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As filed with the Securities and Exchange Commission
on October 21, 2022
Securities Act File No. 333-170122
Investment Company File No. 811-22487
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
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FORM N-1A
REGISTRATION STATEMENT
UNDER
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THE SECURITIES ACT OF 1933
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Pre-Effective Amendment No.
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Post-Effective Amendment No. 488
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and/or
REGISTRATION STATEMENT
UNDER
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THE INVESTMENT COMPANY ACT OF 1940
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Amendment No. 490
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(Check appropriate
box or boxes)
________________
DBX ETF TRUST
(Exact name of Registrant as specified in its charter)
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875 Third Avenue
New York, New York 10022-6225
(Address of Principal Executive Offices)
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.
Vedder Price P.C.
1633 Broadway, 31st Floor
New York, New York
10019
________________
It is proposed that this filing will become effective: (check appropriate
box)
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immediately upon filing pursuant
to paragraph (b) |
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on October 24, 2022 pursuant to
paragraph (b) |
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60 days after filing pursuant to
paragraph (a) |
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on ______________ pursuant to paragraph
(a) |
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75 days after filing pursuant to
paragraph (a)(2) |
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on ______________ pursuant to paragraph
(a)(2) of Rule 485 |
If appropriate, check the following box:
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this post-effective amendment designates
a new effective date for a previously filed post-effective amendment |
EXPLANATORY
NOTE
This Post-Effective Amendment contains the Prospectus and Statement
of Additional Information relating only to the following series of the Registrant:
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Xtrackers S&P ESG Dividend Aristocrats 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.
Prospectus
October 24, 2022
Xtrackers S&P ESG Dividend Aristocrats ETF |
Cboe BZX Exchange, Inc.: SNPD |
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 S&P ESG Dividend Aristocrats ETF
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Stock Exchange: Cboe BZX Exchange, Inc. |
Investment Objective
Xtrackers S&P ESG Dividend Aristocrats ETF (the “fund”) seeks investment results that correspond generally to the performance, before fees and expenses, of the S&P ESG High Yield Dividend Aristocrats 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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1Because the fund is new, “Other Expenses” are based on estimated amounts for the current fiscal year.
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.
Since the fund is newly offered, portfolio turnover information is not available.
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. As discussed in greater detail below, the Underlying Index is designed to measure the performance of constituents from the S&P High Yield Dividend Aristocrats Index that meet certain environmental, social and governance (“ESG”) criteria. The S&P High Yield Dividend Aristocrats Index measures the performance of companies within the S&P Composite 1500 Index that have followed a policy of consistently increasing dividends every year for at least 20 years.
Overview of Index Construction Methodologies. The Underlying Index is derived from the S&P High Yield Dividend Aristocrats Index, which, in turn, is derived from the S&P Composite 1500 Index. S&P Dow Jones Indices LLC (the “Index Provider”) constructs the S&P High Yield Dividend Aristocrats Index by applying proprietary eligibility criteria to the constituent companies of the S&P 1500 Composite Index. It then constructs the Underlying
Prospectus October 24, 2022 | 1 | Xtrackers S&P ESG Dividend Aristocrats ETF |
Index by applying proprietary ESG eligibility criteria to the constituent companies of the S&P High Yield Dividend Aristocrats Index. The construction methodologies of the S&P Composite 1500 Index, the S&P High Yield Dividend Aristocrats Index and the Underlying Index are summarized below.
S&P Composite 1500 Index – Summary of Construction Methodology. The S&P Composite 1500 Index combines three leading S&P indices, the S&P 500 Index, the S&P MidCap 400 Index and the S&P SmallCap 600 Index, to cover approximately 90% of US market capitalization.
S&P High Yield Dividend Aristocrats Index– Summary of Construction Methodology. The S&P High Yield Dividend Aristocrats Index consists of stocks that are members of the S&P Composite 1500 Index that have increased total dividend per share amount every year for at least 20 consecutive years and meet minimum market capitalization and liquidity criteria.
Underlying Index – Summary of Construction Methodology. When constructing the Underlying Index from the S&P High Yield Dividend Aristocrats Index, the Index Provider first applies various ESG screens to the S&P High Yield Dividend Aristocrats Index, excluding companies that fail to meet certain minimum ESG requirements. After applying the ESG screens, the Index Provider weights the remaining companies in accordance with a proprietary constituent weighting methodology. The ESG screening and constituent weighting methodologies employed by the Index Provider to create the Underlying Index are summarized below.
Underlying Index – ESG Screening Methodology. All constituent companies of the S&P High Yield Dividend Aristocrats Index are eligible for inclusion in the Underlying Index except for companies that:
◾ Do not have an Index Provider ESG score or have an Index Provider ESG score that falls within the bottom 25% of the Index Provider’s ESG scores from each Global Industry Classification Standard (GICS®) Industry Group.
◾ Are determined by Sustainalytics, a global leader in sustainability research and analysis, to engage in any of the following business activities:
i.
Manufacture tobacco products or hold a 25% or higher stake in a company involved in this activity; or derive 5% or more of their revenue from (i) supplying tobacco-related products and services or (ii) the distribution and/or retail sale of tobacco products.
ii.
Engage in the business of controversial weapons (cluster weapons, landmines (anti-personnel mines), biological or chemical weapons, depleted uranium weapons, white phosphorous weapons, nuclear weapons) or hold a 25% or higher stake in a company involved in this activity. This exclusion applies to companies that (i) are involved in core weapon systems or components/services of core weapon
systems that are considered tailor-made and essential for the lethal use of the weapon; or (ii) provide components/services for core weapon systems, which are either not considered tailor-made or not essential to the lethal use of the weapon.
iii.
Derive 5% or more of their revenue from the extraction of thermal coal or the generation of electricity from thermal coal.
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Derive 5% or more of their revenue from the extraction of oil sands.
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Manufacture and sell (i) assault weapons or small arms (non-assault weapons) to civilian customers, (ii) small arms to military/law enforcement, or (iii) key components of small arms, or hold a 25% or higher stake in a company involved in these activities; or derive 5% or more of their revenue from the retail and/or distribution of assault weapons or small arms (non-assault weapons).
vi.
Derive 10% or more of their revenues from (i) the manufacture of military weapon systems and/or integral, tailor-made components of these weapons or (ii) the provision of tailor-made products and/or services that support military weapons.
◾ Are determined by Sustainalytics to be “non-compliant” with the principles of the United Nations Global Compact (“UNGC”). A company is determined to be “non-compliant” if it does not act in accordance with the UNGC principles and their associated standards, conventions, and treaties. Sustainalytics systematically analyzes news reports and other publicly available information on a daily basis to assess a company's compliance with the ten normative principles of the UNGC, which relate to human rights, labor rights, the environment and anti-corruption.
Companies without Sustainalytics coverage are ineligible for Underlying Index inclusion until they receive such coverage.
Underlying Index – Constituent Weighting Methodology. After the application of the above-described ESG screens, all companies remaining in the S&P High Yield Dividend Aristocrats Index comprise the Underlying Index. At each rebalancing, the Underlying Index is “indicated annual dividend yield” weighted, subject to two constraints: (i) maximum weight: if a constituent company's weight exceeds 4% of the Underlying Index, it is capped at 4%; and (ii) basket liquidity maximum weight: if a constituent company's weight exceeds its basket liquidity maximum weight (determined by dividing its three-month average daily value traded by $2 billion), it is capped at that weight. Basket liquidity capping sets a minimum portfolio size for constituent companies of $2 billion that must be turned over in a single day, based on the historical average value-traded pattern. “Indicated annual dividend yield” is measured by taking the latest dividend payment (excluding special payments) multiplied by the annual frequency of the payment.
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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 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 of 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 September 30, 2022, the Underlying Index consisted of 83 securities, with an average market capitalization of approximately $57.896 billion and a minimum market capitalization of approximately $1.664 billion. As of September 30, 2022, a significant percentage of the Underlying Index was comprised of issuers in the consumer staples (21.7%) and industrials (18.0%) sectors. To the extent that the fund tracks the Underlying Index, the fund’s investment in certain sectors may change over time.
Under normal circumstances, the Underlying Index is rebalanced annually, effective after the close of the last business day of January. Constituent weights are updated quarterly after the close of the last business day in April, July and October. 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.
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 S&P ESG High Yield Dividend Aristocrats Index is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”), and has been licensed for use by DBX Advisors. S&P®, S&P 500® and Dividend Aristocrats® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by DBX Advisors. The ESG Scores used in the Index are calculated by the Index Provider. DBX Advisors Xtrackers ETFs are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such ETFs, nor do they have any liability for any errors, omissions, or interruptions of the S&P ESG High Yield Dividend Aristocrats Index.
Derivatives. Portfolio management generally may use futures contracts, stock index futures, options on futures, swap contracts and other types of derivatives in seeking performance that corresponds to its Underlying Index and will not use such instruments for speculative purposes.
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”).
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. The ESG scores used in the Underlying Index’s ESG methodology are based on information that is publicly available and/or provided by the
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companies themselves or by third parties and such information may be unavailable or unreliable. Additionally, investors may differ in their interpretations of what constitutes positive or negative ESG characteristics of a company. For those reasons, 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. For example, the US Department of Labor has proposed regulations regarding the consideration of ESG factors by ERISA retirement plan fiduciaries and the SEC has proposed disclosure requirements applicable to funds that consider ESG factors. In addition, recent state actions could prohibit certain state sponsored pension plans or investment funds from investing in certain funds that consider ESG factors.
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.
Russia's recent military incursions in Ukraine have led to, and may lead to, additional sanctions being levied by the United States, European Union and other countries against
Russia. Russia's military incursions and the resulting sanctions could adversely affect global energy and financial markets and thus could affect the value of the fund's investments. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial.
Other 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, increased government activity, including economic stimulus measures, and supply chain disruptions that it has caused. 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 including the risk of future increased rates of infection due to significant portions of the population remaining unvaccinated and/or the lack of effectiveness of current vaccines against new variants. The pandemic has affected and may continue to 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 the 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.
Market disruptions, such as those caused by Russian military action and the COVID-19 pandemic, may magnify the impact of each of the other risks described in this “MAIN RISKS” section and may increase volatility in one or more markets in which the fund invests leading to the potential for greater losses for the fund.
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.
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.
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Xtrackers S&P ESG Dividend Aristocrats ETF
Large-capitalization companies risk. Returns on investments in securities of large companies could trail the returns on investments in securities of smaller and mid-sized companies. Larger companies may be unable to respond as quickly as smaller and mid-sized companies to competitive challenges or to changes in business, product, financial or other market conditions. Larger companies may not be able to maintain growth at the high rates that may be achieved by well-managed smaller and mid-sized companies. During different market cycles, the performance of large-capitalization companies has trailed the overall performance of the broader securities markets.
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.
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.
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 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.
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 may have limited ability to detect such errors and neither the Advisor nor its affiliates 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
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Xtrackers S&P ESG Dividend Aristocrats ETF
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 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 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. 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.
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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.
Derivatives risk. Derivatives involve risks different from, and possibly greater than, the risks associated with investing directly in securities and other more traditional investments. Risks associated with derivatives may 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.
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.
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 or even a loss of rights in the collateral should the borrower of the securities fail financially while holding the securities.
Past Performance
As of the date of this Prospectus, the fund has not yet commenced operations and therefore does not report its performance information.Once available, the fund’s performance information will be accessible on the fund’s website at Xtrackers.com (the website does not form a part of this prospectus) and will provide some indication of the risks of investing in the fund by showing changes in the fund’s performance and by showing how the fund’s returns compare with those of a broad measure of market performance. Past performance may not indicate future results.
Management
Investment Advisor
DBX Advisors LLC
Portfolio Managers
Bryan Richards, CFA, Vice President of DBX Advisors LLC and Head of Portfolio Engineering, Systematic Investment Solutions, of DWS Investment Management Americas, Inc. Portfolio Manager of the fund. Began managing the fund in 2022.
Patrick Dwyer, Vice President of DBX Advisors LLC and Senior Portfolio Engineer & Team Lead, Systematic Investment Solutions, of DWS Investment Management Americas, Inc. Portfolio Manager of the fund. Began managing the fund in 2022.
Shlomo Bassous, Vice President of DBX Advisors LLC and Senior Portfolio Engineer, Systematic Investment Solutions, of DWS Investment Management Americas, Inc. Portfolio Manager of the fund. Began managing the fund in 2022.
Ashif Shaikh, Vice President of DBX Advisors LLC and Portfolio Engineer, Systematic Investment Solutions, of DWS Investment Management Americas, Inc. Portfolio Manager of the fund. Began managing the fund in 2022.
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Xtrackers S&P ESG Dividend Aristocrats 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-advantaged 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 S&P ESG Dividend Aristocrats ETF
Additional Information About Fund Strategies, Underlying Index Information and Risks
Investment Objective
Xtrackers S&P ESG Dividend Aristocrats ETF (the “fund”) seeks investment results that correspond generally to the performance, before fees and expenses, of the S&P ESG High Yield Dividend Aristocrats 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. As discussed in greater detail below, the Underlying Index is designed to measure the performance of constituents from the S&P High Yield Dividend Aristocrats Index that meet certain environmental, social and governance (“ESG”) criteria. The S&P High Yield Dividend Aristocrats Index measures the performance of companies within the S&P Composite 1500 Index that have followed a policy of consistently increasing dividends every year for at least 20 years.
Overview of Index Construction Methodologies. The Underlying Index is derived from the S&P High Yield Dividend Aristocrats Index, which, in turn, is derived from the S&P Composite 1500 Index. S&P Dow Jones Indices LLC (the “Index Provider”) constructs the S&P High Yield Dividend Aristocrats Index by applying proprietary eligibility criteria to the constituent companies of the S&P 1500 Composite Index. It then constructs the Underlying Index by applying proprietary ESG eligibility criteria to the constituent companies of the S&P High Yield Dividend Aristocrats Index. The construction methodologies of the S&P Composite 1500 Index, the S&P High Yield Dividend Aristocrats Index and the Underlying Index are summarized below.
S&P Composite 1500 Index – Summary of Construction Methodology. The S&P Composite 1500 Index combines three leading S&P indices, the S&P 500 Index, the S&P MidCap 400 Index and the S&P SmallCap 600 Index, to cover approximately 90% of US market capitalization.
S&P High Yield Dividend Aristocrats Index– Summary of Construction Methodology. The S&P High Yield Dividend Aristocrats Index consists of stocks that are members of the S&P Composite 1500 Index that have increased total dividend per share amount every year for at least 20 consecutive years and meet minimum market capitalization and liquidity criteria.
Underlying Index – Summary of Construction Methodology. When constructing the Underlying Index from the S&P High Yield Dividend Aristocrats Index, the Index Provider first applies various ESG screens to the S&P High Yield Dividend Aristocrats Index, excluding companies that fail to meet certain minimum ESG requirements. After applying the ESG screens, the Index Provider weights the remaining companies in accordance with a proprietary constituent weighting methodology. The ESG screening and constituent weighting methodologies employed by the Index Provider to create the Underlying Index are summarized below.
Underlying Index – ESG Screening Methodology. All constituent companies of the S&P High Yield Dividend Aristocrats Index are eligible for inclusion in the Underlying Index except for companies that:
◾ Do not have an Index Provider ESG score or have an Index Provider ESG score that falls within the bottom 25% of the Index Provider’s ESG scores from each Global Industry Classification Standard (GICS®) Industry Group.
◾ Are determined by Sustainalytics, a global leader in sustainability research and analysis, to engage in any of the following business activities:
i.
Manufacture tobacco products or hold a 25% or higher stake in a company involved in this activity; or derive 5% or more of their revenue from (i) supplying tobacco-related products and services or (ii) the distribution and/or retail sale of tobacco products.
ii.
Engage in the business of controversial weapons (cluster weapons, landmines (anti-personnel mines), biological or chemical weapons, depleted uranium weapons, white phosphorous weapons, nuclear weapons) or hold a 25% or higher stake in a company involved in this activity. This exclusion applies to companies that (i) are involved in core weapon systems or components/services of core weapon
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systems that are considered tailor-made and essential for the lethal use of the weapon; or (ii) provide components/services for core weapon systems, which are either not considered tailor-made or not essential to the lethal use of the weapon.
iii.
Derive 5% or more of their revenue from the extraction of thermal coal or the generation of electricity from thermal coal.
iv.
Derive 5% or more of their revenue from the extraction of oil sands.
v.
Manufacture and sell (i) assault weapons or small arms (non-assault weapons) to civilian customers, (ii) small arms to military/law enforcement, or (iii) key components of small arms, or hold a 25% or higher stake in a company involved in these activities; or derive 5% or more of their revenue from the retail and/or distribution of assault weapons or small arms (non-assault weapons).
vi.
Derive 10% or more of their revenues from (i) the manufacture of military weapon systems and/or integral, tailor-made components of these weapons or (ii) the provision of tailor-made products and/or services that support military weapons.
◾ Are determined by Sustainalytics to be “non-compliant” with the principles of the United Nations Global Compact (“UNGC”). A company is determined to be “non-compliant” if it does not act in accordance with the UNGC principles and their associated standards, conventions, and treaties. Sustainalytics systematically analyzes news reports and other publicly available information on a daily basis to assess a company's compliance with the ten normative principles of the UNGC, which relate to human rights, labor rights, the environment and anti-corruption.
Companies without Sustainalytics coverage are ineligible for Underlying Index inclusion until they receive such coverage.
Underlying Index – Constituent Weighting Methodology. After the application of the above-described ESG screens, all companies remaining in the S&P High Yield Dividend Aristocrats Index comprise the Underlying Index. At each rebalancing, the Underlying Index is “indicated annual dividend yield” weighted, subject to two constraints: (i) maximum weight: if a constituent company's weight exceeds 4% of the Underlying Index, it is capped at 4%; and (ii) basket liquidity maximum weight: if a constituent company's weight exceeds its basket liquidity maximum weight (determined by dividing its three-month average daily value traded by $2 billion), it is capped at that weight. Basket liquidity capping sets a minimum portfolio size for constituent companies of $2 billion that must be turned over in a single day, based on the historical average value-traded pattern. “Indicated annual dividend yield” is measured by taking the latest dividend payment (excluding special payments) multiplied by the annual frequency of the payment.
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 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 of 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 September 30, 2022, the Underlying Index consisted of 83 securities, with an average market capitalization of approximately $57.896 billion and a minimum market capitalization of approximately $1.664 billion. As of September 30, 2022, a significant percentage of the Underlying Index was comprised of issuers in the consumer staples (21.7%) and industrials (18.0%) sectors. To the extent that the fund tracks the Underlying Index, the fund’s investment in certain sectors may change over time.
Under normal circumstances, the Underlying Index is rebalanced annually, effective after the close of the last business day of January. Constituent weights are updated quarterly after the close of the last business day in April, July and October. 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.
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.
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Fund Details
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 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 certain derivatives instruments (see “Derivatives” subsection).
The S&P ESG High Yield Dividend Aristocrats Index is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”), and has been licensed for use by DBX Advisors. S&P®, S&P 500® and Dividend Aristocrats® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”); Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”); and these trademarks have been licensed for use by SPDJI and sublicensed for certain purposes by DBX Advisors. The ESG Scores used in the Index are calculated by the Index Provider. DBX Advisors Xtrackers ETFs are not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates, and none of such parties make any representation regarding the advisability of investing in such ETFs, nor do they have any liability for any errors, omissions, or interruptions of the S&P ESG High Yield Dividend Aristocrats Index.
Derivatives. Portfolio management generally may use futures contracts, stock index futures, options on futures, swap contracts and other types of derivatives in seeking performance that corresponds to its Underlying Index and will not use such instruments for speculative purposes. The fund also may invest in these derivative instruments to the extent that the Advisor believes will help the fund to achieve its investment objective. 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.
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 following section provides a more detailed explanation of the Underlying Index and its parent indexes, the S&P High Yield Dividend Aristocrats Index and the S&P Composite 1500 Index. As noted above, the Underlying
Index is designed to measure the performance of constituents from the S&P High Yield Dividend Aristocrats Index that meet certain ESG criteria. The S&P High Yield Dividend Aristocrats Index measures the performance of companies within the S&P Composite 1500 Index that have followed a policy of consistently increasing dividends every year for at least 20 years.
S&P Composite 1500 Index – Summary of Construction Methodology. The S&P Composite 1500 Index combines three leading S&P indices, the S&P 500 Index, the S&P MidCap 400 Index, and the S&P SmallCap 600 Index, to cover approximately 90% of U.S. market capitalization. The index is constructed by combining all constituents of the S&P 500 Index, the S&P MidCap 400 Index, and the S&P SmallCap 600 Index.
S&P High Yield Dividend Aristocrats Index– Summary of Construction Methodology. The S&P High Yield Dividend Aristocrats Index consists of stocks that are members of the S&P Composite 1500 Index that have increased total dividend per share amount every year for at least 20 consecutive years and meet minimum market capitalization and liquidity criteria. Index constituents must have (i) a float-adjusted market capitalization (i.e., the amount of stock that is available for trading by the general public) greater than or equal to US $2 billion as of the index rebalancing reference date; and (ii) an average daily value traded greater than or equal to US $5 million for the three months prior to the index rebalancing reference date. Index constituents are weighted by indicated annual dividend yield, subject to modifications to ensure no stock represents more than 4% of the index weight and to enhance index basket liquidity. The index composition is reviewed once per year in January and constituent weights are updated quarterly.
Underlying Index – Summary of Construction Methodology. When constructing the Underlying Index from the S&P High Yield Dividend Aristocrats Index, the Index Provider first applies various ESG screens to the S&P High Yield Dividend Aristocrats Index, excluding companies that fail to meet certain minimum ESG requirements. After applying the ESG screens, the Index Provider weights the remaining companies in accordance with a proprietary constituent weighting methodology. The ESG screening and constituent weighting methodologies employed by the Index Provider to create the Underlying Index are summarized below.
Underlying Index – ESG Screening Methodology. To qualify for Underlying Index inclusion, as of each rebalancing date, a company must be a member of the S&P High Yield Dividend Aristocrats Index and pass a two-step ESG screening process. ESG eligibility factors are applied in the following two sequential steps:
Step 1. Exclusions Based on ESG Score. Companies must have an Index Provider ESG Score to be eligible for inclusion in the Underlying Index. Companies that do not have an Index Provider ESG score are excluded from the
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Fund Details
Underlying Index. In addition, companies with Index Provider ESG scores that fall within the bottom 25% of the Index Provider’s ESG scores from each Global Industry Classification Standard (GICS®) Industry Group are also excluded.
Step 2. Exclusions Based on Business Activities and United Nations Global Compact. After applying the first ESG screen, the Index Provider next excludes companies that engage in certain business activities as determined by Sustainalytics and/or companies with a disqualifying United Nations Global Compact (UNGC) classification also as determined by Sustainalytics. The following companies are excluded from the Underlying Index:
◾
Companies that are determined by Sustainalytics to engage in the manufacture of tobacco products or hold a 25% or higher stake in a company involved in this activity; or derive 5% or more of their revenue from (i) supplying tobacco-related products and services or (ii) the distribution and/or retail sale of tobacco products.
◾
Companies that are determined by Sustainalytics to engage in the business of controversial weapons (such as cluster weapons, anti-personnel mines, biological and chemical weapons, depleted uranium weapons, white phosphorous weapons and nuclear weapons) or hold a 25% or higher stake in a company involved in this activity. This exclusion applies to companies that (i) are involved in core weapon systems or components/services of core weapon systems that are considered tailor-made and essential for the lethal use of the weapon; or (ii) provide components/services for core weapon systems, which are either not considered tailor-made or not essential to the lethal use of the weapon.
◾
Companies that are determined by Sustainalytics to derive 5% or more of their revenue from the extraction of thermal coal or the generation of electricity from thermal coal.
◾
Companies that are determined by Sustainalytics to derive 5% or more of their revenue from the extraction of oil sands.
◾
Companies that are determined by Sustainalytics to engage in the manufacture and sale of (i) assault weapons or small arms (non-assault weapons) to civilian customers, (ii) small arms to military/law enforcement, or (iii) key components of small arms, or hold a 25% or higher stake in a company involved in these activities; or derive 5% or more of their revenue from the retail and/or distribution of assault weapons or small arms (non-assault weapons).
◾
Companies that are determined by Sustainalytics to derive 10% or more of their revenues from (i) the
manufacture of military weapon systems and/or integral, tailor-made components of these weapons or (ii) the provision of tailor-made products and/or services that support military weapons.
◾
Companies that are determined by Sustainalytics to be “non-compliant” with the principles of the United Nations Global Compact (UNGC). A company is determined to be “non-compliant” if it does not act in accordance with the UNGC principles and their associated standards, conventions, and treaties. Sustainalytics systematically analyzes news reports and other publicly available information on a daily basis to assess a company’s compliance with the ten normative principles of the UNGC, which relate to human rights, labor rights, the environment and anti-corruption. Sustainalytics analyzes any identified company incidents against these international standards to determine the severity of impacts on stakeholders and the environment, company accountability and company management response. Based on these ongoing assessments, companies are assigned a “non-compliant,”“watchlist” or “compliant” status.
The UNGC’s ten principles are (i) businesses should support and respect the protection of internationally proclaimed human rights; (ii) businesses should make sure that they are not complicit in human rights abuses; (iii) businesses should uphold the freedom of association and the effective recognition of the right to collective bargaining; (iv) businesses should uphold the elimination of all forms of forced and compulsory labor; (v) businesses should uphold the effective abolition of child labor; (vi) businesses should uphold the elimination of discrimination in respect of employment and occupation; (vii) businesses should support a precautionary approach to environmental challenges; (viii) businesses should undertake initiatives to promote greater environmental responsibility; (ix) businesses should encourage the development and diffusion of environmentally friendly technologies; and (x) businesses should work against corruption in all its forms, including extortion and bribery.
The Index Provider’s ESG scores are derived from the S&P Global Corporate Sustainability Assessment (the “S&P Global CSA”), which is questionnaire-based analysis process focused on ESG factors with the aim of identifying the extent to which companies are equipped to recognize and respond to emerging sustainability opportunities and challenges in the global market. Companies are evaluated based on a range of sustainability criteria that are financially relevant to corporate performance, valuation and security selection, covering environmental, social and governance dimensions. Companies’ responses to questions are assigned values, which are then aggregated into criteria, dimension and total ESG scores, using an industry-specific weighting scheme. A company’s total ESG score consists of individual environmental, social and governance
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dimension scores, beneath which are (on average) more than 20 industry-specific criteria scores that can be used as signals of ESG risks and repercussions. For the purposes of the S&P Global CSA, companies are assigned to industries defined by S&P Global Sustainable1 Research, and the assessment is largely specific to each industry. S&P Global Sustainable1 Research uses the GICS® Industry Groups as its starting point for determining its industry classifications.
