually collects such receivables or income or pays such expenses or
liabilities are generally treated as ordinary income or ordinary loss. In general, assuming the fund’s functional
currency for US federal income tax purposes is the US dollar, gains (and losses) realized on debt instruments will
be treated as Section 988 gain (or loss) to the extent attributable to changes in exchange rates between the US dollar
and the currencies in which the instruments are denominated. Similarly, gain or losses on non-US currency, non-US
currency forward contracts and certain non-US currency options or futures contracts denominated in non-US currency,
to the extent attributable to fluctuations in exchange rates between the acquisition and disposition dates, are
also treated as ordinary income or loss unless the fund were to elect otherwise. Certain funds (or a “qualified
business unit”
of the fund) may treat the RMB as its functional currency. Under those circumstances, the fund generally would
not be expected to recognize gains or losses on its RMB-denominated securities based on the value of the RMB
relative to the US dollar, but a fund may recognize Section 988 gain (or loss) based on fluctuations in the value of
the RMB relative to the US dollar between the acquisition and disposition dates of US currency, between the date on
which a fund dividend is declared and the date on which it is paid, and potentially in connection with Fund redemptions.
Income
received by the funds from sources within foreign countries (including, for example, interest and dividends on
securities of non-US issuers) may be subject to withholding and other taxes imposed by such countries. In the case
of PRC issuers, gain on the sale of shares may also be subject to foreign tax. Tax treaties between such countries and
the US may reduce or eliminate such taxes. Foreign taxes paid by the funds will reduce the return from the funds’ investments.
Each
fund may be subject to non-US income taxes withheld at the source. Each fund, if more than 50% of the value of
its total assets at the close of its taxable year consists of securities of foreign corporations, may elect to “pass
through”
to its investors the amount of non-US income taxes paid by the fund provided that both the fund and the investor
satisfy certain holding period requirements, with the result that each investor at the time of deemed distribution will
(i) include in gross income, even though not actually received, the investor’s pro rata share of the fund’s non-US
income taxes, and (ii) either deduct (in calculating US taxable income) or credit (in calculating
US federal income tax) the investor’s pro rata share of the fund’s
non-US income taxes. A non-US person invested in the fund in a year that the fund
elects to “pass through”
its non-US taxes may be treated as receiving additional dividend income subject to
US withholding tax. A non-US tax credit may not exceed the investor’s US federal income tax otherwise payable with
respect to the investor’s non-US source income. For this purpose, shareholders must treat as non-US source gross
income (i) their proportionate Shares of non-US taxes paid by the fund and (ii) the portion of any dividend paid by
the fund that represents income derived from non-US sources; the fund’s gain from the sale of securities will generally
be treated as US-source income. Certain limitations will be imposed to the extent to which the non-US tax credit
may be claimed.
A-Shares
Tax Risk. Uncertainties in the Chinese tax rules governing taxation of income and
gains from investments in A-Shares could result in unexpected tax liabilities for
a fund. China generally imposes withholding tax at a rate of 10% on dividends and
interest derived by nonresident enterprises from issuers resident in China. China also imposes withholding
tax at a rate of 10% on capital gains derived by nonresident enterprises from investments in an issuer resident
in China, subject to an exemption or reduction pursuant to domestic law or a double taxation agreement or arrangement.
Since
the respective inception of the Shanghai-Hong Kong Stock Connect program (“Shanghai
Connect” and the
Shenzhen-Hong Kong Stock Connect program (“Shenzhen
Connect”), foreign investors
(including the funds) investing in A-Shares listed on the SSE through Shanghai
Connect and those listed on the SZSE through Shenzhen Connect would be temporarily
exempt from the PRC corporate income tax and value-added tax on the gains on disposal of such
A-Shares. Dividends would be subject to PRC corporate income tax on a withholding basis at 10%, unless reduced under
a double tax treaty with China upon application to and obtaining approval from the competent tax authority.
The
current PRC tax laws and regulations and interpretations thereof may be revised or amended in the future, including with
respect to the possible liability of a fund for the taxation of income and gains from investments in A-Shares through
Stock Connect. The withholding taxes on dividends, interest and capital gains may in principle be subject to a
reduced rate under an applicable tax treaty.
Certain
Debt Instruments. Some of the debt securities (with a fixed maturity date of more
than one year from the date of issuance) that may be acquired by a fund may be
treated as debt securities that are issued originally at a discount. Generally,
the amount of the original issue discount (“OID”)
is treated as interest income and is included in income over the term of the debt
security, even though payment of that amount is not received until a later time, usually
when the debt security matures. A portion of the OID includable in income with respect to certain high-yield corporate
debt securities may be treated as a dividend for federal income tax purposes. Some of the debt securities (with
a fixed maturity date of more than one year from the date of issuance) that may be acquired by a fund in the secondary
market may be treated as having market discount. Generally, any gain recognized on the disposition of, and
any partial payment of principal on, a debt security having market discount is treated as ordinary income to the extent
the gain, or principal payment, does not exceed the “accrued
market discount” on
such debt security. Market discount generally accrues in equal daily installments.
The funds may make one or more of the elections applicable to debt securities having
market discount, which could affect the character and timing of recognition of income.
Some
debt securities (with a fixed maturity date of one year or less from the date of issuance) that may be acquired by
a fund may be treated as having acquisition discount, or OID in the case of certain types of debt securities. Generally, the
fund will be required to include the acquisition discount, or OID, in income over the term of the debt security, even
though payment of that amount is not received until a later time, usually when the debt security matures. The funds
may make one or more of the elections applicable to debt securities having acquisition discount, or OID, which could
affect the character and timing of recognition of income.
The
funds generally will be required to distribute dividends to shareholders representing discount on debt securities that
is currently includable in income, even though cash representing such income may not have been received by the
fund. Cash to pay such dividends may be obtained from sales proceeds of securities held by the fund.
A
fund may invest a portion
of its net assets in below investment grade instruments. Investments in these types of instruments
may present special tax issues for the fund. US federal income tax rules are not entirely clear about issues
such as when the fund may cease to accrue interest, OID or market discount, when and to what extent deductions may
be taken for bad debts or worthless instruments, how payments received on obligations in default should be allocated
between principal and income and whether exchanges of debt obligations in a bankruptcy or workout context are
taxable. These and other issues will be addressed by the funds to the extent necessary in order to seek to ensure that
they distribute sufficient income that they do not become subject to US federal income or excise tax.
Passive
Foreign Investment Companies. If a fund holds Shares in “passive
foreign investment companies”
(“PFICs”),
it may be subject to US federal income tax on a portion of any “excess
distribution” or gain
from the disposition of such Shares even if such income is distributed as a taxable
dividend by the fund to its shareholders. Additional charges in the nature of interest
may be imposed on the fund in respect of deferred taxes arising from such distributions or gains.
A
fund may be eligible to elect to treat the PFIC as a “qualified
electing fund” under
the Code, in which case, the fund would generally be required to include in income
each year a portion of the ordinary earnings and net capital gains of the qualified
electing fund, even if not distributed to the fund, and such amounts would be subject to the 90%
and excise tax distribution requirements described above. In order to make this election, the fund would be required
to obtain certain annual information from the PFICs in which it invests, which may be difficult or impossible to
obtain.
Alternatively,
a fund may make a mark-to-market election that would result in the fund being treated as if it had sold and
repurchased its PFIC stock at the end of each year. In such case, the fund would report any gains resulting from such
deemed sales as ordinary income and would deduct any losses resulting from such deemed sales as ordinary losses
to the extent of previously recognized gains. The election must be made separately for each PFIC owned by the
fund and, once made, would be effective for all subsequent taxable years, unless revoked with the consent of the
IRS. By making the election, the fund could potentially ameliorate the adverse tax consequences with respect to
its ownership of Shares in a PFIC, but in any particular year may be required to recognize income in excess of the distributions
it receives from PFICs and its proceeds from dispositions of PFIC stock. A fund may have to distribute this
excess income and gain to satisfy the 90% distribution requirement and to avoid imposition of the 4% excise tax.
A
fund will make the appropriate tax elections, if possible, and take any additional steps that are necessary to mitigate the
effects of these rules. For example, in order to distribute this income and avoid tax at the fund level, a fund might be
required to liquidate portfolio securities that it might otherwise have continued to hold, potentially resulting in additional
taxable gain or loss.
Reporting.
If a shareholder recognizes a loss with respect to a fund’s Shares of $2 million
or more for an individual shareholder or $10 million or more for a corporate shareholder,
the shareholder must file with the IRS a disclosure statement on Form 8886. Direct
shareholders of portfolio securities are in many cases exempted from this reporting requirement,
but under current guidance, shareholders of a RIC are not exempted. The fact that a loss is reportable
under
these regulations does not affect the legal determination of whether the taxpayer’s treatment of the loss is proper.
Shareholders should consult their tax advisors to determine the applicability of these regulations in light of their
individual circumstances.
Other
Taxes. Dividends, distributions and redemption proceeds may also be subject to additional
state, local and non-US taxes depending on each shareholder’s particular
situation.
Taxation
of Non-US Shareholders. Dividends paid by a fund to non-US shareholders are generally
subject to withholding tax at a 30% rate or a reduced rate specified by an applicable
income tax treaty to the extent derived from investment income and short-term capital
gains. Non-US investors considering buying Shares just prior to a distribution should be
aware that, although the price of Shares purchased at that time may reflect the amount of the forthcoming distribution, such
distribution may nevertheless be subject to US withholding tax. In order to obtain a reduced rate of withholding, a
non-US shareholder will be required to provide an applicable IRS Form W-8 certifying its entitlement to benefits under
a treaty. The withholding tax does not apply to regular dividends paid to a non-US shareholder who provides a Form
W-8ECI, certifying that the dividends are effectively connected with the non-US shareholder’s conduct of a trade or
business within the United States. Instead, the effectively connected dividends will be subject to regular US income tax
as if the non-US shareholder were a US shareholder. A non-US corporation receiving effectively connected dividends may
also be subject to additional “branch
profits tax” imposed
at a rate of 30% (or lower treaty rate). A non-US shareholder who fails to provide
an applicable IRS Form W-8 or other applicable form may be subject to back-up withholding at the
appropriate rate.
In
general, US federal withholding tax will not apply to any gain or income realized by a non-US shareholder in respect of
any distributions of net long-term capital gains over net short-term capital losses, or upon the sale or other disposition of
Shares of a fund.
The
Foreign Investment in Real Property Tax Act of 1980 (“FIRPTA”)
makes a non-US person subject to US tax on disposition of a US real property interest
as if such person were a US person. Such gain is sometimes referred to as “FIRPTA
gain”. The Code provides
a look-through rule for distributions of “FIRPTA
gain” by a RIC if all
of the following requirements are met: (i) the RIC is classified as a “qualified
investment entity” (which
includes a RIC if, in general, more than 50% of the RIC’s assets consists
of interests in REITs and US real property holding corporations); and (ii) you
are a non-US shareholder that owns more than 5% of a fund’s shares at any time during the one-year period ending
on the date of the distribution. If these conditions are met, fund distributions to you to the extent derived from
gain from the disposition of a US real property interest (“USRPI”),
may also be treated as USRPI gain and therefore subject to US federal income tax,
and requiring that you file a nonresident US income tax return. Also, such gain may be
subject to a 30% branch profits tax in the hands of a non-US shareholder that is a corporation. Even if a non-US shareholder
does not own more than 5% of a fund’s shares, fund distributions that are attributable to gain from the sale
or disposition of a USRPI will be taxable as ordinary dividends subject to withholding at a 30% or lower treaty rate.
Further,
if a fund is a “US real
property holding corporation,”
any gain realized on the sale or exchange of fund shares by a foreign shareholder
that owns more than 5% of a class of fund shares would generally be taxed in the same manner
as for a US shareholder. A fund will be a “US
real property holding corporation”
if, in general, 50% or more of the fair market value of its assets consists of
US real property interests, including stock of certain US REITs.
Properly
reported dividends received by a nonresident alien or foreign entity are generally exempt from US federal withholding
tax when they (a) are paid in respect of the fund’s “qualified
net interest income”
(generally, the fund’s US source interest income, reduced by expenses that
are allocable to such income), or (b) are paid in connection with the fund’s
“qualified short-term
capital gains” (generally,
the excess of the fund’s net short-term capital gain over the fund’s
long-term capital loss for such taxable year). However, depending on the circumstances, the fund may report all,
some or none of the fund’s potentially eligible dividends as such qualified net interest income or as qualified short-term
capital gains, and a portion of the fund’s distributions (e.g. interest from non
US sources or any foreign currency gains) would be ineligible for this potential
exemption from withholding. In case of shares held through an intermediary, the
intermediary
may withhold on a payment even if the fund reports the payment as eligible for the exemption from withholding.
In order to qualify for this exemption from withholding, a non-US shareholder must have provided appropriate withholding
certificates (e.g., an executed W-8BEN, etc.) certifying foreign status.
Shares
of a fund held by a non-US shareholder at death will be considered situated within the United States and generally
will be subject to the US estate tax.
Withholding
of US tax (at a 30% rate) with respect to certain distributions made to certain non-US entities that fail to
comply (or be deemed compliant) with extensive new reporting and withholding requirements designed to inform the
US Department of the Treasury of US-owned foreign investment accounts. Shareholders may be requested to provide
additional information to enable the applicable withholding agent to determine whether withholding is required.
Standby
Commitments. A fund may purchase municipal securities together with the right to
resell the securities to the seller at an agreed upon price or yield within a specified
period prior to the maturity date of the securities. Such a right to resell is
commonly known as a “put”
and is also referred to as a “standby
commitment.” The fund
may pay for a standby commitment either in cash or in the form of a higher price
for the securities which are acquired subject to the standby commitment, thus increasing
the cost of securities and reducing the yield otherwise available. Additionally, the
fund may purchase beneficial interests in municipal securities held by trusts, custodial arrangements or partnerships and/or
combined with third- party puts or other types of features such as interest rate swaps; those investments may require
the fund to pay “tender
fees” or other fees
for the various features provided. The IRS has issued a revenue ruling to the effect
that, under specified circumstances, a regulated investment company will be the owner of tax-exempt municipal
obligations acquired subject to a put option. The IRS has also issued private letter rulings to certain taxpayers (which
do not serve as precedent for other taxpayers) to the effect that tax-exempt interest received by a regulated investment
company with respect to such obligations will be tax-exempt in the hands of the company and may be distributed
to its shareholders as exempt-interest dividends. The IRS has subsequently announced that it will not ordinarily issue
advance ruling letters as to the identity of the true owner of property in cases involving the sale of securities or
participation interests therein if the purchaser has the right to cause the security, or the participation interest therein, to
be purchased by either the seller or a third-party. The fund, where relevant, intends to take the position that it is the
owner of any municipal obligations acquired subject to a standby commitment or other third-party put and that tax-exempt
interest earned with respect to such municipal obligations will be tax- exempt in its hands. There is no assurance
that the IRS will agree with such position in any particular case. If the fund is not viewed as the owner of such
municipal obligations, it will not be permitted to treat the exempt interest paid on such obligations as belonging to
it. This may affect the fund’s eligibility to pay exempt-interest dividends to its shareholders. Additionally, the federal
income tax treatment of certain other aspects of these investments, including the treatment
of tender fees paid by the fund, in relation to various regulated investment company
tax provisions is unclear. However, the Advisor intends to manage the fund’s
portfolio in a manner designed to minimize any adverse impact from the tax rules applicable to these
investments.
As
described herein, in certain circumstances the fund may be required to recognize taxable income or gain even though
no corresponding amounts of cash are received concurrently. The fund may therefore be required to obtain cash
to satisfy its distribution requirements by selling securities at times when it might not otherwise be desirable to
do so or by borrowing the necessary cash, thereby incurring interest expense.
Exempt-interest
dividends. Any dividends paid by the Xtrackers Municipal Infrastructure Revenue
Bond ETF that are reported by the fund as exempt-interest dividends will not be
subject to regular federal income tax. The fund will be qualified to pay exempt-interest
dividends to its shareholders if, at the end of each quarter of the fund’s taxable year,
at least 50% of the total value of the fund’s assets consists of obligations of a state or political subdivision thereof
the interest on which is exempt from federal income tax under Code section 103(a).