In addition, the Index Provider follows a quarterly eligibility check whereby any current member of the Underlying Index that is found to be failing the above-described business activity criteria or UNGC eligibility criteria is removed by the Index Provider from the Underlying Index. No constituent will be added to the Underlying Index as a result of any deletion that may take place.
Lastly, S&P Global ESG Research uses RepRisk, a leading provider of business intelligence on environmental, social, and governance risks, for daily filtering, screening, and analysis of controversies related to companies within the S&P indices. In cases where risks are presented, S&P Global ESG Research will release a Media and Stakeholder Analysis (MSA), which includes a range of issues such as economic crime and corruption, fraud, illegal commercial practices, human rights issues, labor disputes, workplace safety, catastrophic accidents, and environmental disasters. In such cases, the S&P Index Committee will review constituents that have been flagged by S&P Global ESG Research’s MSA to evaluate the potential impact of controversial company activities on the composition of S&P indices, including the Underlying Index. In the event the S&P Index Committee decides to remove an affected company based on an MSA, that company would not be eligible for re-entry into the index for one full calendar year, beginning with the subsequent rebalancing.
Underlying Index – Constituent Weighting Methodology. After the application of the above-described ESG screens, all companies remaining in the S&P High Yield Dividend Aristocrats Index comprise the Underlying Index. At each rebalancing, the Underlying Index is indicated annual dividend yield weighted, subject to two constraints: (i) maximum weight: if a constituent company's weight exceeds 4% of the Underlying Index, it is capped at 4%; and (ii) basket liquidity maximum weight: if a constituent company's weight exceeds its basket liquidity maximum weight (determined by dividing its three-month average daily value traded (ADVT) by $2 billion), it is capped at that weight. Basket liquidity capping sets a minimum portfolio size for constituent companies of $2 billion that must be turned over in a single day, based on the historical average value-traded pattern. Indicated annual dividend yield is measured by taking the latest dividend payment (excluding special payments) multiplied by the annual frequency of the payment.
The Underlying Index constituents are weighted as follows:
1.
With data reflected on the rebalancing reference date, each company is weighted by indicated annual dividend yield.
2.
If any company has a weight greater than 4%, that company has its weight capped at 4%.
3.
All excess weight is proportionally redistributed to all uncapped stocks within the index.
4.
After this redistribution, if the weight of any other stock(s) then breaches 4%, the process is repeated until there are no stocks breaching the 4% weight limit.
5.
A basket liquidity maximum weight for each company is then determined by dividing the US dollar three-month ADVT by the basket liquidity amount (US $2 billion). This basket liquidity maximum weight is the maximum weight allowed for each stock in the index.
6.
If any company has a weight greater than its basket liquidity maximum weight, that company will have its weight reduced to its basket liquidity maximum weight.
7.
All excess weight is proportionally redistributed to all uncapped stocks within the index.
8.
If after this redistribution the weight of any other stock(s) in the index exceeds its basket liquidity maximum weight, the process is repeated until no stock breaches its basket liquidity maximum weight.
The index basket liquidity and maximum weight constraints are subject to change based on market conditions. If the index basket liquidity rule cannot be satisfied for all index constituents after all possible iterations are completed, one or more of these constraints may be changed to ensure that the constraint is satisfied for all constituents.
Maintaining the Underlying Index. The Underlying Index is rebalanced annually, effective after the close of the last business day of January. Constituent weights are updated quarterly after the close of the last business day in April, July and October.
In addition, the Underlying Index is reviewed on an ongoing basis to account for corporate events such as mergers, takeovers, delistings, suspensions, spin-offs/demergers or bankruptcies. Changes to index composition and related weight adjustments are made as soon as they are effective. Generally, no stocks are added to the Underlying Index between rebalancings. If a stock is dropped from the S&P High Yield Dividend Aristocrats Index, it is also removed from the Underlying Index simultaneously. Other changes to constituents of the Underlying Index, such as share changes, dividend distributions and price adjustments, will be applied in the same manner to the Underlying Index as to the S&P High Yield Dividend Aristocrats Index. Between rebalancings, a stock may be deleted from the Underlying Index due to corporate events
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such as mergers, takeovers, delistings, suspensions, spin-offs/demergers or bankruptcies. During extraordinary market conditions, the Index Provider may delay any 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.
The Underlying Index consists of large, mid and small-capitalization companies in the US market. As of September 30, 2022, there were approximately 83 securities in the Underlying Index.
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.
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. The ESG scores used in the Underlying Index’s ESG methodology are based on information that is publicly available and/or provided by the companies themselves or by third parties and such information may be unavailable or unreliable. Additionally, investors may differ in their interpretations of what constitutes positive or negative ESG characteristics of a company. For those reasons, 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. For example, the US Department of Labor has proposed regulations regarding the consideration of ESG factors by ERISA retirement plan fiduciaries and the SEC has proposed disclosure requirements applicable to funds that consider ESG factors. In addition, recent state actions could prohibit certain state sponsored pension plans or investment funds from investing in certain funds that consider ESG factors.
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.
Russia's recent military incursions in Ukraine have led to, and may lead to, additional sanctions being levied by the United States, European Union and other countries against Russia. Russia's military incursions and the resulting sanctions could adversely affect global energy and financial markets and thus could affect the value of the fund's investments. The extent and duration of the military action, sanctions and resulting market disruptions are impossible to predict, but could be substantial.
Other 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, increased government activity, including economic stimulus measures, and supply chain disruptions that it has caused. 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 including the risk of future increased rates of infection due to significant portions of the population remaining unvaccinated and/or the lack of effectiveness of current vaccines against new variants. The pandemic has affected and may continue to 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 the pandemic may result in the fund and
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its service providers experiencing operational difficulties in coordinating a remote workforce and implementing their business continuity plans, among others.
Market disruptions, such as those caused by Russian military action and the COVID-19 pandemic, may magnify the impact of each of the other risks described in this “MAIN RISKS” section and may increase volatility in one or more markets in which the fund invests leading to the potential for greater losses for the fund.
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.
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.
Large-capitalization companies risk. Returns on investments in securities of large companies could trail the returns on investments in securities of smaller and mid-sized companies. Larger companies may be unable to respond as quickly as smaller and mid-sized companies to competitive challenges or to changes in business, product, financial or other market conditions. Larger companies may not be able to maintain growth at the high rates that may be achieved by well-managed smaller and mid-sized companies. During different market cycles, the performance of large-capitalization companies has trailed the overall performance of the broader securities markets.
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.
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.
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 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.
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 may have limited ability to detect such errors and neither the Advisor nor its affiliates 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 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 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
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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.
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 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).
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.
Derivatives risk. Derivatives involve risks different from, and possibly greater than, the risks associated with investing directly in securities and other more traditional investments. Risks associated with derivatives may 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, which may be heightened in derivative transactions entered into “over-the-counter” (i.e., not on an exchange
or contract market); 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. 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.
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 or even a loss of rights in the collateral should the borrower of the securities fail financially while holding the securities.
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 policy of the fund, constitutes a non-fundamental policy that may be changed by the Board without shareholder approval. The fund’s 80% investment policy requires 60 days’ prior written notice to shareholders before it can be changed. Certain fundamental policies of the fund which can only be changed with shareholder approval are set forth in the SAI.
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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.
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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.
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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.
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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.
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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 35 operational exchange-traded funds, as of September 30, 2022.
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, the Advisor receives an aggregate unitary advisory fee at the following annual rate as a percentage of the fund’s average daily net assets.
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Xtrackers S&P ESG Dividend
Aristocrats ETF |
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A discussion regarding the basis for the Board's approval of the fund’s Investment Advisory Agreement will be contained in the fund’s semi-annual report for the period ended February 28, 2023. 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
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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. The fund's sole initial shareholder approved the multi-manager structure described herein.
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, Vice President of DBX Advisors LLC and Head of Portfolio Engineering, Systematic Investment Solutions, of DWS Investment Management Americas, Inc. Portfolio Manager of the fund. Began managing the fund in 2022.
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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.
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Head of Passive Portfolio Management, Americas: New York.
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BS in Finance, Boston College.
Patrick Dwyer, Vice President of DBX Advisors LLC and Senior Portfolio Engineer & Team Lead, Systematic Investment Solutions, of DWS Investment Management Americas, Inc. Portfolio Manager of the fund. Began managing the fund in 2022.
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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.
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Lead Equity Portfolio Manager, US Passive Equities: New York.
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BS in Finance, Rutgers University.
Shlomo Bassous, Vice President of DBX Advisors LLC and Senior Portfolio Engineer, Systematic Investment Solutions, of DWS Investment Management Americas, Inc. Portfolio Manager of the fund. Began managing the fund in 2022.
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Joined DWS in 2017 with 12 years of industry experience. Prior to joining DWS, Mr. Bassous served as Portfolio Manager at Northern Trust Asset Management where he managed equity portfolios across a variety of global benchmarks. While at Northern Trust, he spent several years in Chicago, London and Hong Kong where he managed portfolios on behalf of institutional clients in North America, Europe, the Middle East and Asia. 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.
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Portfolio Manager for Equities, Passive Asset Management: New York.
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BS in Finance, Sy Syms School of Business, Yeshiva University.
Ashif Shaikh, Vice President of DBX Advisors LLC and Portfolio Engineer, Systematic Investment Solutions, of DWS Investment Management Americas, Inc. Portfolio Manager of the fund. Began managing the fund in 2022.
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Joined DWS in 2008 with six years of industry experience. Prior to joining DWS, Mr. Shaikh served in operations and technology roles at UBS and Prudential Financial.
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Portfolio Engineer, Systematic Investment Solutions: New York.
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BS in Management Information Systems, New Jersey Institute of Technology; MBA, Rutgers 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.
Investments in a fund by other registered investment companies are subject to certain limitations imposed by the Investment Company Act of 1940, as amended (the “1940 Act”). Such registered investment companies may invest in a fund beyond the applicable limitations imposed by the 1940 Act pursuant to the terms and conditions of a rule enacted by the SEC, which includes a requirement that such registered 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 S&P ESG
Dividend Aristocrats
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.
Prospectus October 24, 2022 | 21 | Investing in the Fund |
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. 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 generally 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.
The Trust’s Board has designated the Advisor as the valuation designee for the fund pursuant to Rule 2a-5 under the 1940 Act. The Advisor’s Pricing Committee typically values securities using readily available market quotations or prices supplied by independent pricing services (which are considered fair values under Rule 2a-5).
The Advisor has adopted fair valuation procedures that provide methodologies for fair valuing securities when pricing service prices or market quotations are not readily available, including when a security’s value or a meaningful portion of the value of the fund’s portfolio is believed to have been materially affected by a significant event such as a natural disaster, an economic event like a bankruptcy filing, or a substantial fluctuation in domestic or foreign markets that has occurred between the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market) and the close of the New York Stock Exchange. In such a case, the fund’s value for a security is likely to be different from the last quoted market price or pricing service prices. Due to the subjective and variable nature of fair value pricing, it is possible that the value determined for a particular asset may be materially different from the value realized upon such asset’s sale. 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.
The approximate value of shares of the 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.
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 a fund and a designated amount of cash. The fund may pay out a portion of its redemption proceeds in cash rather than through the
Prospectus October 24, 2022
22
Investing in the Fund
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.
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 S&P ESG Dividend
Aristocrats ETF |
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Dividends and Distributions
General Policies. Dividends from net investment income, if any, are generally declared and paid quarterly 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 the fund’s status as a regulated investment company (“RIC”) 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. Taxable dividend distributions will be subject to US federal income tax whether received in cash or reinvested in additional shares.
Taxes
As with any investment, you should consider how your investment in shares of the fund will be taxed. The US federal income 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.
Prospectus October 24, 2022
23
Investing in the Fund
Unless your investment in fund shares is made through a tax-exempt entity or tax-advantaged 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.
US Federal Income Tax 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 for US federal income tax purposes. Distributions by the fund of net long-term capital gains in excess of net short-term capital losses (capital gain dividends) are taxable for US federal income tax purposes to non-corporate shareholders as long-term capital gains, regardless of how long the shareholders have held such fund’s shares. Distributions by the fund that qualify as qualified dividend income are taxable to non-corporate shareholders at long-term capital gain rates. The maximum individual US federal income tax 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. As discussed below, an additional 3.8% Medicare tax may also apply to certain non-corporate shareholders distributions from the fund.
A non-corporate shareholder may be eligible to treat qualified dividend income received by the fund as qualified dividend income when distributed to the non-corporate shareholder if the shareholder satisfies certain holding period and other requirements. 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 the shareholder receiving the dividend, 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.
Distributions in excess of the fund’s current and accumulated earnings and profits will, as to each shareholder, be treated for US federal income tax purposes as a tax-free return of capital to the extent of the shareholder’s basis in his, her or its shares of the fund, and generally as a capital gain thereafter. Because a return of capital distribution will reduce the shareholder’s cost basis in his, her or its shares, a return of capital distribution may 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 or unless such income is effectively connected with a US trade or business, 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. 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 or if you are otherwise subject to back-up withholding.
US Federal Income Tax 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. Your ability to deduct capital losses may be limited.
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 income tax law of an investment in the fund. It is not a substitute for personal
Prospectus October 24, 2022
24
Investing in the Fund
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.
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 BZX Exchange, Inc. 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 24, 2022
25
Investing in the Fund
Because the fund is newly offered, financial highlights information is not available.
Prospectus October 24, 2022 | 26 | Financial Highlights |
Index Provider and License
S&P Dow Jones Indices (“S&P”) is a leading provider of global indexes and benchmark related products and services to investors worldwide. S&P 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 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 S&P ESG High Yield Dividend Aristocrats Index is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”) and has been licensed for use by the fund. Standard & Poor’s®, S&P® and Dividend Aristocrats® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P”) and Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones ”). The trademarks have been licensed to SPDJI and have been sublicensed for use for certain purposes by the Advisor. The fund is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, or any of their respective affiliates (collectively, “S&P Dow Jones Indices”). S&P Dow Jones Indices does not make any representation or warranty, express or implied, to the owners of the fund or any member of the public regarding the advisability of investing in securities generally or in the fund particularly or the ability of the Underlying Index to track general market performance. S&P Dow Jones Indices only relationship to the Advisor with respect to the Underlying Index is the licensing of the Index and certain trademarks, service marks and/or trade names of S&P Dow Jones Indices and/or its licensors. The Underlying Index is determined, composed and calculated by S&P Dow Jones Indices without regard to the Advisor or the fund. S&P Dow Jones Indices 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. S&P Dow Jones Indices is not responsible for and have not participated in the determination of the prices, and amount of the fund or the timing of the issuance or sale of the fund or in the determination or calculation of the equation by which the fund is to be converted into cash, surrendered or redeemed, as the case may be. S&P Dow Jones Indices has no obligation or liability in connection with the administration, marketing or trading of the fund. There is no assurance that investment products based on the Underlying Index will accurately track index performance or provide positive investment returns. S&P Dow Jones Indices LLC is not an investment advisor. Inclusion of a security within an index is not a recommendation by S&P Dow Jones Indices to buy, sell, or hold such security, nor is it considered to be investment advice.
S&P DOW JONES INDICES DOES NOT GUARANTEE THE ADEQUACY, ACCURACY, TIMELINESS AND/OR THE COMPLETENESS OF THE UNDERLYING INDEX OR ANY DATA RELATED THERETO OR ANY COMMUNICATION, INCLUDING BUT NOT LIMITED TO, ORAL OR WRITTEN COMMUNICATION (INCLUDING ELECTRONIC COMMUNICATIONS) WITH RESPECT THERETO. S&P DOW JONES INDICES SHALL NOT BE SUBJECT TO ANY DAMAGES OR LIABILITY FOR ANY ERRORS, OMISSIONS, OR DELAYS THEREIN. S&P DOW JONES INDICES MAKES NO EXPRESS OR IMPLIED WARRANTIES, AND EXPRESSLY DISCLAIMS ALL WARRANTIES, OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR USE OR AS TO RESULTS TO BE OBTAINED BY THE ADVISOR, OWNERS OF THE FUNDS, OR ANY OTHER PERSON OR ENTITY FROM THE USE OF THE UNDERLYING INDEX OR WITH RESPECT TO ANY DATA RELATED THERETO. WITHOUT LIMITING ANY OF THE FOREGOING, IN NO EVENT WHATSOEVER SHALL S&P DOW JONES INDICES BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL, PUNITIVE, OR CONSEQUENTIAL DAMAGES INCLUDING BUT NOT LIMITED TO, LOSS OF PROFITS, TRADING LOSSES, LOST TIME OR GOODWILL, EVEN IF THEY HAVE BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, WHETHER IN CONTRACT, TORT, STRICT LIABILITY, OR OTHERWISE. THERE ARE NO THIRD PARTY BENEFICIARIES OF ANY AGREEMENTS OR ARRANGEMENTS BETWEEN S&P DOW JONES INDICES AND THE ADVISOR, OTHER THAN THE LICENSORS OF S&P DOW JONES INDICES.
Prospectus October 24, 2022 | 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 S&P ESG High Yield Dividend Aristocrats Index (the “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 24, 2022 | 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:
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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
Statement
of Additional Information
October
24, 2022
DBX
ETF TRUST
Xtrackers
S&P ESG Dividend Aristocrats ETF |
Cboe
BZX Exchange, Inc.: SNPD |
This
Statement of Additional Information (“SAI”)
is not a prospectus and should be read in conjunction with
the prospectus for the fund dated October 24, 2022, 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.
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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Detailed
Part II table of contents precedes page II-1 |
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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”
– Vedder Price P.C., 1633 Broadway, 31st Floor, New York,
New York 10019
“fund”
or “series”
– Xtrackers S&P ESG Dividend Aristocrats 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, One Manhattan West, New York,
New York, 10001
“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
“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
“Xtrackers
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. The fund 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.
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
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.
Under
the 1940 Act,
a
senior security does not include any promissory
note
or evidence of indebtedness where such loan is for temporary
purposes only and in an amount not
exceeding 5% of
the value of
the total assets of
a fund
at the
time
the loan is made
(a
loan is presumed to be for temporary purposes if it is repaid
within 60 days and is not extended or renewed).
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
Ernst
& Young LLP, One Manhattan West, New York, New York, 10001.
Ernst
& Young LLP serves
as the fund's independent registered public accounting firm.
As such, it audits the fund's financial statements and provides
other audit, tax and related services.
Because
the fund had not commenced operations as of the date of this
SAI, no financial statements are available. Shareholders will
receive annual audited financial statements and semi-annual unaudited
financial statements.
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, 2021.
Dollar Range of
Beneficial Ownership(a)
|
Xtrackers
S&P ESG Dividend Aristocrats ETF |
|
|
|
|
|
|
(a)
The fund is newly offered; therefore, shares of the fund were not available for purchase as of October 24, 2022.
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, 2021. 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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Control Persons
and Principal Holders of Securities
Following
the creation of the initial Creation Unit(s) of Shares of the 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.
The
fund is a new fund, and therefore there is no information concerning the beneficial ownership of shares.
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 Chairperson 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 chairpersons 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 chairperson 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 chairpersons (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
(Chairperson),
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 Chairperson of the
Nominating
Committee, as described in Part II
SAI
Appendix II-A under the caption
“Shareholder
Communications to the Board.”
|
J.
David Officer
(Chairperson),
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 Chairperson. 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 2021.
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
35 funds as of December 31, 2021. Each Independent Board Member receives an annual retainer fee of $165,000.
There are no additional fees for attendance at meetings of the Board or committees, or for unscheduled telephonic
meetings or calls.
(2)
Includes
$35,000 in annual retainer fees received by Mr. Byers as Chairperson of the Xtrackers funds.
(3)
Includes
$25,000 in annual retainer fees received by Mr. Elston as Chairperson of the Audit Committee of the Xtrackers
funds.
(4)
Includes
$10,000 in annual retainer fees received by Mr. Officer as Chairperson of the Nominating Committee of
the Xtrackers
funds.
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 August
31, 2022.
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 August
31, 2022.
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 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 S&P
ESG Dividend Aristocrats ETF
Because
the fund is newly offered, there is no service provider compensation information to report.
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
Because
the fund is newly offered, there is no portfolio turnover information to report.
Brokerage Commissions
Because
the fund is newly offered, there is no brokerage commissions information to report.
Brokerage Commissions
Paid to Affiliated Brokers
Because
the fund is newly offered, there is no affiliated broker information to report.
Transactions for
Research Services
Because
the fund is newly offered, there is no research services information to report.
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 S&P
ESG Dividend Aristocrats ETF
Commodity
Pool Operator Exclusion
Derivatives
Equity
Securities
Illiquid
Securities
Inflation
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
Because
the fund is newly offered, there are no securities lending activities to report.
Part I:
Appendix I-I—Additional
Information
Fund
and its Fiscal Year End |
|
|
Xtrackers
S&P ESG Dividend Aristocrats 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”).
DBX
Advisors LLC and its advisory affiliates (“DWS
Service Providers”)
have sought and obtained a permanent order from the Securities
and Exchange Commission providing exemptive relief under Section
9 of the Investment Company Act of 1940, as amended, on
which the DWS Service Providers rely in connection with the continued
provision of investment advisory services to the funds and other
registered investment companies.
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 share
holders
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,
Juneteenth National Independence
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. Notwithstanding
the foregoing, the Trust may, but is not required to, permit
custom orders (consisting of a basket of securities or cash that
differs from a published or transacted Fund Deposit) until 4:00
p.m., Eastern time, or until the market close (in the event the
Exchange closes early). 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
SEC has stated its position that an ETF generally may suspend
the issuance of Creation Units only for a limited time and only
due to extraordinary circumstances, such as when the markets
on which the ETF’s portfolio holdings are traded are closed
for a limited period of time. The SEC has also stated that an
ETF could not set transaction fees so high as to effectively
suspend the issuance of Creation Units. The Trust reserves the
right to reject or revoke a creation order transmitted to it
by the Distributor in respect of any fund under circumstances
which include, but are not limited to, 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 Fund Deposit would,
in the opinion of counsel, be unlawful; or (vi) 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, if the Creation Units are
held as capital assets.
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.
The
Advisor may also enter into agreements with financial intermediaries
relating to the use of Xtracker funds in third-party model portfolios.
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.
Other
Payments to Financial Intermediaries. In addition to
the above-described payments, the Advisor or an affiliate may,
from its own resources, pay fees to financial intermediaries
who sell shares of Xtracker funds for other products or services
offered by the intermediaries. Such payments may be in the form
of licensing fees for access to various kinds of analytical data.
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.
The
Trust’s Board has designated the Advisor as the valuation
designee for a fund pursuant to Rule 2a-5 under the 1940 Act.
The Advisor’s Pricing Committee values securities and other
assets using the methodologies described below.
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 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 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 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.
Money market instruments will be valued at amortized cost.
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
A
fund’s prospectus(es) and this SAI omit certain information
contained in the Registration Statement which a fund has filed
with the SEC under the 1933 Act and reference is hereby made
to the Registration Statement for further information with respect
to a fund 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 or other current
ratings publication, as applicable) 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 eleven months 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
Ratings of Prime-1 reflect a superior ability to repay short-term
obligations.
P-2
Ratings of Prime-2 reflect a strong ability to repay short-term
obligations.
P-3
Ratings of Prime-3 reflect 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.
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.
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.
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.
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 the next five business days in the absence
of a stated grace period or within the earlier of the stated
grace period or the next 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 debt restructuring.
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
debt restructuring.
SPUR
(S&P Global Ratings 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 debt restructuring, 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. Very low margin for safety. 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 the agency’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
|
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)Chairperson
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,
Chairperson
of the Audit
Committee
since 2015 |
Chief
Financial Officer, EyePoint
Pharmaceuticals,
Inc. (2019-present); Chief
Financial
Officer, Enzyvant (2018-2019);
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,
Chairperson
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
|
Business
Experience and
Directorships
During the Past 5 Years |
Freddi
Klassen(4)
(1975)
President
and Chief Executive
Officer,
2016-present |
Programmes
(Head since 2021), of DWS Investment Management Americas, Inc. and
Manager
and Chief Operating Officer of the Advisor (2016–present). Formerly: Chief
Operating
Officer in the Americas for the Traditional Asset Classes Department (2014–
2020);
Manager and Chief Operating Officer of DWS Investment Management
Americas,
Inc. (2018–2020); 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). |
Diane
Kenneally(5)
(1966)
Treasurer,
Chief Financial
Officer
and Controller, 2019-
present
|
Fund
Administration Treasurer’s Office (Co-Head since 2018), of DWS Investment
Management
Americas, Inc.; 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(4)
(1967)
Chief
Compliance Officer,
2010-present
|
AFC
Compliance US (Senior Team Lead), of DWS Investment Management Americas,
Inc.;
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. (2019-2022); Vice President in Deutsche Bank’s Global Markets Legal,
Risk
and Capital Division (2010-2012). |
Bryan
Richards(4)
(1978)
Vice
President, 2016-present |
Portfolio
Engineering, Systematic Investments Solutions (Head), of DWS Investment
Management
Americas, Inc.(2018-present); 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(5)
(1962)
Secretary,
2020-present |
Legal
(Associate General Counsel), DWS US Retail Legal (2003-present), of DWS
Investment
Management Americas, Inc.; 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); Vice
President,
DBX Advisors LLC (2021-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); and Assistant Secretary of DBX ETF Trust (2019-2020). |
Caroline
Pearson (5)
(1962)
Assistant
Secretary, 2020-
present
|
Legal
(Senior Team Lead), DWS US Retail Legal, of DWS Investment Management
Americas,
Inc.; Chief Legal Officer of DWS US registered investment companies
advised
by DWS Investment Management Americas, Inc. (2010-present); Chief Legal
Officer,
DBX 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);
Secretary,
Deutsche AM Service Company (2010-2017); and Chief Legal Officer, DBX
Strategic
Advisors LLC (2020-2021). |
Paul
Antosca(5)
(1957)
Assistant
Treasurer, 2019-
present
|
Fund
Administration Tax (Head), of DWS Investment Management Americas, Inc.;
Assistant
Treasurer for DWS US registered investment companies advised by DWS
Investment
Management Americas, Inc. (2007-present). |
Jeffrey
Berry(5)
(1959)
Assistant
Treasurer, 2019-
present
|
Fund
Administration (Senior Specialist), of DWS Investment Management Americas,
Inc.
|
Sheila
Cadogan(5)
(1966)
Assistant
Treasurer, 2019-
present
|
Fund
Administration Treasurer’s Office (Co-Head since 2018), of DWS Investment
Management
Americas, Inc.; 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(6)
(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(3)
|
Business
Experience and
Directorships
During the Past 5 Years |
Christian
Rijs(4)(1980)
Anti-Money
Laundering
Compliance
Officer, since
October
21, 2021 |
Senior
Team Lead Anti-Financial Crime and Compliance, of DWS Investment
Management
Americas, Inc.; AML Officer, DWS Trust Company (since November 2,
2021);
AML Officer, DWS US registered investment companies advised by DWS
Investment
Management Americas, Inc. (since October 6, 2021); AML Officer, The
European
Equity Fund, Inc., The New Germany Fund, Inc. and The Central and Eastern
Europe
Fund, Inc. (since November 12, 2021); formerly: DWS UK & Ireland Head of
Anti-Financial
Crime and MLRO. |
(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)
The
length of time served is represented by the year in which the officer was first elected to the Trust in such capacity.
(4)
Address:
875 Third Avenue, New York, New York 10022.
(5)
Address:
100 Summer Street, Boston, MA 02110.
(6)
Address:
BNY Mellon Asset Servicing, 240 Greenwich Street, New York, NY 10286.
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, Barings
BDC (BBDC), 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 DWS Group to provide additional reward
to employees for their performance and behaviors, while reflecting DWS Group’s affordability and financial situation.
VC aims to:
Recognize
that every employee contributes to DWS’s success through the franchise component of Variable Compensation (Franchise
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 Franchise 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
Emerging Markets Carbon Reduction and
Climate
Improvers ETF |
|
Xtrackers
FTSE Developed Ex US Multifactor 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
Net Zero Pathway Paris Aligned US Equity
ETF
|
|
Xtrackers
Russell 1000 US Quality at a Reasonable
Price
ETF |
|
Xtrackers
Russell US Multifactor ETF |
|
Xtrackers
S&P 500 ESG ETF |
|
Xtrackers
S&P 500 Growth ESG ETF |
|
Xtrackers
S&P 500 Value ESG ETF |
|
Xtrackers
S&P ESG Dividend Aristocrats ETF |
|
Xtrackers
S&P MidCap 400 ESG ETF |
|
Xtrackers
S&P SmallCap 600 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(1)
|
|
Xtrackers
MSCI China A Inclusion Equity ETF |
|
|
Unitary
Advisory Fee Rate |
|
|
Xtrackers
Bloomberg US Investment Grade Corporate
ESG
ETF |
|
Xtrackers
High Beta High Yield Bond ETF |
|
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
Risk Managed USD High Yield Strategy
|
|
Xtrackers
Short Duration High Yield Bond ETF |
|
Xtrackers
USD High Yield Corporate Bond ETF |
|
(1)
Shareholders
of a fund also indirectly bear their pro rata share of the operating expenses, including the Unitary Advisory
Fee or management fee paid to DBX or other investment advisor (which may include affiliates of DBX), of
the underlying funds in which a fund invests.
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.
Dorsey,
Wright & Associates, LLC
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 ETFs, certain of these risks would also
apply to that fund. To the extent that a fund invests in an affiliated money market fund, see “INVESTMENTS,
PRACTICES AND TECHNIQUES, AND RISKS OF THE UNDERLYING MONEY MARKET
FUNDS”
below.
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.
LIBOR,
the benchmark rate for certain floating rate securities, has been phased out as of the end of 2021 for most maturities
and currencies, although certain widely used US Dollar LIBOR rates are expected to continue to be published through
June 2023 to assist with the transition. The
transition process from LIBOR towards its expected replacement
reference rate with the Secured Overnight Financing Rate
(SOFR) for US Dollar LIBOR rates has
become increasingly well defined, especially
following the signing of the federal Adjustable Interest Rate (LIBOR)
Act
in March 2022
(discussed
below).
There is no assurance that the composition or characteristics
of any such alternative reference rate will be
similar
to or produce the same value or economic equivalence as LIBOR or that it will have the same volume or liquidity as
did LIBOR prior to its discontinuance or unavailability, which may affect the value or liquidity or return on certain of
a fund’s investments and result in costs incurred in connection with closing out positions and entering into new trades.
The
LIBOR transition process might lead to increased volatility and
illiquidity in markets for, and reduce the effectiveness of new
hedges placed against, instruments whose terms currently include LIBOR. While some existing LIBOR-based instruments
may contemplate a scenario where LIBOR is no longer available by providing for an alternative rate-setting methodology,
there may be significant uncertainty regarding the effectiveness of any such alternative methodologies to
replicate LIBOR. Some existing LIBOR-based instruments may not have alternative rate-setting provisions and there remains
uncertainty regarding the willingness and ability of issuers and counterparties to add alternative rate-setting provisions
in certain existing instruments. On March 15, 2022, the federal Adjustable Interest Rate (LIBOR) Act was signed
into law, which provides a statutory alternative rate-setting methodology on a nationwide basis for certain LIBOR-based
instruments that contain no, or insufficient, alternative rate-setting provisions. Following the June 2023 cessation
date or an alternative date determined by the Board of Governors of the Federal Reserve System (Federal Reserve
Board), the LIBOR Act will, by operation of law, replace LIBOR in such instruments with an alternative benchmark rate
that is selected by the Federal Reserve Board and based on the SOFR.
The LIBOR Act provides that the Federal Reserve Board shall promulgate
implementing regulations within 180 days of enactment. The transition of LIBOR-based instruments
from LIBOR to a replacement rate as a result of amendment, application of existing alternative rate-setting provisions,
statutory requirements or otherwise may result in a reduction in the value of certain instruments held by a
fund or a reduction in the effectiveness of related fund transactions such as hedges. An instrument’s transition to a
replacement rate could also result in variations in the reported yields of a fund that holds such instrument. In addition, a
liquid market for newly-issued instruments that use a reference rate other than LIBOR still may be developing. There may
also be challenges for a fund to enter into hedging transactions against such newly-issued instruments until a market
for such hedging transactions develops. All of the aforementioned may adversely affect a fund’s performance or
net asset value.
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 stock
exchanges in mainland China, including the Shanghai Stock Exchange (“SSE”),
the Shenzhen Stock Exchange (“SZSE”)
and the Beijing Stock Exchange (“BSE”).
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 Qualified Foreign
Investor (“QFI”,
including Qualified Foreign Institutional Investor (“QFII”)
and Renminbi Qualified Foreign Institutional Investor (“RQFII”))
program, where investors will be required to obtain a license from the CSRC. QFIs have also registered to
remit foreign currencies which can be traded on the China Foreign Exchange Trade System (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 three
stock exchanges in mainland China, the SSE,
the
SZSE and
the BSE.
The stock exchanges in
mainland China are supervised by the CSRC and are highly automated
with trading and settlement executed electronically. The stock
exchanges in mainland China 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, the SZSE commenced
trading on July 3, 1991,
and
the BSE commenced trading on November 15,
2021.
A-Shares may be listed on the SSE,
the SZSE and the BSE; while currently B-Shares
can be listed on the SSE and the SZSE. 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. 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 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 Science and Technology Innovation Board (“STAR
Board”)
of the SSE and the ChiNext market of the SZSE. Such investments
will be subject to the following risks and may result in significant
losses for the fund and its investors. Listed companies on ChiNext market and/or STAR Board are usually of
emerging nature with smaller operating scale. Listed companies on ChiNext market and STAR Board are subject to
wider price fluctuation limits, and due to higher entry thresholds for investors may have limited liquidity, compared to
other boards. Hence, companies listed on these boards are subject to higher fluctuation in stock prices and liquidity risks
and have higher risks and turnover ratios than companies listed on the main boards.
Stocks listed on ChiNext market and/or STAR Board may be overvalued
and such exceptionally high valuation may not be sustainable. Stock price
may be more susceptible to manipulation due to fewer circulating shares. The rules and regulations regarding companies
listed on the ChiNext market and STAR Board are less stringent in terms of profitability and share capital than
those in the main boards. It may be more common and faster for companies listed on ChiNext market and/or STAR
Board to delist. ChiNext market and STAR Board have stricter criteria for delisting compared to the main boards. This
may have an adverse impact on the fund if the companies that it invests in are delisted. STAR Board is a newly established
board and may have a limited number of listed companies during the initial stage. Investments in STAR Board
may be concentrated in a small number of stocks and subject the fund to higher concentration risk.
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 relevant stock exchange,
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 QFIs) 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 exempted
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 QFIs, 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 QFI status become subject
to repatriation restrictions, the fund may be unable to satisfy distribution requirements applicable to regulated 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 a QFI. 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
a QFI 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. Under the value-added tax regime, BT exemption granted to
QFIIs with respect to gains realized from the trading of PRC marketable securities has been grandfathered (i.e. QFIIs
continue to enjoy exemption on gains under the value-added tax regime). 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 QFIs 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 a QFI
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 QFIs and/or begins collecting capital gains taxes on such investments (whether
made
through Stock Connect or a QFI), 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. Each fund may also 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 voting
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 trading freeze
from the date the threshold is reached to the end of three days after the report and announcement is made. These
trading freezes may undermine a fund’s performance as described above. According to the securities laws of China,
whoever purchases the voting securities of a listed company in violation of the requirements in this paragraph shall
not exercise the voting right of the securities that exceed the threshold within 36 months after purchasing them.
Further,
once the fund and parties acting in concert reach the 5% trading threshold as to any listed company, for any subsequent
incremental increase or decrease of 1%, the fund would be required to notify the listed company and make
an announcement thereon on the day immediately after the date the threshold is reached. 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 voting 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.
Recently,
the Chinese government has become more aggressive about regulating the operations of particular companies or
sectors, including large companies which are indirectly listed in the US. These regulations may substantially limit or
prohibit the operations of such companies and cause investors to lose some or all of the value of their investment.
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 eligible securities
(including A-shares and
ETFs) 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 securities
would be rejected once the Daily Quota is exceeded (although a fund will be permitted to
sell the
securities 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 a 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 untested in the PRC, which could pose risks to a fund. Moreover, eligible
securities invested through Stock Connect
(“Stock
Connect Securities”)
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 securities (i.e.
the PRC). Therefore, a fund’s investments in Stock Connect
Securities
are subject to PRC securities regulations and listing rules, among other restrictions.
While
securities
must be designated as eligible to be traded under Stock Connect (such eligible securities
listed on the SSE, the “SSE
Securities,”
and such eligible securities
listed on the SZSE, the “SZSE
Securities”),
those securities
may also lose such designation, and if this occurs, such securities
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
securities
in its account before the market opens on the trading day. Accordingly,
if there are insufficient securities
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. However, a fund may
request a custodian to open a special segregated account (“SPSA”)
in CCASS (the Central Clearing and Settlement System operated
by HKSCC for the clearing securities listed or traded on SEHK) to maintain its holdings in securities
under the enhanced pre-trade checking model. Each SPSA will be
assigned a unique “Investor
ID”
by CCASS for the purpose of facilitating Stock Connect order
routing system to verify the holdings of an investor such as a fund. Provided that
there is sufficient holding in the SPSA when a broker inputs a fund’s sell order, a fund will be able to dispose of its
holdings of securities
(as opposed to the practice of transferring securities
to the broker’s account under the current pre-trade checking
model for non-SPSA accounts). Opening of the SPSA accounts for a fund will enable it to dispose of
its holdings of securities
in a timely manner.
In
addition, Stock Connect will only operate on days when both the mainland
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 securities
through Stock Connect may subject a fund to the risk of price fluctuations on days when the
mainland Chinese
markets are open, but Stock Connect is not trading. The mainland
Chinese and Hong Kong regulators have announced in August 2022
to enhance the trading calendar for Stock Connect, to allow Stock Connect trading
on all the days which are trading days in both mainland Chinese and Hong Kong markets, even when the corresponding
settlement days would be public holidays. However, as of the date of this SAI, such enhancements have
not been implemented and detailed operational rules are yet to be issued. As such, it is uncertain how such enhanced
trading calendar will be operated. 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 securities
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, a fund may not be able to acquire or dispose of securities
through Stock Connect in a timely manner, which could adversely
affect a fund’s performance.
A
fund’s investments in securities
though Stock Connect are held by its custodian in accounts in CCASS maintained by
the Hong Kong Securities Clearing Company Limited (“HKSCC”),
which in turn holds the securities,
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 securities
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 A-Shares
through Stock Connect, 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 a 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 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 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 QFI status, 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 QFI 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 QFI holder and each fund.
Each fund’s PRC Custodian is the Bank of China Limited. The PRC Custodian maintains a fund’s 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 (“PBOC”).
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 a QFI,
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 QFI.
If the Advisor obtains a QFI 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. 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 April 2012, the PBOC decided to take a further
step
to increase the flexibility of the RMB exchange rate by expanding the daily trading band from +/– 0.5% to +/– 1%.
Effective from March 17, 2014, the floating band of RMB against USD on the inter-bank spot foreign exchange market
was enlarged from 1% to 2%, i.e., on every trading day on the inter-bank spot market, the trading prices of RMB
against USD would fluctuate within a band of +/– 2 below and above the central parity as released by the China Foreign
Exchange Trade System on that day. On each business day, the spread between the RMB/USD buying and selling
prices offered by the designated foreign exchange banks to their clients was within 3% of the published central parity
of USD on that day, instead of 2%. Effective from August 11, 2015, the RMB central parity is fixed against the USD
by reference to the closing rate of the interbank foreign exchange market on the previous day (rather than the previous
morning’s official setting).
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.
PBOC and SAFE regulate and monitor the repatriation of funds out of the PRC by QFIs. Repatriations by
QFIs in respect of 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, are currently 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 QFI rules and regulations will not change or that repatriation
restrictions will not be imposed in the future. Further, such changes to the PRC and QFI 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 QFI 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.
QFI
Late Settlement Risk.
Each of the funds will be required to remit foreign currencies which can be traded on the China
Foreign Exchange Trade System (in the case of a QFII) and RMB (in the case of an RQFII) to the PRC to settle the
purchase of A-Shares by a fund from time to time through the QFI 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.
QFI
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 QFI license applied for by and granted to the Advisor and/or a Subadvisor. Each
fund is not a QFI, but with respect to Xtrackers Harvest CSI 300 China A-Shares ETF and X-trackers Harvest CSI 500
China will utilize the Subadvisor’s QFI license granted under QFI 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 QFI (including QFII and RQFII) program, where investors will
be required to obtain a license from the CSRC. QFIs have also registered to remit foreign currencies which can be
traded on the China Foreign Exchange Trade System (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 a
QFI. 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 QFI 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 is regarded as a QFI under the prevailing
rules and regulations in the PRC), and invest directly in A-Shares via QFI status granted to HGI pursuant to QFI
regulations.
In
addition, the Subadvisor’s (or, if applicable in the future, the Advisor’s) QFI 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 QFI 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 QFI 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 QFI 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 QFI 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 QFI, or the PRC Custodian (as that term is defined below) violates any
provision of the QFI 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 QFI 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 QFIs 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 QFIs in the PRC and the repatriation of capital from QFI 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 PBOC and SAFE jointly issued the Regulations on Funds of Securities and Futures Investment by
Foreign Institutional Investors (PBOC & SAFE Announcement
[2020] No. 2) (“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. On
September 25, 2020, the CSRC, the PBOC, and the SAFE jointly issued the Measures for the Administration of Domestic
Securities and Futures Investment by Qualified Foreign Institutional Investors and RMB Qualified Foreign Institutional
Investors (CSRC Decree No. 176) and the CSRC issued the Provisions on Issues Concerning the Implementation
of
the Measures for the Administration of Domestic Securities and Futures Investment by Qualified Foreign Institutional Investors
and RMB Qualified Foreign Institutional Investors (CSRC Announcement [2020] No.63), which came into effect
on 1 November 2020. The major revisions to the previous rules include merger of the QFII regime and RQFII regime,
relaxation of qualification requirements and facilitating investment and operations of QFIIs and RQFIIs, expansion of
investment scope and enhancing ongoing supervision. As of the date of this SAI,
this is a relatively new development, and their application may
depend on the interpretation given by the relevant PRC authorities. The current QFI laws, rules
and regulations are subject to change, which may take retrospective effect. In addition, there can be no assurance that
the QFI laws, rules and regulations will not be abolished. A fund, which invests in the PRC markets through a QFI,
may be adversely affected as a result of such changes.
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.
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.
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.
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.
Recent
Developments. Pursuant to regulations adopted by the SEC in October
2020, registered investment companies that invest in derivatives
instruments must
comply with new Rule 18f-4 under the Investment Company Act. Among other
things, Rule 18f-4 requires funds that invest in derivatives instruments beyond a specified limited amount to implement
a value-at-risk based limit to their use of certain derivative instruments, maintain a comprehensive derivatives risk
management program, and appoint a derivatives risk manager. A fund that limits its use of derivatives instruments is
not subject to the full requirements of Rule 18f-4 and instead
qualifies as a “limited
derivatives user.”
This new regulatory framework eliminates and replaces the asset
segregation and coverage framework established by prior SEC guidance
and regulations. Following the compliance date on August 19,
2022, the funds will comply with Rule 18f-4
as one of three types:
funds that are not derivatives users,
funds that are
“limited
derivatives users”
and funds that are derivatives users that must adopt a derivatives
risk management program in compliance with Rule 18f-4. Rule 18f-4
also governs a fund's use of certain other transactions that create future payment and/or
delivery obligations by the fund,
such
as short sale borrowings and reverse repurchase agreements or similar financing transactions,
and certain
transactions entered into on a when-issued, delayed-delivery or forward-commitment basis. The requirements of
Rule 18f-4 may
limit a fund's ability to engage in derivatives transactions and certain other transactions noted above as
part of its investment strategies.
These requirements may also increase the cost of doing business, which could adversely
affect the performance of a fund.
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).
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 market volatility and economic uncertainty in connection with the COVID-19 pandemic, the US government and
certain foreign central banks took steps to stabilize markets by, among other things, reducing interest rates, including pursuing
negative interest rate policies in some instances. More recently, in response to signs of inflationary price movements,
the US government and certain foreign central banks have begun increasing interest rates. Although interest
rates in the US remain at low levels, they have been rising and are expected to continue to increase in the near
future. A rising interest rate environment may cause investors to move out of fixed-income and related securities on
a large scale, which could adversely affect the price and liquidity of such securities and could also result in increased redemptions
from a fund. Recent inflationary price movements may cause fixed-income securities and related markets to
experience heightened levels of interest rate volatility and liquidity risk. A sharp rise in interest rates could cause a
fund’s share price to decline.
These
considerations may limit a fund’s ability to locate fixed-income instruments containing the desired risk/return profile.
Changing interest rates could have unpredictable effects on the markets, may expose fixed-income and related markets
to heightened volatility and potential illiquidity and may increase interest rate risk for a fund.
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.
The
foreign countries in which a fund invests may become subject to economic and trade sanctions or embargoes imposed
by the US or foreign governments or the United Nations. Such sanctions or other actions could result in the devaluation
of a country’s currency or a decline in the value and liquidity of securities of issuers in that country. In addition,
such sanctions could result in a freeze on an issuer’s securities which would prevent a fund from selling
securities
it holds. The value of the securities issued by companies that operate in or have dealings with these countries may
be negatively impacted by any such sanction or embargo and may reduce a fund’s returns. The risks related to sanctions
or embargoes are greater in emerging and frontier market countries.
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.
Inflation.
Inflation creates uncertainty over the future real value of an investment (the value after adjusting for inflation). The
real value of certain assets or real income from investments will be less in the future as inflation decreases the value
of money. As inflation increases, the present value of a fund's assets and distributions may decline. This risk is more
prevalent with respect to debt securities held by a fund. Inflation rates may change frequently and drastically as
a result of various factors, including unexpected shifts in the domestic or global economy. Moreover, a fund's investments may
not keep pace with inflation, which may result in losses to fund shareholders or adversely affect the real value of
shareholders' investment in a fund. Fund shareholders' expectation of future inflation can also impact the current value
of a fund’s portfolio, resulting in lower asset values and potential losses. This risk may be elevated compared to
historical market conditions because of recent monetary policy measures and the current interest rate environment.
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. In October 2020, the SEC adopted certain regulatory changes and took other actions related
to the ability of an investment company to invest in the securities of another investment company. These
changes
include, among other things, the rescission of certain SEC exemptive orders permitting investments in excess of
the statutory limits and the withdrawal of certain related SEC staff no-action letters, and the adoption of Rule 12d1-4 under
the 1940 Act. Rule 12d1-4, which became effective on January 19, 2021, will permit a fund to invest in other investment
companies beyond the statutory limits, subject to certain conditions. The rescission of the applicable exemptive orders
and the withdrawal of the applicable no-action letters was effective on January 19, 2022. After such time, an investment
company will no longer be able to rely on the aforementioned exemptive orders and no-action letters and will
be subject instead to Rule 12d1-4 and other applicable rules under Section 12(d)(1). The impact of these regulatory changes
on the funds is still uncertain. 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 RIC 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 some 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 municipal securities market can be susceptible to increases in volatility and decreases
in liquidity. Liquidity can decline unpredictably in response to overall economic conditions or credit tightening. Increases
in volatility and decreases in liquidity may be caused by a rise in interest rates (or the expectation of a rise in
interest rates).
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.
A fund may enter into
“reverse
repurchase agreements,”
which are repurchase agreements
in which a fund, as the seller
of the securities,
agrees
to repurchase such
securities at an agreed time
and price.
Under a
reverse repurchase agreement, a fund continues
to receive any principal and interest payments on the underlying
security during the term of the agreement. A
fund’s obligations under
reverse repurchase agreements are treated as borrowings requiring
the necessary asset coverage under Section 18(f)
of
the 1940 Act.
Such transactions may
increase fluctuations in the market value of fund assets and its yield.
Russian
Securities. As a result of political and military actions undertaken
by Russia in recent years, including the military incursions
in Ukraine in February 2022, the US, the European Union and other countries have instituted broad-ranging economic
sanctions against Russia and certain Russian individuals, banking entities and corporations. Among other things,
these sanctions froze certain Russian assets, prohibited trading in certain Russian securities and doing business with
certain Russian individuals and entities, including large financial institutions. These sanctions also included the removal
of some Russian banks from the Society for Worldwide Interbank Financial Telecommunications (SWIFT), the
electronic network that connects banks globally. 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 Russia’s credit rating, and a decline in the value and liquidity of Russian securities. Retaliatory actions or
countermeasures that are being taken or may be taken in the future by Russia (including cyberattacks on other governments,
corporations or individuals, the closure of Russian securities markets or the seizure of foreign residents’ assets),
may further decrease the value and liquidity of Russian securities. Any or all of these potential results could push
Russia’s economy into a recession. In addition, beginning in March 2022, certain index providers began removing Russian
securities from their indices, including certain indices utilized by the funds. As a result of the sanctions, Russian government
countermeasures, trading halts on U.S. and non-U.S. exchanges and the collective impact on the trading markets
for Russian securities, a fund’s ability to buy and sell Russian investments has been impaired. For example, a
fund may be required to freeze or otherwise be unable to sell or deliver existing investments in Russian securities, including
securities that may have been removed from a fund’s Underlying Index or may be prohibited from investing or
otherwise be unable to invest in certain Russian securities. As a result, certain funds have used, and may in the future
use, fair valuation procedures approved by the Board to value certain Russian securities, which could result in such
securities being valued at zero. 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/or their portfolios contain
the securities of Russian issuers. It is impossible to predict when the sanctions imposed as a result of the Russian
incursion into Ukraine, restrictions on trading Russian securities or other ramifications for the Russian economy and
financial markets around the world will be relieved.
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 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 RIC. 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
and Delayed-Delivery Securities.
A fund may purchase securities
on
a when-issued or delayed-delivery
basis.
Delivery
of and payment for these securities can take place a month or
more after the date of the
purchase commitment.
The payment obligation and
the interest rate that will be received on when-issued
and delayed-delivery securities are fixed at the time the buyer
enters into the commitment. Due to fluctuations in the value
of securities purchased or sold on a when-issued or delayed-delivery
basis,
the yields obtained on such securities may be higher or lower
than the yields available in the market on the dates when the investments are actually delivered to the buyers. When-issued
securities may include securities purchased on a “when,
as and if issued”
basis,
under which the issuance of the security depends on the occurrence
of a subsequent event, such as approval of a merger, corporate reorganization or
debt restructuring. The value of such securities is subject to
market fluctuation during this period and no interest or income,
as applicable, accrues to a fund until settlement takes place.
At
the time a fund makes the commitment to purchase securities on
a when-issued or delayed delivery basis,
it
will record the
transaction,
reflect the value each day of such securities in determining its net asset value
and, if applicable, calculate the maturity for the purposes of
average maturity from that date. At
the
time of settlement a when-issued security
may be valued at less than the purchase price.
Rule
18f-4 under the 1940 Act permits a fund to invest in a security
on a when-issued or delayed-delivery basis
and
the transaction will be deemed not to involve a senior security,
provided that the fund intends to physically settle the transaction
and the transaction will settle within 35 days of its trade date.
If
a
fund chooses to dispose of the right to acquire a when-issued
security prior to its acquisition,
it could,
as with the disposition of any other portfolio obligation,
incur a gain or loss due to market fluctuation.
When
a fund engages in
when-issued or delayed-delivery
transactions,
it relies on the other party to consummate the trade and is,
therefore, exposed to counterparty risk. Failure of the seller to do so may result in a fund’s
incurring a
loss or missing an opportunity to obtain a price considered to
be advantageous.
Investments,
Practices and Techniques, and Risks of the Underlying Money Market
Funds
To
the extent that a fund invests in a money market fund advised by DWS Investment Management Americas, Inc., an
affiliate of DBX, 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.
LIBOR,
the benchmark rate for certain floating rate securities, has been phased out as of the end of 2021 for most maturities
and currencies, although certain widely used US Dollar LIBOR rates are expected to continue to be published through
June 2023 to assist with the transition. The
transition process from LIBOR towards its expected replacement
reference rate with the Secured Overnight Financing Rate
(SOFR) for US Dollar LIBOR rates has
become increasingly well defined, especially
following the signing of the federal Adjustable Interest Rate (LIBOR)
Act
in March 2022
(discussed
below).
There is no assurance that the composition or characteristics
of any such alternative reference rate will be similar to or
produce the same value or economic equivalence as LIBOR or that it will have the same volume or liquidity as
did LIBOR prior to its discontinuance or unavailability, which may affect the value or liquidity or return on certain of
a fund’s investments and result in costs incurred in connection with closing out positions and entering into new trades.
The
LIBOR transition process might lead to increased volatility and
illiquidity in markets for, and reduce the effectiveness of new
hedges placed against, instruments whose terms currently include LIBOR. While some existing LIBOR-based instruments
may contemplate a scenario where LIBOR is no longer available by providing for an alternative rate-setting methodology,
there may be significant uncertainty regarding the effectiveness of any such alternative methodologies to
replicate LIBOR. Some existing LIBOR-based instruments may not have alternative rate-setting provisions and there remains
uncertainty regarding the willingness and ability of issuers and counterparties to add alternative rate-setting provisions
in certain existing instruments. On March 15, 2022, the federal Adjustable Interest Rate (LIBOR) Act was signed
into law, which provides a statutory alternative rate-setting methodology on a nationwide basis for certain LIBOR-based
instruments that contain no, or insufficient, alternative rate-setting provisions. Following the June 2023 cessation
date or an alternative date determined by the Board of Governors of the Federal Reserve System (Federal Reserve
Board), the LIBOR Act will, by operation of law, replace LIBOR in such instruments with an alternative benchmark rate
that is selected by the Federal Reserve Board and based on the SOFR.