Distributions
that the fund reports as exempt-interest dividends are treated as interest excludable from shareholders’ gross
income for federal income tax purposes but may result in liability for federal AMT purposes and for state and local
tax purposes for individual shareholders. For example, if the fund invests in “private
activity bonds,” certain
shareholders may be subject to AMT on the part of the fund’s distributions
derived from interest on such bonds.
Interest
on indebtedness incurred directly or indirectly to purchase or carry shares of the fund will not be deductible to
the extent it is deemed related to exempt-interest dividends paid by the fund. The portion of interest that is not deductible
is equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of the fund’s total
distributions (not including Capital Gain Dividends) paid to the shareholder that are exempt-interest dividends. Under
rules used by the IRS to determine when borrowed funds are considered incurred for the purpose of purchasing or
carrying particular assets, the purchase of shares may be considered to have been made with borrowed funds even
though such funds are not directly traceable to the purchase of shares. In addition, the Code may require a shareholder
that receives exempt-interest dividends to treat as taxable income a portion of certain otherwise non-taxable social
security and railroad retirement benefit payments. A portion of any exempt-interest dividend paid by the fund that
represents income derived from certain revenue or private activity bonds held by the fund may not retain its tax-exempt
status in the hands of a shareholder who is a “substantial
user” of a facility
financed by such bonds, or a “related
person” thereof. Moreover,
some or all of the exempt-interest dividends distributed by the fund may be a specific
preference item, or a component of an adjustment item, for purposes of the federal individual AMT. The receipt of
dividends and distributions from the fund may affect a foreign corporate shareholder’s federal “branch
profits” tax
liability and the federal “excess
net passive income”
tax liability of a shareholder that is a Subchapter S corporation. Shareholders
should consult their own tax advisors as to whether they are (i) “substantial
users” with respect
to a facility or “related”
to such users within the meaning of the Code or (ii) subject to a federal AMT, the federal “branch
profits”
tax or the federal “excess
net passive income”
tax. Additionally, any loss realized upon the sale or exchange of fund shares with
a tax holding period of six months or less will be disallowed to the extent of any distributions treated
as exempt-interest dividends with respect to such shares.
Shareholders
that are required to file tax returns are required to report tax-exempt interest income, including exempt-interest dividends,
on their federal income tax returns. The fund will inform shareholders of the federal income tax status of its
distributions after the end of each calendar year, including the amounts, if any, that qualify as exempt-interest dividends and
any portions of such amounts that constitute tax preference items under the federal AMT. Shareholders who have not
held shares of the fund for a full taxable year may have reported as tax-exempt or as a tax preference item a percentage
of their distributions which is different from the percentage of the fund’s income that was tax-exempt or comprising
tax preference items during the period of their investment in the fund. Shareholders should consult their tax
advisors for more information.
PRC
Taxation. Uncertainties in the Chinese tax rules governing taxation of income and
gains from investments in A-Shares could result in unexpected tax liabilities for
a fund. China generally imposes withholding tax at a rate of 10% on dividends and
interest derived by nonresident enterprises (including QFIIs and RQFIIs) from issuers resident in China.
China also imposes withholding tax at a rate of 10% on capital gains derived by nonresident enterprises from investments
in an issuer resident in China, subject to an exemption or reduction pursuant to domestic law or a double taxation
agreement or arrangement.
Since
the respective inception of Shanghai Connect and Shenzhen Connect, foreign investors (including the funds) investing
in A-Shares listed on the SSE through Shanghai Connect and those listed on the SZSE through Shenzhen Connect
would be temporarily exempt from the PRC corporate income tax and value-added tax on the gains on disposal of
such A-Shares. Dividends would be subject to PRC corporate income tax on a withholding basis at 10%, unless reduced
under a double tax treaty with China upon application to and obtaining approval from the competent tax authority.
Since
November 17, 2014, the corporate income tax for QFIIs and RQFIIs, with respect to capital gains, has been temporarily
lifted. The withholding tax relating to the realized gains from shares in land-rich companies prior to November 17,
2014 has been paid by the Xtrackers Harvest ETFs, while realized gains from shares in non-land-rich companies prior
to November 17, 2014 were granted by treaty relief pursuant to the PRC-US Double Taxation Agreement. During 2015,
revenue authorities in the PRC made arrangements for the collection of capital gains taxes for investments realized
between November 17, 2009 and November 16, 2014. A fund could be subject to tax liability for any tax payments
for which reserves have not been made or that were not previously withheld. The impact of any such tax liability
on a fund’s return could be substantial. A fund may also be liable to the Subadvisor for any tax that is imposed
on
the Subadvisor by the PRC with respect to the fund’s investments. If a fund’s direct investments in A-Shares through
the Subadvisor’s RQFII quota become subject to repatriation restrictions, the fund
may be unable to satisfy distribution requirements applicable to RICs under the
Internal Revenue Code, and be subject to tax at the fund level.
The
current PRC tax laws and regulations and interpretations thereof may be revised or amended in the future, potentially retroactively,
including with respect to the possible liability of a fund for the taxation of income and gains from investments in
A-Shares through Stock Connect or obligations of an RQFII. The withholding taxes on dividends, interest and capital gains
may in principle be subject to a reduced rate under an applicable tax treaty, but the application of such treaties in
the case of an RQFII acting for a foreign investor such as a fund is also uncertain. Finally, it is also unclear whether an
RQFII would also be eligible for BT exemption, which has been granted to QFIIs, with respect to gains derived prior
to May 1, 2016. In practice, the BT has not been collected. However, the imposition of such taxes on a fund could
have a material adverse effect on a fund’s returns. Since May 1, 2016, RQFIIs are exempt from PRC value added tax,
which replaced the PRC Business Tax with respect to gains realized from the disposal of securities, including A-Shares.
The
PRC rules for taxation of RQFIIs (and QFIIs) are evolving and certain tax regulations to be issued by the PRC State
Administration of Taxation and/or PRC Ministry of Finance to clarify the subject matter may apply retrospectively, even
if such rules are adverse to a fund and their shareholders.
If
the PRC begins applying tax rules regarding the taxation of income from A-Shares investments to RQFIIs and/or begins
collecting capital gains taxes on such investments (whether made through Stock Connect or an RQFII), a fund could
be subject to withholding tax liability in excess of the amount reserved (if any). The impact of any such tax liability
on a fund’s return could be substantial. A fund will be liable to the Advisor and/or Subadvisor for any Chinese tax
that is imposed on the Advisor and/or Subadvisor with respect to the fund’s investments.
The
sale or other transfer by the Advisor and/or Subadvisor of A-Shares or B-Shares will be subject to PRC Stamp Duty
at a rate of 0.1% on the transacted value. The Advisor and/or Subadvisor will not be subject to PRC Stamp Duty when
it acquires A-Shares and B-Shares.
It
is also unclear how China’s business tax may apply to activities of an RQFII and how such application may be affected by
tax treaty provisions.
The
foregoing discussion is a summary of certain material US federal income tax considerations only and is not
intended as a substitute for careful tax planning. Purchasers of Shares should consult their own tax advisors as
to the tax consequences of investing in such Shares, including under state, local and non-US tax laws. Finally,
the foregoing discussion is based on applicable provisions of the Code, regulations, judicial authority and
administrative interpretations in effect on the date of this SAI. Changes in applicable authority could materially affect
the conclusions discussed above, and such changes often occur.
Part
II: Appendix II-G—Proxy
Voting Policy and Guidelines
DWS
has adopted and implemented the following Policies and Guidelines, which it believes are reasonably designed to
ensure that proxies are voted in the best economic interest of clients and in accordance with its fiduciary duties and
local regulation. This Proxy Voting Policy and Guidelines – DWS (“Policy
and Guidelines”) shall
apply to all accounts managed by US domiciled advisers and to all US client accounts
managed by non-US regional offices. Non-US regional offices are required to maintain
procedures and to vote proxies as may be required by law on behalf of their non-US clients.
In addition, DWS’s proxy policies reflect the fiduciary standards and responsibilities for ERISA accounts.
The
attached guidelines represent a set of global recommendations that were determined by the Global Proxy Voting Sub-Committee
(the “GPVSC”).
These guidelines were developed to provide DWS with a comprehensive list of recommendations
that represent how DWS will generally vote proxies for its clients. The recommendations derived from
the application of these guidelines are not intended to influence the various DWS legal entities either directly or
indirectly by parent or affiliated companies. In addition, the organizational structures and documents of the various DWS
legal entities allows, where necessary or appropriate, the execution by individual DWS subsidiaries of the proxy voting
rights independently of any parent or affiliated company. This applies in particular to non US fund management companies.
The individuals that make proxy voting decisions are also free to act independently, subject to the normal and
customary supervision by the Management/Boards of these DWS legal entities.
2.
DWS’S
Proxy Voting Responsibilities
Proxy
votes are the property of DWS’s advisory clients.1
As such, DWS’s authority and responsibility to vote such proxies
depend upon its contractual relationships with its clients or other delegated authority. DWS has delegated responsibility
for effecting its advisory clients’ proxy votes to Institutional Shareholder Services (“ISS”),
an independent third-party proxy voting specialist. ISS votes DWS’s advisory
clients’ proxies in accordance with DWS’s proxy guidelines or DWS’s
specific instructions. Where a client has given specific instructions as to how a proxy should be voted, DWS will
notify ISS to carry out those instructions. Where no specific instruction exists, DWS will follow the procedures in
voting the proxies set forth in this document. Certain Taft-Hartley clients may direct DWS to have ISS vote their proxies
in accordance with Taft-Hartley Voting Guidelines.
Clients
may in certain instances contract with their custodial agent and notify DWS that they wish to engage in securities lending
transactions. In such cases, it is the responsibility of the custodian to deduct the number of shares that are on
loan so that they do not get voted twice. To the extent a security is out on loan and DWS determines that a proxy vote
(or other shareholder action) is materially important to the client’s account, DWS may request, on a best efforts basis,
that the agent recall the security prior to the record date to allow DWS to vote the securities.
3.1.
Proxy
Voting Activities are Conducted in the Best Economic Interest of Clients
DWS
has adopted the following Policies and Guidelines to ensure that proxies are voted in accordance with the best economic
interest of its clients, as determined by DWS in good faith after appropriate review.
3.2.
The
Global Proxy Voting Sub-Committee
The
Global Proxy Voting Sub-Committee is an internal working group established by the applicable DWS’s Investment Risk
Oversight Committee pursuant to a written charter. The GPVSC is responsible for overseeing DWS’s proxy voting activities,
including:
•
Adopting,
monitoring and updating guidelines, attached as Attachment A (the “Guidelines”),
that provide how DWS will generally vote proxies pertaining to a comprehensive
list of common proxy voting matters;
•
Voting
proxies where: (i) the issues are not covered by specific client instruction or the Guidelines; (ii) the Guidelines specify
that the issues are to be determined on a case-by-case basis; or (iii) where an exception to the Guidelines may
be in the best economic interest of DWS’s clients; and
•
Monitoring
Proxy Vendor Oversight’s proxy voting activities (see below).
DWS’s
Proxy Vendor Oversight, a function of DWS’s Operations Group, is responsible for coordinating with ISS to administer
DWS’s proxy voting process and for voting proxies in accordance with any specific client instructions or, if
there are none, the Guidelines, and overseeing ISS’ proxy responsibilities in this regard.
1
For
purposes of this document, “clients”
refers to persons or entities: (i) for which DWS serves as investment adviser or
sub-adviser; (ii) for which DWS votes proxies; and (iii) that have an economic or beneficial ownership interest
in the portfolio securities of issuers soliciting such proxies.
3.3
Availability
of Proxy Voting Policies and Proxy Voting Record
Copies
of this Policy, as it may be updated from time to time, is made available to clients as required by law and otherwise
at DWS’s discretion. Clients may also obtain information on how their proxies were voted by DWS as required by
law and otherwise at DWS’s discretion. Note, however, that DWS must not selectively disclose its investment company
clients’ proxy voting records. Proxy Vendor Oversight will make proxy voting reports available to advisory clients
upon request. The investment companies’ proxy voting records will be disclosed to shareholders by means of
publicly-available annual filings of each company’s proxy voting record for the 12-month periods ending June 30 (see
Section 6 below), if so required by relevant law.
The
key aspects of DWS’s proxy voting process are delineated below.
4.1.
The
GPVSC’s Proxy Voting Guidelines
The
Guidelines set forth the GPVSC’s standard voting positions on a comprehensive list of common proxy voting matters.
The GPVSC has developed and continues to update the Guidelines based on consideration of current corporate governance
principles, industry standards, client feedback, and the impact of the matter on issuers and the value of the
investments.
The
GPVSC will review the Guidelines as necessary to support the best economic interests of DWS’s clients and, in any
event, at least annually. The GPVSC will make changes to the Guidelines, whether as a result of the annual review or
otherwise, taking solely into account the best economic interests of clients. Before changing the Guidelines, the GPVSC
will thoroughly review and evaluate the proposed change and the reasons therefore, and the GPVSC Chair will
ask GPVSC members whether anyone outside of the DWS organization (but within Deutsche Bank and its affiliates) or
any entity that identifies itself as an DWS advisory client has requested or attempted to influence the proposed change
and whether any member has a conflict of interest with respect to the proposed change. If any such matter is
reported to the GPVSC Chair, the Chair will promptly notify the Conflicts of Interest Management Sub-Committee (see
Section 5.4) and will defer the approval, if possible. Lastly, the GPVSC will fully document its rationale for approving any
change to the Guidelines.
The
Guidelines may reflect a voting position that differs from the actual practices of the public company(ies) within the
Deutsche Bank organization or of the investment companies for which DWS or an affiliate serves as investment adviser
or sponsor. Investment companies, particularly closed-end investment companies, are different from traditional operating
companies. These differences may call for differences in voting positions on the same matter. Further, the manner
in which DWS votes investment company proxies may differ from proposals for which a DWS-advised or sponsored
investment company solicits proxies from its shareholders. As reflected in the Guidelines, proxies solicited by
closed-end (and open-end) investment companies are generally voted in accordance with the pre-determined guidelines of
ISS.
4.2.
Specific
Proxy Voting Decisions Made by the GPVSC
Proxy
Vendor Oversight will refer to the GPVSC all proxy proposals: (i) that are not covered by specific client instructions or
the Guidelines; or (ii) that, according to the Guidelines, should be evaluated and voted on a case-by-case basis.
Additionally,
if Proxy Vendor Oversight,2
the GPVSC Chair or any member of the GPVSC, a Portfolio Manager, a Research Analyst
or a sub-adviser believes that voting a particular proxy in accordance with the Guidelines may not be in the best
economic interests of clients, that individual may bring the matter to the attention of the GPVSC Chair and/or Proxy
Vendor Oversight.
If
Proxy Vendor Oversight refers a proxy proposal to the GPVSC or the GPVSC determines that voting a particular proxy
in accordance with the Guidelines is not in the best economic interests of clients, the GPVSC will evaluate and vote
the proxy, subject to the procedures below regarding conflicts.
The
GPVSC endeavours to hold meetings to decide how to vote particular proxies sufficiently before the voting deadline so
that the procedures below regarding conflicts can be completed before the GPVSC’s voting determination.
2
Proxy
Vendor Oversight generally monitors upcoming proxy solicitations for heightened attention from the press or
the industry and for novel or unusual proposals or circumstances, which may prompt Proxy Vendor Oversight to
bring the solicitation to the attention of the GPVSC Chair. DWS Portfolio Managers, DWS Research Analysts and
sub-advisers also may bring a particular proxy vote to the attention of the GPVSC Chair, as a result of their ongoing
monitoring of portfolio securities held by advisory clients and/or their review of the periodic proxy voting record
reports that the GPVSC Chair distributes to DWS portfolio managers and DWS research analysts.
4.3.
The
GPVSC’s Proxy Voting Guidelines
In
some cases, the GPVSC may determine that it is in the best economic interests of its clients not to vote certain proxies,
or that it may not be feasible to vote certain proxies. If the conditions below are met with regard to a proxy proposal,
DWS will abstain from voting:
•
Neither
the Guidelines nor specific client instructions cover an issue;
•
ISS
does not make a recommendation on the issue; and
•
The
GPVSC cannot convene on the proxy proposal at issue to make a determination as to what would be in the client’s
best interest. (This could happen, for example, if the Conflicts of Interest Management Sub-Committee found
that there was a material conflict or if despite all best efforts being made, the GPVSC quorum requirement could
not be met).