The LIBOR Act provides that the Federal Reserve Board shall promulgate
implementing regulations within 180 days of enactment. The transition of LIBOR-based instruments
from LIBOR to a replacement rate as a result of amendment, application of existing alternative rate-setting provisions,
statutory requirements or otherwise may result in a reduction in the value of certain instruments held by a
fund or a reduction in the effectiveness of related fund transactions such as hedges. An instrument’s transition to
a
replacement rate could also result in variations in the reported yields of a fund that holds such instrument. In addition, a
liquid market for newly-issued instruments that use a reference rate other than LIBOR still may be developing. There may
also be challenges for a fund to enter into hedging transactions against such newly-issued instruments until a market
for such hedging transactions develops. All of the aforementioned may adversely affect a fund’s performance or
net asset value.
Asset-Backed
Securities. A fund may invest in securities generally referred
to as asset-backed securities. Asset-backed securities are securities
that directly or indirectly represent interests in, or are secured by and payable from, an underlying pool
of assets such as (but not limited to) first lien mortgages, motor vehicle installment sale contracts, other installment sale
contracts, home equity loans, leases of various types of real and personal property, and receivables from revolving credit
(i.e., credit card) agreements and trade receivables. Such assets are securitized through the use of trusts and special
purpose corporations. Asset-backed securities may provide periodic payments that consist of interest and/or principal
payments. Consequently, the life of an asset-backed security varies with the prepayment and loss experience of
the underlying assets. Payments of principal and interest may be dependent upon the cash flow generated by the underlying
assets backing the securities and, in certain cases, may be supported by some form of credit enhancement (for
more information, see Credit Enhancement). The degree of credit enhancement provided for each issue is generally based
on historical information respecting the level of credit risk associated with the underlying assets. Delinquency or
loss in excess of that anticipated or failure of the credit enhancement could adversely affect the return on an investment in
such a security. The value of the securities also may change because of changes in interest rates or changes in the market’s
perception of the creditworthiness of the servicing agent for the loan pool, the originator of the loans or the financial
institution providing the credit enhancement. Additionally, since the deterioration of worldwide economic and
liquidity conditions that became acute in 2008, asset-backed securities have been subject to greater liquidity risk. Asset-backed
securities are ultimately dependent upon payment of loans and receivables by individuals, businesses and
other borrowers, and a fund generally has no recourse against the entity that originated the loans.
Because
asset-backed securities may not have the benefit of a security interest in the underlying assets, asset-backed securities
present certain additional risks that are not present with mortgage-backed securities. For example, credit card
receivables are generally unsecured, and the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to avoid payment of certain amounts owed on
the credit cards, thereby reducing the balance due. Furthermore, most issuers of automobile receivables permit the
servicer to retain possession of the underlying obligations. If the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to that of the holders of the related automobile receivables.
In addition, because of the large number of vehicles involved in a typical issuance and technical requirements under
state laws, the trustee for the holders of the automobile receivables may not have a proper security interest in
all of the obligations backing such receivables. Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
The
yield characteristics of the asset-backed securities in which a fund may invest differ from those of traditional debt securities.
Among the major differences are that interest and principal payments are made more frequently on asset-backed securities
(usually monthly) and that principal may be prepaid at any time because the underlying assets generally may
be prepaid at any time. As a result, if a fund purchases these securities at a premium, a prepayment rate that is faster
than expected will reduce their yield, while a prepayment rate that is slower than expected will have the opposite effect
of increasing yield. Conversely, if a fund purchases these securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce, the yield on these securities. Because prepayment of
principal generally occurs during a period of declining interest rates, a fund may generally have to reinvest the proceeds
of such prepayments at lower interest rates. Therefore, asset-backed securities may have less potential for capital
appreciation in periods of falling interest rates than other income-bearing securities of comparable maturity. Conversely,
during periods of rising interest rates, prepayment rates tend to decline, thus lengthening the duration of
asset-backed securities, which may increase the price volatility of these securities.
Other
Asset-Backed Securities. The securitization techniques used to
develop mortgage-backed securities are now being applied to a
broad range of assets. Through the use of trusts and special purpose corporations, various types of
assets, including automobile loans, computer leases and credit card receivables, are being securitized in pass-through
structures
similar to mortgage pass-through structures or in a structure similar to the CMO structure. In general, the collateral
supporting these securities is of shorter maturity than mortgage loans and is less likely to experience substantial prepayments
with interest rate fluctuations.
Several
types of asset-backed securities have already been offered to investors, including Certificates of Automobile ReceivablesSM
(CARSSM)
and Collateralized Loan Obligations (CLOs). CARSSM
represent undivided fractional interests in a trust whose assets
consist of a pool of motor vehicle retail installment sales contracts and security interests in the
vehicles securing the contracts. Payments of principal and interest on CARSSM
are passed through monthly to certificate holders, and are guaranteed
up to certain amounts and for a certain time period by a letter of credit issued by
a financial institution unaffiliated with the trustee or originator of the trust. An investor’s return on CARSSM
may be affected by early prepayment of principal on the underlying
vehicle sales contracts. If the letter of credit is exhausted, the
trust may be prevented from realizing the full amount due on a sales contract because of state law requirements and
restrictions relating to foreclosure sales of vehicles and the obtaining of deficiency judgments following such sales
or because of depreciation, damage or loss of a vehicle, the application of federal and state bankruptcy and insolvency
laws, or other factors. As a result, certificate holders may experience delays in payments or losses if the letter
of credit is exhausted. CLOs represent interests in a trust whose underlying assets consist of a pool of loans. Such
loans may include domestic and foreign senior secured loans, senior unsecured loans and subordinate corporate loans,
some of which may be below investment grade or equivalent unrated loans. CLOs issue classes or “tranches”
that vary in risk and yield. A CLO may experience substantial
losses attributable to defaults on underlying assets. Such losses
will be borne first by the holders of subordinate tranches. A fund’s investment in a CLO may decrease in
market value because of (i) loan defaults or credit impairment, (ii) the disappearance of subordinate tranches, (iii) market
anticipation of defaults, and (iv) investor aversion to CLO securities as a class. These risks may be magnified depending
on the tranche of CLO securities in which a fund invests. For example, investments in a junior tranche of CLO
securities will likely be more sensitive to loan defaults or credit impairment than investments in more senior tranches.
A
fund may also invest in residual interests in asset-backed securities. In the case of asset-backed securities issued in
a pass-through structure, the cash flow generated by the underlying assets is applied to make required payments on
the securities and to pay related administrative expenses. The residual in an asset-backed security pass-through structure
represents the interest in any excess cash flow remaining after making the foregoing payments. The amount of
residual cash flow resulting from a particular issue of asset-backed securities will depend on, among other things, the
characteristics of the underlying assets, the coupon rates on the securities, prevailing interest rates, the amount of
administrative expenses and the actual prepayment experience on the underlying assets. Asset-backed security residuals
not registered under the 1933 Act may be subject to certain restrictions on transferability. In addition, there may
be no liquid market for such securities.
The
availability of asset-backed securities may be affected by legislative or regulatory developments. It is possible that
such developments may require a fund to dispose of any then-existing holdings of such securities.
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. A fund and other affiliated funds (“Participants”)
share in a revolving credit facility provided by a syndication of
banks. A fund may borrow money under this 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, 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.
Cash
Management Vehicles. A fund may have cash balances that have
not been invested in portfolio securities (Uninvested Cash).
Uninvested Cash may result from a variety of sources, including dividends or interest received from portfolio securities,
unsettled securities transactions, reserves held for investment strategy purposes, assets to cover a fund’s open
futures and other derivatives positions, scheduled maturity of investments, liquidation of investment securities to
meet anticipated redemptions and dividend payments, and new cash received from investors. Uninvested Cash may
be invested directly in money market instruments or other short-term debt obligations. A fund may use Uninvested Cash
to purchase shares of unaffiliated money market funds, or affiliated money market funds for which the Advisor or
an affiliate of the Advisor may serve as investment advisor now or in the future. Such money market funds will operate
in accordance with Rule 2a-7 under the 1940 Act and will seek to maintain a stable net asset value (NAV) or will
maintain a floating NAV. A fund indirectly bears its proportionate share of the expenses of each money market fund
in which it invests. The money market funds in which a fund may invest are registered under the 1940 Act or are
excluded from the definition of “investment
company”
under Section 3(c)(1) or 3(c)(7) of the 1940 Act. Investments in
such money market funds may exceed the limits of Section 12(d)(1)(A) of the 1940 Act.
Commercial
Paper. A fund may invest in commercial paper issued by major
corporations in reliance on the exemption from registration afforded
by Section 3(a)(3) of the 1933 Act. Such commercial paper may be issued only to finance current
transactions and must mature in nine months or less. Trading of such commercial paper is conducted primarily by
institutional investors through investment dealers, and individual investor participation in the commercial paper market
is very limited. A fund also may invest in commercial paper issued in reliance on the so-called “private
placement”
exemption from registration afforded by Section 4(a)(2) of the
1933 Act (Section 4(a)(2) paper). Section 4(a)(2) paper is restricted
as to disposition under the federal securities laws, and generally is sold to institutional investors such as a
fund who agree that they are purchasing the paper for investment and not with a view to public distribution. Any resale
by the purchaser must be in an exempt transaction. Section 4(a)(2) paper normally is resold to other institutional investors
like a fund through or with the assistance of the issuer or investment dealers who make a market in Section 4(a)(2)
paper, thus providing liquidity.
Commodity
Pool Operator Exclusion. The Advisor currently intends to operate
the fund (unless otherwise noted) in compliance with the requirements
of Rule 4.5 of the Commodity Futures Trading Commission (CFTC). As a result, a
fund is not deemed to be a “commodity
pool”
under the Commodity Exchange Act (CEA) and will be limited in its ability
to use futures and options on futures or commodities or engage in swap transactions for other than bona fide hedging
purposes. Provided a fund operates within the limits of Rule 4.5 of the CFTC, a fund will be excluded from registration
with and regulation under the CEA and the Advisor will not be deemed to be a “commodity
pool operator”
with respect to the operations of a fund. If a fund were no longer
able to claim the exclusion, the fund and the Advisor would be
subject to regulation under the CEA.
Credit
Enhancement. Mortgage-backed securities and asset-backed securities
are often backed by a pool of assets representing the obligations
of a number of different parties. To lessen the effect of failure by obligors on underlying assets
to make payments, such securities may contain elements of credit enhancement. Such credit enhancement falls
into two categories: (1) liquidity protection and (2) protection against losses resulting from ultimate default by an
obligor on the underlying assets. Liquidity protection refers to the provision of advances, generally by the entity administering
the pool of assets, to ensure that the pass-through of payments due on the underlying pool occurs in a
timely fashion. Protection against losses resulting from ultimate default enhances the likelihood of ultimate payment of
the obligations on at least a portion of the assets in the pool. Such protection may be provided through guarantees,
insurance
policies or letters of credit obtained by the issuer or sponsor from third parties; through various means of structuring
the transaction; or through a combination of such approaches. A fund may pay any additional fees for such credit
enhancement, although the existence of credit enhancement may increase the price of a security.
The
ratings of mortgage-backed securities and asset-backed securities for which third-party credit enhancement provides liquidity
protection or protection against losses from default are generally dependent upon the continued creditworthiness of
the provider of the credit enhancement. The ratings of such securities could be subject to reduction in the event of
deterioration in the creditworthiness of the credit enhancement provider even in cases where the delinquency and loss
experience on the underlying pool of assets is better than expected.
Examples
of credit enhancement arising out of the structure of the transaction include “senior-subordinated
securities”
(multiple class securities with one or more classes subordinate
to other classes as to the payment of principal thereof and interest
thereon, with the result that defaults on the underlying assets are borne first by the holders of the subordinated class),
creation of “reserve
funds”
(where cash or investments, sometimes funded from a portion of the payments on
the underlying assets, are held in reserve against future losses) and “over-collateralization”
(where the scheduled payments on, or the principal amount of,
the underlying assets exceed those required to make payment of the securities and
pay any servicing or other fees). The degree of credit enhancement provided for each issue is generally based on
historical information with respect to the level of credit risk associated with the underlying assets. Delinquency or
loss in excess of that which is anticipated could adversely affect the return on an investment in such a security.
Certain
of a fund’s other investments may be credit-enhanced by a guaranty, letter of credit, or insurance from a third party.
Any bankruptcy, receivership, default, or change in the credit quality of the third party providing the credit enhancement may
adversely affect the quality and marketability of the underlying security and could cause losses to a fund and affect
a fund’s share price.
Environmental,
Social and Governance (ESG) Considerations. Although a fund does
not seek to implement a specific ESG strategy unless disclosed
in its Prospectus, portfolio management may consider ESG factors as part of the
investment process for actively managed funds. ESG factors are considered together with more traditional subjects of
investment analysis such as market position, growth prospects, and business strategy, as part of a fund’s overall fundamental
research process. When evaluating ESG factors, portfolio management may rely on data obtained from a
variety of sources, including company annual reports and sustainability reports, as well as other publicly available information.
For most asset classes and market segments, portfolio management also has access to ESG research and
ratings, including research provided by internal DWS analysts which consider ESG risks and opportunities, as well as
access to ratings and additional information from DWS’s proprietary ESG tool. For funds that do not seek to implement a
specific ESG strategy, portfolio management may consider those ESG factors it deems financially material when making
investment decisions, and the materiality of ESG considerations in a fund’s process will differ from strategy to
strategy, from sector to sector, and from portfolio manager to portfolio manager, and, in some cases, ESG considerations may
not represent a material component of a fund’s investment process. Certain funds (“ESG-dedicated
funds”)
incorporate specific ESG considerations into their investment
objectives, strategies, and/or processes, as described in a fund’s Prospectus.
Because investors can differ in their views of what constitutes positive or negative ESG characteristics, a
fund may invest in issuers that do not reflect the beliefs and values with respect to ESG of any particular investor. ESG
considerations may affect a fund’s exposure to certain companies or industries, and an ESG-dedicated fund may forego
certain investment opportunities. While portfolio management views ESG considerations as having the potential to
contribute to a fund’s long-term performance, there is no guarantee that such results will be achieved.
As
portfolio management weighs the ESG attributes of a potential investment, they may use the DWS proprietary ESG
tool. The DWS proprietary ESG tool uses multiple external data providers and public data sources, and provides automated
analysis of multiple ESG factors or issues, including a number of proprietary DWS ESG ratings. The DWS proprietary
ESG tool covers most listed asset classes but there is limited information on high yield, municipal bonds, emerging
markets, and IPOs due to incomplete vendor coverage. Through the ESG tool, portfolio management may also
access issuer-specific contextual analysis that provides additional information about an issuer’s ESG risks and opportunities,
risk mitigation actions or plans and other characteristics. An additional DWS internal review process allows
for changes to an ESG rating. An internal review may occur, for example, if it is deemed that information is not reflected
in the existing ESG rating because new information or insights have emerged that the ESG data providers
have
not yet processed. Additional examples of information that may be considered in such internal assessments include,
but are not limited to, the announcement of new (or withdrawal from previously announced) climate-related commitments,
or the resolution of legacy (or involvement in new) controversies. Portfolio management may use their discretion
in considering application of internal assessments on a given rating.
Eurodollar
Obligations. Eurodollar bank obligations are US dollar-denominated
certificates of deposit and time deposits issued outside the
US capital markets by foreign branches of US banks and US branches of foreign banks. Eurodollar obligations
are subject to the same risks that pertain to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar obligations are subject to certain sovereign risks. One such risk is the possibility that a sovereign
country might prevent capital, in the form of dollars, from flowing across its borders. Other risks include: adverse
political and economic developments; the extent and quality of government regulation of financial markets and
institutions; the imposition of foreign withholding taxes, and the expropriation or nationalization of foreign issues.
Fixed
Income Securities. Fixed income securities, including corporate
debt obligations, generally expose a fund to the following types
of risk: (1) interest rate risk (the potential for fluctuations in bond prices due to changing interest rates);
(2) income risk (the potential for a decline in a fund’s income due to falling market interest rates); (3) credit risk (the
possibility that a bond issuer will fail to make timely payments of either interest or principal to a fund); (4) prepayment risk
or call risk (the likelihood that, during periods of falling interest rates, securities with high stated interest rates will
be prepaid, or “called”
prior to maturity, requiring a fund to invest the proceeds at generally lower interest rates); and
(5) extension risk (the likelihood that as interest rates increase, slower than expected principal payments may extend
the average life of fixed income securities, which will have the effect of locking in a below-market interest rate,
increasing the security’s duration and reducing the value of the security).
In
periods of declining interest rates, the yield (income from a fixed income security held by a fund over a stated period
of time) of a fixed income security may tend to be higher than prevailing market rates, and in periods of rising interest
rates, the yield of a fixed income security may tend to be lower than prevailing market rates. In addition, when interest
rates are falling, the inflow of net new money to a fund will likely be invested in portfolio instruments producing lower
yields than the balance of a fund’s portfolio, thereby reducing the yield of a fund. In periods of rising interest rates,
the opposite can be true. The net asset value of a fund can generally be expected to change as general levels of
interest rates fluctuate. The value of fixed income securities in a fund’s portfolio generally varies inversely with changes
in interest rates. Prices of fixed income securities with longer effective maturities are more sensitive to interest rate
changes than those with shorter effective maturities.
Corporate
debt obligations generally offer less current yield than securities of lower quality, but lower-quality securities generally
have less liquidity, greater credit and market risk, and as a result, more price volatility.
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 market volatility and economic uncertainty in connection with the COVID-19 pandemic, the US government and
certain foreign central banks took steps to stabilize markets by, among other things, reducing interest rates, including pursuing
negative interest rate policies in some instances. More recently, in response to signs of inflationary price movements,
the US government and certain foreign central banks have begun increasing interest rates. Although interest
rates in the US remain at low levels, they have been rising and are expected to continue to increase in the near
future. A rising interest rate environment may cause investors to move out of fixed-income and related securities on
a large scale, which could adversely affect the price and liquidity of such securities and could also result in increased redemptions
from a fund. Recent inflationary price movements may cause fixed-income securities and related markets to
experience heightened levels of interest rate volatility and liquidity risk. A sharp rise in interest rates could cause a
fund’s share price to decline.
These
considerations may limit a fund’s ability to locate fixed-income instruments containing the desired risk/return profile.
Changing interest rates could have unpredictable effects on the markets, may expose fixed-income and related markets
to heightened volatility and potential illiquidity, and may increase interest rate risk for a fund.
Foreign
Investment. Foreign securities are normally denominated and traded
in foreign currencies. As a result, the value of a fund’s
foreign investments and the value of its shares may be affected favorably or unfavorably by changes in
currency exchange rates relative to the US dollar. There may be less information publicly available about a foreign issuer
than about a US issuer, and foreign issuers may not be subject to accounting, auditing and financial reporting standards
and practices comparable to those in the US. The securities of some foreign issuers are less liquid and at times
more volatile than securities of comparable US issuers. Foreign brokerage commissions and other fees are also
generally higher than in the US. Foreign settlement procedures and trade regulations may involve certain risks (such
as delay in payment or delivery of securities or in the recovery of a fund’s assets held abroad) and expenses not
present in the settlement of investments in US markets. Payment for securities without delivery may be required in
certain foreign markets.
In
addition, foreign securities may be subject to the risk of nationalization or expropriation of assets, imposition of currency
exchange controls or restrictions on the repatriation of foreign currency, confiscatory taxation, political or financial
instability and diplomatic developments which could affect the value of a fund’s investments in certain foreign countries.
Governments of many countries have exercised and continue to exercise substantial influence over many aspects
of the private sector through the ownership or control of many companies, including some of the largest in these
countries. As a result, government actions in the future could have a significant effect on economic conditions which
may adversely affect prices of certain portfolio securities. There is also generally less government supervision and
regulation of stock exchanges, brokers, and listed companies than in the US. Dividends or interest on, or proceeds from
the sale of, foreign securities may be subject to foreign withholding taxes, and special US tax considerations may
apply (see Taxes). Moreover, foreign economies may differ favorably or unfavorably from the US economy in such respects
as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
The
foreign countries in which a fund invests may become subject to economic and trade sanctions or embargoes imposed
by the US or foreign governments or the United Nations. Such sanctions or other actions could result in the devaluation
of a country’s currency or a decline in the value and liquidity of securities of issuers in that country. In addition,
such sanctions could result in a freeze on an issuer’s securities which would prevent a fund from selling securities
it holds. The value of the securities issued by companies that operate in, or have dealings with these countries may
be negatively impacted by any such sanction or embargo and may reduce a fund’s returns. The risks related to sanctions
or embargoes are greater in emerging and frontier market countries.
Legal
remedies available to investors in certain foreign countries may be more limited than those available with respect to
investments in the US or in other foreign countries. The laws of some foreign countries may limit a fund’s ability to
invest in securities of certain issuers organized under the laws of those foreign countries.
Many
foreign countries are heavily dependent upon exports, particularly to developed countries, and, accordingly, have
been and may continue to be adversely affected by trade barriers, managed adjustments in relative currency values,
and other protectionist measures imposed or negotiated by the US and other countries with which they trade. These
economies also have been and may continue to be negatively impacted by economic conditions in the US and other
trading partners, which can lower the demand for goods produced in those countries.
China
investment. Investments in the Greater China region are subject
to special risks, such as less developed or less efficient trading
markets, restrictions on monetary repatriation and possible seizure, nationalization or expropriation of
assets. Investments in Taiwan may be adversely affected by its political and economic relationship with the People’s Republic
of China (“China”
or the “PRC”).
In addition, the willingness of the Chinese government to support the Chinese
and Hong Kong economies and markets is uncertain and changes in government policy could significantly affect
the markets in both Hong Kong and China.
Increasing
trade tensions between China and its trading partners, including the United States, have resulted in tariffs and
other limitations, and may in the future result in additional measures or actions that could have an adverse effect on
an investment in the Greater China region.
Investments
in equity securities of companies based in the PRC and listed and traded on the Shanghai Stock Exchange and
Shenzhen Stock Exchange (“A-Shares”)
may be made 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, a fund’s direct investments in
A-Shares may be limited by the Daily Quota that limits total purchases through Stock Connect. 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 fund’s
performance.
Stock
Connect is generally available only on business days when both the mainland
Chinese and the Hong Kong markets
are open and when banks in both markets are open on the corresponding
settlement days. Therefore, due to differences in trading days,
a fund may not be able to trade its A-Shares and may also be subject to the risk of price fluctuations in
A-Shares on days when Stock Connect is not trading. The mainland
Chinese and Hong Kong regulators have announced in August 2022
to enhance the trading calendar for Stock Connect, to allow Stock Connect trading on all the days which
are trading days in both mainland Chinese and Hong Kong markets, even when the corresponding settlement days
would be public holidays. However, as of the date of this SAI, such enhancements have not been implemented and
detailed operational rules are yet to be issued. As such, it is uncertain how such enhanced trading calendar will be
operated.
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. Because of the way in which A-Shares are held in Stock Connect, the precise
nature and rights of a fund are not well defined under the law of the PRC and a fund may not be able to exercise
the rights of a shareholder and may be limited in their ability to pursue claims against the issuers of a security. Eligible
securities
invested through
Stock Connect generally may not be sold, purchased or otherwise
transferred other than through Stock Connect in accordance with
applicable rules. The list of securities
eligible to be traded through Stock Connect may change from time
to time. When a security is
recalled from the list of securities eligible for trading on
Stock Connect, a fund may only sell, but not buy, the securities, which could adversely affect the fund’s investment strategy.
Current tax regulations in PRC, including a temporary exemption from PRC income tax and PRC business tax
for capital gains realized from trading on Stock Connect, are subject to change. Any such change could have an adverse
effect on a fund’s returns.
European
investment. European financial markets have recently experienced
volatility 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. Most countries in Western Europe are members of
the European Union (EU), which faces major issues involving its membership, structure, procedures and policies. European
countries that are members of the Economic and Monetary Union of the European Union ((EMU), comprised of
the EU members that have adopted the Euro currency) are subject to restrictions on inflation rates, interest rates, deficits,
and debt levels, as well as fiscal and monetary controls. European countries are significantly affected by fiscal and
monetary controls implemented by the EMU, and it is possible that the timing and substance of these controls may
not address the needs of all EMU member countries. In addition, the fiscal policies of a single member state can
impact and pose economic risks to the EU as a whole. 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
would have significant negative effects on European financial markets.
In
a referendum held on June 23, 2016, citizens of the United Kingdom voted to leave the EU, creating economic, political
and legal uncertainty. Consequently, the United Kingdom government, pursuant to the Treaty of Lisbon (the Treaty),
gave notice of its withdrawal in March 2017 and began negotiations with the EU Council to agree to terms for
the United Kingdom’s withdrawal from the EU. The Treaty provided for an initial two-year negotiation period, which was
extended by agreement of the parties. 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 negotiated and
finalized a trade deal with the EU, the EU-UK Trade and Cooperation Agreement (the Trade Agreement). As a result, as
of January 1, 2021 the United Kingdom is no longer part of the EU customs union and single market, nor is it subject
to EU policies and international agreements. The Trade Agreement, among other things, provides for zero tariffs
and zero quotas on all goods that comply with appropriate rules of origin and establishes the treatment and level
of access the United Kingdom and EU have agreed to grant each other’s service suppliers and investors. The Trade
Agreement also covers digital trade, intellectual property, public procurement, aviation and road transport, energy, fisheries,
social security coordination, law enforcement and judicial cooperation in criminal matters, thematic cooperation and
participation in EU programs. Even with the Trade Agreement in place, the United Kingdom’s withdrawal from the
EU may create new barriers to trade in goods and services and to cross-border mobility and exchanges.
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 and uncertainty remains
regarding the treatment of cross-border trade in financial services. While the Trade Agreement includes certain provisions
to support cross-border trade in financial services, it is not comprehensively addressed in the Trade Agreement and
the parties continue to discuss ‘equivalence’ rights to allow market access for cross-border financial services. In March
2021, the EU and the United Kingdom reached a memorandum of understanding, establishing a framework for
voluntary regulatory cooperation on financial services. Without access to the EU single market, certain financial services
in the United Kingdom may move outside of the United Kingdom as a result of its withdrawal from the EU. In
addition, financial services firms in the United Kingdom may need to move staff and comply with two separate sets
of rules or lose business to financial services firms in the EU. Furthermore, the withdrawal from the EU 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 continued 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 withdrawal from the EU, the British economy
and its currency may be negatively impacted by changes to its economic and political relations with the EU. Additional
member countries seeking to withdraw from the EU would likely cause additional market disruption globally and
introduce new legal and regulatory uncertainties.
The
long-term impact of the United Kingdom’s withdrawal from the EU is still unknown and could have adverse economic and
political effects on the United Kingdom, the EU and its member countries, and the global economy, including financial
markets and asset valuations.
Additionally,
the manner in which the EU responded to the global recession and sovereign debt issues raised questions about
its ability to react quickly to rising borrowing costs and a potential default by Greece and other countries on their
sovereign debt and also revealed a lack of cohesion in dealing with the fiscal problems of member states. Many European
countries continue to suffer from high unemployment rates. Since 2010, several countries, including Greece, Italy,
Spain, Ireland and Portugal, agreed to at least one series of multi-year bailout loans from the European Central Bank,
International Monetary Fund, and other institutions. To address budget deficits and public debt concerns, a number
of European countries have imposed strict austerity measures and comprehensive financial and labor market reforms.
In addition, social unrest, including protests against the austerity measures and domestic terrorism, could decrease
tourism, lower consumer confidence, and otherwise impede financial recovery in Europe.
Emerging
markets. In general, the Advisor considers “emerging
markets”
to include any country that is defined as an emerging market
or developing economy by The International Bank for Reconstruction and Development (the World Bank),
the International Finance Corporation or the United Nations or its authorities. The risks described above, including the
risks of nationalization or expropriation of assets, typically are increased in connection with investments in “emerging
markets.”
For example, political and economic structures in these countries may be in their infancy and developing rapidly,
and such countries may lack the social, political and economic stability characteristic of more developed countries
(including
amplified risk of war and terrorism). Certain of these countries have in the past failed to recognize private property
rights and have at times nationalized and expropriated the assets of private companies. Investments in emerging markets
may be considered speculative.
The
currencies of certain emerging market countries have experienced devaluations relative to the US dollar, and future
devaluations may adversely affect the value of assets denominated in such currencies. In addition, currency hedging
techniques may be unavailable in certain emerging market countries. Many emerging market countries have experienced
substantial, and in some periods extremely high, rates of inflation or deflation for many years, and future inflation
may adversely affect the economies and securities markets of such countries.
In
addition, unanticipated political or social developments may affect the value of investments in emerging markets and
the availability of additional investments in these markets. Any change in the leadership or politics of emerging market
countries, or the countries that exercise a significant influence over those countries, may halt the expansion of
or reverse the liberalization of foreign investment policies now occurring and adversely affect existing investment opportunities.
The small size, limited trading volume and relative inexperience of the securities markets in these countries may
make investments in securities traded in emerging markets illiquid and more volatile than investments in securities traded
in more developed countries. For example, limited market size may cause prices to be unduly influenced by traders
who control large positions. In addition, a fund may be required to establish special custodial or other arrangements before
making investments in securities traded in emerging markets. There may be little financial or accounting information available
with respect to issuers of emerging market securities, and it may be difficult as a result to assess the value of
prospects of an investment in such securities. Investors in emerging markets companies may face limited avenues for
recourse due to limited corporate governance standards and difficulty in pursuing legal actions such as fraud claims.
The
risk also exists that an emergency situation may arise in one or more emerging markets as a result of which trading
of securities may cease or may be substantially curtailed and prices for a fund’s securities in such markets may
not be readily available. A fund may suspend redemption of its shares for any period during which an emergency exists.
Frontier
market countries. Frontier market countries generally have smaller
economies and less developed capital markets than traditional
emerging or developing markets, and, as a result, the risks of investing in emerging or developing market
countries are magnified in frontier market countries. The economies of frontier market countries are less correlated to
global economic cycles than those of their more developed counterparts and their markets have low trading volumes and
the potential for extreme price volatility and illiquidity. This volatility may be further heightened by the actions of a
few major investors. For example, a substantial increase or decrease in cash flows of mutual funds investing in these
markets could significantly affect local stock prices and, therefore, the price of fund shares. These factors make investing
in frontier market countries significantly riskier than in other countries and any one of them could cause the price
of a fund’s shares to decline.
Governments
of many frontier market countries in which a fund may invest may exercise substantial influence over many
aspects of the private sector. In some cases, the governments of such frontier market countries may own or control
certain companies. Accordingly, government actions could have a significant effect on economic conditions in
a frontier market country and on market conditions, prices and yields of securities in a fund’s portfolio. Moreover, the
economies of frontier market countries may be heavily dependent upon international trade and, accordingly, have been
and may continue to be, adversely affected by trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries with which they trade. These
economies also have been and may continue to be adversely affected by economic conditions in the countries with
which they trade.
Investment
in equity securities of issuers operating in certain frontier market countries may be restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude foreign investment in equity securities of
issuers operating in certain frontier market countries and increase the costs and expenses of a fund. Certain frontier market
countries require governmental approval prior to investments by foreign persons, limit the amount of investment by
foreign persons in a particular issuer, limit the investment by foreign persons only to a specific class of securities
of
an issuer that may have less advantageous rights than the classes available for purchase by domiciliaries of the countries
and/or impose additional taxes on foreign investors. Certain frontier market countries may also restrict investment opportunities
in issuers in industries deemed important to national interests.
Frontier
market countries may require governmental approval for the repatriation of investment income, capital or the proceeds
of sales of securities by foreign investors, such as a fund. In addition, if deterioration occurs in a frontier market
country’s balance of payments, the country could impose temporary restrictions on foreign capital remittances. A
fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation of
capital, as well as by the application to a fund of any restrictions on investments. Investing in local markets in frontier
market countries may require a fund to adopt special procedures, seek local government approvals or take other
actions, each of which may involve additional costs to a fund.
There
may be no centralized securities exchange on which securities are traded in frontier market countries. Also, securities
laws in many frontier market countries are relatively new and unsettled. Therefore, laws regarding foreign investment
in frontier market securities, securities regulation, title to securities, and shareholder rights may change quickly
and unpredictably.
Banks
in frontier market countries used to hold a fund’s securities and other assets in that country may lack the same operating
experience as banks in developed markets. In addition, in certain countries there may be legal restrictions or
limitations on the ability of a fund to recover assets held by a foreign bank in the event of the bankruptcy of the bank.
Settlement systems in frontier markets may be less well organized than in the developed markets. As a result, there
is greater risk than in developed countries that settlements will take longer and that cash or securities of a fund may
be in jeopardy because of failures of or defects in the settlement systems.
Certain
of the foregoing risks may also apply to some extent to securities of US issuers that are denominated in foreign
currencies or that are traded in foreign markets, or securities of US issuers having significant foreign operations.
Supranational
Entities. Supranational entities are international organizations
designated or supported by governmental entities to promote economic
reconstruction or development and international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development (the World Bank), The Asian Development
Bank and the InterAmerican Development Bank. Obligations of supranational entities are backed by the
guarantee of one or more foreign governmental parties which sponsor the entity.
Funding
Agreements. Funding agreements are contracts issued by insurance
companies that provide investors the right to receive a variable
rate of interest and the full return of principal at maturity. Funding agreements also include a
put option that allows a fund to terminate the agreement at a specified time prior to maturity. Funding agreements generally
offer a higher yield than other variable securities with similar credit ratings. The primary risk of a funding agreement
is the credit quality of the insurance company that issues it.
Illiquid
Securities. For funds other than money market funds, 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. For money market funds operated in accordance with Rule 2a-7 under the 1940 Act, limitations
on investment in illiquid securities include that a fund may not hold more than 5% of its total assets in illiquid
securities, defined as securities that cannot be sold or disposed of in the ordinary course of business within seven
calendar days at approximately the value ascribed to them by the fund. Money market funds are not subject to
the requirements of Rule 22e-4 under the 1940 Act and therefore are not subject to the LRM Program. 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 mutual fund might be unable to dispose of illiquid securities
promptly or at reasonable prices and might thereby experience difficulty satisfying redemptions within seven days.
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.
Mutual
funds do not typically hold a significant amount of illiquid securities because of the potential for delays on resale
and uncertainty in valuation. A mutual 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.
A
large institutional market has developed for certain securities that are not registered under the 1933 Act, including repurchase
agreements, commercial paper, non-US securities, municipal securities and corporate bonds and notes. Institutional
investors depend on an efficient institutional market in which the unregistered security can be readily resold
or on an issuer’s ability to honor a demand for repayment. The fact that there are contractual or legal restrictions on
resale of such investments to the general public or to certain institutions may not be indicative of their liquidity.
Impact
of Large Redemptions and Purchases of Fund Shares. From time
to time, shareholders of a fund (which may include affiliated
and/or non-affiliated registered investment companies that invest in a fund) may make relatively large
redemptions or purchases of fund shares. These transactions may cause a fund to have to sell securities or invest
additional cash, as the case may be. While it is impossible to predict the overall impact of these transactions over
time, there could be adverse effects on a fund’s performance to the extent that a fund may be required to sell securities
or invest cash at times when it would not otherwise do so. These transactions could also accelerate the realization
of taxable income if sales of securities resulted in capital gains or other income and could also increase transaction
costs, which may impact a fund’s expense ratio and adversely affect a fund’s performance.
Interfund
Borrowing and Lending Program. The DWS funds have received exemptive
relief from the SEC, which permits the funds to participate in
an interfund lending program. The interfund lending program allows the participating funds
to borrow money from and loan money to each other for temporary or emergency purposes. The program is subject
to a number of conditions designed to ensure fair and equitable treatment of all participating funds, including the
following: (1) no fund may borrow money through the program unless it receives a more favorable interest rate than
a rate approximating the lowest interest rate at which bank loans would be available to any of the participating funds
under a loan agreement; and (2) no fund may lend money through the program unless it receives a more favorable return
than that available from an investment in repurchase agreements and, to the extent applicable, money market cash
sweep arrangements. In addition, a fund may participate in the program only if and to the extent that such participation is
consistent with a fund’s investment objectives and policies (for instance, money market funds would normally participate only
as lenders and tax exempt funds only as borrowers). Interfund loans and borrowings have a maximum duration of
seven days. Loans may be called on one day’s notice. A fund may have to borrow from a bank at a higher interest rate
if an interfund loan is called or not renewed. Any delay in repayment to a lending fund could result in a lost investment opportunity
or additional costs. The program is subject to the oversight and periodic review of the Board.
Mortgage-Backed
Securities. Mortgage-backed securities represent direct or indirect
participations in or obligations collateralized by and payable
from mortgage loans secured by real property, which may include subprime mortgages. A
fund may invest in mortgage-backed securities issued or guaranteed by (i) US Government agencies or instrumentalities such
as the Government National Mortgage Association (GNMA) (also known as Ginnie Mae), the Federal National Mortgage
Association (FNMA) (also known as Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC) (also
known as Freddie Mac) or (ii) other issuers, including private companies.
GNMA
is a government-owned corporation that is an agency of the US Department of Housing and Urban Development. It
guarantees, with the full faith and credit of the United States, full and timely payment of all monthly principal and interest
on its mortgage-backed securities. Until recently, FNMA and FHLMC were government-sponsored corporations owned
entirely by private stockholders. Both issue mortgage-related securities that contain guarantees as to timely payment
of interest and principal but that are not backed by the full faith and credit of the US government. The value of
the companies’ securities fell sharply in 2008 due to concerns that the firms did not have sufficient capital to offset losses.
In mid-2008, the US Treasury was authorized to increase the size of home loans that FNMA and FHLMC could purchase
in certain residential areas and, until 2009, to lend FNMA and FHLMC emergency funds and to purchase the
companies’ stock. In September 2008, the US Treasury announced that FNMA and FHLMC had been placed in conservatorship
by the Federal Housing Finance Agency (FHFA), a newly created independent regulator created under the
Federal Housing Finance Regulatory Reform Act of 2008 (Reform Act). In addition to placing the companies in conservatorship,
the US Treasury announced three additional steps that it intended to take with respect to FNMA and
FHLMC. First, the US Treasury has entered into senior preferred stock purchase agreements (“SPSPAs”)
under which, if the FHFA determines that FNMA’s or FHLMC’s
liabilities have exceeded its assets under generally accepted accounting
principles, the US Treasury will contribute cash capital to the company in an amount equal to the difference between
liabilities and assets. The SPSPAs are designed to provide protection to the senior and subordinated debt and
the mortgage-backed securities issued by FNMA and FHLMC. Second, the US Treasury established a new secured lending
credit facility that is available to FNMA and FHLMC, which terminated on December 31, 2009. Third, the US Treasury
initiated a temporary program to purchase FNMA and FHLMC mortgage-backed securities, which terminated on
December 31, 2009. No assurance can be given that the US Treasury initiatives discussed above with respect to the
debt and mortgage-backed securities issued by FNMA and FHLMC will be successful, or, with respect to initiatives that
have expired, that the US Treasury would undertake similar initiatives in the future.
FHFA,
as conservator or receiver for FNMA and FHLMC, has the power to repudiate any contract entered into by FNMA
or FHLMC prior to FHFA’s appointment as conservator or receiver, as applicable, if FHFA determines, in its sole
discretion, that performance of the contract is burdensome and that repudiation of the contract promotes the orderly
administration of FNMA’s or FHLMC’s affairs. The Reform Act requires FHFA to exercise its right to repudiate any
contract within a reasonable period of time after its appointment as conservator or receiver. FHFA, in its capacity as
conservator, has indicated that it has no intention to repudiate the guaranty obligations of FNMA or FHLMC because FHFA
views repudiation as incompatible with the goals of the conservatorship. However, in the event that FHFA, as conservator
or if it is later appointed as receiver for FNMA or FHLMC, were to repudiate any such guaranty obligation, the
conservatorship or receivership estate, as applicable, would be liable for actual direct compensatory damages in accordance
with the provisions of the Reform Act. Any such liability could be satisfied only to the extent of FNMA’s or
FHLMC’s assets available therefor.
In
the event of repudiation, the payments of interest to holders of FNMA or FHLMC mortgage-backed securities would be
reduced if payments on the mortgage loans represented in the mortgage loan groups related to such mortgage-backed securities
are not made by the borrowers or advanced by the servicer. Any actual direct compensatory damages for repudiating
these guaranty obligations may not be sufficient to offset any shortfalls experienced by such mortgage-backed security
holders. Further, in its capacity as conservator or receiver, FHFA has the right to transfer or sell any asset or liability
of FNMA or FHLMC without any approval, assignment or consent. Although FHFA has stated that it has no present
intention to do so, if FHFA, as conservator or receiver, were to transfer any such guaranty obligation to another party,
holders of FNMA or FHLMC mortgage-backed securities would have to rely on that party for satisfaction of the guaranty
obligation and would be exposed to the credit risk of that party.
In
addition, certain rights provided to holders of mortgage-backed securities issued by FNMA and FHLMC under the operative
documents related to such securities may not be enforced against FHFA, or enforcement of such rights may
be delayed, during the conservatorship or any future receivership. The operative documents for FNMA and FHLMC mortgage-backed
securities may provide (or with respect to securities issued prior to the date of the appointment of the
conservator may have provided) that upon the occurrence of an event of default on the part of FNMA or FHLMC, in
its capacity as guarantor, which includes the appointment of a conservator or receiver, holders of such mortgage-backed securities
have the right to replace FNMA or FHLMC as trustee if the requisite percentage of mortgage-backed securities holders
consent. The Reform Act prevents mortgage-backed security holders from enforcing such rights if the event of
default arises solely because a conservator or receiver has been appointed. The Reform Act also provides that no person
may exercise any right or power to terminate, accelerate or declare an event of default under certain contracts to
which FNMA or FHLMC is a party, or obtain possession of or exercise control over any property of FNMA or FHLMC, or
affect any contractual rights of FNMA or FHLMC, without the approval of FHFA, as conservator or receiver, for a period
of forty-five (45) or ninety (90) days following the appointment of FHFA as conservator or receiver, respectively.
On
June 3, 2019, under the Federal Housing Finance Agency’s “Single
Security Initiative”
intended to maximize liquidity for both Fannie Mae and Freddie
Mac mortgage-backed securities in the TBA security market, Fannie Mae and Freddie Mac
expect to start issuing uniform mortgage-backed securities (“UMBS”)
in place of their current separate offerings of TBA-eligible
mortgage-backed securities. The issuance of UMBS may not achieve the intended results and may have
unanticipated or adverse effects on the market for mortgage-backed securities.
The
market value and yield of these mortgage-backed securities can vary due to market interest rate fluctuations and early
prepayments of underlying mortgages. These securities represent ownership in a pool of federally insured mortgage loans
with a maximum maturity of 30 years. A decline in interest rates may lead to a faster rate of repayment of the underlying
mortgages, and may expose a fund to a lower rate of return upon reinvestment. To the extent that such mortgage-backed
securities are held by a fund, the prepayment right will tend to limit to some degree the increase in
net asset value of a fund because the value of the mortgage-backed securities held by a fund may not appreciate as
rapidly as the price of non-callable debt securities. Mortgage-backed securities are subject to the risk of prepayment and
the risk that the underlying loans will not be repaid. Because principal may be prepaid at any time, mortgage-backed securities
may involve significantly greater price and yield volatility than traditional debt securities. At times, a fund may
invest in securities that pay higher than market interest rates by paying a premium above the securities’ par value. Prepayments
of these securities may cause losses on securities purchased at a premium. Unscheduled payments, which
are made at par value, will cause a fund to experience a loss equal to any unamortized premium.
When
interest rates rise, mortgage prepayment rates tend to decline, thus lengthening the life of a mortgage-related security
and increasing the price volatility of that security, affecting the price volatility of a fund’s shares. The negative effect
of interest rate increases on the market-value of mortgage backed securities is usually more pronounced than it
is for other types of fixed-income securities potentially increasing the volatility of a fund.
Interests
in pools of mortgage-backed securities differ from other forms of debt securities, which normally provide for
periodic payment of interest in fixed amounts with principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and principal payments. In effect, these payments
are a “pass-through”
of the monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional payments are caused by repayments of principal
resulting from the sale of the underlying property, refinancing or foreclosure, net of fees or costs which may be
incurred. Some mortgage-related securities (such as securities issued by GNMA) are described as “modified
pass-through.”
These securities entitle the holder to receive all interest and
principal payments owed on the mortgage pool, net of certain
fees, at the scheduled payment dates regardless of whether or not the mortgagor actually makes the payment.
Commercial
banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary
market issuers also create pass-through pools of conventional mortgage loans. Such issuers may, in addition, be
the originators and/or servicers of the underlying mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of interest than government and
government-related pools because there are no direct or indirect government or agency guarantees of payments. However,
timely payment of interest and principal of these pools may be supported by various forms of insurance or
guarantees,
including individual loan, title, pool and hazard insurance and letters of credit. The insurance and guarantees are
issued by governmental entities, private insurers and the mortgage poolers. Such insurance and guarantees and the
creditworthiness of the issuers thereof will be considered in determining whether a mortgage-related security meets
a fund’s investment quality standards. There can be no assurance that the private insurers or guarantors can meet
their obligations under the insurance policies or guarantee arrangements. A fund may buy mortgage-related securities
without insurance or guarantees. Although the market for such securities is becoming increasingly liquid, securities
issued by certain private organizations may not be readily marketable.
Due
to prepayments of the underlying mortgage instruments, mortgage-backed securities do not have a known actual maturity.
In the absence of a known maturity, market participants generally refer to an estimated average life. An average
life estimate is a function of an assumption regarding anticipated prepayment patterns. The assumption is based
upon current interest rates, current conditions in the relevant housing markets and other factors. The assumption is
necessarily subjective, and thus different market participants could produce somewhat different average life estimates with
regard to the same security. There can be no assurance that the average estimated life of portfolio securities will
be the actual average life of such securities.
Fannie
Mae Certificates. Fannie Mae is a federally chartered corporation
organized and existing under the Federal National Mortgage Association
Charter Act of 1938. The obligations of Fannie Mae are obligations solely of Fannie Mae
and are not backed by the full faith and credit of the US government.
Each
Fannie Mae Certificate will represent a pro rata interest in one or more pools of FHA Loans, VA Loans or conventional mortgage
loans (i.e., mortgage loans that are not insured or guaranteed by any governmental agency) of the following types:
(1) fixed-rate level payment mortgage loans; (2) fixed-rate growing equity mortgage loans; (3) fixed-rate graduated payment
mortgage loans; (4) variable rate mortgage loans; (5) other adjustable rate mortgage loans; and (6) fixed-rate and
adjustable mortgage loans secured by multifamily projects.
Freddie
Mac Certificates. Freddie Mac is a federally chartered corporation
of the United States created pursuant to the Emergency Home Finance
Act of 1970, as amended (FHLMC Act). The obligations of Freddie Mac are obligations solely
of Freddie Mac and are not backed by the full faith and credit of the US government.
Freddie
Mac Certificates represent a pro rata interest in a group of conventional mortgage loans (Freddie Mac Certificate group)
purchased by Freddie Mac. The mortgage loans underlying the Freddie Mac Certificates will consist of fixed-rate or
adjustable rate mortgage loans with original terms to maturity of between ten and thirty years, substantially all of which
are secured by first liens on one- to four-family residential properties or multifamily projects. Each mortgage loan
must meet the applicable standards set forth in the FHLMC Act. A Freddie Mac Certificate group may include whole
loans, participating interests in whole loans and undivided interests in whole loans and participations comprising another
Freddie Mac Certificate group.
Ginnie
Mae Certificates. The National Housing Act of 1934, as amended
(Housing Act), authorizes Ginnie Mae to guarantee the timely
payment of the principal of and interest on certificates that are based on and backed by a pool of mortgage loans
insured by the Federal Housing Administration under the Housing Act, or Title V of the Housing Act of 1949 (FHA
Loans), or guaranteed by the Department of Veterans Affairs under the Servicemen’s Readjustment Act of 1944, as
amended (VA Loans), or by pools of other eligible mortgage loans. The Housing Act provides that the full faith and credit
of the US government is pledged to the payment of all amounts that may be required to be paid under any Ginnie
Mae guaranty. In order to meet its obligations under such guaranty, Ginnie Mae is authorized to borrow from the
US Treasury with no limitations as to amount.
The
Ginnie Mae Certificates in which a fund invests will represent a pro rata interest in one or more pools of the following
types of mortgage loans: (1) fixed-rate level payment mortgage loans; (2) fixed-rate graduated payment mortgage loans;
(3) fixed-rate growing equity mortgage loans; (4) fixed-rate mortgage loans secured by manufactured (mobile) homes;
(5) mortgage loans on multifamily residential properties under construction; (6) mortgage loans on completed multifamily
projects; (7) fixed-rate mortgage loans as to which escrowed funds are used to reduce the borrower’s
monthly
payments during the early years of the mortgage loans (“buy
down”
mortgage loans); (8) mortgage loans that provide for adjustments
in payments based on periodic changes in interest rates or in other payment terms of the
mortgage loans; and (9) mortgage backed serial notes.
Multiple
Class Mortgage-Backed Securities. A fund may invest in multiple
class mortgage-backed securities including collateralized mortgage
obligations (CMOs) and real estate mortgage investment conduits (REMIC Certificates). These securities
may be issued by US government agencies and instrumentalities such as Fannie Mae or Freddie Mac or by
trusts formed by private originators of, or investors in, mortgage loans, including savings and loan associations, mortgage
bankers, commercial banks, insurance companies, investment banks and special purpose subsidiaries of the
foregoing. In general, CMOs are debt obligations of a legal entity that are collateralized by a pool of mortgage loans
or mortgage-backed securities the payments on which are used to make payments on the CMOs or multiple class
mortgage-backed securities. REMIC Certificates represent beneficial ownership interests in a REMIC trust, generally consisting
of mortgage loans or Fannie Mae, Freddie Mac or Ginnie Mae guaranteed mortgage-backed securities. To the
extent that a CMO or REMIC Certificate is collateralized by Ginnie Mae guaranteed mortgage-backed securities, holders
of the CMO or REMIC Certificate receive all interest and principal payments owed on the mortgage pool, net of
certain fees, regardless of whether the mortgagor actually makes the payments, as a result of the GNMA guaranty, which
is backed by the full faith and credit of the US government. The obligations of Fannie Mae or Freddie Mac under their
respective guaranty of the REMIC Certificates are obligations solely of Fannie Mae or Freddie Mac, respectively.
Fannie
Mae REMIC Certificates are issued and guaranteed as to timely distribution of principal and interest by Fannie Mae.
These certificates are obligations solely of Fannie Mae and are not backed by the full faith and credit of the US government.
In addition, Fannie Mae will be obligated to distribute the principal balance of each class of REMIC Certificates in
full, whether or not sufficient funds are otherwise available.
Freddie
Mac guarantees the timely payment of interest on Freddie Mac REMIC Certificates and also guarantees the payment
of principal as payments are required to be made on the underlying mortgage participation certificates (PCs). These
certificates are obligations solely of Freddie Mac and are not backed by the full faith and credit of the US government. PCs
represent undivided interests in specified level payment residential mortgages or participations therein purchased by
Freddie Mac and placed in a PC pool. With respect to principal payments on PCs, Freddie Mac generally guarantees ultimate
collection of all principal of the related mortgage loans without offset or deduction. Freddie Mac also guarantees timely
payment of principal of certain PCs.
CMOs
and REMIC Certificates are issued in multiple classes. Each class of CMOs or REMIC Certificates, often referred to
as a “tranche,”
is issued at a specific adjustable or fixed interest rate and must be fully retired no later than its final distribution
date. Principal prepayments on the underlying mortgage loans or the mortgage-backed securities underlying the
CMOs or REMIC Certificates may cause some or all of the classes of CMOs or REMIC Certificates to be retired substantially
earlier than their final distribution dates. Generally, interest is paid or accrues on all classes of CMOs or REMIC
Certificates on a monthly basis.
The
principal of and interest on the mortgage-backed securities may be allocated among the several tranches in various ways.
In certain structures (known as sequential pay CMOs or REMIC Certificates), payments of principal, including any
principal prepayments, on the mortgage-backed securities generally are applied to the classes of CMOs or REMIC Certificates
in the order of their respective final distribution dates. Thus, no payment of principal will be made on any class
of sequential pay CMOs or REMIC Certificates until all other classes having an earlier final distribution date have been
paid in full. Additional structures of CMOs and REMIC Certificates include, among others, “parallel
pay”
CMOs and REMIC Certificates. Parallel pay CMOs or REMIC Certificates
are those which are structured to apply principal payments and
prepayments of the mortgage-backed securities to two or more classes concurrently on a proportionate or
disproportionate basis. These simultaneous payments are taken into account in calculating the final distribution date
of each class.
A
wide variety of REMIC Certificates may be issued in parallel pay or sequential pay structures. These securities include accrual
certificates (Z Bonds), which only accrue interest at a specified rate until all other certificates having an earlier final
distribution date have been retired and are converted thereafter to an interest-paying security, and planned amortization class
(PAC) certificates, which are parallel pay REMIC Certificates that generally require that specified amounts of
principal
be applied on each payment date to one or more classes of REMIC Certificates (PAC Certificates), even though
all other principal payments and prepayments of the mortgage-backed securities are then required to be applied to
one or more other classes of the PAC Certificates. The scheduled principal payments for the PAC Certificates generally have
the highest priority on each payment date after interest due has been paid to all classes entitled to receive interest currently.