In
addition, it is DWS’s policy not to vote proxies of issuers subject to laws of those jurisdictions that impose restrictions
upon selling shares after proxies are voted, in order to preserve liquidity. In other cases,
it may not be possible to vote certain proxies, despite good faith efforts to do
so. For example, some jurisdictions do not provide adequate notice to shareholders
so that proxies may be voted on a timely basis. Voting rights on securities that have been loaned
to third-parties transfer to those third-parties, with loan termination often being the only way to attempt to vote
proxies on the loaned securities. Lastly, the GPVSC may determine that the costs to the client(s) associated with
voting a particular proxy or group of proxies outweighs the economic benefits expected from voting the proxy or
group of proxies.
Proxy
Vendor Oversight will coordinate with the GPVSC Chair regarding any specific proxies and any categories of proxies
that will not or cannot be voted. The reasons for not voting any proxy shall be documented.
4.4.
Conflict
of Interest Procedures
4.4.1.
Procedures
to Address Conflicts of Interest and Improper Influence
Overriding
Principle. In the limited circumstances where the GPVSC votes proxies,3
the GPVSC will vote those proxies in accordance with what it, in good faith, determines
to be the best economic interests of DWS’s clients.4
Independence
of the GPVSC. As a matter of Compliance policy, the GPVSC and Proxy Vendor Oversight
are structured to be independent from other parts of Deutsche Bank. Members of
the GPVSC and the employee responsible for Proxy Vendor Oversight are employees
of DWS. As such, they may not be subject to the supervision or control of any employees
of Deutsche Bank Corporate and Investment Banking division (“CIB”).
Their compensation cannot be based upon their contribution to any business activity
outside of DWS without prior approval of Legal and Compliance. They can have no
contact with employees of Deutsche Bank outside of DWS regarding specific clients, business matters,
or initiatives without the prior approval of Legal and Compliance. They furthermore may not discuss proxy votes
with any person outside of DWS (and within DWS only on a need to know basis).
Conflict
Review Procedures. The “Conflicts
of Interest Management Sub-Committee”
within DWS monitors for potential material conflicts of interest in connection
with proxy proposals that are to be evaluated by the GPVSC. The Conflicts of Interest
Management Sub-Committee members include DWS Compliance, the chief compliance officers of the advisors
and the DWS Funds. Promptly upon a determination that a proxy vote shall be presented to the GPVSC, the GPVSC
Chair shall notify the Conflicts of Interest Management Sub-Committee. The Conflicts of Interest Management Sub-Committee
shall promptly collect and review any information deemed reasonably appropriate to evaluate, in its reasonable
judgment, if DWS or any person participating in the proxy voting process has, or has the appearance of, a
material conflict of interest. For the purposes of this policy, a conflict of interest shall be considered “material”
to the extent that a reasonable person could expect the conflict to influence,
or appear to influence, the GPVSC’s decision on the particular vote at issue.
GPVSC should provide the Conflicts of Interest Management Sub-Committee a reasonable amount
of time (no less than 24 hours) to perform all necessary and appropriate reviews. To the extent that a conflicts review
cannot be sufficiently completed by the Conflicts of Interest Management Sub-Committee the proxies will be voted
in accordance with the standard Guidelines.
The
information considered by the Conflicts of Interest Management Sub-Committee may include without limitation information
regarding: (i) DWS client relationships; (ii) any relevant personal conflict known by the Conflicts of Interest Management
Sub-Committee or brought to the attention of that sub-committee; and (iii) any communications with members
of the GPVSC (or anyone participating or providing information to the GPVSC) and any person outside of the
DWS organization (but within Deutsche Bank and its affiliates) or any entity that identifies itself as an DWS advisory client
regarding the vote at issue. In the context of any determination, the Conflicts of Interest Management Sub-Committee may
consult with and shall be entitled to rely upon all applicable outside experts, including legal counsel.
Upon
completion of the investigation, the Conflicts of Interest Management Sub-Committee will document its findings and
conclusions. If the Conflicts of Interest Management Sub-Committee determines that: (i) DWS has a material conflict
of interest that would prevent it from deciding how to vote the proxies concerned without further client consent; or
(ii) certain individuals should be recused from participating in the proxy vote at issue, the Conflicts of Interest Management
Sub-Committee will so inform the GPVSC Chair.
If
notified that DWS has a material conflict of interest as described above, the GPVSC chair will obtain instructions as
to how the proxies should be voted either from: (i) if time permits, the affected clients; or (ii) in accordance with the
standard Guidelines. If notified that certain individuals should be recused from the proxy vote at issue, the GPVSC Chair
shall do so in accordance with the procedures set forth below.
Note:
Any DWS employee who becomes aware of a potential, material conflict of interest in respect of any proxy vote
to be made on behalf of clients shall notify Compliance or the Conflicts of Interest Management Sub-Committee. Compliance
shall call a meeting of the Conflicts of Interest Management Sub-Committee to evaluate such conflict and
determine a recommended course of action.
3
As
mentioned above, the GPVSC votes proxies where: (i) neither a specific client instruction nor a Guideline directs
how the proxy should be voted; (ii) where the Guidelines specify that an issue is to be determined on a case-by-case
basis; or (iii) where voting in accordance with the Guidelines may not be in the best economic interests
of clients.
4
Proxy
Vendor Oversight, who serves as the non-voting secretary of the GPVSC, may receive routine calls from proxy
solicitors and other parties interested in a particular proxy vote. Any contact that attempts to exert improper pressure
or influence shall be reported to the Conflicts of Interest Management Sub-Committee.
Procedures
to be followed by the GPVSC. At the beginning of any discussion regarding how to
vote any proxy, the GPVSC Chair (or his or her delegate) will inquire as to whether
any GPVSC member (whether voting or ex officio) or any person participating in
the proxy voting process has a personal conflict of interest or has actual knowledge of an actual
or apparent conflict that has not been reported to the Conflicts of Interest Management Sub-Committee.
The
GPVSC Chair also will inquire of these same parties whether they have actual knowledge regarding whether any Director,
officer, or employee outside of the DWS organization (but within Deutsche Bank and its affiliates) or any entity
that identifies itself as an DWS advisory client, has: (i) requested that DWS, Proxy Vendor Oversight (or any member
thereof), or a GPVSC member vote a particular proxy in a certain manner; (ii) attempted to influence DWS, Proxy
Vendor Oversight (or any member thereof), a GPVSC member or any other person in connection with proxy voting
activities; or (iii) otherwise communicated with a GPVSC member, or any other person participating or providing information
to the GPVSC regarding the particular proxy vote at issue and which incident has not yet been reported to
the Conflicts of Interest Management Sub-Committee.
If
any such incidents are reported to the GPVSC Chair, the Chair will promptly notify the Conflicts of Interest Management Sub-Committee
and, if possible, will delay the vote until the Conflicts of Interest Management Sub-Committee can complete
the conflicts report. If a delay is not possible, the Conflicts of Interest Management Sub-Committee will instruct
the GPVSC (i) whether anyone should be recused from the proxy voting process or (ii) whether DWS should vote
the proxy in accordance with the standard guidelines, seek instructions as to how to vote the proxy at issue from
ISS or, if time permits, the affected clients. These inquiries and discussions will be properly reflected in the GPVSC’s
minutes.
Duty
to Report. Any DWS employee, including any GPVSC member (whether voting or ex officio),
that is aware of any actual or apparent conflict of interest relevant to, or any
attempt by any person outside of the DWS organization (but within Deutsche Bank
and its affiliates) or any entity that identifies itself as an DWS advisory client to influence how
DWS votes its proxies has a duty to disclose the existence of the situation to the GPVSC Chair (or his or her designee)
and the details of the matter to the Conflicts of Interest Management Sub-Committee. In the case of any person
participating in the deliberations on a specific vote, such disclosure should be made before engaging in any activities
or participating in any discussion pertaining to that vote.
Recusal
of Members. The GPVSC will recuse from participating in a specific proxy vote any
GPVSC members (whether voting or ex officio) and/or any other person who: (i) are
personally involved in a material conflict of interest; or (ii) who, as determined
by the Conflicts of Interest Management Sub-Committee, have actual knowledge of a circumstance or
fact that could affect their independent judgment, in respect of such vote. The GPVSC will also exclude from consideration the
views of any person (whether requested or volunteered) if the GPVSC or any member thereof knows, or if the Conflicts
of Interest Management Sub-Committee has determined, that such other person has a material conflict of interest
with respect to the particular proxy or has attempted to influence the vote in any manner prohibited by these policies.
If,
after excluding all relevant GPVSC voting members pursuant to the paragraph above, there are three or more GPVSC voting
members remaining, those remaining GPVSC members will determine how to vote the proxy in accordance with
these Policies and Guidelines. If there are fewer than three GPVSC voting members remaining, the GPVSC Chair will
vote the proxy in accordance with the standard Guidelines or will obtain instructions as to how to have the proxy voted
from, if time permits, the affected clients and otherwise from ISS.
4.4.2.
Investment
Companies and Affiliated Public Companies
Investment
Companies. As reflected in the Guidelines, all proxies solicited by open-end and
closed-end investment companies are voted in accordance with the pre-determined
guidelines of ISS, unless the investment company client directs DWS to vote differently
on a specific proxy or specific categories of proxies. However, regarding investment companies
for which DWS or an affiliate serves as investment adviser or principal underwriter, such proxies are voted in
the same proportion as the vote of all other shareholders (i.e., “mirror”
or “echo”
voting). Master Fund proxies solicited from feeder Funds are voted in accordance
with applicable provisions of Section 12 of the Investment Company Act of 1940
(“Investment Company
Act”).
Subject
to participation agreements with certain Exchange Traded Funds (“ETF”)
issuers that have received exemptive orders from the US Securities and Exchange
Commission (“SEC”)
allowing investing DWS Funds to exceed the limits set forth in Section 12(d)(1)(A)
and (B) of the Investment Company Act, DWS will echo vote proxies for ETFs in which Deutsche
Bank holds more than 25% of outstanding voting shares globally when required to do so by participation agreements
and SEC orders.
Affiliated
Public Companies. For proxies solicited by non-investment company issuers of or
within the DWS or Deutsche Bank organization (e.g., shares of DWS or Deutsche Bank),
these proxies will be voted in the same proportion as the vote of other shareholders
(i.e., “mirror”
or “echo”
voting). In markets where mirror voting is not permitted, DWS will “Abstain”
from voting such shares.
Note:
With respect to the DWS Central Cash Management Government Fund (registered under the Investment Company Act),
the Fund is not required to engage in echo voting and the investment adviser will use these Guidelines and may determine,
with respect to the DWS Central Cash Management Government Fund, to vote contrary to the positions in
the Guidelines, consistent with the Fund’s best interest.
4.4.3.
Other
Procedures that Limit Conflicts of Interest
DWS
and other entities in the Deutsche Bank organization have adopted a number of policies, procedures, and internal controls
that are designed to avoid various conflicts of interest, including those that may arise in connection with proxy
voting, including but not limited to:
•
Code
of Conduct – DB Group;
•
Conflicts
of Interest Policy – DWS Group;
•
Code
of Ethics – DWS US;
•
Code
of Ethics – DWS ex US
•
Code
of Professional Conduct – US.
The
GPVSC expects that these policies, procedures, and internal controls will greatly reduce the chance that the GPVSC (or
its members) would be involved in, aware of, or influenced by an actual or apparent conflict of interest.
All
impacted business units are required to adopt, implement, and maintain procedures to ensure compliance with this
Section. At a minimum, such procedures must: (i) assign roles and responsibilities for carrying out the procedures, including
responsibility for periodically updating the procedures; (ii) identify clear escalation paths for identified breaches of
the procedures; and (iii) contain a legend or table mapping the procedures to this Section (e.g., cross-referencing Section
or page numbers).
At
a minimum, the following records must be properly maintained and readily accessible in order to evidence compliance with
this Policy.
•
DWS
will maintain a record of each proxy vote cast by DWS that includes among other things, company name, meeting
date, proposals presented, vote cast, and shares voted.
•
Proxy
Vendor Oversight maintains records for each of the proxy ballots it votes. Specifically, the records include, but
are not limited to:
−
The
proxy statement (and any additional solicitation materials) and relevant portions of annual statements;
−
Any
additional information considered in the voting process that may be obtained from an issuing company, its
agents, or proxy research firms;
−
Analyst
worksheets created for stock option plan and share increase analyses; and
−
Proxy
Edge print-screen of actual vote election.
•
DWS
will: (i) retain this Policy and the Guidelines; (ii) will maintain records of client requests for proxy voting information;
and (iii) will retain any documents Proxy Vendor Oversight or the GPVSC prepared that were material to
making a voting decision or that memorialized the basis for a proxy voting decision.
•
The
GPVSC also will create and maintain appropriate records documenting its compliance with this Policy, including records
of its deliberations and decisions regarding conflicts of interest and their resolution.
•
With
respect to DWS’s investment company clients, ISS will create and maintain records of each company’s proxy
voting record for the 12-month periods ending June 30. DWS will compile the following information for each
matter relating to a portfolio security considered at any shareholder meeting held during the period covered by
the report (and with respect to which the company was entitled to vote):
−
The
name of the issuer of the portfolio security;
−
The
exchange ticker symbol of the portfolio security (if symbol is available through reasonably practicable means);
−
The
Council on Uniform Securities Identification Procedures (“CUSIP”)
number for the portfolio security (if the number is available through reasonably
practicable means);
−
The
shareholder meeting date;
−
A
brief identification of the matter voted on;
−
Whether
the matter was proposed by the issuer or by a security holder;
−
Whether
the company cast its vote on the matter;
−
How
the company cast its vote (e.g., for or against proposal, or abstain; for or withhold regarding election of
Directors); and
−
Whether
the company cast its vote for or against Management.
Note:
This list is intended to provide guidance only in terms of the records that must be maintained in accordance with
this policy. In addition, please note that records must be maintained in accordance with the Records Management Policy
– Deutsche Bank Group and applicable policies and procedures thereunder.
With
respect to electronically stored records, “properly
maintained” is defined
as complete, authentic (unalterable), usable and backed-up. At a minimum, records
should be retained for a period of not less than six years (or longer, if necessary
to comply with applicable regulatory requirements), the first three years in an appropriate DWS office.
6.
OVERSIGHT
RESPONSIBILITIES
Proxy
Vendor Oversight will review a reasonable sampling of votes on a regular basis to ensure that ISS has cast the votes
in a manner consistent with the Guidelines. Proxy Vendor Oversight will provide the GPVSC with a quarterly report
of its review and identify any issues encountered during the period. Proxy Vendor Oversight will also perform a
post season review once a year on certain proposals to assess whether ISS voted consistent with the Guidelines.
In
addition, the GPVSC will, in cooperation with Proxy Vendor Oversight and DWS Compliance, consider, on at least an
annual basis, whether ISS has the capacity and competence to adequately analyze the matters for which it is responsible. This
includes whether ISS has effective polices, and methodologies and a review of ISS’s policies and procedures with
respect to conflicts.
The
GPVSC also monitors the proxy voting process by reviewing summary proxy information presented by ISS to determine,
among other things, whether any changes should be made to the Guidelines. This review will take place at
least quarterly and is documented in the GPVSC’s minutes.
The
GPVSC, in cooperation with Proxy Vendor Oversight, will review and document, no less frequently than annually, the
adequacy of the Guidelines, including whether the Guidelines continue to be reasonably designed to ensure that DWS
votes in the best interest of its clients.
|
|
|
Council
on Uniform Securities Identification
Procedures
|
|
|
|
Global
Proxy Voting Sub-Committee |
|
Investment
Company Act of 1940 |
|
Institutional
Shareholder Services |
|
Securities
and Exchange Commission |
9.