Shortfalls, if any, are added to the amount payable on the next payment date. The PAC Certificate payment schedule
is taken into account in calculating the final distribution date of each class of PAC. In order to create PAC tranches,
one or more tranches generally must be created that absorb most of the volatility in the underlying mortgage-backed securities.
These tranches tend to have market prices and yields that are much more volatile than other PAC classes.
The
prices of certain CMOs and REMIC Certificates, depending on their structure and the rate of prepayments, may be
volatile. Some CMOs may also not be as liquid as other securities. In addition, the value of a CMO or REMIC Certificate,
including those collateralized by mortgage-backed securities issued or guaranteed by US government agencies or
instrumentalities, may be affected by other factors, such as the availability of information concerning the pool and its
structure, the creditworthiness of the servicing agent for the pool, the originator of the underlying assets, or the entities
providing credit enhancement. The value of these securities also can depend on the ability of their servicers to
service the underlying collateral and is, therefore, subject to risks associated with servicers' performance, including mishandling
of documentation. A fund is permitted to invest in other types of mortgage-backed securities that may be
available in the future to the extent consistent with its investment policies and objective.
Impact
of Sub-Prime Mortgage Market. A fund may invest in mortgage-backed,
asset-backed and other fixed-income securities whose value and
liquidity may be adversely affected by the critical downturn in the sub-prime mortgage lending
market in the US. Sub-prime loans, which have higher interest rates, are made to borrowers with low credit ratings
or other factors that increase the risk of default. Concerns about widespread defaults on sub-prime loans have also
created heightened volatility and turmoil in the general credit markets. As a result, a fund’s investments in certain fixed-income
securities may decline in value, their market value may be more difficult to determine, and a fund may have
more difficulty disposing of them.
Municipal
Securities. Municipal obligations are issued by or on behalf
of states, territories and possessions of the United States and
their political subdivisions, agencies and instrumentalities and the District of Columbia to obtain funds
for various public purposes. The interest on these obligations is generally exempt from regular federal income tax
in the hands of most investors. The two principal classifications of municipal obligations are “notes”
and “bonds.”
Municipal notes and bonds have different maturities and a fund
may acquire “notes”
and “bonds”
with maturities that meets its particular investment policies
and restrictions set forth in its prospectus.
Municipal
notes are generally used to provide for short-term capital needs. Municipal notes include: Tax Anticipation Notes,
Revenue Anticipation Notes, Bond Anticipation Notes, and Construction Loan Notes. Tax Anticipation Notes are
sold to finance working capital needs of municipalities. They are generally payable from specific tax revenues expected
to be received at a future date, such as income, sales, property, use and business taxes. Revenue Anticipation Notes
are issued in expectation of receipt of other types of revenue, such as federal revenues available under federal revenue
sharing programs. Bond Anticipation Notes are sold to provide interim financing until long-term bond financing can
be arranged. In most cases, the long-term bonds provide the funds needed for the repayment of the notes. Construction Loan
Notes are sold to provide construction financing. After the projects are successfully completed and accepted, many
projects receive permanent financing through the Federal Housing Administration under Fannie Mae (Federal National
Mortgage Association) or Ginnie Mae (Government National Mortgage Association). These notes are secured by
mortgage notes insured by the Federal Housing Authority; however, the proceeds from the insurance may be less than
the economic equivalent of the payment of principal and interest on the mortgage note if there has been a default. The
obligations of an issuer of municipal notes are generally secured by the anticipated revenues from taxes, grants or
bond financing. An investment in such instruments, however, presents a risk that the anticipated revenues will not be
received or that such revenues will be insufficient to satisfy the issuer’s payment obligations under the notes or that
refinancing will be otherwise unavailable. There are, of course, a number of other types of notes issued for different purposes
and secured differently from those described above.
Municipal
bonds, which meet longer-term capital needs and generally have maturities of more than one year when issued,
have two principal classifications: “general
obligation”
bonds and “revenue”
bonds. Issuers of general obligation bonds include states, counties,
cities, towns and regional districts. The proceeds of these obligations are used to fund
a wide range of public projects including the construction or improvement of schools, highways and roads, water and
sewer systems and a variety of other public purposes. The basic security behind general obligation bonds is the issuer’s
pledge of its full faith, credit, and taxing power for the payment of principal and interest. The taxes that can be
levied for the payment of debt service may be limited or unlimited as to rate, amount or special assessments.
The
principal security for a revenue bond is generally the net revenues derived from a particular facility or group of facilities
or, in some cases, from the proceeds of a special excise or other specific revenue source. Revenue bonds have
been issued to fund a wide variety of capital projects including: electric, gas, water and sewer systems; highways, bridges
and tunnels; port and airport facilities; colleges and universities; and hospitals. Although the principal security behind
these bonds varies widely, many provide additional security in the form of a debt service reserve fund whose monies
may also be used to make principal and interest payments on the issuer’s obligations. Housing finance authorities have
a wide range of security including partially or fully-insured, rent-subsidized or collateralized mortgages, and the net
revenues from housing or other public projects. In addition to a debt service reserve fund, some authorities provide further
security in the form of a state’s ability (without obligation) to make up deficiencies in the debt reserve fund. Lease
rental bonds issued by a state or local authority for capital projects are secured by annual lease rental payments from
the state or locality to the authority sufficient to cover debt service on the authority’s obligations.
Some
issues of municipal bonds are payable from United States Treasury bonds and notes or agency obligations held in
escrow by a trustee, frequently a commercial bank. The interest and principal on these US Government securities are
sufficient to pay all interest and principal requirements of the municipal securities when due. Some escrowed Treasury
securities are used to retire municipal bonds at their earliest call date, while others are used to retire municipal bonds
at their maturity.
Securities
purchased for a fund may include variable/floating rate instruments, variable mode instruments, put bonds, and
other obligations which have a specified maturity date but also are payable before maturity after notice by the holder
(demand obligations). Demand obligations are considered for a fund’s purposes to mature at the demand date.
In
addition, there are a variety of hybrid and special types of municipal obligations as well as numerous differences in
the security of municipal obligations both within and between the two principal classifications (i.e., notes and bonds) discussed
above.
An
entire issue of municipal securities may be purchased by one or a small number of institutional investors such as a
fund. Thus, such an issue may not be said to be publicly offered. Unlike the equity securities of operating companies or
mutual funds which must be registered under the 1933 Act prior to offer and sale unless an exemption from such registration
is available, municipal securities, whether publicly or privately offered, may nevertheless be readily marketable. A
secondary market exists for municipal securities which have been publicly offered as well as securities which have not
been publicly offered initially but which may nevertheless be readily marketable. Municipal securities purchased for
a fund are subject to the limitations on holdings of securities which are not readily marketable based on whether it
may be sold in a reasonable time consistent with the customs of the municipal markets (usually seven days) at a desirable
price (or interest rate). A fund believes that the quality standards applicable to its investments enhance marketability.
In addition, stand-by commitments, participation interests and demand obligations also enhance marketability.
The
municipal securities market can be susceptible to increases in volatility and decreases in liquidity. Liquidity can decline
unpredictably in response to overall economic conditions or credit tightening. Increases in volatility and decreases in
liquidity may be caused by a rise in interest rates (or the expectation of a rise in interest rates). Municipal bonds may
be more susceptible to downgrades or defaults during recessions or similar periods of economic stress, which in
turn could affect the market values and marketability of many or all municipal obligations of issuers in a state, territory, commonwealth
or possession. For example, the COVID-19 pandemic has significantly stressed the financial resources of
some 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. Factors contributing
to the economic stress on municipalities may include the costs associated with combatting the COVID-19
pandemic,
lower sales tax revenue as a result of consumers cutting back spending, and lower income tax revenue as
a result of a higher unemployment rate. Since some municipal obligations may be secured or guaranteed by banks and
other institutions, the risk to a 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 such events were to occur, the value of the security could decrease or the value could
be lost entirely, and it may be difficult or impossible for a fund to sell the security at the time and the price that normally
prevails in the market. In light of the uncertainty surrounding the magnitude, duration, reach, costs and effects of
the pandemic, as well as actions that have been or could be taken by governmental authorities or other third parties, it
is difficult to predict the level of financial stress and duration of such stress states and municipalities may experience.
In
addition to being downgraded, provisions of the federal bankruptcy statutes relating to the adjustment of debts of political
subdivisions and authorities of states of the US provide that, in certain circumstances, such subdivisions or authorities
may be authorized to initiate bankruptcy proceedings without prior notice to or consent of creditors, which proceedings
could result in material and adverse modification or alteration of the rights of holders of obligations issued by
such subdivisions or authorities. The reorganization of such subdivisions’ or authorities’ 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 political subdivisions and authorities
and the value of the fund's investments.
Litigation
challenging the validity under state constitutions of present systems of financing public education has been initiated
or adjudicated in a number of states, and legislation has been introduced to effect changes in public school finances
in some states. In other instances there has been litigation challenging the issuance of pollution control revenue
bonds or the validity of their issuance under state or federal law which litigation could ultimately affect the validity
of those municipal securities or the tax-free nature of the interest thereon.
In
some cases, municipalities may issue bonds relying on proceeds from litigation settlements. These bonds may be further
secured by debt service reserve funds established at the time the bonds were issued. Bonds that are supported in
whole or in part by expected litigation proceeds are subject to the risk that part or all of the expected proceeds may
not be received. For example, a damage award could be overturned or reduced by a court, or the terms of a settlement
or damage award may allow for reduced or discontinued payments if certain conditions are met. As a result,
bonds that rely on proceeds from litigation settlements are subject to an increased risk of nonpayment or default.
On
August 2, 2011, President Obama signed the Budget Control Act of 2011, which requires the federal government to
reduce expenditures by over $2 trillion over the next ten years. Since the specifics of the federal reductions have yet
to be identified, a detailed assessment of the impact on states cannot be made.
Puerto
Rico Risk. Adverse political and economic conditions and developments
affecting any territory or Commonwealth of the US may, in turn,
negatively affect the value of the fund’s holdings in such obligations. In recent years, Puerto Rico
has experienced a recession and difficult economic conditions, which may negatively affect the value of a fund’s holdings
in Puerto Rico municipal obligations. Pending or future legislation, including legislation that would allow Puerto Rico
to restructure its municipal debt obligations, thus increasing the risk that Puerto Rico may never pay off municipal indebtedness,
or may pay only a small fraction of the amount owed, could also impact the value of a fund’s investments in
Puerto Rico municipal securities.
In
June 2016, the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA) was signed into law. Among
other things, PROMESA established a federally-appointed Oversight Board to oversee Puerto Rico’s financial operations
and provides Puerto Rico a path to restructuring its debts. In May 2017, petitions were approved by the Oversight
Board and filed under Title III of PROMESA to restructure debt and other obligations of the Commonwealth of
Puerto Rico and the Puerto Rico Sales Tax Financing Corporation (COFINA), two of the largest issuers of Puerto Rico
debt. Additional Puerto Rican instrumentalities could in the future file petitions under Title III or other provisions of
PROMESA. It is unclear at this time how the proceedings under PROMESA will be resolved.
Insured
Municipal Securities. A fund may purchase municipal securities
that are insured under policies issued by certain insurance companies.
Insured municipal securities typically receive a higher credit rating which means that the issuer of
the securities pays a lower interest rate. In purchasing such insured securities, the Advisor gives consideration both
to the insurer and to the credit quality of the underlying issuer. The insurance reduces the credit risk for a particular municipal
security by supplementing the creditworthiness of the underlying bond and provides additional security for payment
of the principal and interest of a municipal security. Certain of the insurance companies that provide insurance for
municipal securities provide insurance for other types of securities, including some involving subprime mortgages. The
value of subprime mortgage securities has declined recently and some may default, increasing a bond insurer’s risk
of having to make payments to holders of subprime mortgage securities. Because of this risk, the ratings of some insurance
companies have been, or may be, downgraded and it is possible that an insurance company may become insolvent.
If an insurance company’s rating is downgraded or the company becomes insolvent, the prices of municipal securities
insured by the insurance company may decline.
Letters
of Credit. Municipal obligations, including certificates of participation,
commercial paper and other short-term obligations may be backed
by an irrevocable letter of credit of a bank which assumes the obligation for payment of principal
and interest in the event of default by the issuer.
Pre-Refunded
Municipal Securities. Pre-refunded municipal securities are subject
to interest rate risk, market risk and limited liquidity. The
principal of and interest on municipal securities that have been pre-refunded are no longer paid from
the original revenue source for the securities. Instead, after pre-refunding of the principal of and interest on these securities
are typically paid from an escrow fund consisting of obligations issued or guaranteed by the US Government. The
assets in the escrow fund are derived from the proceeds of refunding bonds issued by the same issuer as the pre-refunded
municipal securities. Issuers of municipal securities use this advance refunding technique to obtain more favorable
terms with respect to securities that are not yet subject to call or redemption by the issuer. For example, advance
refunding enables an issuer to refinance debt at lower market interest rates, restructure debt to improve cash
flow or eliminate restrictive covenants in the indenture or other governing instrument for the pre-refunded municipal securities.
However, except for a change in the revenue source from which principal and interest payments are made, the
pre-refunded municipal securities remain outstanding on their original terms until they mature or are redeemed by
the issuer. Pre-refunded municipal securities are usually purchased at a price which represents a premium over their
face value.
Obligations
of Banks and Other Financial Institutions. A fund may invest
in US dollar-denominated fixed rate or variable rate obligations
of US or foreign financial institutions, including banks. Obligations of domestic and foreign financial
institutions in which a fund may invest include (but are not limited to) certificates of deposit, bankers’ acceptances, bank
time deposits, commercial paper, and other US dollar-denominated instruments issued or supported by the credit of
US or foreign financial institutions, including banks, commercial and savings banks, savings and loan associations and
other institutions.
Certificates
of deposit are negotiable certificates evidencing the obligations of a bank to repay funds deposited with it
for a specified period of time. Banker’s acceptances are credit instruments evidencing the obligations of a bank to pay
a draft drawn on it by a customer. These instruments reflect the obligation both of the bank and of the drawer to pay
the face amount of the instrument upon maturity. Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time deposits that may be held by a fund will
not benefit from insurance from the Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation. Fixed time deposits may be withdrawn on demand, but may be subject to
early withdrawal penalties that vary with market conditions and the remaining maturity of the obligation.
Obligations
of foreign branches of US banks and foreign banks may be general obligations of the parent bank in addition to
the issuing bank or may be limited by the terms of a specific obligation and by government regulation. Investments in
obligations of foreign banks may entail risks that are different in some respects from those of investments in obligations of
US domestic banks because of differences in political, regulatory and economic systems and conditions. These risks
include the possibility that these obligations may be less marketable than comparable obligations of United States banks,
and the selection of these obligations may be more difficult because there may be less publicly available information concerning
foreign banks. Other risks include future political and economic developments, currency blockage, the
possible
imposition of withholding taxes on interest payments, possible seizure or nationalization of foreign deposits, difficulty
or inability to pursue legal remedies and obtain or enforce judgments in foreign courts, possible establishment of
exchange controls or the adoption of other foreign governmental restrictions that might affect adversely the payment of
principal and interest on bank obligations. Foreign branches of US banks and foreign banks may also be subject to less
stringent reserve requirements and to different accounting, auditing, reporting and record keeping standards than
those applicable to domestic branches of US banks.
Participation
Interests. A fund may purchase from financial institutions participation
interests in securities in which a fund may invest. A participation
interest gives a fund an undivided interest in the security in the proportion that a fund’s
participation interest bears to the principal amount of the security. These instruments may have fixed, floating or
variable interest rates. For certain participation interests, a fund will have the right to demand payment, on not more
than seven days’ notice, for all or any part of a fund’s participation interests in the security, plus accrued interest. As
to these instruments, a fund generally intends to exercise its right to demand payment only upon a default under the
terms of the security.
Repurchase
Agreements. A fund may invest in repurchase agreements pursuant
to its investment guidelines. In a repurchase agreement, a fund
acquires ownership of a security (Obligation) and simultaneously commits to resell that
security to the seller, typically a bank or broker/dealer, at a specified time and price.
In
accordance with current SEC guidance, DWS Government & Agency Securities Portfolio, Government Cash Management Portfolio,
DWS Government Money Market VIP, DWS Central Cash Management Government Fund, DWS Treasury Portfolio,
DWS ESG Liquidity Fund and DWS Money Market Prime Series may also transfer uninvested cash balances into
a single joint account (a Joint Account). The daily aggregate balance of a Joint Account will be invested in one or more
repurchase agreements. The Board has established and periodically reviews procedures applicable to transactions involving
Joint Accounts.
A
repurchase agreement provides a means for a fund to earn income on funds for periods as short as overnight. The repurchase
price may be higher than the purchase price, the difference being income to a fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to a fund together with the repurchase price upon
repurchase. In either case, the income to a fund is unrelated to the interest rate on the Obligation itself. Obligations will
be held by the custodian or in the Federal Reserve Book Entry System.
It
is not clear whether a court would consider the Obligation purchased by a fund subject to a repurchase agreement as
being owned by a fund or as being collateral for a loan by a fund to the seller. In the event of the commencement of
bankruptcy or insolvency proceedings with respect to the seller of the Obligation before repurchase of the Obligation under
a repurchase agreement, a fund may encounter delay and incur costs before being able to sell the security. Delays
may involve loss of interest or decline in price of the Obligation. If the court characterizes the transaction as a
loan and a fund has not perfected a security interest in the Obligation, a fund may be required to return the Obligation to
the seller’s estate and be treated as an unsecured creditor of the seller. As an unsecured creditor, a fund would be
at risk of losing some or all of the principal and income involved in the transaction. As with any unsecured debt obligation
purchased for a fund, the Advisor seeks to reduce the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the Obligation. Apart from the risk of bankruptcy or insolvency proceedings,
there is also the risk that the seller may fail to repurchase the Obligation, in which case a fund may incur a
loss if the proceeds to a fund of the sale to a third party are less than the repurchase price. However, if the market value
(including interest) of the Obligation subject to the repurchase agreement becomes less than the repurchase price
(including interest), a fund will direct the seller of the Obligation to deliver additional securities so that the market value
(including interest) of all securities subject to the repurchase agreement will equal or exceed the repurchase price.
Reverse
Repurchase Agreements. A fund may enter into “reverse
repurchase agreements,”
which are repurchase agreements in which a fund, as the seller
of the securities, agrees to repurchase such securities at an agreed time and
price. Under a reverse repurchase agreement, a fund continues to receive any principal and interest payments on
the underlying security during the term of the agreement. A fund’s
obligations under reverse repurchase agreements are generally
treated as derivatives transactions subject to the requirements of Rule 18f-4, except for DWS money
market
funds in which a fund’s obligations under
reverse repurchase agreements are treated as borrowings requiring
the necessary asset coverage under Section 18(f) of the 1940
Act. Such transactions may increase fluctuations in the market
value of fund assets and its yield.
Stand-by
Commitments. A stand-by commitment is a right acquired by a fund,
when it purchases a municipal obligation from a broker, dealer
or other financial institution (seller), to sell up to the same principal amount of such securities back
to the seller, at a fund’s option, at a specified price. Stand-by commitments are also known as “puts.”
The exercise by a fund of a stand-by commitment is subject to
the ability of the other party to fulfill its contractual commitment.
Stand-by
commitments acquired by a fund may have the following features: (1) they will be in writing and will be physically
held by a fund’s custodian; (2) a fund’s right to exercise them will be unconditional and unqualified; (3) they will
be entered into only with sellers which in the Advisor’s opinion present a minimal risk of default; (4) although stand-by
commitments will not be transferable, municipal obligations purchased subject to such commitments may be
sold to a third party at any time, even though the commitment is outstanding; and (5) their exercise price will be (i)
a fund’s acquisition cost (excluding any accrued interest which a fund paid on their acquisition), less any amortized market
premium or plus any amortized original issue discount during the period a fund owned the securities, plus (ii) all
interest accrued on the securities since the last interest payment date.
A
fund expects that stand-by commitments generally will be available without the payment of any direct or indirect consideration.
However, if necessary or advisable, a fund will pay for stand-by commitments, either separately in cash or
by paying a higher price for portfolio securities which are acquired subject to the commitments.
It
is difficult to evaluate the likelihood of use or the potential benefit of a stand-by commitment. Therefore, it is expected that
the Advisor will determine that stand-by commitments ordinarily have a “fair
value”
of zero, regardless of whether any direct or indirect consideration
was paid. However, if the market price of the security subject to the stand-by commitment
is less than the exercise price of the stand-by commitment, such security will ordinarily be valued at such
exercise price. Where a fund has paid for a stand-by commitment, its cost will be reflected as unrealized depreciation for
the period during which the commitment is held.
The
IRS has issued a favorable 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. A fund intends
to take the position that it owns any municipal obligations acquired subject to a stand-by commitment 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.
Third
Party Puts. A fund may purchase long-term fixed rate bonds that
have been coupled with an option granted by a third party financial
institution allowing a fund at specified intervals to tender (put) the bonds to the institution and
receive the face value thereof (plus accrued interest). These third party puts are available in several different forms, may
be represented by custodial receipts or trust certificates and may be combined with other features such as interest rate
swaps. A fund receives a short-term rate of interest (which is periodically reset), and the interest rate differential between
that rate and the fixed rate on the bond is retained by the financial institution. The financial institution granting the
option does not provide credit enhancement, and in the event that there is a default in the payment of principal or
interest, or downgrading of a bond to below investment grade, or a loss of the bond’s tax-exempt status, the put option
will terminate automatically. As a result, a fund would be subject to the risks associated with holding such a long-term
bond and the weighted average maturity of that fund’s portfolio would be adversely affected.
These
bonds coupled with puts may present the same tax issues as are associated with Stand-By Commitments. As
with any Stand-By Commitments acquired by a fund, a fund intends to take the position that it is the owner of any
municipal obligation acquired subject to a 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. Additionally, the federal income tax treatment of certain other aspects of these investments, including
the treatment of tender fees and swap payments, in relation to various regulated investment company tax provisions
is unclear. However, the Advisor seeks to manage a fund’s portfolio in a manner designed to minimize any adverse
impact from these investments.
US
Government Securities. A fund may invest in obligations issued
or guaranteed as to both principal and interest by the US Government,
its agencies, instrumentalities or sponsored enterprises which include: (a) direct obligations of
the US Treasury; and (b) securities issued or guaranteed by US Government agencies.
Examples
of direct obligations of the US Treasury are Treasury bills, notes, bonds and other debt securities issued by the
US Treasury. These instruments are backed by the “full
faith and credit”
of the United States. They differ primarily in interest rates,
the length of maturities and the dates of issuance. Treasury bills have original maturities of one year or
less. Treasury notes have original maturities of one to ten years and Treasury bonds generally have original maturities of
greater than ten years.
Some
agency securities are backed by the full faith and credit of the United States (such as Maritime Administration Title
XI Ship Financing Bonds and Agency for International Development Housing Guarantee Program Bonds) and others
are backed only by the rights of the issuer to borrow from the US Treasury (such as Federal Home Loan Bank Bonds
and Federal National Mortgage Association Bonds), while still others, such as the securities of the Federal Farm Credit
Bank, are supported only by the credit of the issuer. With respect to securities supported only by the credit of the
issuing agency or by an additional line of credit with the US Treasury, there is no guarantee that the US Government will
provide support to such agencies and such securities may involve risk of loss of principal and interest.
US
Government securities may include “zero
coupon”
securities that have been stripped by the US Government of their
unmatured interest coupons and collateralized obligations issued or guaranteed by a US Government agency or instrumentality.
Because interest on zero coupon securities is not distributed on a current basis but is, in effect, compounded, zero
coupon securities tend to be subject to greater risk than interest-paying securities of similar maturities.
Interest
rates on US Government securities may be fixed or variable. Interest rates on variable rate obligations are adjusted
at regular intervals, at least annually, according to a formula reflecting then current specified standard rates, such
as 91-day US Treasury bill rates. These adjustments generally tend to reduce fluctuations in the market value of the
securities.
The
government guarantee of the US Government securities in a fund’s portfolio does not guarantee the net asset value
of the shares of a fund. There are market risks inherent in all investments in securities and the value of an investment
in a fund will fluctuate over time. Normally, the value of investments in US Government securities varies inversely
with changes in interest rates. For example, as interest rates rise the value of investments in US Government securities
will tend to decline, and as interest rates fall the value of a fund’s investments in US Government securities will
tend to increase. In addition, the potential for appreciation in the event of a decline in interest rates may be limited or
negated by increased principal prepayments with respect to certain mortgage-backed securities, such as GNMA Certificates.
Prepayments of high interest rate mortgage-backed securities during times of declining interest rates will
tend to lower the return of a fund and may even result in losses to a fund if some securities were acquired at a premium.
Moreover, during periods of rising interest rates, prepayments of mortgage-backed securities may decline, resulting
in the extension of a fund’s average portfolio maturity. As a result, a fund’s portfolio may experience greater volatility
during periods of rising interest rates than under normal market conditions.
Variable
and Floating Rate Instruments. Debt instruments purchased by
a fund may be structured to have variable or floating interest
rates. The interest rate on variable and floating rate securities may be reset daily, weekly or on some
other reset period and may have a floor or ceiling on interest rate changes. The interest rate of variable rate securities
ordinarily is determined by reference to or is a percentage of an objective standard such as a bank’s prime
rate,
the 90-day US Treasury Bill rate, or the rate of return on commercial paper or bank certificates of deposit. Generally, the
changes in the interest rate on variable rate securities reduce the fluctuation in the market value of such securities. Accordingly,
as interest rates decrease or increase, the potential for capital appreciation or depreciation is less than for
fixed-rate obligations. A fund may purchase variable rate securities on which stated minimum or maximum rates, or
maximum rates set by state law, limit the degree to which interest on such instruments may fluctuate; to the extent it
does, increases or decreases in value of such instruments may be somewhat greater than would be the case without such
limits. Because the adjustment of interest rates on the variable rate securities is made in relation to movements of
the applicable rate adjustment index, the instruments are not comparable to long-term fixed interest rate securities. Accordingly,
interest rates on the variable rate securities may be higher or lower than current market rates for fixed rate
obligations of comparable quality with similar final maturities. A money market fund determines the maturity of variable
rate securities in accordance with Rule 2a-7, which allows a fund to consider certain of such instruments as having
maturities shorter than the maturity date on the face of the instrument.
The
Advisor will consider the earning power, cash flows and other liquidity ratios of the issuers and guarantors of such
instruments and, if the instrument is subject to a demand feature (described below), will continuously monitor the
issuer’s financial ability to meet payment on demand. Where necessary to ensure that a variable or floating rate instrument
is equivalent to the quality standards applicable to a fund’s fixed income investments, the issuer’s obligation to
pay the principal of the instrument will be backed by an unconditional bank letter or line of credit, guarantee or commitment
to lend. Any bank providing such a bank letter, line of credit, guarantee or loan commitment will meet a
fund’s investment quality standards relating to investments in bank obligations. The Advisor will also monitor the creditworthiness
of issuers of such instruments to determine whether a fund should continue to hold the investments.