LIST
OF ANNEXES AND ATTACHMENTS
Attachment
A – DWS Proxy Voting Guidelines
Attachment A
– DWS PROXY VOTING GUIDELINES
DWS
Proxy Voting
Guidelines
Effective March
1, 2020
[DWS LOGO GRAPHIC
OMITTED]
Table
of Contents
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Board
of Directors and Executives |
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Classified
Boards of Directors |
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Board
and Committee Independence |
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Liability
and Indemnification of Directors |
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Qualification
of Directors |
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Removal
of Directors and Filling of Vacancies |
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Proposals
to Fix the Size of the Board |
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Proposals
to Restrict Chief Executive Officer’s
Service
on Multiple Boards |
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Proposals
to Establish Audit Committees |
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Authorization
of Additional Shares |
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Authorization
of “Blank
Check”
Preferred Stock |
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Stock
Splits/Reverse Stock Splits |
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Dual
Class/Supervoting Stock |
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Recapitalization
into a Single Class of Stock |
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Corporate
Governance Issues |
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Supermajority
Voting Requirements |
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Shareholder
Right to Vote |
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Amendments
of the Articles |
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Related
Party Transactions |
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Executive
and Director Stock Option Plans |
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Employee
Stock Option / Purchase Plans |
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Proposals
to Limit Benefits or Executive
Compensation
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Shareholder
Proposals Concerning “Pay
for
Superior
Performance” |
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Executive
Compensation Advisory |
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Advisory
Votes on Executive Compensation |
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Frequency
of Advisory Vote on Executive
Compensation
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Anti-Takeover
Related Issues |
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Shareholder
Rights Plans (“Poison
Pills”)
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Exemption
From State Takeover Laws |
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Non-Financial
Effects of Takeover Bids |
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Environmental,
Social and Governance Issues |
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Principles
for Responsible Investment |
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Limitation
of Non-Audit Services Provided by
Independent
Auditor |
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Transaction
of Other Business |
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Motions
to Adjourn the Meeting |
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Proposals
Related to the Annual Meeting |
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Reimbursement
of Expenses Incurred from
Candidate
Nomination |
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Investment
Company Proxies |
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International
Proxy Voting Guidelines With
Application
For Holdings Incorporated
Outside
the United States and Canada |
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Renumeration
(Variable Pay) |
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Long-Term
Incentive Plans |
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Proposals
to Restrict Supervisory Board
Members
Service on Multiple Boards |
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Establishment
of a Remuneration Committee |
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Management
Board Election and Motion |
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Amendments
of the Articles |
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Related
Party Transactions |
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Proxy
Voting Guidelines With Application For
Holdings
Incorporated in Japan |
These
Guidelines may reflect a voting position that differs from the actual practices of the public company(ies) within the
Deutsche Bank organization or of the investment companies for which DWS or an affiliate serves as investment adviser
or sponsor.
NOTE:
Because of the unique structure and regulatory scheme applicable to closed-end and open-end investment companies
(except Real Estate Investment Trusts), the voting guidelines (particularly those related to governance issues) generally
not applicable to holdings of closed-end and open-end investment companies, especially for directors of fund-complexes.
I.
Board
of Directors and Executives
Routine:
DWS’s Policy is to vote “For”
the uncontested election of Directors. Votes for a Director in an uncontested election
will be withheld in cases where a Director has shown an inability to perform his/her duties in the best interests of
the shareholders, taking into account the following additional factors:
•
Accountability
to shareholders and transparency of governance practices
•
Responsiveness
to investor input and shareholder vote
•
Composition
of the board with Directors adding value through skills, expertise and time commitment
•
Independence
from management
Where
it deems necessary, DWS will also take into account the following additional factors:
•
A
combined CEO/Chairman role without a lead Independent Director in place would trigger a vote “Against”
the CEO/Chairman.
It
is essential that the board have a lead independent director, who should have approval over information flow to the board,
meeting agendas and meeting schedules to ensure a structure that provides an appropriate balance between
the powers of the CEO and those of the independent directors.
•
Attendance
at Board meetings not disclosed on an individual basis in the annual report or on the company’s website and
neither is the reported overall attendance above 90%. An individual candidate has attended fewer than 75% of
the board and audit / risk committee meetings in a given year without a satisfactory explanation for his / her absence
disclosed in a clear and comprehensible form in the relevant proxy filings. Satisfactory explanation will be
understood as any health issues or family incidents. These would trigger a vote “Against”
the election of the corresponding directors
•
A
former executive director who is nominated for a membership on the non-executive board when two or more former
executive directors already serve on the same board would result in a vote “Against”
the former executive, as the board cannot be regarded as independent anymore.
•
Relevant
committees in place and they are majority independent. If the main committees are not majority independent, this
could trigger a vote of “Abstain”
for the Chairman of the Board and if the Chairman is not up for election, “Abstain”
on the non-independent committee members.
•
The
management of Environmental Social and Governance (ESG) controversies will be analysed on a case-by-case basis
based on relevant internationally recognized E, S or G principles (e.g. the UN Global Compact Principles and
OECD Guidelines for Multinationals). Under extraordinary circumstances, DWS will vote against the election of
directors or the entire board if there were material failures of governance, stewardship, risk oversight, or fiduciary responsibilities
identified as a result of the controversies around the company.
•
When
the director election lengthens the term of office, DWS will consider voting “Against”
this election.
In
the absence of an annual election, we are generally supportive of staggered boards as the perpetual renewal of an
appropriate proportion of the board members secures an active succession planning. In cases where the annual (re)-election
is established, DWS would oppose proposals that would lengthen the term of office (i.e. from annual election
to terms of two/three years or more).
Regarding
independence: Vote against or withhold from non-independent Directors when:
•
The
board consists of 50% or less independent Directors;
•
The
non-independent Director is part of the audit, compensation or nominating committee;
•
The
company has not appointed an audit, compensation or nominating committee.
DWS
will classify Directors as non-independent when:
•
For
executive Directors:
−
Current
employee of the company or one of its affiliates.
•
For
non-executive Directors:
−
Significant
ownership (beneficial owner of more than 50% of the company’s voting power)
−
Former
CEO of the company or of an acquired company within the past five years.
−
Former
officer of the company, an affiliate or an acquired firm within the past five years.
−
Immediate
family member of a current or former officer of the company or its affiliates within the last five years
−
Currently
provides (or an immediate family member provides) professional services to the company, to an affiliate
of the company or an individual officer of the company or one of its affiliates in excess of $10,000 per
year.
Proxy
contest: In a proxy contest involving election of Directors, a case-by-case voting
decision will be made based upon analysis of the issues involved and the merits
of the incumbent and dissident slates of Directors. Where applicable, DWS will
consider the recommendations of ISS along with various factors, including the following:
•
Long-term
financial performance of the company relative to its industry;
•
Management’s
track record;
•
Background
to the contested election;
•
Nominee
qualifications and any compensatory arrangements;
•
Strategic
plan of dissident slate and quality of the critique against management;
•
Likelihood
that the proposed goals and objectives can be achieved (both slates); and
•
Stock
ownership positions.
In
the case of candidates nominated pursuant to proxy access, DWS’s policy is to vote case-by-case considering any applicable
factors listed above, including additional factors and any recommendations of a third party proxy research vendor,
currently ISS, which may be relevant, including those that are specific to the company, to the nominee(s) and/or
to the nature of the election (such as whether or not there are more candidates than board seats).
Rationale:
The large majority of corporate Directors fulfil their fiduciary obligation and in most cases support for Management’s nominees
is warranted. As the issues relevant to a contested election differ in each instance, those cases must be addressed
as they arise.
For
companies in the Russell 3000 or S&P 1500 indices, DWS will consider voting “Against”
or “Withhold”
from the chairperson of the nominating committee at companies when there is not
at least one woman on the company's board. DWS will consider voting “Against”
or “Withhold”
from other directors, on a case-by-case basis, if the nominating committee chairperson
is not up for election.
Mitigating
factors include:
•
a
firm commitment, as stated in the proxy statement, to appoint at least one woman to the board within a year,
•
The
presence of a woman on the board at the preceding annual meeting and a firm commitment to appoint at least
one woman to the board within a year; or
•
Other
relevant factors as applicable.
C.
Classified
Boards of Directors
DWS’s
policy is to vote against proposals to classify the Board and for proposals to repeal classified Boards and elect Directors
annually.
Rationale:
Directors should be held accountable on an annual basis. By entrenching the incumbent Board, a classified Board
may be used as an anti-takeover device to the detriment of the shareholders in a hostile take-over situation.
D.
Board
and Committee Independence
DWS’s
policy is to vote:
1.
“For”
proposals that require that a certain percentage (majority up to 66 2/3%) of members of a Board of Directors be
comprised of independent or unaffiliated Directors.
2.
“For”
proposals that require all members of a company's compensation, audit, nominating, or other similar committees be
comprised of independent or unaffiliated Directors.
3.
“Against”
shareholder proposals to require the addition of special interest, or constituency, representatives to Boards of
Directors.
4.
“For”
separation of the Chairman and CEO positions.
5.
Generally “For”
proposals that require a company to appoint a Chairman who is an independent Director, taking into
account the following factors:
−
Whether
the proposal is binding and whether it requires an immediate change.
−
Whether
the current board has an existing executive or non-independent chair or there was a recent combination of
the CEO and chair roles.
−
Whether
the governance structure ensures a sufficient board and committee independence, a balance of board
and CEO tenure.
−
Whether
the company has poor governance practices (such as compensation, poor risk oversight, or any actions
which harmed or have the potential to harm the interests of the shareholders).
−
Whether
the company is demonstrating poor performance (as per the assessment and recommendation of ISS).
Rationale:
Board independence is a cornerstone of effective governance and accountability. A Board that is sufficiently independent
from Management assures that shareholders' interests are adequately represented.
No
Director qualifies as “independent”
unless the Board of Directors affirmatively determines that the Director has no
material relationship with the listed company (either directly or as a partner, shareholder, or officer of an organization that
has a relationship with the company).
Whether
a Director is in fact not “independent”
will depend on the laws and regulations of the primary market for the security
and the exchanges, if any, on which the security trades.
E.
Liability
and Indemnification of Directors
DWS’s
policy is to vote on a case-by-case basis on Management proposals to limit Directors' liability and to broaden the
indemnification of Directors, unless broader indemnification or limitations on Directors' liability would affect shareholders'
interests in pending litigation, in which case, DWS would vote “Against”.
Rationale:
While shareholders want Directors and officers to be responsible for their actions, it may not be in the best interests
of the shareholders for them to be too risk averse. If the risk of personal liability is too great, companies may
not be able to find capable Directors willing to serve. We support expanding coverage only for actions taken in good
faith and not for serious violations of fiduciary obligation or negligence.
F.
Qualification
of Directors
DWS’s
policy is to follow Management’s recommended vote on either Management or shareholder proposals that set
retirement ages for Directors or require specific levels of stock ownership by Directors.
Rationale:
As a general rule, the Board of Directors, and not the shareholders, is most qualified to establish qualification policies.
G.
Removal
of Directors and Filling of Vacancies
DWS’s
policy is to vote “Against”
proposals that include provisions that Directors may be removed only for cause or proposals
that include provisions that only continuing Directors may fill Board vacancies.
Rationale:
Differing state statutes permit removal of Directors with or without cause. Removal of Directors for cause usually
requires proof of self-dealing, fraud, or misappropriation of corporate assets, limiting shareholders' ability to remove
Directors except under extreme circumstances. Removal without cause requires no such showing.
Allowing
only incumbent Directors to fill vacancies can serve as an anti-takeover device, precluding shareholders from filling
the Board until the next regular election.
H.
Proposals
to Fix the Size of the Board
DWS’s
policy is to vote:
1.
“For”
proposals to fix the size of the Board unless: (a) no specific reason for the proposed change is given; or (b)
the proposal is part of a package of takeover defences.
2.
“Against”
proposals allowing Management to fix the size of the Board without shareholder approval.
Rationale:
Absent danger of anti-takeover use, companies should be granted a reasonable amount of flexibility in fixing
the size of its Board.
I.
Proposals
to Restrict Chief Executive Officer’s Service on Multiple Boards
DWS’s
policy is to vote “For”
proposals to restrict a Chief Executive Officer from serving on more than two outside Boards
of Directors.
Rationale:
Chief Executive Officer must have sufficient time to ensure that shareholders’ interests are represented adequately.
Note:
A Director’s service on multiple closed-end fund Boards within a fund complex are treated as service on a single Board
for the purpose of the proxy voting guidelines.
J.
Proposals
to Establish Audit Committees
DWS’s
policy is to vote “For”
proposals that require the establishment of Audit Committees.
Rationale:
The Audit Committee should deal with accounting and risk management related questions, verifies the independence
of the auditor with due regard to possible conflicts of interest. It also should determine the procedure of
the audit process.
A.
Authorization
of Additional Shares
DWS’s
policy is to vote “For”
proposals to increase the authorization of existing classes of stock that do not exceed a
3:1 ratio of shares authorized to shares outstanding for a large cap company and do not exceed a 4:1 ratio of shares authorized
to shares outstanding for a small-midcap company (companies having a market capitalization under one billion
US dollars).
Rationale:
While companies need an adequate number of shares in order to carry on business, increases requested for
general financial flexibility must be limited to protect shareholders from their potential use as an anti-takeover device.
Requested increases for specifically designated, reasonable business purposes (stock split, merger, etc.) will be
considered in light of those purposes and the number of shares required.
B.
Authorization
of “Blank
Check” Preferred
Stock
DWS’s
policy is to vote:
1.
“Against”
proposals to create blank check preferred stock or to increase the number of authorized shares of blank
check preferred stock unless the company expressly states that the stock will not be used for anti-takeover purposes
and will not be issued without shareholder approval.
2.
“For”
proposals mandating shareholder approval of blank check stock placement.
Rationale:
Shareholders should be permitted to monitor the issuance of classes of preferred stock in which the Board of
Directors is given unfettered discretion to set voting, dividend, conversion, and other rights for the shares issued.
C.
Stock
Splits/Reverse Stock Splits
DWS’s
policy is to vote “For”
stock splits if a legitimate business purpose is set forth and the split is in the shareholders' best
interests. A vote is cast “For”
a reverse stock split only if the number of shares authorized is reduced in the same
proportion as the reverse split or if the effective increase in authorized shares (relative to outstanding shares) complies
with the proxy guidelines for common stock increases.
Rationale:
Generally, stock splits do not detrimentally affect shareholders. Reverse stock splits, however, may have the
same result as an increase in authorized shares and should be analyzed accordingly.
D.
Dual
Class/Supervoting Stock
DWS’s
policy is to vote “Against”
proposals to create or authorize additional shares of super-voting stock or stock with
unequal voting rights.
Rationale:
The “one share, one
vote” principal ensures
that no shareholder maintains a voting interest exceeding their equity interest
in the company.
DWS’s
policy is to address large block issuances of stock on a case-by-case basis based on the nature of the issuance, considering
various factors including recommendation of ISS subject to review by the GPVSC as set forth in the guidelines.
For
general Issuances, in general DWS’s policy is to:
1.
Vote for issuance authorities with pre-emptive rights to a maximum of 100 percent over currently issued capital and
as long as the share issuance authorities’ periods are clearly disclosed (or implied by the application of a legal maximum
duration) and in line with market-specific practices and/or recommended guidelines (e.g. issuance periods limited
to 18 months for the Netherlands); and
2.
Vote for issuance authorities without pre-emptive rights to a maximum of 20 percent (or a lower limit if local market best
practice recommendations provide) of currently issued capital as long as the share issuance authorities’ periods are
clearly disclosed (or implied by the application of a legal maximum duration) and in line with market-specific practices and/or
recommended guidelines (e.g. issuance periods limited to 18 months for the Netherlands).
For
French companies, DWS’s policy is to:
•
Vote
for general issuance requests with pre-emptive rights, or without pre-emptive rights but with a binding “priority
right,”
for a maximum of 50 percent over currently issued capital.
•
Generally
vote for general authorities to issue shares without pre-emptive rights up to a maximum of 10 percent of
share capital. When companies are listed on a regulated market, the maximum discount on share issuance price
proposed in the resolution must, in addition, comply with the legal discount (i.e., a maximum of 5 percent discount
to the share listing price) for a vote for to be warranted.
Where
it deems necessary, DWS will also consider voting “Against”,
taking into account the following additional factors:
•
The
combined equity issuance of all equity instruments with pre-emptive rights exceeds 50 percent of the outstanding share
capital or the prevailing maximum threshold as stipulated by best practice rules for corporate governance in
the respective country. Exceeding either of the two thresholds will be judged on a CASE-BY- CASE basis, provided that
the subscription rights are actively tradable in the market.