The
absence of an active secondary market for certain variable and floating rate notes could make it difficult to dispose of
the instruments, and a fund could suffer a loss if the issuer defaults or during periods in which a fund is not entitled to
exercise its demand rights. When a reliable trading market for the variable and floating rate instruments held by a fund
does not exist and a fund may not demand payment of the principal amount of such instruments within seven days,
the instruments may be deemed illiquid and therefore subject to a fund’s limitation on investments in illiquid securities.
Variable
Rate Demand Securities. A fund may purchase variable rate demand
securities, which are variable rate securities that permit a
fund to demand payment of the unpaid principal balance plus accrued interest upon a specified number of
days’ notice to the issuer or its agent. The demand feature may be backed by a bank letter of credit or guarantee issued
with respect to such instrument. A bank that issues a repurchase commitment may receive a fee from a fund for
this arrangement. The issuer of a variable rate demand security may have a corresponding right to prepay in its discretion
the outstanding principal of the instrument plus accrued interest upon notice comparable to that required for
the holder to demand payment.
Variable
Rate Master Demand Notes. A fund may purchase variable rate master
demand notes, which are unsecured instruments that permit the
indebtedness thereunder to vary and provide for periodic adjustments in the interest rate. Because
variable rate master demand notes are direct lending arrangements between a fund and the issuer, they are
not ordinarily traded. Although no active secondary market may exist for these notes, a fund will purchase only those
notes under which it may demand and receive payment of principal and accrued interest daily or may resell the note
at any time to a third party. These notes are not typically rated by credit rating agencies.
Variable
Rate Preferred Securities. A fund may purchase certain variable
rate preferred securities (VRPs) issued by closed-end municipal
bond funds, which, in turn, invest primarily in portfolios of tax-exempt municipal bonds. A fund may
invest in securities issued by single-state or national closed-end municipal bond funds. VRPs are issued by closed-end funds
to leverage returns for common shareholders. Under the 1940 Act, a closed-end fund that issues preferred shares
must maintain an asset coverage ratio of at least 200% immediately after the time of issuance and at the time of
certain distributions on repurchases of its common stock. It is anticipated that the interest on the VRPs will be exempt
from federal income tax and, with respect to any such securities issued by single-state municipal bond funds, exempt
from the applicable state’s income tax, although interest on VRPs may be subject to the federal alternative minimum
tax. The VRPs will pay a variable dividend rate, determined either daily or weekly, typically through a remarketing process,
and will typically include a demand feature that provides a fund with a contractual right to tender the securities
to
either a liquidity provider or back to the closed-end municipal bond fund. A fund could lose money if the liquidity provider
fails to honor its obligation, becomes insolvent, or files for bankruptcy. If the tender is directly to the closed-end municipal
bond fund a fund could lose money if the closed-end municipal bond fund fails to honor its obligation, becomes insolvent,
or files for bankruptcy. In certain instances, a fund may not have the right to put the securities back to the closed-end
municipal bond fund or demand payment or redemption directly from the closed-end municipal bond fund. If
the VRPs were offered under an exemption from registration under the 1933 Act (e.g. Regulation D) the VRPs would not
be freely transferable and, therefore, a fund may only transfer the securities to another investor in compliance with
certain exemptions under the 1933 Act, including Rule 144A. If the VRPs were to be registered under the 1933 Act,
the VRPs would be freely transferable.
A
fund’s purchase of VRPs issued by closed-end municipal bond funds is subject to the restrictions set forth under the
heading “Investment
Companies and Other Pooled Investment Vehicles.”
When-Issued
and Delayed-Delivery Securities. A fund may purchase securities
on a when-issued or delayed-delivery basis. Delivery of and payment
for these securities can take place a month or more after the date of the purchase commitment.
The payment obligation and the interest rate that will be received on when-issued and delayed-delivery securities
are fixed at the time the buyer enters into the commitment. Due to fluctuations in the value of securities purchased
or sold on a when-issued or delayed-delivery basis, the yields obtained on such securities may be higher or
lower than the yields available in the market on the dates when the investments are actually delivered to the buyers. When-issued
securities may include securities purchased on a “when,
as and if issued”
basis, under which the issuance of the security depends on the
occurrence of a subsequent event, such as approval of a merger, corporate reorganization or
debt restructuring. The value of such securities is subject to market fluctuation during this period and no interest or
income, as applicable, accrues to a fund until settlement takes place.
At
the time a fund makes the commitment to purchase securities on a when-issued or delayed delivery basis, it will record
the transaction, reflect the value each day of such securities in determining its net asset value and, if applicable, calculate
the maturity for the purposes of average maturity from that date. At the time of settlement a when-issued security
may be valued at less than the purchase price. Rule 18f-4 under the 1940 Act permits a fund to invest in a security
on a when-issued or delayed-delivery basis and the transaction will be deemed not to involve a senior security, provided
that the fund intends to physically settle the transaction and the transaction will settle within 35 days of its trade
date. If a fund chooses to dispose of the right to acquire a when-issued security prior to its acquisition, it could, as
with the disposition of any other portfolio obligation, incur a gain or loss due to market fluctuation. When a fund engages
in when-issued or delayed-delivery transactions, it relies on the other party to consummate the trade and is,
therefore, exposed to counterparty risk. Failure of the seller to do so may result in a fund’s incurring a loss or missing
an opportunity to obtain a price considered to be advantageous.
Yields
and Ratings. The yields on certain obligations in which a fund
may invest (such as commercial paper and bank obligations), are
dependent on a variety of factors, including general market conditions, conditions in the particular market
for the obligation, the financial condition of the issuer, the size of the offering, the maturity of the obligation and
the ratings of the issue. The ratings of Moody’s, S&P and Fitch represent their opinions as to the quality of the securities
that they undertake to rate. Ratings, however, are general and are not absolute standards of quality or value. Consequently,
obligations with the same rating, maturity and interest rate may have different market prices. See “Ratings
of Investments”
for descriptions of the ratings provided by certain recognized rating organizations.
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-advantaged 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 Internal
Revenue Code of 1986, as amended (“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% or more of their gross 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 total 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 taxes.
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”
as that term is defined in the Code determined without regard
to the deduction for dividends paid (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
corporate
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 federal income tax at regular corporate income tax rates without any deduction for distributions to shareholders, and
such distributions (including any distributions of net tax-exempt income and net long-term capital gain) 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 and other non-corporate shareholders should be eligible to be treated
as qualified dividend income and distributions to corporate shareholders generally should be eligible for the
dividends
received deduction, provided in both cases the shareholder meets certain holding period and other requirements. 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 on 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 (determined
without regard to the deduction for dividends paid) and any net realized long-term capital gains in excess of
net realized short-term capital losses (including any available 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 available 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 (i) will be required to include in income for federal income tax purposes, as
long-term capital gains, their proportionate shares of the undistributed amount, (ii) will be entitled to credit their proportionate
shares of the federal income tax paid by the fund on the undistributed amount against their federal income
tax liabilities, if any, and to claim refunds to the extent their credits exceed their liabilities, if any, and (iii) will be
entitled to increase their tax basis, for federal income tax purposes, in their Shares by an amount equal to the
difference
between the amount of undistributed capital gains included in the shareholder's gross income and the federal
income tax deemed paid by the shareholder under clause (ii) of the preceding sentence. 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 reinvested in additional 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 federal income tax as ordinary income,
subject to the discussion of qualified dividend income and tax-exempt dividends below.
If
a non-corporate shareholder receives a regular dividend qualifying for the long-term capital gains rates and such dividend
constitutes an “extraordinary
dividend,”
and the non-corporate shareholder 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 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 (i) 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 (ii) 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. 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 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. Any loss realized by a shareholder on the sale of fund shares held by the
shareholder for six months or less will be disallowed to the extent of any exempt-interest dividends received by the
shareholder with respect to such shares, unless a fund declares exempt-interest dividends on a daily basis in an amount
equal to at least 90% of its net tax-exempt interest and distributes such dividends on a monthly or more frequent
basis. A shareholder’s ability to utilize capital losses may be limited under the Code.
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 IRS and to taxpayers.
Shareholders
should contact their financial intermediaries with respect to reporting of cost basis and available elections for
their accounts. Because the federal income tax treatment of a sale or exchange of fund Shares depends on your purchase
price and your personal tax position, you should keep your regular account statements to use in determining your
federal income tax liability.
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.
Creation
Units. An authorized participant who exchanges securities for
Creation Units generally will recognize a gain or a loss. The
gain or loss will be equal to the difference between the market value of the Creation Units at the time and
the sum of the exchanger’s aggregate basis in the securities surrendered, plus the amount of cash paid for such Creation
Units. A person who redeems Creation Units will generally recognize a gain or loss equal to the difference between
the exchanger’s basis in the Creation Units and the sum of the aggregate market value of any securities received,
plus the amount of any cash received for such Creation Units. The IRS, however, may assert that a loss realized
upon an exchange of securities for Creation Units cannot be deducted currently under the rules governing “wash
sales,”
or on the basis that there has been no significant change in economic position.
Any
capital gain or loss realized upon the creation of Creation Units will generally be treated as long-term capital gain or
loss if the securities exchanged for such Creation Units have been held for more than one year. Any capital gain or loss
realized upon the redemption of Creation Units will generally be treated as long-term capital gain or loss if the Shares
comprising the Creation Units have been held for more than one year. Otherwise, such capital gains or losses will
be treated as short-term capital gains or losses.
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
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 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 (i) 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 (ii) 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 federal income 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 reinvested in Shares, will be taxable for federal income tax purposes 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 and certain holding period and other requirements are satisfied. 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 entities treated as real estate investment trusts for federal income tax purposes
(“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
US 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 US REIT or other RIC. It is expected that dividends received
by a fund from a US REIT and distributed to a shareholder generally will be taxable to the shareholder as ordinary
income.
For
taxable years beginning after December 31, 2017 and before January 1, 2026, qualified US REIT dividends (i.e., US
REIT dividends other than capital gain dividends and portions of US REIT dividends designated as qualified dividend income)
are eligible for a 20% federal income tax deduction in the case of individuals, trusts and estates. A fund that receives
qualified US REIT dividends may elect to pass the special character of this income through to its shareholders. To
be eligible to treat distributions from a fund as qualified US REIT dividends, a shareholder must hold Shares of the fund
for more than 45 days during the 91-day period beginning on the date that is 45 days before the date on which the
Shares become ex dividend with respect to such dividend and the shareholder must not be under an obligation (whether
pursuant to a short sale or otherwise) to make related payments with respect to positions in substantially similar
or related property. If a fund does not elect to pass the special character of this income through to shareholders or
if a shareholder does not satisfy the above holding period requirements, the shareholder will not be entitled to the 20%
deduction for the shareholder’s share of the fund’s qualified US REIT dividend income.
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
dividend income. 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. Dividends paid by a fund that are
attributable to dividends received by the fund from US corporations
may qualify for the dividends received deduction for corporations. A 46-day minimum holding
period during the 90-day period that begins 45 days prior to ex-dividend date (or 91-day minimum holding period
during the 180-day period beginning 90 days prior to ex-dividend date for preferred stock) during which risk of loss
may not be diminished is required for the applicable shares, at both the fund and shareholder level, for a dividend to
be eligible for the dividends received deduction. 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. 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, a
fund serves to block unrelated business taxable income from being realized
by its
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 US 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 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 some
cases,
gain on the sale of shares of foreign issuers 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. Since
November 17, 2014, the corporate income tax for QFIs, 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 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 the fund’s direct investments in A-Shares through
the Advisor’s or Subadvisor’s QFI 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. 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, 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 a QFI. 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 a QFI 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 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. Under the value-added tax regime, BT exemption granted to
QFIIs with respect to gains realized from the trading of PRC marketable securities has been grandfathered (i.e. QFIIs
continue to enjoy exemption on gains under the value-added tax regime). 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
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 required to be accrued (and
required to be distributed by a fund) over the term of the debt security, even though payment of that
amount is not received until a later time upon partial or full repayment or disposition of the debt security. In addition,
payment-in-kind debt securities will give rise to income which is required to be distributed and, in the case of
a taxable obligation, is taxable, even though a fund holding the security receives no interest payment in cash during the
year. 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 interest
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 accrue the acquisition discount, or OID, over the term of the debt security, even though payment
of that amount is not received until a later time, upon partial or full repayment or disposition of the debt security.
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 accrued, 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.
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.
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.
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 US real property); 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 (i) 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 (ii) are paid with respect to 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.
The
Foreign Account Tax Compliance Act (“FATCA”)
generally requires a fund to obtain information sufficient to identify the
status of each of its shareholders. If a shareholder fails to provide this information or otherwise fails to comply with
FATCA, a fund may be required to withhold under FATCA at a rate of 30% with respect to that shareholder on fund
dividends and distributions and redemption proceeds. Pursuant to recently proposed regulations, the Treasury Department
has indicated its intent to eliminate the requirements under FATCA of withholding on gross proceeds from
the sale, exchange, maturity or other disposition of relevant financial instruments (including redemption of shares of
a RIC). The Treasury Department has indicated that taxpayers may rely on these proposed regulations pending their finalization.
A fund may disclose the information that it receives from (or concerning) its shareholders to the IRS, non-U.S.
taxing authorities or other parties as necessary to comply with FATCA, related intergovernmental agreements or
other applicable law or regulation. Each investor is urged to consult its tax advisor regarding the applicability of FATCA
and any other reporting requirements with respect to the investor’s own situation, including investments through an
intermediary.
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 RIC 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 RIC 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 RIC 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 alternative minimum tax (“AMT”)
purposes and
for state and local tax purposes for both individual and corporate 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 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 the 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 unless the fund declares exempt-interest dividends on a daily basis in an amount equal
to at least 90% of its net tax-exempt interest and distributes such dividends on a monthly or more frequent basis.
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 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.
For
taxable years beginning after December 31,2022, exempt interest dividends may affect the corporate alternative minimum
tax for certain corporate shareholders.
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 QFIs) 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 QFIs, 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 QFI 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. 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, 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 a QFI. 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 a QFI 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 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. Under the value-added tax regime, BT exemption granted to
QFIIs with respect to gains realized from the trading of PRC marketable securities has been grandfathered (i.e. QFIIs
continue to enjoy exemption on gains under the value-added tax regime). 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 QFIs 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 QFIs and/or begins collecting
capital gains taxes on such investments (whether made through Stock Connect or a QFI), 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 a QFI 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
Scope
DWS
investment advisers registered with the Securities and Exchange Commission (“DWS”)1
have adopted and implemented the following Proxy Voting Policy
and Guidelines – DWS Americas (“Policy
and Guidelines”).
The Policy and Guidelines 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. The Policy and Guidelines apply to DWS when on behalf of
client accounts, it has taken on the responsibility to vote, or provide recommendations relating to proxies. In addition, DWS’s
proxy policies reflect the fiduciary standards and responsibilities for ERISA accounts.
The
Guidelines attached as Attachment A represent a set of recommendations that were determined by the DWS Proxy
Voting Sub-Committee (“the
PVSC”).
These guidelines were developed by the PVSC to provide DWS with a comprehensive
list of recommendations that represent how DWS will generally vote proxies for its clients. The Guidelines are
closely aligned with, although not identical to, those of its proxy voting agent, Institutional Shareholder Services (“ISS”).
DWS has a fiduciary obligation to vote proxies without considering any relationship that it or its parent or affiliates
may have with an issuer. In addition, the organizational structures and documents of the various DWS legal entities
allow, where necessary or appropriate, the execution by individual DWS subsidiaries of the proxy voting rights independently
of any parent or affiliated company.
Capitalised
terms have the meaning ascribed to them in the Glossary.
DWS’S
Proxy Voting Responsibilities
Proxy
votes are the property of DWS’s advisory clients.2
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, ISS, an independent third-party proxy voting specialist. ISS
analyses and votes DWS’s advisory clients’ proxies in accordance with the 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.
In
certain circumstances, when a security is on loan through a securities lending program, the portfolio management teams
may not be able to participate in certain proxy votes unless the shares of a particular issuer are recalled in time to
cast the vote. A determination of whether to seek a recall will be based on whether the applicable portfolio management team
determines that the benefit of voting outweighs the costs, lost revenue, and/or other detriments of retrieving the
securities, recognizing that the handling of such recall requests is beyond DWS’s control and may not be satisfied in
time for DWS to vote shares in question.
1
These include DWS Investment Management Americas, Inc. (“DIMA”),
DBX Advisors LLC (“DBX”)
and RREEF Americas L.L.C. (“RREEF”)
as well as DWS registered investment advisers based outside of the U.S. who provide services to U.S.
accounts based on delegation from DIMA, DBX or RREEF.
2
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.
POLICIES
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. DWS believes that responsibility
including environmental, social and governance (“ESG”)
factors, and profitability, complement each other in many respects
and may apply ESG criteria when evaluating shareholder proposals.
DWS Investment
Platform
Portfolio
managers or research analysts in the DWS Investment Platform with appropriate standing (“Portfolio
Management”)3
review recommendations for the U.S. accounts they manage from
ISS on how to vote proxies based on its application of the Guidelines.
Portfolio Management and members of the PVSC may request that the PVSC consider
voting a particular proxy contrary to the Guidelines or recommendations from ISS based on its application of
the Guidelines, if they believe that it may not be in the best economic interests of clients to vote the proxy in accordance
with the Guidelines or ISS recommendations.
3
Portfolio Management also includes portfolio managers from DWS
registered investment advisers based outside the U.S. who provided
services to the U.S. accounts based on a delegation from DIMA, DBX or RREEF.
The Proxy Voting
Sub-Committee
The
PVSC is an internal working group established by the applicable DWS’s Investment Risk Oversight Committee pursuant
to written Terms of Reference. The PVSC is responsible for overseeing DWS’s proxy voting activities, including:
•
Adopting,
monitoring and updating the Guidelines that provide how DWS will generally vote proxies pertaining to
a comprehensive list of common proxy voting matters;
•
Making
decisions on how to vote proxies where: (i) the issues are not covered by specific client instruction or the
Guidelines; or (ii) where an exception to the Guidelines may be in the best economic interest of DWS’s clients;
•
Review
recommendations raised by Portfolio Management, the PVSC and others to vote a particular proxy contrary to
the Guidelines or recommendations from ISS based on its application of the Guidelines; 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.
Availability of
Proxy Voting Policies and Proxy Voting Record
Copies
of this Policy and Guidelines, as it may be updated from time to time are 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, if so required by relevant law.
Procedures
The
key aspects of DWS’s proxy voting process are delineated below.
The DWS Proxy Voting
Guidelines
The
Guidelines set forth the PVSC’s standard voting positions on a comprehensive list of common proxy voting matters. The
PVSC 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
PVSC will review the Guidelines as necessary to support the best economic interests of DWS’s clients and, in any
event, at least annually. The PVSC 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 PVSC
will thoroughly review and evaluate the proposed change and the reasons therefore, and the PVSC Chairperson(s) will
ask PVSC members whether anyone outside or within the DWS organization (including 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 PVSC Chairperson(s), the Chairperson(s) will promptly notify the Conflicts of Interest Management
Sub-Committee and will defer the approval, if possible. Lastly, the PVSC 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 the actual practices of the investment company and
the voting positions of the investment company on the same or similar matters. Further, the manner in which DWS
votes proxies on behalf investment company proxies may differ from the voting recommendations made by a DWS-advised
or sponsored investment company soliciting proxies from its shareholders.
Proxy Voting Recommendations
and Decisions Made on a Case-by-Case Basis
Proxy
Vendor Oversight will refer to Portfolio Management and members of the PVSC for review and approval recommendations
from ISS on how to vote proxies. The proxies shall be voted on a case-by-case basis based on its application
of the Guidelines. Portfolio Management and members of PVSC may request that the PVSC consider voting a
particular proxy contrary to the Guidelines or recommendations from ISS based on its application of the Guidelines, if
they believe that it may not be in the best economic interest of clients to vote the proxy in accordance with the Guidelines
or ISS recommendations.
Specific Proxy
Voting Decisions Made by the PVSC
Proxy
Vendor Oversight will refer to the PVSC only proxy proposals: (i) that are not covered by specific client instructions or
the Guidelines; or (ii) that, in accordance with this Policy and Guidelines, have been appealed. The Proxy Vendor Oversight
team will present to Portfolio Management and members of the PVSC all proposals voted on a case-by-case basis
in accordance with the Guidelines which will include recommendations from ISS based on its application of the Guidelines
and, in some cases, its benchmark policy, its Socially Responsible Investment “SRI”
Policy on social and sustainability issues, or the Coalition
for Environmentally Responsible Economies (“CERES”)
recommendation on environmental and social matters contained
in the CERES Roadmap 2030. Portfolio Management may appeal the ISS recommendation
if they believe that it may not be in the best economic interest of the client to vote in accordance with
the ISS recommendation, and such appeal will be referred by the Proxy Vendor Oversight team to the PVSC for consideration.
Additionally,
if Proxy Vendor Oversight, the PVSC Chairperson(s), any member of the PVSC or Portfolio Management 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 PVSC Chairperson(s) and/or Proxy Vendor Oversight.
If
Proxy Vendor Oversight refers a proxy proposal to the PVSC or the PVSC determines that voting a particular proxy in
accordance with the Guidelines is not in the best economic interests of clients, the PVSC will evaluate and vote the
proxy, subject to the procedures below regarding conflicts.
The
U.S Corporate Governance Center (“CGC”)
may, at the PVSC’s request, provide research and analysis related to issuers,
including with respect to ESG related topics. The CGC will not provide the PVSC with any voting recommendations.
The
PVSC 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 PVSC’s voting determination.
Proxies that Cannot
Be Voted or Instances When DWS Abstains from Voting
In
some cases, the PVSC 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
PVSC 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 PVSC 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 PVSC 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 PVSC Chairperson(s) 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.
Conflict of Interest
Procedures
Procedures to Address
Conflicts of Interest and Improper Influence
Overriding
Principle. In the limited circumstances where the PVSC votes
proxies,4
the PVSC will vote those proxies in accordance with what it,
in good faith, determines to be the best economic interest of DWS’s clients.5
4
As mentioned above, the PVSC votes proxies where: (i) neither
a specific client instruction nor a Guideline directs how the
proxy should be voted; or (ii) where voting in accordance with the Guidelines may not be in the best economic interests
of clients. Further, the PVSC will review recommendations for proxies if Portfolio Management or a member of
the PVSC recommends voting contrary to the ISS recommendation if they believe that it may not be in the best economic
interest of the client to vote in accordance with the Guidelines or ISS recommendation based on its application of
the Guidelines.
5
Proxy Vendor Oversight, who serves as the non-voting secretary
of the PVSC, 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.
Independence
of the PVSC. As a matter of Compliance policy, the PVSC and Proxy
Vendor Oversight are structured to be independent from other
parts of Deutsche Bank. Members of the PVSC 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 PVSC. 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 PVSC, the PVSC
Chairperson(s) 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 PVSC’s decision on
the particular vote at issue. PVSC should provide the Conflicts of Interest Management Sub-Committee a reasonable amount
of time (no less than 24 hours for the Americas/Europe and 48 hours for APAC) 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 PVSC (or anyone participating or providing information to the PVSC) and any person outside or within the
DWS organization (including 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 PVSC Chairperson(s).
If
notified that DWS has a material conflict of interest as described above, the PVSC chairperson(s) 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 PVSC Chairperson(s)
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.
Procedures
to be followed by the PVSC. At the beginning of any discussion
regarding how to vote any proxy, the PVSC Chairperson(s) (or
his or her delegate) will inquire as to whether any PVSC member (whether voting or ex officio) or
any person participating in the proxy voting process has a personal conflict of interest or has knowledge of an actual or
apparent conflict that has not been reported to the Conflicts of Interest Management Sub-Committee.
The
PVSC Chairperson(s) also will inquire of these same parties whether they have actual knowledge regarding whether any
Director, officer, or employee outside or within the DWS organization (including 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 PVSC member vote a particular proxy in a certain manner; (ii) attempted to influence DWS, Proxy
Vendor Oversight (or any member thereof), a PVSC member or any other person in connection with proxy voting activities;
or (iii) otherwise communicated with a PVSC member, or any other person participating or providing information to
the PVSC 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 PVSC Chairperson(s), the Chairperson(s) 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 PVSC (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 PVSC’s minutes.
Duty
to Report. Any DWS employee, including any PVSC 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 or within the DWS organization (including
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 PVSC Chairperson(s) (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 PVSC will recuse from participating in a specific
proxy vote any PVSC 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 PVSC will also exclude from consideration the
views of any person (whether requested or volunteered) if the PVSC 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 PVSC voting members pursuant to the paragraph above, there are three or more PVSC voting
members remaining, those remaining PVSC members will determine how to vote the proxy in accordance with
these Policies and Guidelines. If there are fewer than three PVSC voting members remaining, the PVSC Chairperson(s) 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.
Affiliated Investment
Companies, Rule 12d1-4 and Affiliated Public Companies
Investment
Companies. For 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). In addition, if a registered investment company (including an exchange traded fund (“ETF”)
advised by DWS or an affiliate together with DWS advisory clients,
in aggregate, (i) hold more than 25% of the outstanding voting
securities of an investment company that is not a registered closed-end fund or business development company, or
(ii) hold more than 10% of the outstanding voting securities of an investment company that is a registered closed-end fund
or business development company, then DWS will vote its holdings in such registered investment company’s
securities
in the same proportion as the vote of all other holders of such securities (i.e., “mirror”
or “echo”
voting) as required by Rule 12d1-4 of the Investment Company
Act of 1940 (the “1940
Act”).
Master Fund proxies solicited from feeder Funds are voted in
accordance with applicable provisions of Section 12 of 1940 Act.
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 affiliated registered investment companies that invest in the DWS Central Cash Management Government
Fund (registered under the Investment Company Act), the affiliated registered investment companies are
not required to engage in echo voting with respect to proxies of the DWS Central Cash Management Government Fund
and the investment adviser will use these Guidelines and may determine, with respect to proxies of the DWS Central
Cash Management Government Fund, to vote contrary to the positions in the Guidelines, consistent with the Fund’s
best interest.
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 Group;
The
PVSC expects that these policies, procedures, and internal controls will greatly reduce the chance that the PVSC (or
its members) would be involved in, aware of, or influenced by an actual or apparent conflict of interest.
RECORDKEEPING
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) maintain records of requests from Portfolio Management and
members of the PVSC to appeal a recommendation on how to vote a proxy; (iii) maintain minutes of the meeting
of the PVSC; (iv) maintain records of client requests for proxy voting information; and (v) retain any documents Proxy
Vendor Oversight or the PVSC prepared that were material to making a voting decision or that memorialized the
basis for a proxy voting decision.