•
The
cumulative equity issuances without subscription rights (historical and across instruments) exceed the maximum level
specified in a respective country’s best practices for corporate governance or 30 percent of the company’s nominal
capital.
For
specific issuances, in general DWS’s policy is to:
Vote
on a case-by-case basis on all requests, with or without pre-emptive rights, incorporating where applicable the recommendation
of ISS.
Additionally,
DWS supports proposals requiring shareholder approval of large block issuances.
Rationale:
Stock issuances must be reviewed in light of the business circumstances leading to the request and the potential
impact on shareholder value.
F.
Recapitalization
into a Single Class of Stock
DWS’s
policy is to vote “For”
recapitalization plans to provide for a single class of common stock, provided the terms are
fair, with no class of stock being unduly disadvantaged.
Rationale:
Consolidation of multiple classes of stock is a business decision that may be left to the Board and/or Management if
there is no adverse effect on shareholders.
DWS’s
policy is to vote “For”
share repurchase plans provided all shareholders are able to participate on equal terms. Where
it deems necessary, DWS will also analyse on a CASE-BY-CASE basis, if the maximum offer/price premium exceeds
10 percent and if the share repurchase program exceeds a maximum of 10 percent of issued share capital.
Rationale:
Buybacks are generally considered beneficial to shareholders because they tend to increase returns to the remaining
shareholders. However, if the maximum offer premium exceeds 10 percent and the program itself exceeds 10
percent of issued capital, this could indicate potential risks for the shareholders in the longer term.
H.
Reductions
in Par Value
DWS’s
policy is to vote “For”
proposals to reduce par value, provided a legitimate business purpose is stated (e.g., the
reduction of corporate tax responsibility.)
Rationale:
Usually, adjustments to par value are a routine financial decision with no substantial impact on shareholders.
III.
Corporate
Governance Issues
DWS’s
policy is to vote “For”
proposals to provide for confidential voting and independent tabulation of voting results and
to vote “Against”
proposals to repeal such provisions.
Rationale:
Confidential voting protects the privacy rights of all shareholders. This is particularly important for employee-shareholders
or shareholders with business or other affiliations with the company, who may be vulnerable to
coercion or retaliation when opposing Management. Confidential voting does not interfere with the ability of corporations to
communicate with all shareholders, nor does it prohibit shareholders from making their views known directly to Management.
DWS’s
policy is to vote “Against”
shareholder proposals requesting cumulative voting and “For”
Management proposals to eliminate it. The protections afforded shareholders by
cumulative voting are not necessary when a company has a history of good performance
and does not have a concentrated ownership interest. Accordingly, a vote is cast “Against”
cumulative voting and “For”
proposals to eliminate it if:
a)
The
company has a five year return on investment greater than the relevant industry index;
b)
All
Directors and executive officers as a group beneficially own less than 10% of the outstanding stock; and
c)
No
shareholder (or voting block) beneficially owns 15% or more of the company.
Thus,
failure of any one of the three criteria results in a vote for cumulative voting in accordance with the general policy.
Rationale:
Cumulative voting is a tool that should be used to ensure that holders of a significant number of shares may
have Board representation; however, the presence of other safeguards may make their use unnecessary.
C.
Supermajority
Voting Requirements
DWS’s
policy is to vote “Against”
Management proposals to require a supermajority vote to amend the charter or bylaws
and to vote “For”
shareholder proposals to modify or rescind existing supermajority requirements.
*
Exception
made when company holds a controlling position and seeks to lower threshold to maintain control and/or
make changes to corporate by-laws.
Rationale:
Supermajority voting provisions violate the democratic principle that a simple majority should carry the vote.
Setting supermajority requirements may make it difficult or impossible for shareholders to remove egregious by-law
or charter provisions. Occasionally, a company with a significant insider held position might attempt to lower a
supermajority threshold to make it easier for Management to approve provisions that may be detrimental to shareholders. In
that case, it may not be in the shareholders’ interests to lower the supermajority provision.
D.
Shareholder
Right to Vote
DWS’s
policy is to vote “Against”
proposals that restrict the right of shareholders to call special meetings, amend the bylaws,
or act by written consent. DWS’s policy is to vote “For”
proposals that remove such restrictions.
Rationale:
Any reasonable means whereby shareholders can make their views known to Management or affect the governance
process should be supported.
E.
Amendments
of the Articles
Where
it deems necessary, DWS will consider to generally vote “Against”
if the vote is an article amendment that would lengthen the term of office for
directors over 3 years.
F.
Related
Party Transactions
DWS
will analyse related party transactions on a CASE-BY-CASE basis and will additionally consider ISS recommendations.
Annual
Incentive Plans or Bonus Plans are often submitted to shareholders for approval. These plans typically award cash
to executives based on company performance. Deutsche Bank believes that the responsibility for executive compensation decisions
rest with the Board of Directors and/or the compensation committee, and its policy is not to second-guess the
Board’s award of cash compensation amounts to executives unless a particular award or series of awards is deemed excessive.
If stock options are awarded as part of these bonus or incentive plans, the provisions must meet Deutsche Bank’s
criteria regarding stock option plans or similar stock-based incentive compensation schemes, as set forth below.
A.
Executive
and Director Stock Option Plans
DWS’s
policy is to vote “For”
stock option plans that meet the following criteria:
1.
The resulting dilution of existing shares is less than: (a) 15% of outstanding shares for large capital corporations; or
(b) 20% of outstanding shares for small-mid capital companies (companies having a market capitalization under one
billion US dollars).
2.
The transfer of equity resulting from granting options at less than fair market value (“FMV”)
is no greater than 3% of the over-all market capitalization of large capital corporations
or 5% of market cap for small-mid capital companies.
3.
The plan does not contain express repricing provisions and, in the absence of an express statement that options will
not be repriced, the company does not have a history of repricing options.
4.
The plan does not grant options on super-voting stock.
DWS
will support performance-based option proposals as long as: (a) they do not mandate that all options granted by
the company must be performance based; and (b) only certain high-level executives are subject to receive the performance
based options.
DWS
will support proposals to eliminate the payment of outside Director Pensions.
Rationale:
Determining the cost to the company and to shareholders of stock-based incentive plans raises significant issues
not encountered with cash-based compensation plans. These include the potential dilution of existing shareholders' voting
power, the transfer of equity out of the company resulting from the grant and execution of options at less than FMV
and the authority to reprice or replace underwater options. Our stock option plan analysis model seeks to allow reasonable
levels of flexibility for a company yet still protect shareholders from the negative impact of excessive stock compensation.
Acknowledging that small mid-capital corporations often rely more heavily on stock option plans as their
main source of executive compensation and may not be able to compete with their large capital competitors with
cash compensation, we provide slightly more flexibility for those companies.
B.
Employee
Stock Option / Purchase Plans
DWS’s
policy is to vote “For”
employee stock purchase plans (“ESPPs”)
when the plan complies with Internal Revenue Code Section 423, allowing non-Management
employees to purchase stock at 85% of FMV.
DWS’s
policy is to vote “For”
employee stock option plans (“ESOPs”)
provided they meet the standards for stock option plans in general. However, when
computing dilution and transfer of equity, ESOPs are considered independently from
executive and Director Option plans.
Rationale:
ESOPs and ESPPs encourage rank-and-file employees to acquire an ownership stake in the companies they
work for and have been shown to promote employee loyalty and improve productivity.
DWS’s
policy is to vote “For”
proposals to require shareholder approval of golden parachutes and for proposals that would
limit golden parachutes to no more than three times base compensation. DWS’s policy is to vote on a case-by-case basis
regarding more restrictive shareholder proposals to limit golden parachutes.
Rationale:
In setting a reasonable limitation, DWS considers that an effective parachute should be less attractive than continued
employment and that the IRS has opined that amounts greater than three times annual salary, are excessive.
D.
Proposals
to Limit Benefits or Executive Compensation
DWS’s
policy is to vote “Against”:
1.
Proposals to limit benefits, pensions or compensation; and
2.
Proposals that request or require disclosure of executive compensation greater than the disclosure required by Securities
and Exchange Commission (“SEC”)
regulations.
Rationale:
Levels of compensation and benefits are generally considered to be day-to-day operations of the company, and
are best left unrestricted by arbitrary limitations proposed by shareholders.
E.
Shareholder
Proposals Concerning “Pay
for Superior Performance”
DWS’s
policy is to address pay for superior performance proposals on a case-by-case basis, subject to review by the GPVSC
as set forth in DWS’s Proxy Voting Policy and Guidelines, based on recommendation by ISS and in consideration of
the following factors:
•
What
aspects of the company’s annual and long-term equity incentive programs are performance driven?
•
If
the annual and long-term equity incentive programs are performance driven, are the performance criteria and hurdle
rates disclosed to shareholders or are they benchmarked against a disclosed peer group?
•
Can
shareholders assess the correlation between pay and performance based on the current disclosure?
•
What
type of industry and stage of business cycle does the company belong to?
These
proposals generally include the following principles:
•
Set
compensation targets for the plan’s annual and long-term incentive pay components at or below the peer group
median;
•
Deliver
a majority of the plan’s target long-term compensation through performance-vested, not simply time-vested, equity
awards;
•
Provide
the strategic rationale and relative weightings of the financial and non-financial performance metrics or criteria
used in the annual and performance-vested long-term incentive components of the plan;
•
Establish
performance targets for each plan financial metric relative to the performance of the company’s peer companies;
•
Limit
payment under the annual and performance-vested long-term incentive components of the plan to when the
company’s performance on its selected financial performance metrics exceeds peer group median performance.
Rationale:
While DWS agrees that compensation issues are better left to the discretion of Management, there remains the
need to monitor for excessive and problematic compensation practices on a case-by-case basis. If, after a review of
the ISS metrics, DWS is comfortable with ISS’s applying this calculation DWS will vote according to ISS recommendation.
F.
Executive
Compensation Advisory
DWS’s
policy is to support management or shareholder proposals to propose an advisory resolution seeking to ratify the
compensation of the company’s named executive officers (“NEOs”)
on an annual basis (“say
on pay”).
Rationale:
DWS believes that controls exist within senior Management and corporate compensation committees, ensuring
fair compensation to executives. However, an annual advisory vote represents a good opportunity for shareholders to
have a transparent and clear exchange of views with the company of the executive compensation structures.
G.
Advisory
Votes on Executive Compensation
DWS’s
policy is to vote on a case-by-case basis on ballot items related to executive pay and practices, as well as certain
aspects of outside director compensation, including recommendations by ISS where applicable, subject to review
by the GPVSC as set forth in DWS’s Proxy Voting Policy and Guidelines.
DWS’s
policy is to vote against Advisory Votes on Executive Compensation (Management Say-on-Pay-MSOP) if:
•
There
is a significant misalignment between CEO pay and company performance (pay for performance);
•
The
company maintains significant problematic pay practices;
•
The
board exhibits a significant level of poor communication and responsiveness to shareholders.
Primary
Evaluation Factors for Executive Pay
Pay-for-Performance
Evaluation
DWS
will consider the pay-for-performance analysis conducted annually by an independent third party, currently ISS, to
identify strong or satisfactory alignment between pay and performance over a sustained period. With respect to companies
in the Russell 3000 or Russell 3000E Indices, DWS considers the following based on ISS’ analysis:
1.
Peer Group Alignment:
−
The
degree of alignment between the company's annualized TSR rank and the CEO's annualized total pay rank
within a peer group, each measured over a three-year period.
−
The
multiple of the CEO's total pay relative to the peer group median.
2.
Absolute Alignment – the absolute alignment between the trend in CEO pay and company TSR over the prior five fiscal
years – i.e., the difference between the trend in annual pay changes and the trend in annualized TSR during the period.
If
the above analysis demonstrates significant unsatisfactory long-term pay-for-performance alignment or, in the case of
companies outside the Russell indices, misaligned pay and performance are otherwise suggested, DWS may consider any
of the following qualitative factors as relevant to evaluating how various pay elements may work to encourage or
to undermine long-term value creation and alignment with shareholder interests:
•
The
ratio of performance- to time-based equity awards;
•
The
overall ratio of performance-based compensation;
•
The
completeness of disclosure and rigor of performance goals;
•
The
company's peer group benchmarking practices;
•
Actual
results of financial/operational metrics, such as growth in revenue, profit, cash flow, etc., both absolute and
relative to peers;
•
Special
circumstances related to, for example, a new CEO in the prior FY or anomalous equity grant practices (e.g.,
bi-annual awards);
•
Realizable
pay compared to grant pay; and
•
Any
other factors deemed relevant.
Where
it deems necessary, DWS will also take into account the following additional factors:
•
Systems
that entitle the company to recover any sums already paid where necessary (e.g. claw- back system). Deviations
are possible wherever the company provides a reasonable explanation why a claw-back was not implemented.
Problematic
Pay Practices
DWS’s
policy is to defer to ISS’ recommendation regarding executive compensation practices that contravene the global
pay principles considered by ISS in evaluating executive pay and practices, including:
•
Problematic
practices related to non-performance-based compensation elements;
•
Incentives
that may motivate excessive risk-taking; and
Problematic
Pay Practices related to Non-Performance-Based Compensation Elements
DWS’s
policy is, in general, to evaluate pay elements that are not directly based on performance on a case-by-case considering
the context of a company's overall pay program and demonstrated pay-for-performance philosophy. DWS will
defer to ISS’ analysis of specific pay practices that have been identified as potentially problematic and may lead to
negative recommendations if they are deemed to be inappropriate or unjustified relative to executive pay best practices.
The list below highlights the problematic practices that carry significant weight in DWS’s overall consideration and
may result in adverse vote recommendations:
•
Repricing
or replacing of underwater stock options/SARS without prior shareholder approval (including cash buyouts and
voluntary surrender of underwater options);
•
Excessive
perquisites or tax gross-ups, including any gross-up related to a secular trust or restricted stock vesting;
•
New
or extended agreements that provide for:
−
CIC
payments exceeding 3 times base salary and average/target/most recent bonus;
−
CIC
severance payments without involuntary job loss or substantial diminution of duties (“single”
or “modified
single”
triggers);
−
CIC
payments with excise tax gross-ups (including “modified”
gross-ups);
•
Insufficient
executive compensation disclosure by externally- managed issuers (EMIs) such that a reasonable assessment
of pay programs and practices applicable to the EMI's executives is not possible.
Incentives
that may Motivate Excessive Risk-Taking
•
Multi-year
guaranteed bonuses;
•
A
single or common performance metric used for short- and long-term plans;
•
Lucrative
severance packages;
•
High
pay opportunities relative to industry peers;
•
Disproportionate
supplemental pensions; or
•
Mega
annual equity grants that provide unlimited upside with no downside risk.
Factors
that potentially mitigate the impact of risky incentives include rigorous claw-back provisions and robust stock ownership/holding
guidelines.
Options
Backdating
DWS’s
policy is to examine the following factors case-by-case to allow for distinctions to be made between “sloppy”
plan administration versus deliberate action or fraud:
•
Reason
and motive for the options backdating issue, such as inadvertent vs. deliberate grant date changes;
•
Duration
of options backdating;
•
Size
of restatement due to options backdating;
•
Corrective
actions taken by the board or compensation committee, such as cancelling or re-pricing backdated options,
the recouping of option gains on backdated grants; and
•
Adoption
of a grant policy that prohibits backdating, and creates a fixed grant schedule or window period for equity
grants in the future.
DWS
may rely on ISS’s analysis of the foregoing and may defer to ISS’s recommendation subject to review by the GPVSC.
Rationale:
While DWS agrees that compensation issues are better left to the discretion of Management, there remains a
need to take action on this nonbinding proposal if excessive or problematic compensation practices exist.
H.
Frequency
of Advisory Vote on Executive Compensation
DWS’s
policy is to vote “For”
annual advisory votes on compensation, which provide the most consistent and clear communication
channel for shareholder concerns about companies’ executive pay programs.
Rationale:
DWS believes that annual advisory vote gives shareholders the opportunity to express any compensation concerns
to the Executive Compensation proposal which is an advisory voting.
V.
Anti-Takeover
Related Issues
A.
Shareholder
Rights Plans (“Poison
Pills”)
DWS’s
policy is to vote “For”
proposals to require shareholder ratification of poison pills or that request Boards to redeem
poison pills, and to vote “Against”
the adoption of poison pills if they are submitted for shareholder ratification.
Rationale:
Poison pills are the most prevalent form of corporate takeover defenses and can be (and usually are) adopted without
shareholder review or consent. The potential cost of poison pills to shareholders during an attempted takeover outweighs
the benefits.
DWS’s
policy is to examine reincorporation proposals on a case-by-case basis. The voting decision is based on:
1.
Differences in state law between the existing state of incorporation and the proposed state of incorporation; and
2.
Differences between the existing and the proposed charter / bylaws / articles of incorporation and their effect on shareholder
rights.
If
changes resulting from the proposed reincorporation violate the corporate governance principles set forth in these guidelines,
the reincorporation will be deemed contrary to shareholder’s interests and a vote cast “against.”
Rationale:
Reincorporations can be properly analyzed only by looking at the advantages and disadvantages to their shareholders.
Care must be taken that anti-takeover protection is not the sole or primary result of a proposed change.
DWS’s
policy is to vote “For”
Management fair-price proposals, provided that:
1.
The proposal applies only to two-tier offers;
2.
The proposal sets an objective fair-price test based on the highest price that the acquirer has paid for a company's shares;
3.
The supermajority requirement for bids that fail the fair-price test is no higher than two-thirds of the outstanding shares;
and
4.
The proposal contains no other anti-takeover provisions or provisions that restrict shareholders rights.
A
vote is cast “For”
shareholder proposals that would modify or repeal existing fair-price requirements that do not meet
these standards.
Rationale:
While fair price provisions may be used as anti-takeover devices, if adequate provisions are included, they provide
some protection to shareholders who have some say in their application and the ability to reject those protections if
desired.
D.
Exemption
from State Takeover Laws
DWS’s
policy is to vote “For”
shareholder proposals to opt out of state takeover laws and to vote “Against”
Management proposals requesting to opt out of state takeover laws.
Rationale:
Control share statutes, enacted at the state level, may harm long-term share value by entrenching Management. They
also unfairly deny certain shares their inherent voting rights.
E.
Non-Financial
Effects of Takeover Bids
Policy
is to vote “Against”
shareholder proposals to require consideration of non-financial effects of merger or acquisition proposals.
Rationale:
Non-financial effects may often be subjective and are secondary to DWS’s stated purpose of acting in its client’s
best economic interest.
VI.
Mergers
& Acquisitions
Evaluation
of mergers, acquisitions and other special corporate transactions (i.e., takeovers, spin-offs, sale of assets, reorganizations,
restructurings, and recapitalizations) are performed on a case-by-case basis, including
consideration of ISS’s analysis and recommendations
where applicable, subject to review by the GPVSC. DWS’s policy is to review
and evaluate the merits and drawbacks of the proposed transaction, balancing various
and sometimes countervailing factors including:
•
Valuation
- Is the value to be received by the target shareholders (or paid by the acquirer) reasonable? While the fairness
opinion may provide an initial starting point for assessing valuation reasonableness, emphasis is placed on
the offer premium, market reaction and strategic rationale.
•
Market
reaction - How has the market responded to the proposed deal? A negative market reaction should cause closer
scrutiny of a deal.
•
Strategic
rationale - Does the deal make sense strategically? From where is the value derived? Cost and revenue synergies
should not be overly aggressive or optimistic, but reasonably achievable. Management should also have
a favorable track record of successful integration of historical acquisitions.
•
Negotiations
and process - Were the terms of the transaction negotiated at arm's-length? Was the process fair and
equitable? A fair process helps to ensure the best price for shareholders. Significant negotiation “wins”
can also signify the deal makers' competency. The comprehensiveness of the sales
process (e.g., full auction, partial auction, no auction) can also affect shareholder
value.
•
Conflicts
of interest - Are insiders benefiting from the transaction disproportionately and inappropriately as compared to
non-insider shareholders? As the result of potential conflicts, the directors and officers of the company may be
more likely to vote to approve a merger than if they did not hold these interests. Consider whether these interests
may have influenced these directors and officers to support or recommend the merger. The CIC figure presented
in the “ISS Transaction
Summary” section of
this report is an aggregate figure that can in certain cases be a misleading indicator
of the true value transfer from shareholders to insiders. Where such figure appears to be
excessive, analyze the underlying assumptions to determine whether a potential conflict exists.
•
Governance
- Will the combined company have a better or worse governance profile than the current governance profiles
of the respective parties to the transaction? If the governance profile is to change for the worse, the burden
is on the company to prove that other issues (such as valuation) outweigh any deterioration in governance.
Additional
resources including portfolio management and research analysts may be considered as set forth in DWS’s policies
and procedures.
VII.
Environmental,
Social, and Governance Issues
Environmental,
social, and governance issues (“ESG”)
are becoming increasingly important to corporate success. We incorporate ESG considerations
into both our investment decisions and our proxy voting decisions – particularly if
the financial performance of the company could be impacted. Companies or states that seriously contravene internationally accepted
ethical principles will be subject to heightened scrutiny.
A.
Principles
for Responsible Investment
DWS
policy is to actively engage with companies on ESG issues and participate in ESG initiatives. In this context, DWS:
(a) votes “For”
increased disclosure on ESG issues; (b) is willing to participate in the development of policy, regulation,
and standard setting (such as promoting and protecting shareholder rights); (c) could support shareholder initiatives
and also file shareholder resolutions with long term ESG considerations and improved ESG disclosure, when applicable;
(d) could support standardized ESG reporting and issues to be integrated within annual financial reports; and
(e) on a case-by-case basis, on other votes related to ESG issues.
Rationale:
ESG issues can affect the performance of investment portfolios (to varying degrees across companies, sectors,
regions, asset classes, and through time).
DWS’s
policy will also consider the Coalition for Environmentally Responsible Economies (“CERES”)
recommendation on Environmental matters contained in the CERES Roadmap for Sustainability
and the recommendations on social and sustainability issues not specifically addressed
elsewhere in these Guidelines. DWS may consider ISS to identify shareholder proposals
addressing CERES Roadmap for Sustainability and may have proxies voted in accordance with ISS’
predetermined voting guidelines on CERES Roadmap for Sustainability. DWS’s policy is to generally vote for social and
environmental shareholder proposals that promote good corporate citizens while enhancing long-term shareholder and
stakeholder value. DWS’s policy is to vote for disclosure reports that seek additional information particularly when it
appears companies have not adequately addressed shareholders' social, workforce, and environmental concerns. In
determining vote recommendations on shareholder social, workforce, and environmental proposals, DWS will consider the
recommendation of ISS along with various other factors including:
•
Whether
the proposal itself is well framed and reasonable;
•
Whether
adoption of the proposal would have either a positive or negative impact on the company's short-term or
long-term share value;
•
Whether
the company's analysis and voting recommendation to shareholders is persuasive;
•
The
degree to which the company's stated position on the issues could affect its reputation or sales, or leave it vulnerable
to boycott or selective purchasing;
•
Whether
the subject of the proposal is best left to the discretion of the board;
•
Whether
the issues presented in the proposal are best dealt with through legislation, government regulation, or company-specific
action;
•
The
company's approach compared with its peers or any industry standard practices for addressing the issue(s) raised
by the proposal;
•
Whether
the company has already responded in an appropriate or sufficient manner to the issue(s) raised in the proposal;
•
If
the proposal requests increased disclosure or greater transparency, whether or not sufficient information is publically
available to shareholders and whether it would be unduly burdensome for the company to compile and avail
the requested information to shareholders in a more comprehensive or amalgamated fashion;
•
Whether
implementation of the proposal would achieve the objectives sought in the proposal.
In
general, DWS’s policy supports proposals that request the company to furnish information helpful to shareholders in
evaluating the company’s operations, based on ISS’ analysis and recommendation. In order to be able to intelligently
monitor their investments shareholders often need information best provided by the company
in which they have invested. Requests to report such information will merit support.
Requests to establish special committees of the board to address broad corporate
policy and provide forums for ongoing dialogue on issues including, but not limited to
shareholder relations, the environment, human rights, occupational health and safety, and executive compensation, will
generally be supported, particularly when they appear to offer a potentially effective method for enhancing shareholder value.
DWS’s policy is to closely evaluate proposals that ask the company to cease certain actions that the proponent believes
are harmful to society or some segment of society with special attention to the company’s legal and ethical obligations,
its ability to remain profitable, and potential negative publicity if the company fails to honor the request. DWS’s
policy supports shareholder proposals that improve the company’s public image, and reduce exposure to liabilities.
Rationale:
DWS supports CERES and as such generally considers the CERES recommendation, but will vote on a case-by-case
basis.
VIII.
Miscellaneous
Items
A.
Ratification
of Auditors
DWS’s
policy is to vote “For”:
(a) the Management recommended selection of auditors; and (b) proposals to require shareholder
approval of auditors.
Rationale:
Absent evidence that auditors have not performed their duties adequately, support for Management’s nomination is
warranted.
B.
Limitation
of Non-Audit Services Provided by Independent Auditor
DWS’s
policy is to support proposals limiting non-audit fees to 50% of the aggregate annual fees earned by the firm retained
as a company's independent auditor.
Rationale:
In the wake of financial reporting problems and alleged audit failures at a number of companies, DWS supports
the general principle that companies should retain separate firms for audit and consulting services to avoid potential
conflicts of interest. However, given the protections afforded by the Sarbanes-Oxley Act of 2002 (which requires
Audit Committee pre-approval for non-audit services and prohibits auditors from providing specific types of
services),
and the fact that some non-audit services are legitimate audit-related services, complete separation of audit and
consulting fees may not be warranted. A reasonable limitation is appropriate to help ensure auditor independence and
it is reasonable to expect that audit fees exceed non-audit fees.
DWS’s
policy is to vote against proposals seeking audit firm rotation, unless there are relevant audit-related issues.
Rationale:
Because the Sarbanes-Oxley Act mandates that the lead audit partner be switched every five years, DWS believes
that rotation of the actual audit firm would be costly and disruptive, unless DWS believes there are significant audit-related
issues.
Where
it deems necessary, on audit-related agenda items, DWS will also consider voting “Against”,
taking into account the following additional factors:
1.
The name of the audit firm is not disclosed.
2.
No breakdown of audit/non-audit fees is provided.
3.
Non-audit fees exceed standard audit and audit-related fees, unless ISS highlights a special justification such as IPOs,
M&A or restructuring (this guideline applies only to companies on the country`s main index).
4.
Auditors are changed without explanation.
D.
Transaction
of Other Business
DWS’s
policy is to vote “Against”
transaction of other business proposals.
Rationale:
This is a routine item to allow shareholders to raise other issues and discuss them at the meeting. As the nature
of these issues may not be disclosed prior to the meeting, we recommend a vote against these proposals. This
protects shareholders voting by proxy (and not physically present at a meeting) from having action taken at the meeting
that they did not receive proper notification of or sufficient opportunity to consider.
E.
Motions
to Adjourn the Meeting
DWS’s
Policy is to vote “Against”
proposals to adjourn the meeting.
Rationale:
Management may seek authority to adjourn the meeting if a favorable outcome is not secured. Shareholders should
already have had enough information to make a decision. Once votes have been cast, there is no justification for
Management to continue spending time and money to press shareholders for support.
DWS’s
policy is to vote against bundled proposals if any bundled issue would require a vote against it if proposed individually.
Rationale:
Shareholders should not be forced to “take
the good with the bad”
in cases where the proposals could reasonably have been submitted separately.
G.
Change
of Company Name
DWS’s
policy is to support Management on proposals to change the company name.
Rationale:
This is generally considered a business decision for a company.
H.
Proposals
Related to the Annual Meeting
DWS’s
Policy is to vote “For”
Management for proposals related to the conduct of the annual meeting (meeting time, place,
etc.)
Rationale:
These are considered routine administrative proposals.
I.
Reimbursement
of Expenses Incurred from Candidate Nomination
DWS’s
policy is to follow Management’s recommended vote on shareholder proposals related to the amending of company
bylaws to provide for the reimbursement of reasonable expenses incurred in connection with nominating one
or more candidates in a contested election of Directors to the corporation’s Board of Directors.
Rationale:
Corporations should not be liable for costs associated with shareholder proposals for Directors.
J.
Investment
Company Proxies
Proxies
solicited by investment companies are voted in accordance with the recommendations of an independent third
party, currently ISS. However, regarding investment companies for which DWS or an affiliate serves as investment adviser
or principal underwriter, such proxies are voted in the same proportion as the vote of all other shareholders. Proxies
solicited by master funds from feeder funds will be voted in accordance with applicable provisions of Section 12
of the Investment Company Act of 1940 (“Investment
Company Act”).
Investment
companies, particularly closed-end investment companies, are different from traditional operating companies. These
differences may call for differences in voting positions on the same matter. For example, DWS could vote “For”
staggered Boards of closed-end investment companies, although DWS generally votes
“Against”
staggered Boards for operating companies. Further, the manner in which DWS votes
investment company proxies may differ from proposals for which a DWS-advised investment
company solicits proxies from its shareholders. As reflected in the Guidelines, proxies
solicited by closed-end (and open-end) investment companies are voted in accordance with the pre-determined guidelines
of an independent third-party.
Subject
to participation agreements with certain Exchange Traded Funds (“ETF”)
issuers that have received exemptive orders from the US Securities and Exchange
Commission allowing investing DWS Funds to exceed the limits set forth in Section
12(d)(1)(A) and (B) of the Investment Company Act, DWS will echo vote proxies for ETFs in which Deutsche Bank
holds more than 25% of outstanding voting shares globally when required to do so by participation agreements and
SEC orders.
Note:
With respect to the DWS Central Cash Management Government Fund (registered under the Investment Company Act),
the Fund is not required to engage in echo voting and the investment adviser will use these Guidelines, and may determine,
with respect to the DWS Central Cash Management Government Fund, to vote contrary to the positions in
the Guidelines, consistent with the Fund’s best interest.
The
above guidelines pertain to issuers organized in the United States and Canada. Proxies solicited by other issuers are
voted in accordance with international guidelines or the recommendation of ISS and in accordance with applicable law
and regulation.
IX.
International
Proxy Voting Guidelines With Application For Holdings Incorporated Outside the United
States and Canada
A.
Election of Directors
Where
it deems necessary, DWS will also take into account the following additional factors:
•
A
combined CEO/Chairman role without a lead Independent Director in place would trigger a vote “Against”
the CEO/Chairman.
It
is essential that the board have a lead independent director, who should have approval over information flow to the board,
meeting agendas and meeting schedules to ensure a structure that provides an appropriate balance between the
powers of the CEO and those of the independent directors.
•
Attendance
at Board meetings not disclosed on an individual basis in the annual report or on the company’s website and
neither is the reported overall attendance above 90 %. An individual candidate has attended fewer than 75 %
of the board and audit / risk committee meetings in a given year without a satisfactory explanation for his / her
absence disclosed in a clear and comprehensible form in the relevant proxy filings. Satisfactory explanation will
be understood as any health issues or family incidents. These would trigger a vote “Against”
the election of the corresponding directors.
•
DWS
will vote with an “Against”
if the election of a candidate results in a direct transition from executive (incl. the
CEO) to non-executive directorship (i.e. without a cooling off of minimum two years). In especially warranted cases,
executive directors with a long and proven track record can become non-executive directors if this change is
in line with the national best practice for corporate governance.
•
A
former executive director who is nominated for a membership on the non-executive board when two or more former
executive directors already serve on the same board would result in a vote “Against”
the former executive, as the board cannot be regarded as independent anymore.
•
Relevant
committees in place and they are majority independent. If the main committees are not majority independent, this
could trigger a vote of “Abstain”
for the Chairman of the Board and if the Chairman is not up for election, “Abstain”
on the non-independent committee members.
•
The
management of Environmental Social and Governance (ESG) controversies will be analysed on a case-by-case basis
based on relevant internationally recognized E, S or G principles (e.g. the UN Global Compact Principles and
OECD Guidelines for Multinationals). Under extraordinary circumstances, DWS will vote against the election of
directors or the entire board if there were material failures of governance, stewardship, risk oversight, or fiduciary responsibilities
identified as a result of the controversies around the company.
•
When
the director election lengthens the term of office, DWS will consider voting “Against”
this election.
In
the absence of an annual election, we are generally supportive of staggered boards as the perpetual renewal of an
appropriate proportion of the board members secures an active succession planning. In cases where the annual (re)-election
is established, DWS would oppose proposals that would lengthen the term of office (i.e. from annual election
to terms of two/three years or more).
B.
Remuneration (Variable Pay)
Executive
remuneration for Management Board
Where
it deems necessary, DWS will also take into account the following additional factors:
•
Systems
that entitle the company to recover any sums already paid (e.g. claw-back-system). Deviations are possible wherever
the company provides a reasonable explanation why a claw- back was not implemented.
DWS’s
policy is to vote “For”
Management Board remuneration that is transparent and linked to results.
Rationale:
Executive compensation should motivate Management and align the interests of Management with the shareholders.
The focus should be on criteria that prevent excessive remuneration; but enable the company to hire and
retain first-class professionals.
Shareholder
interests are normally best served when Management is remunerated to optimise long-term returns. Criteria
should include suitable measurements like return on capital employed or economic value added.
Interests
should generally also be correctly aligned when Management own shares in the company – even more so if
these shares represent a substantial portion of their own wealth.
Its
disclosure shall differentiate between fixed pay, variable (performance related) pay, and long-term incentives, including stock
option plans with valuation ranges as well as pension and any other significant arrangements.
Executive
remuneration for Supervisory Board
DWS’s
policy is to vote “For”
remuneration for Supervisory Board that is at least 50% in fixed form.
Rationale:
It would normally be preferable if performance linked compensation were not based on dividend payments, but
linked to suitable result based parameters. Consulting and procurement services should also be published in the company
report.
C.
Long-Term Incentive Plans
DWS’s
policy is to vote “For”
long-term incentive plans for members of a Management Board that reward for above average
company performance.
Rationale:
Incentive plans will normally be supported if they:
1.
Directly align the interests of members of Management Boards with those of shareholders;
2.
Establish challenging performance criteria to reward only above average performance;
3.
Measure performance by total shareholder return in relation to the market or a range of comparable companies;
4.
Are long-term in nature and encourage long-term ownership of the shares once exercised through minimum holding periods;
and
5.
Do not allow a repricing of the exercise price in stock option plans.
D.
Proposals to Restrict Supervisory Board Members Service on Multiple Boards
DWS’s
policy is to vote “For”
proposals to restrict a Supervisory Board Member from serving on more than five Supervisory Boards.
Rationale:
We consider a strong, independent, and knowledgeable Supervisory Board as important counter-balance to
executive Management to ensure that the interests of shareholders are fully reflected by the company.
Full
information should be disclosed in the annual reports and accounts to allow all shareholders to judge the success of
the Supervisory Board controlling their company.
Supervisory
Board Members must have sufficient time to ensure that shareholders’ interests are represented adequately.
Note:
A Director’s service on multiple closed-end fund Boards within a fund complex are treated as service on a single Board
for the purpose of the proxy voting guidelines.
E.
Establishment of a Remuneration Committee
DWS’s
policy is to vote “For”
proposals that require the establishment of a Remuneration Committee.
Rationale:
Corporations should disclose in each annual report or proxy statement their policies on remuneration. Essential details
regarding executive remuneration including share options, long-term incentive plans and bonuses, should be disclosed
in the annual report, so that investors can judge whether corporate pay policies and practices meet the standard.
The
Remuneration Committee shall not comprise any Board members and should be sensitive to the wider scene on
executive pay. It should ensure that performance-based elements of executive pay are designed to align the interests of
shareholders.
F.
Management Board Election and Motion
DWS’s
policy is to vote “Against”:
1.
The election of Board members with positions on either Remuneration or Audit Committees;
2.
The election of Supervisory Board members with too many Supervisory Board mandates; and
3.
“Automatic”
election of former Board members into the Supervisory Board.
Rationale:
Management as an entity, and each of its members, are responsible for all actions of the company, and are
– subject to applicable laws and regulations – accountable to the shareholders as a whole for their actions.
Sufficient
information should be disclosed in the annual company report and account to allow shareholders to judge the
success of the company.
G.
Large Block Issuance
For
the UK market the following applies:
Generally
vote for a resolution to authorise the issuance of equity, unless:
•
The
issuance authority exceeds 33 percent of the issued share capital. Assuming it is no more than 33 percent, a
further 33 percent of the issued share capital may also be applied to a fully pre-emptive rights issue taking the acceptable
aggregate authority to 66 percent.
Where
it deems necessary, DWS will also consider voting “Against”,
taking into account the following additional factors:
•
The
combined equity issuance of all equity instruments with pre-emptive rights exceeds 50 percent of the outstanding share
capital or the prevailing maximum threshold as stipulated by best practice rules for corporate governance in
the respective country. Exceeding either of the two thresholds will be judged on a CASE-BY- CASE basis, provided that
the subscription rights are actively tradable in the market.
•
The
cumulative equity issuances without subscription rights (historical and across instruments) exceed the maximum level
specified in a respective country’s best practices for corporate governance or 30 percent of the company’s nominal
capital.
H.
Share Repurchases
Where
it deems necessary, DWS will also analyse on a CASE-BY-CASE basis, if the maximum offer/price premium exceeds
10 percent and if the share repurchase program exceeds a maximum of 10 percent of issued share capital.
Rationale:
Buybacks are generally considered beneficial to shareholders because they tend to increase returns to the remaining
shareholders. However, if the maximum offer premium exceeds 10 percent and the program itself exceeds 10
percent of issued capital, this could indicate potential risks for the shareholders in the longer term.
I.
Use of Net Profits
Where
it deems necessary, DWS will also consider voting “Against”,
taking into account the following factors:
1.
The dividend pay-out ratio has been below 20% for two consecutive years despite a limited availability of profitable growth
opportunities, and management has not given/provided adequate reasons for this decision.
2.
The pay-out ratio exceeds 100 % of the distributable profits without appropriate reason (the company pays a dividend which
affects its book value).
J.
Amendments of the Articles
Where
it deems necessary, DWS will consider to generally to vote “Against”
if the vote is an article amendment that would lengthen the term of office for
directors over 3 years.
K.
Related Party Transactions
DWS
will analyse related party transactions on a CASE-BY-CASE basis and will additionally consider ISS recommendations.
L.
Auditor
Where
it deems necessary, on audit-related agenda items, DWS will also consider voting “Against”,
taking into account the following additional factors:
1.
The name of the audit firm is not disclosed.
2.
No breakdown of audit/non-audit fees is provided.
3.
Non-audit fees exceed standard audit and audit-related- fees, unless ISS highlights a special justification such as IPOs,
M&A or restructuring (this guideline applies only to companies on the country`s main index).
4.
Auditors are changed without explanation.
5.
The same lead audit partner has been appointed for more than five years.
6.
Consequently, when the company does not publish the name of its lead auditor and the duration for which she / he
has been previously appointed. (Markets in which the regulatory requirement for lead partner rotation is maximum five
years are exempt from this guideline).
X.
Proxy Voting Guidelines With Application For Holdings Incorporated In Japan
With
reference to our policy on board composition in Japan, we expect companies, which define the role of the board to
have a supervisory function instead of an executive function, to have at least two outside directors and strongly encourage
them to ensure that at least 1/3 of the members in their boards are considered independent.
With
reference to our policy of defining independence, outlined earlier in this document, in Japan as significant shareholders we
will consider those who are in the top ten shareholders, even if their holding represents a share of less than 10%, mainly
due to the market practice in Japan for business partners to own a certain percentage of each other’s shares as
cross shareholders. With reference to our policy on the separation of the CEO and chairman roles and responsibilities, we
strongly encourage our Japanese investees to disclose the member, who chairs the board as well as the member, who
is considered to chair the company, the so called “Kaicho”,
if these roles are separated. We also expect and foster our investees in Japan
to establish the relevant formal committees- nomination, remuneration and audit.
Rationale:
We acknowledge what has been achieved in the last couple of years in the corporate governance developments in
Japan and support the progress, which has been made in that regard, in particular with the introduction of the Corporate
Governance and Stewardship codes. We aspire to be in a constructive dialogue with our investees and to act
as their steering partner to drive further developments in the corporate governance area. However, we foster our investees
in Japan to strive to have more independent boards generally, as we believe board independence is crucial for
the further development of corporate governance in Japan.
PART C. OTHER INFORMATION
Item 28 |
Exhibits |
|
|
|
(a) |
(1) |
Certificate of Trust of DBX ETF Trust (the “Registrant” or the “Trust”) dated October 7, 2010. (Incorporated by reference to the Trust’s Registration Statement, as filed with the Securities and Exchange Commission (the “SEC”) on October 25, 2010.) |
|
|
(2) |
Agreement and Declaration of Trust, dated as of October 7, 2010. (Incorporated by reference to Pre-Effective Amendment No. 1 to the Trust’s Registration Statement, as filed with the SEC on February 9, 2011.) |
|
(b) |
(1) |
By-Laws of the Trust, dated October 7, 2010, as amended February 25, 2016 and November 14, 2017. (Incorporated by reference to Post-Effective Amendment No. 397 to the Trust’s Registration Statement, as filed with the SEC on December 21, 2017.) |
|
|
(2) |
Amendment to the By-Laws, dated November 25, 2019. (Incorporated by reference to Post-Effective Amendment No. 460 to the Trust’s Registration Statement, as filed with the SEC on December 19, 2019.) |
|
(c) |
(1) |
Instruments defining the rights of shareholders, including the relevant portions of: the Agreement and Declaration of Trust, dated as of October 7, 2010 (see Section 4.3). Referenced in exhibits (a)(1) through (a)(2) to this Item, above. |
|
|
(2) |
Instruments defining the rights of shareholders, including the relevant portions of the Amended and Restated Bylaws, dated December 1, 2015 (see Article 9). Referenced in exhibits (b)(1) through (b)(2) to this Item, above. |
|
(d) |
(1) |
Investment Advisory Agreement, dated January 31, 2011, as amended as of November 12, 2019 and May 12, 2020, between the Trust and DBX Advisors LLC. (Incorporated by reference to Post-Effective Amendment No. 465 to the Trust’s Registration Statement, as filed with the SEC on May 11, 2020.) |
|
|
(2) |
Amended Investment Sub-Advisory Agreement dated August 15, 2013, as amended May 20, 2014, July 23, 2015, and February 14, 2017, between DBX Advisors, LLC and Harvest Global Investments Limited. (Incorporated by reference to Post-Effective Amendment No. 457 to the Trust’s Registration Statement, as filed with the SEC on September 26, 2019.) |
|
(e) |
(1) |
Distribution Agreement, dated April 16, 2018, between the Registrant and ALPS Distributors, Inc. (Incorporated by reference to Post-Effective Amendment No. 430 to the Trust’s Registration Statement, as filed with the SEC on September 25, 2018.) |
|
|
(2) |
Amendment 8, dated as of July 8, 2020, to the Distribution Agreement, dated April 16, 2018, between the Registrant and ALPS Distributors, Inc. (Filed herein.) |
|
|
|
|
|
|
(f) |
|
Not applicable. |
|
(g) |
(1) |
Custody Agreement, dated as of January 31, 2011, between the Registrant and The Bank of New York Mellon. (Incorporated by reference to Pre-Effective Amendment No. 2 to the Trust’s Registration Statement, as filed with the SEC on May 11, 2011.) |
|
|
(2) |
Amended and Restated Supplement, Hong Kong – China – Stock Connect Service, dated October 18, 2018, to the Global Custody Agreement, dated as of January 31, 2011, between the Registrant and The Bank of New York Mellon. (Incorporated by reference to Post-Effective Amendment No. 457 to the Trust’s Registration Statement, as filed with the SEC on September 26, 2019.) |
|
|
(3) |
Amendment, dated as of July 8, 2020, to the Custody Agreement, dated January 31, 2011, between the Registrant and The Bank of New York Mellon. (Filed herein.) |
|
|
(4) |
Foreign Custody Manager Agreement, dated January 31, 2011, between the Registrant and The Bank of New York Mellon. (Incorporated by reference to Pre-Effective Amendment No. 2 to the Trust’s Registration Statement, as filed with the SEC on May 11, 2011.) |
|
|
(5) |
Amendment, dated as of July 8, 2020, to the Foreign Custody Manager Agreement, dated January 31, 2011, between the Registrant and The Bank of New York Mellon. (Filed herein.) |
|
(h) |
(1) |
Fund Administration and Accounting Agreement, dated as of January 31, 2011, between the Registrant and The Bank of New York Mellon. (Incorporated by reference to Pre-Effective Amendment No. 2 to the Trust’s Registration Statement, as filed with the SEC on May 11, 2011.) |
|
|
(2) |
Form of Exhibit A and Schedule II, as revised August 15, 2013 to the Fund Administration and Accounting Agreement, dated as of January 31, 2011, between the Registrant and The Bank of New York Mellon. (Incorporated by reference to Post-Effective Amendment No. 23 to the Trust’s Registration Statement, as filed with the SEC on August 29, 2013.) |
|
|
(3) |
First Amendment, dated as of August 30, 2016, to the Fund Administration and Accounting Agreement, dated as of January 31, 2011, between the Registrant and The Bank of New York Mellon. (Incorporated by reference to Post-Effective Amendment No. 457 to the Trust’s Registration Statement, as filed with the SEC on September 26, 2019.) |
|
|
(4) |
Second Amendment, dated as of May 22, 2018, to the Fund Administration and Accounting Agreement, dated as of January 31, 2011, between the Registrant and The Bank of New York Mellon. (Incorporated by reference to Post-Effective Amendment No. 457 to the Trust’s Registration Statement, as filed with the SEC on September 26, 2019.) |
|
|
(5) |
Amendment, dated as of July 8, 2020, to the Fund Administration and Accounting Agreement, dated as of January 31, 2011, between the Registrant and The Bank of New York Mellon. (Filed herein.) |
|
|
(6) |
Capital Gains Tax Reporting Service Agreement, dated August 13, 2019, between the Registrant and The Bank of New York Mellon. (Incorporated by reference to Post-Effective Amendment No. 457 to the Trust’s Registration Statement, as filed with the SEC on September 26, 2019.) |
|
|
(7) |
Corporate Services Agreement, dated as of July 6, 2016, between the Registrant and The Bank of New York Mellon. (Incorporated by reference to Post-Effective Amendment No. 464 to the Trust’s Registration Statement, as filed with the SEC on March 11, 2020.) |
|
|
(8) |
Amendment, dated as of January 8, 2020, to the Corporate Services Agreement, dated as of July 6, 2016, between the Registrant and The Bank of New York Mellon. (Incorporated by reference to Post-Effective Amendment No. 464 to the Trust’s Registration Statement, as filed with the SEC on March 11, 2020.) |
|
|
(9) |
Amendment, dated as of July 8, 2020, to the Corporate Services Agreement, dated as of July 6, 2016, between the Registrant and The Bank of New York Mellon. (Filed herein.) |
|
|
(10) |
Transfer Agency and Service Agreement, dated January 31, 2011, between the Registrant and The Bank of New York Mellon. (Incorporated by reference to Pre-Effective Amendment No. 2 to the Trust’s Registration Statement, as filed with the SEC on May 11, 2011.) |
|
|
(11) |
Amendment, dated as of July 8, 2020, to the Transfer Agency and Service Agreement, dated January 31, 2011, between the Registrant and The Bank of New York Mellon. (Filed herein.) |
|
|
(12) |
Form of Authorized Participation Agreement. (Incorporated by reference to Pre-Effective Amendment No. 2 to the Trust’s Registration Statement, as filed with the SEC on May 11, 2011.) |
|
|
(13) |
Form of Sublicense Agreement between the Registrant and DBX Advisors LLC. (Incorporated by reference to Pre-Effective Amendment No. 2 to the Trust’s Registration Statement, as filed with the SEC on May 11, 2011.) |
|
|
(14) |
Expense Limitation Agreement (with respect to Xtrackers USD High Yield Corporate Bond – Interest Rate Hedged ETF), effective as of November 14, 2017. (Incorporated by reference to Post-Effective Amendment No. 430 to the Trust’s Registration Statement, as filed with the SEC on September 25, 2018.) |
|
|
(15) |
Expense Limitation Agreement (with respect to Xtrackers International Real Estate ETF), effective as of October 1, 2020. (Filed herein.) |
|
|
(16) |
Expense Limitation Agreement (with respect to Xtrackers MSCI All China Equity ETF), effective as of October 1, 2020. (Filed herein.) |
|
|
(17) |
Expense Limitation Agreement (with respect to Xtrackers FTSE Developed ex US Comprehensive Factor ETF), effective as of December 20, 2019. (Incorporated by reference to Post-Effective Amendment No. 460 to the Trust’s Registration Statement, as filed with the SEC on December 19, 2019.) |
|
|
(18) |
Expense Limitation Agreement (with respect to Xtrackers USD High Yield Corporate Bond ETF), effective as of December 20, 2019. (Incorporated by reference to Post-Effective Amendment No. 460 to the Trust’s Registration Statement, as filed with the SEC on December 19, 2019.) |
|
|
(19) |
Expense Limitation Agreement (with respect to Xtrackers High Beta High Yield Bond ETF), effective as of December 20, 2019. (Incorporated by reference to Post-Effective Amendment No. 460 to the Trust’s Registration Statement, as filed with the SEC on December 19, 2019). |
|
|
(20) |
Expense Limitation Agreement (with respect to Xtrackers Low Beta High Yield Bond ETF), effective as of December 20, 2019. (Incorporated by reference to Post-Effective Amendment No. 460 to the Trust’s Registration Statement, as filed with the SEC on December 19, 2019.) |
|
|
(21) |
Amended and Restated Expense Limitation Agreement, effective as of December 19, 2019. (Incorporated by reference to Post-Effective Amendment No. 461 to the Trust’s Registration Statement, as filed with the SEC on January 9, 2020.) |
|
(i) |
(1) |
Opinion of Dechert LLP. (Incorporated by reference to Pre-Effective Amendment No. 2 to the Trust’s Registration Statement, as filed with the SEC on May 11, 2011.) |
|
|
(2) |
Opinion and Consent of Counsel, Dechert LLP. (Incorporated by reference to Post-Effective Amendment No. 430, as filed with the SEC on September 25, 2018.) |
|
|
(3) |
Opinion and Consent of Counsel, Dechert LLP. (Incorporated by reference to Post-Effective Amendment No. 440, as filed with the SEC on December 21, 2018.) |
|
|
(4) |
Opinion and Consent of Counsel, Dechert LLP. (Incorporated by reference to Post-Effective Amendment No. 446, as filed with the SEC on February 22, 2019.) |
|
|
(5) |
Opinion and Consent of Counsel, Dechert LLP. (Incorporated by reference to Post-Effective Amendment No. 447, as filed with the SEC on March 5, 2019.) |
|
|
(6) |
Opinion and Consent of Counsel, Dechert LLP. (Incorporated by reference to Post-Effective Amendment No. 452, as filed with the SEC on April 10, 2019.) |
|
|
(7) |
Opinion and Consent of Counsel, Dechert LLP. (Incorporated by reference to Post-Effective Amendment No. 461 to the Trust’s Registration Statement, as filed with the SEC on January 9, 2020.) |
|
|
(8) |
Opinion and Consent of Counsel, Dechert LLP. (Incorporated by reference to Post-Effective Amendment No. 465 to the Trust’s Registration Statement, as filed with the SEC on May 11, 2020.) |
|
|
(9) |
Opinion of Morgan, Lewis & Bockius LLP, relating to shares of the Deutsche X-trackers Harvest CSI 300 China A-Shares ETF (formerly, db X-trackers Harvest China Fund). (Incorporated by reference to Post-Effective Amendment No. 23 to the Trust’s Registration Statement, as filed with the SEC on August 29, 2013.) |
|
|
(10) |
Opinion of Morgan, Lewis & Bockius LLP, relating to shares of the Deutsche X-trackers Harvest CSI 500 China A-Shares Small Cap ETF (formerly, db X-trackers Harvest China A-Shares Small Cap Fund). (Incorporated by reference to Post-Effective Amendment No. 79 to the Trust’s Registration Statement, as filed with the SEC on April 7, 2014.) |
|
|
(11) |
Opinion of Morgan, Lewis & Bockius LLP, relating to shares of the Deutsche X-trackers MSCI All China Equity ETF (formerly, db X-trackers Harvest MSCI All-China Equity Fund). (Incorporated by reference to Post-Effective Amendment No. 82 to the Trust’s Registration Statement, as filed with the SEC on April 22, 2014.) |
|
(j) |
|
Consent of Independent Registered Public Accounting Firm. (Filed herein.) |
|
(k) |
|
Not applicable. |
|
(l) |
|
Initial Share Purchase Agreement between Registrant and DBX Advisors LLC. (Incorporated by reference to Pre-Effective Amendment No. 2 to the Trust’s Registration Statement, as filed with the SEC on May 11, 2011.) |
|
(m) |
|
Not applicable. |
|
(n) |
|
Not applicable. |
|
(o) |
|
Reserved. |
|
(p) |
(1) |
Code of Ethics of the Registrant, dated May 2020. (Filed herein.) |
|
|
(2) |
Code of Ethics – DWS U.S., dated September 19, 2019. (Incorporated by reference to Post-Effective Amendment No. 460 to the Trust’s Registration Statement, as filed with the SEC on December 19, 2019.) |
|
|
(3) |
Code of Ethics of Harvest Global Investments Limited, dated February 2019. (Incorporated by reference to Post-Effective Amendment No. 457 to the Trust’s Registration Statement, as filed with the SEC on September 26, 2019.) |
Item 29. Persons controlled by or Under Common Control
with the Fund.
Not applicable.
Item 30. Indemnification.
Pursuant to Article
IX of the Registrant’s Agreement and Declaration of Trust, the Trust has agreed that no person who is or has been a Trustee,
officer, or employee of the Trust shall be subject to any personal liability whatsoever to any person, other than the Trust or
its Shareholders, in connection with the affairs of the Trust; and all persons shall look solely to the Trust property or property
of a Series for satisfaction of claims of any nature arising in connection with the affairs of the Trust or such Series.
Every note, bond,
contract, instrument, certificate, Share or undertaking and every other act or thing whatsoever executed or done by or on behalf
of the Trust or the Trustees or any of them in connection with the Trust shall be conclusively deemed to have been executed or
done only in or with respect to their or his capacity as Trustees or Trustee and neither such Trustees or Trustee nor the Shareholders
shall be personally liable thereon.
All Persons
extending credit to, contracting with or having any claim against the Trust or a Series shall look only to the assets of the Trust
property or the Trust property of such Series for payment under such credit, contract or claim; and neither the Trustees, nor any
of the Trust’s officers, employees or agents, whether past, present or future, shall be personally liable therefor.
No
person who is or has been a Trustee, officer or employee of the Trust shall be liable to the Trust or to any Shareholder for any
action or failure to act except for his or her own bad faith, willful misfeasance, gross negligence or reckless disregard of his
or her duties involved in the conduct of the individual’s office, and for nothing else, and shall not be liable for errors
of judgment or mistakes of fact or law.
Without limiting
the foregoing limitations of liability, a Trustee shall not be responsible for or liable in any event for any neglect or wrongdoing
of any officer, employee, investment adviser, sub-adviser, principal underwriter, custodian or other agent of the Trust, nor shall
any Trustee be responsible or liable for the act or omission of any other Trustee (or for the failure to compel in any way any
former or acting Trustee to redress any breach of trust), except in the case of such Trustee’s own willful misfeasance, bad
faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her office.
Item 31. Business and Other Connections of Investment Manager.
With respect to
each of DBX Advisors LLC and Harvest Global Investments Limited (collectively, the “Advisers”), the response to this
Item will be incorporated by reference to the Advisers’ Uniform Applications for Investment Adviser Registration (“Form
ADV”) on file with the SEC. Each Adviser’s Form ADV may be obtained, free of charge, at the SEC’s website at
www.adviserinfo.sec.gov.
Item 32. Principal Underwriters.
(a) ALPS Distributors,
Inc. acts as the distributor for the Registrant and the following investment companies: 1WS Credit Income Fund, 1290 Funds, Aberdeen
Standard Investments ETFs, ALPS Series
Trust, The Arbitrage Funds, AQR Funds,
Axonic Alternative Income Fund, Axonic Funds, Barings Funds Trust, BBH Trust, Bluerock Total Income+ Real Estate Fund, Brandes
Investment Trust, Bridge Builder Trust, Broadstone Real Estate Access Fund, Brown Advisory Funds, Brown Capital Management Mutual
Funds, Cambria ETF Trust, CC Real Estate Income Fund, Centre Funds, CIM Real Assets & Credit Fund, CION Ares Diversified Credit
Fund, Columbia ETF Trust, Columbia ETF Trust I, Columbia ETF Trust II, CRM Mutual Fund Trust, Cullen Funds Trust, DBX ETF Trust,
ETF Series Solutions, Flat Rock Opportunity Fund, Financial Investors Trust, Firsthand Funds, FS Credit Income Fund, FS Energy
Total Return Fund, FS Series Trust, FS Multi-Alternative Income Fund, Goehring & Rozencwajg Investment Funds, Goldman Sachs
ETF Trust, Griffin Institutional Access Credit Fund, Griffin Institutional Access Real Estate Fund, Hartford Funds Exchange-Traded
Trust, Hartford Funds NextShares Trust, Heartland Group, Inc., Holland Series Fund, Inc., IndexIQ Active ETF Trust, Index IQ ETF
Trust, Infusive US Trust, James Advantage Funds, Janus Detroit Street Trust, Lattice Strategies Trust, Litman Gregory Funds Trust,
Longleaf Partners Funds Trust, M3Sixty Funds Trust, Mairs & Power Funds Trust, Meridian Fund, Inc., Natixis ETF Trust, Pax
World Series Trust I, Pax World Funds Trust III, PRIMECAP Odyssey Funds, Principal Exchange-Traded Funds, Reality Shares ETF Trust,
Resource Credit Income Fund, RiverNorth Funds, Sierra Total Return Fund, SPDR Dow Jones Industrial Average ETF Trust, SPDR S&P
500 ETF Trust, SPDR S&P MidCap 400 ETF Trust, Sprott Funds Trust, Stadion Investment Trust, Stone Harbor Investment Funds,
Stone Ridge Trust, Stone Ridge Trust II, Stone Ridge Trust III, Stone Ridge Trust IV, Stone Ridge Trust V, USCF ETF Trust, Wasatch
Funds, WesMark Funds, Wilmington Funds, XAI Octagon Credit Trust, X-Square Balanced Fund and YieldStreet Prism Fund.
(b) To the best of Registrant’s knowledge,
the directors and executive officers of ALPS Distributors, Inc., are as follows:
Name* |
Position with Underwriter |
Positions with Fund |
Bradley J. Swenson |
President, Chief Operating Officer, Director |
None |
Robert J. Szydlowski |
Senior Vice President, Chief Technology Officer |
None |
Eric T. Parsons |
Vice President, Controller and Assistant Treasurer |
None |
Joseph J. Frank** |
Secretary |
None |
Patrick J. Pedonti ** |
Vice President, Treasurer and Assistant Secretary |
None |
Richard C. Noyes |
Senior Vice President, General Counsel, Assistant Secretary |
None |
Liza Orr |
Vice President, Senior Counsel |
None |
Jed Stahl |
Vice President, Senior Counsel |
None |
James Stegall |
Vice President |
None |
Gary Ross |
Senior Vice President |
None |
Kevin Ireland |
Senior Vice President |
None |
Stephen J. Kyllo |
Vice President, Chief Compliance Officer |
None |
Hilary Quinn |
Vice President |
None |
Jennifer Craig |
Assistant Vice President |
None |
* Except as otherwise noted, the principal business address for
each of the above directors and executive officers is 1290 Broadway, Suite 1000, Denver, Colorado 80203.
** The principal business address for Messrs. Pedonti and Frank
is 333 W. 11th Street, 5th Floor, Kansas City, Missouri 64105.
Item 33. Location of Accounts and Records.
The accounts and records of
the Registrant are located, in whole or in part, at the office of the Registrant and the following locations:
Registrant |
DBX ETF Trust |
|
One International Place
Boston, MA 02110-2618
|
Investment Advisor |
DBX Advisors LLC
875 Third Avenue
New York, NY 10022-6225 |
|
|
|
DBX Advisors LLC
One International Place
Boston, MA 02110-2618 |
|
|
Sub-advisor |
Harvest Global Investments Limited
31/F, One Exchange Square,
8 Connaught Place
Central, Hong Kong |
|
|
Distributor |
ALPS Distributors, Inc.
1290 Broadway, Suite 1000
Denver, CO 80203-5603 |
|
|
Administrator, Transfer Agent and Custodian |
The Bank of New York Mellon
240 Greenwich Street
New York, NY 10286 |
|
|
Regulatory Administrator |
BNY Mellon Investment Servicing (US) Inc.
201 Washington Street
Boston, MA 02108-4403 |
|
|
Storage Vendor |
Iron Mountain Incorporated
1 Federal Street
Boston, MA 02110-2012 |
|
|
|
Iron Mountain Incorporated
12646 NW 115th Avenue
Medley, FL 33178-3179 |
|
|
Item 34. Management Services.
There are no management related service contracts not
discussed in Part A or Part B.
Item 35. Undertakings.
None.
SIGNATURES
Pursuant to the requirements of the Securities
Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for effectiveness
of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this amendment to its
Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the City of New York and the
State of New York on the 22nd day of September, 2020.
DBX ETF TRUST
By: /s/Freddi
Klassen
Freddi Klassen*
President and Chief
Executive Officer
Pursuant to the requirements
of the Securities Act of 1933, this Post-Effective Amendment to its Registration Statement has been signed below by the following
persons in the capacities and on the dates indicated:
SIGNATURE |
TITLE |
DATE |
|
|
|
|
/s/Stephen R. Byers |
|
|
Stephen R. Byers* |
Trustee and Chairman |
September 22, 2020 |
|
|
|
/s/George O. Elston |
|
|
George O. Elston* |
Trustee |
September 22, 2020 |
|
|
|
/s/Diane Kenneally |
|
|
Diane Kenneally |
Treasurer, Chief Financial Officer and Controller |
September 22, 2020 |
|
|
|
/s/Freddi Klassen |
|
|
Freddi Klassen* |
President and Chief Executive Officer |
September 22, 2020 |
|
|
|
/s/J. David Officer |
|
|
J. David Officer* |
Trustee |
September 22, 2020 |
|
|
|
*By: /s/ Caroline
Pearson
Caroline Pearson**
Assistant Secretary
DBX ETF TRUST
EXHIBIT INDEX
Ex. Number Description
|
(e)(2) |
Amendment 8, dated as of July 8, 2020, to the Distribution Agreement, dated April 16, 2018, between the Registrant and ALPS Distributors, Inc. |
|
(g)(3) |
Amendment, dated as of July 8, 2020, to the Custody Agreement, dated January 31, 2011, between the Registrant and The Bank of New York Mellon. |
|
(g)(5) |
Amendment, dated as of July 8, 2020, to the Foreign Custody Manager Agreement, dated January 31, 2011, between the Registrant and The Bank of New York Mellon. |
|
(h)(5) |
Amendment, dated as of July 8, 2020, to the Fund Administration and Accounting Agreement, dated as of January 31, 2011, between the Registrant and The Bank of New York Mellon. |
|
(h)(9) |
Amendment, dated as of July 8, 2020, to the Corporate Services Agreement, dated as of July 6, 2016, between the Registrant and The Bank of New York Mellon. |
|
(h)(11) |
Amendment, dated as of July 8, 2020, to the Transfer Agency and Service Agreement, dated January 31, 2011, between the Registrant and The Bank of New York Mellon. |
|
(h)(15) |
Expense Limitation Agreement (with respect to Xtrackers International Real Estate ETF), effective as of October 1, 2020. |
|
(h)(16) |
Expense Limitation Agreement (with respect to Xtrackers MSCI All China Equity ETF), effective as of October 1, 2020. |
|
(j) |
Consent of Independent Registered Public Accounting Firm. |
|
(p)(1) |
Code of Ethics of the Registrant, dated May 2020. |
11