•
The
PVSC 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.
OVERSIGHT RESPONSIBILITIES
Proxy
Vendor Oversight will review a reasonable sampling of votes based on its procedures 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
PVSC 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 PVSC 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
PVSC 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 PVSC’s meeting minutes.
ANNUAL REVIEW
The
PVSC, in cooperation with Proxy Vendor Oversight and DWS Compliance, 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.
GLOSSARY
|
|
|
Decision-making
forum established pursuant to the
“Committee
Governance Policy – Deutsche Bank
Group”
for a specific purpose and an unlimited period
of
time |
|
Council
on Uniform Securities Identification
Procedures
|
|
Any
individual with an employment contract directly
with
a Legal Entity of DB Group |
|
|
|
Investment
Company Act of 1940 |
|
Institutional
Shareholder Services, Inc. |
|
Proxy
Voting Sub-Committee |
Risk
Type Controller (RTC) |
Global
Head of a Risk Control Function; formally
representing
the respective Risk Control Function and
accountable
for designing, implementing and
maintaining
an effective risk type management /
control
and policy framework for all risk types within
their
mandate. |
|
Individual(s)
authorised by the Risk Type Controller to
fulfil
tasks in relation to the respective RTC mandate
including
authorisation of other Units to issue a Policy
or
Procedure regulating the respective risk type |
|
Securities
and Exchange Commission |
|
Refers
to the organisational areas within DB Group,
such
as corporate divisions and infrastructure
functions,
as per the DB Business Allocation Plan. |
LIST OF ANNEXES
AND ATTACHMENTS
Attachment
A – DWS Proxy Voting Guidelines – DWS Americas
Attachment
A
DWS
Proxy
Voting Guidelines – DWS Americas
Effective
March 1, 2022
TABLE OF CONTENTS
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Voting on Director
Nominees in Contested
Elections
|
|
|
|
Proxy
Contests/Proxy Access |
|
Other Board Related
Proposals |
|
Adopt
Anti-Hedging/Pledging/Speculative
Investments
Policy |
|
|
|
|
|
|
|
|
|
Classification/Declassification
of the Board |
|
|
|
|
|
Director
and Officer Indemnification and Liability
Protection
|
|
Establish/Amend
Nominee Qualifications |
|
Establish
Other Board Committee Proposals |
|
Filling
Vacancies/Removal of Directors |
|
|
|
Majority
of Independent Directors/
Establishment
of Independent Committees |
|
Majority
Vote Standard for the Election of
Directors
|
|
|
|
Require
More Nominees than Open Seats |
|
Shareholder
Engagement Policy (Shareholder
Advisory
Committee) |
|
|
|
Auditor Indemnification
and Limitation of
Liability
|
|
|
|
Shareholder Proposals
Limiting Non-Audit
Services
|
|
Shareholder Proposals
on Audit Firm
Rotation
|
|
SHAREHOLDER RIGHTS
& DEFENCES |
|
Advance Notice
Requirements for
Shareholder Proposals/Nominations
|
|
Amend Bylaws
without Shareholder
Consent
|
|
Control Share
Acquisition Provisions |
|
Control Share
Cash—Out Provisions |
|
|
|
|
|
|
|
|
|
Shareholder Litigation
Rights Federal Forum
Selection Provisions
|
|
Exclusive Forum
Provisions for State Law
Matters
|
|
|
|
Net Operating
Loss (NOL) Protective
Amendments
|
|
Poison Pills
(Shareholder Rights Plans) |
|
Shareholder
Proposals to Put Pill to a Vote and/
or
Adopt a Pill Policy |
|
Management
Proposals to Ratify a Poison Pill |
|
Management
Proposals to Ratify a Pill to
Preserve
Net Operating Losses (NOLs) |
|
Proxy
Voting Disclosure, Confidentiality, and
Tabulation
|
|
Ratification
Proposals: Management Proposals
to
Ratify Existing Charter or Bylaw Provisions |
|
Reimbursing
Proxy Solicitation Expenses |
|
Reincorporation
Proposals |
|
Shareholder
Ability to Act by Written Consent |
|
Shareholder
Ability to Call Special Meetings |
|
|
|
State
Antitakeover Statutes |
|
Supermajority
Vote Requirements |
|
Virtual
Shareholder Meetings |
|
|
|
|
|
Adjustments
to Par Value of Common Stock |
|
Common
Stock Authorization |
|
General
Authorization Requests |
|
Specific
Authorization Requests |
|
|
|
Issue
Stock for Use with Rights Plan |
|
|
|
Preferred
Stock Authorization |
|
General
Authorization Requests |
|
Specific
Authorization Requests |
|
|
|
|
|
Share
Repurchase Programs |
|
Share
Repurchase Programs Shareholder
Proposals
|
|
Stock
Distributions: Splits and Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
Reorganization/Debt Restructuring/
Prepackaged
Bankruptcy Plans/Reverse
Leveraged
Buyouts/Wrap Plans |
|
Formation
of Holding Company |
|
Going
Private and Going Dark Transactions
(LBOs
and Minority Squeeze-outs) |
|
|
|
|
|
|
|
Private
Placements/Warrants/Convertible
Debentures
|
|
Reorganization/Restructuring
Plan (Bankruptcy) |
|
Special
Purpose Acquisition Corporations
(SPACs)
|
|
Special
Purpose Acquisition Corporations
(SPACs)
- Proposals for Extensions |
|
|
|
Value
Maximization Shareholder Proposals |
|
|
|
|
|
Advisory
Votes on Executive Compensation—
Management
Proposals (Say-on-Pay) |
|
Frequency
of Advisory Vote on Executive
Compensation
(“Say
When on Pay”)
|
|
Voting
on Golden Parachutes in an Acquisition,
Merger,
Consolidation, or Proposed Sale |
|
Equity-Based
and Other Incentive Plans |
|
Further
Information on certain EPSC Factors: |
|
|
|
Liberal
Change in Control Definition |
|
|
|
Problematic
Pay Practices or Significant Pay-for-
Performance
Disconnect |
|
Amending
Cash and Equity Plans (including
Approval
for Tax Deductibility (162(m)) |
|
Specific
Treatment of Certain Award Types in
Equity
Plan Evaluations |
|
Dividend
Equivalent Rights |
|
Operating
Partnership (OP) Units in Equity Plan
Analysis
of Real Estate Investment Trusts
(REITs)
|
|
|
|
401(k)
Employee Benefit Plans |
|
Employee
Stock Ownership Plans (ESOPs) |
|
Employee
Stock Purchase Plans—Qualified
Plans
|
|
Employee
Stock Purchase Plans—Non-Qualified
Plans
|
|
Option
Exchange Programs/Repricing Options |
|
Stock
Plans in Lieu of Cash |
|
Transfer
Stock Option (TSO) Programs |
|
|
|
Shareholder
Ratification of Director Pay
Programs
|
|
Equity
Plans for Non-Employee Directors |
|
Non-Employee
Director Retirement Plans |
|
Shareholder Proposals
on Compensation |
|
Bonus
Banking/Bonus Banking “Plus”
|
|
Compensation
Consultants—Disclosure of
Board
or Company’s Utilization |
|
Disclosure/Setting
Levels or Types of
Compensation
for Executives and Directors |
|
Golden
Coffins/Executive Death Benefits |
|
Hold
Equity Past Retirement or for a Significant
Period
of Time |
|
|
|
Pay
for Performance/Performance-Based
Awards
|
|
Pay
for Superior Performance |
|
Pre-Arranged
Trading Plans (10b5-1 Plans) |
|
Prohibit
Outside CEOs from Serving on
Compensation
Committees |
|
Recoupment
of Incentive or Stock
Compensation
in Specified Circumstances |
|
Severance
Agreements for Executives/Golden
Parachutes
|
|
Share
Buyback Impact on Incentive Program
Metrics
|
|
Supplemental
Executive Retirement Plans
(SERPs)
|
|
|
|
Termination
of Employment Prior to Severance
Payment/Eliminating
Accelerated Vesting of
Unvested
Equity |
|
|
|
|
|
Amend Quorum
Requirements |
|
|
|
|
|
Change Date,
Time, or Location of Annual
Meeting
|
|
|
|
SOCIAL AND ENVIRONMENTAL
ISSUES |
|
|
|
Endorsement of
Principles |
|
|
|
|
|
|
|
|
|
|
|
Genetically
Modified Ingredients |
|
Reports
on Potentially Controversial Business/
Financial
Practices |
|
Pharmaceutical
Pricing, Access to Medicines,
and
Prescription Drug Reimportation |
|
Product
Safety and Toxic/Hazardous Materials |
|
Tobacco-Related
Proposals |
|
|
|
Climate
(SoC) Management Proposals |
|
Climate
(SoC) Shareholder Proposals |
|
Climate
Change/Greenhouse Gas (GHG)
Emissions
|
|
|
|
|
|
|
|
|
|
|
|
Gender
Identity, Sexual Orientation, and
Domestic
Partner Benefits |
|
Gender,
Race / Ethnicity Pay Gap |
|
Racial
Equity and/or Civil Rights Audit
Guidelines
|
|
Environment and
Sustainability |
|
Facility
and Workplace Safety |
|
General
Environmental Proposals and
Community
Impact Assessments |
|
|
|
Operations
in Protected Areas |
|
|
|
|
|
|
|
|
|
|
|
Data
Security, Privacy, and Internet Issues |
|
Environmental,
Social, and Governance (ESG)
Compensation-Related
Proposals |
|
Human Rights,
Human Capital Management,
and International
Operations |
|
|
|
|
|
Operations
in High Risk Markets |
|
|
|
|
|
Weapons
and Military Sales |
|
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|
|
REGISTERED INVESTMENT
COMPANY
PROXIES
|
|
|
|
Closed End Fund
- Unilateral Opt-In to
Control Share
Acquisition Statutes |
|
Converting Closed-end
Fund to Open-end
Fund
|
|
|
|
Investment Advisory
Agreements |
|
Approving New
Classes or Series of Shares |
|
Preferred Stock
Proposals |
|
|
|
Changing a Fundamental
Restriction to a
Nonfundamental
Restriction |
|
Change Fundamental
Investment Objective
to Nonfundamental
|
|
|
|
Change in Fund's
Subclassification |
|
Business Development
Companies—
Authorization
to Sell Shares of Common
Stock at a Price
below Net Asset Value |
|
Disposition of
Assets/Termination/
Liquidation
|
|
Changes to the
Charter Document |
|
Changing the
Domicile of a Fund |
|
Authorizing the
Board to Hire and Terminate
Subadvisers Without
Shareholder Approval |
|
|
|
|
|
|
|
Shareholder Proposals
for Mutual Funds |
|
Establish
Director Ownership Requirement |
|
Reimburse
Shareholder for Expenses Incurred |
|
Terminate
the Investment Advisor |
|
INTERNATIONAL
PROXY VOTING |
|
|
NOTE:
Because of the unique oversight structure and regulatory scheme applicable to closed-end and open-end investment companies,
except as otherwise noted, these voting guidelines are not applicable to holdings of shares of closed-end and
open-end investment companies (except Real Estate Investment Trusts).
In
voting proxies that are noted case-by-case, DWS will vote such proxies based on recommendations from ISS based on
its application of the Guidelines.
BOARD
OF DIRECTORS
DWS’s
policy is to generally vote for director nominees, except under the following circumstances (with new nominees6
considered on case-by-case basis):
Independence
General
Recommendation: DWS’s policy is to generally vote against7
or withhold from non-independent directors when (See Appendix
1 for Classification of Directors):
•
Independent
directors comprise 50 percent or less of the board;
•
The
non-independent director serves on the audit, compensation, or nominating committee;
•
The
company lacks an audit, compensation, or nominating committee so that the full board functions as that committee;
or
•
The
company lacks a formal nominating committee, even if the board attests that the independent directors fulfill the
functions of such a committee.
6
A “new
nominee”
is a director who is being presented for election by shareholders for the first time. Recommendations on
new nominees who have served for less than one year are made on a case-by-case basis depending on the timing of
their appointment and the problematic governance issue in question.
7
In general, companies with a plurality vote standard use “Withhold”
as the contrary vote option in director elections; companies
with a majority vote standard use “Against”.
However, it will vary by company and the proxy must be checked to
determine the valid contrary vote option for the particular company.
Composition
Attendance
at Board and Committee Meetings: DWS’s policy is to generally vote against or withhold from directors (except
nominees who served only part of the fiscal year8)
who attend less than 75 percent of the aggregate of their board
and committee meetings for the period for which they served, unless an acceptable reason for absences is disclosed
in the proxy or another SEC filing. Acceptable reasons for director absences are generally limited to the following:
•
Medical
issues/illness;
•
Family
emergencies; and
•
Missing
only one meeting (when the total of all meetings is three or fewer).
8
Nominees who served for only part of the fiscal year are generally exempted from the attendance policy.
In
cases of chronic poor attendance without reasonable justification, in addition to voting against the director(s) with poor
attendance, generally vote against or withhold from appropriate members of the nominating/governance committees or
the full board.
If
the proxy disclosure is unclear and insufficient to determine whether a director attended at least 75 percent of the aggregate
of his/her board and committee meetings during his/her period of service, vote against or withhold from the
director(s) in question.
Overboarded Directors:
DWS’s policy is to generally vote against or withhold from
individual directors who:
•
Sit
on more than five public company boards; or
•
Are
CEOs of public companies who sit on the boards of more than two public companies besides their own—withhold only
at their outside boards9
9
Although all of a CEO’s subsidiary boards with publicly-traded common stock will be counted as separate boards, DWS
will not recommend a withhold vote for the CEO of a parent company board or any of the controlled (˃50 percent ownership)
subsidiaries of that parent but may do so at subsidiaries that are less than 50 percent controlled and boards outside
the parent/subsidiary relationships.
Gender
Diversity: For companies in the Russell 3000 or S&P 1500
indices, DWS’s policy is to generally vote against or withhold
from the chair of the nominating committee (or other directors on a case-by-case basis) at companies where
there are no women on the company's board. An exception will be made if there was a woman on the board at
the preceding annual meeting and the board makes a firm commitment to return to a gender-diverse status within a
year.
This
policy will also apply for companies not in the Russell 3000 and S&P1500 indices, effective for meetings on or after
Feb. 1, 2023.
Racial and/or Ethnic
Diversity: For companies in the Russell 3000 or S&P 1500
indices,
•
generally
vote against or withhold from the chair of the nominating committee (or other directors on a case-by-case basis)
where the board has no apparent racially or ethnically diverse members.10
An exception will be made if (i) there was racial and/or ethnic
diversity on the board at the preceding annual meeting and the board makes a firm
commitment to appoint at least one racial and/or ethnic diverse member within a year; or (ii) there are no new
nominees proposed for election to the board.
10
Aggregate diversity statistics provided by the board will only
be considered if specific to racial and/or ethnic diversity.
Responsiveness
DWS’s
policy is to generally vote case-by-case on individual directors, committee members, or the entire board of directors
as appropriate if:
•
The
board failed to act on a shareholder proposal that received the support of a majority of the shares cast in the previous
year or failed to act on a management proposal seeking to ratify an existing charter/bylaw provision that received
opposition of a majority of the shares cast in the previous year. Factors that will be considered are:
•
Disclosed
outreach efforts by the board to shareholders in the wake of the vote;
•
Rationale
provided in the proxy statement for the level of implementation;
•
The
subject matter of the proposal;
•
The
level of support for and opposition to the resolution in past meetings;
•
Actions
taken by the board in response to the majority vote and its engagement with shareholders;
•
The
continuation of the underlying issue as a voting item on the ballot (as either shareholder or management proposals);
and
•
Other
factors as appropriate.
•
The
board failed to act on takeover offers where the majority of shares are tendered;
•
At
the previous board election, any director received more than 50 percent withhold/against votes of the shares cast
and the company has failed to address the issue(s) that caused the high withhold/against vote.
DWS’s
policy is to generally vote case-by-case on Compensation Committee members (or, in exceptional cases, the full
board) and the Say on Pay proposal if:
•
The
company’s previous say-on-pay received the support of less than 70 percent of votes cast. Factors that will be
considered are:
The
company's response, including:
•
Disclosure
of engagement efforts with major institutional investors, including the frequency and timing of engagements and
the company participants (including whether independent directors participated);
•
Disclosure
of the specific concerns voiced by dissenting shareholders that led to the say-on-pay opposition;
•
Disclosure
of specific and meaningful actions taken to address shareholders' concerns;
•
Other
recent compensation actions taken by the company;
•
Whether
the issues raised are recurring or isolated;
•
The
company's ownership structure; and
•
Whether
the support level was less than 50 percent, which would warrant the highest degree of responsiveness.
•
The
board implements an advisory vote on executive compensation on a less frequent basis than the frequency that
received the plurality of votes cast.
Accountability
Problematic Takeover
Defenses/Governance Structure
Poison
Pills: DWS’s policy is to generally vote against or withhold
from all nominees (except new nominees5,
who should be considered case-by-case) if:
•
The
company has a poison pill that was not approved by shareholders11.
However, vote case-by-case on nominees if the board adopts an
initial pill with a term of one year or less, depending on the disclosed rationale for the adoption,
and other factors as relevant (such as a commitment to put any renewal to a shareholder vote);
•
The
board makes a material adverse modification to an existing pill, including, but not limited to, extension, renewal, or
lowering the trigger, without shareholder approval; or
•
The
pill, whether short-term12
or long-term, has a deadhand or slowhand feature.
11
Public shareholders only, approval prior to a company’s becoming public is insufficient.
12
If the short-term pill with a deadhand or slowhand feature is enacted but expires before the next shareholder vote, DWS
will generally still vote withhold or against nominees at the next shareholder meeting following its adoption.
Classified
Board Structure: The board is classified, and a continuing director
responsible for a problematic governance issue at the board/committee
level that would warrant a withhold / against vote recommendation is not up for election. All
appropriate nominees (except new) may be held accountable.
Removal
of Shareholder Discretion on Classified Boards: The company has
opted into, or failed to opt out of, state laws requiring a classified
board structure.
Director
Performance Evaluation: The board lacks mechanisms to promote
accountability and oversight, coupled with sustained poor performance
relative to peers. Sustained poor performance is measured by one-, three-, and five-year
total shareholder returns in the bottom half of a company’s four-digit GICS industry group (Russell 3000 companies only).
Take into consideration the company’s operational metrics and other factors as warranted.
Problematic
provisions include but are not limited to:
•
A
classified board structure;
•
A
supermajority vote requirement;
•
Either
a plurality vote standard in uncontested director elections, or a majority vote standard in contested elections;
•
The
inability of shareholders to call special meetings;
•
The
inability of shareholders to act by written consent;
•
A
multi-class capital structure; and/or
•
A
non-shareholder-approved poison pill.
Unilateral
Bylaw/Charter Amendments and Problematic Capital Structures:
DWS’s policy is to generally vote against or withhold from
directors individually, committee members, or the entire board (except new nominees5,
who should be considered case-by-case) if the board amends the
company's bylaws or charter without shareholder approval in a
manner that materially diminishes shareholders' rights or that could adversely impact shareholders, considering the
following factors:
•
The
board's rationale for adopting the bylaw/charter amendment without shareholder ratification;
•
Disclosure
by the company of any significant engagement with shareholders regarding the amendment;
•
The
level of impairment of shareholders' rights caused by the board's unilateral amendment to the bylaws/charter;
•
The
board's track record with regard to unilateral board action on bylaw/charter amendments or other entrenchment provisions;
•
The
company's ownership structure;
•
The
company's existing governance provisions;
•
The
timing of the board's amendment to the bylaws/charter in connection with a significant business development; and
•
Other
factors, as deemed appropriate, that may be relevant to determine the impact of the amendment on shareholders.
Unless
the adverse amendment is reversed or submitted to a binding shareholder vote, in subsequent years vote case-by-case
on director nominees. DWS’s policy is to generally vote against (except new nominees, who should be considered
case-by-case) if the directors:
•
Adopted
supermajority vote requirements to amend the bylaws or charter; or
•
Eliminated
shareholders' ability to amend bylaws.
Unequal Voting
Rights
Problematic
Capital Structure - Newly Public Companies: For 2022, for newly
public companies13,
DWS’s policy is to generally vote against or withhold from
the entire board (except new nominees5,
who should be considered case-by-case) if, prior to or in connection
with the company's public offering, the company or its board implemented a
multi-class capital structure in which the classes have unequal voting rights without subjecting the multi-class capital structure
to a reasonable time-based sunset. In assessing the reasonableness of a time-based sunset provision, consideration will
be given to the company’s lifespan, its post-IPO ownership structure and the board’s disclosed rationale for the sunset
period selected. No sunset period of more than seven years from the date of the IPO will be considered to be
reasonable.
Continue
to vote against or withhold from incumbent directors in subsequent years, unless the problematic capital structure
is reversed, removed or subject to a newly added reasonable sunset.
13
Newly-public companies generally include companies that emerge
from bankruptcy, SPAC transactions, spin-offs, direct listings,
and those who complete a traditional initial public offering.
Common
Stock Capital Structure with Unequal Voting Rights: Starting
Feb.1, 2023,
generally vote withhold or against directors individually, committee
members, or the entire board (except new nominees, who should be considered (case-by-case),
if the company employs a common stock structure with unequal voting rights14.
14
This generally includes classes of common stock that have additional
votes per share than other shares; classes that are not entitled
to vote on all the same ballot items or nominees; or stock with time-phased voting rights (“loyalty
shares”)
Exceptions
to this policy will generally be limited to:
•
Newly-public
companies with a sunset provision of no more than seven years from the date of going public;
•
Limited
Partnerships and the Operating Partnership (OP) unit structure of REITs;
•
Situations
where the unequal voting rights are considered de minimis; or
•
The
company provides sufficient protections for minority shareholders, such as allowing minority shareholders a
regular binding vote on whether the capital structure should be maintained.
Problematic
Governance Structure - Newly Public Companies: For newly public
companies12,
DWS’s policy is to generally vote against or withhold from
directors individually, committee members, or the entire board (except new nominees5,
who should be considered case-by-case) if, prior to or in connection with the company's public offering, the
company or its board adopted the following bylaw or charter provisions that are considered to be materially adverse to
shareholder rights:
•
Supermajority
vote requirements to amend the bylaws or charter;
•
A
classified board structure; or
•
Other
egregious provisions.
A
reasonable sunset provision will be considered a mitigating factor.
Unless
the adverse provision is reversed or removed, vote case-by-case on director nominees in subsequent years.
Management
Proposals to Ratify Existing Charter or Bylaw Provisions: DWS’s
policy is to generally vote against/withhold from individual
directors, members of the governance committee, or the full board, where boards ask shareholders to
ratify existing charter or bylaw provisions considering the following factors:
•
The
presence of a shareholder proposal addressing the same issue on the same ballot;
•
The
board's rationale for seeking ratification;
•
Disclosure
of actions to be taken by the board should the ratification proposal fail;
•
Disclosure
of shareholder engagement regarding the board’s ratification request;
•
The
level of impairment to shareholders' rights caused by the existing provision;
•
The
history of management and shareholder proposals on the provision at the company’s past meetings;
•
Whether
the current provision was adopted in response to the shareholder proposal;
•
The
company's ownership structure; and
•
Previous
use of ratification proposals to exclude shareholder proposals.
Restrictions on
Shareholders’ Rights
Restricting
Binding Shareholder Proposals: DWS’s policy is to generally
vote against or withhold from the members of the governance committee
if:
•
The
company’s governing documents impose undue restrictions on shareholders’ ability to amend the bylaws.
Such
restrictions include but are not limited to: outright prohibition on the submission of binding shareholder proposals or
share ownership requirements, subject matter restrictions, or time holding requirements in excess of SEC Rule 14a-8.
Vote against or withhold on an ongoing basis.
Submission
of management proposals to approve or ratify requirements in excess of SEC Rule 14a-8 for the submission of
binding bylaw amendments will generally be viewed as an insufficient restoration of shareholders' rights. DWS’s policy
is to generally continue to vote against or withhold on an ongoing basis until shareholders are provided with an
unfettered ability to amend the bylaws or a proposal providing for such unfettered right is submitted for shareholder approval.
Problematic Audit-Related
Practices
DWS’s
policy is to generally vote against or withhold from the members of the Audit Committee if:
•
The
non-audit fees paid to the auditor are excessive;
•
The
company receives an adverse opinion on the company’s financial statements from its auditor; or
•
There
is persuasive evidence that the Audit Committee entered into an inappropriate indemnification agreement with
its auditor that limits the ability of the company, or its shareholders, to pursue legitimate legal recourse against
the audit firm.
DWS’s
policy is to generally vote case-by-case on members of the Audit Committee and potentially the full board if:
•
Poor
accounting practices are identified that rise to a level of serious concern, such as: fraud; misapplication of GAAP;
and material weaknesses identified in Section 404 disclosures. Examine the severity, breadth, chronological sequence,
and duration, as well as the company’s efforts at remediation or corrective actions, in determining whether
withhold/against votes are warranted.
Problematic Compensation
Practices
In
the absence of an Advisory Vote on Executive Compensation (Say on Pay) ballot item or in egregious situations, DWS’s
policy is to generally vote against or withhold from the members of the Compensation Committee and potentially the
full board if:
•
There
is an unmitigated misalignment between CEO pay and company performance (pay for performance);
•
The
company maintains significant problematic pay practices; or
•
The
board exhibits a significant level of poor communication and responsiveness to shareholders.
DWS’s
policy is to generally vote against or withhold from the Compensation Committee chair, other committee members, or
potentially the full board if:
•
The
company fails to include a Say on Pay ballot item when required under SEC provisions, or under the company’s declared
frequency of say on pay; or
•
The
company fails to include a Frequency of Say on Pay ballot item when required under SEC provisions.
DWS’s
policy is to generally vote against members of the board committee responsible for approving/setting non-employee director
compensation if there is a pattern (i.e. two or more years) of awarding excessive non-employee director compensation without
disclosing a compelling rationale or other mitigating factors.
Problematic Pledging
of Company Stock
DWS’s
policy is to generally vote against the members of the committee that oversees risks related to pledging, or the
full board, where a significant level of pledged company stock by executives or directors raises concerns.
The
following factors will be considered:
•
The
presence of an anti-pledging policy, disclosed in the proxy statement, that prohibits future pledging activity;
•
The
magnitude of aggregate pledged shares in terms of total common shares outstanding, market value, and trading
volume;
•
Disclosure
of progress or lack thereof in reducing the magnitude of aggregate pledged shares over time;
•
Disclosure
in the proxy statement that shares subject to stock ownership and holding requirements do not include pledged
company stock; and
•
Any
other relevant factors.
Climate Accountability
For
companies that are significant greenhouse gas (GHG) emitters, through their operations or value chain15,
DWS’s policy is to generally vote against or withhold from
the incumbent chair of the responsible committee (or other directors on
a case-by-case basis) in cases where DWS determines that the company is not taking the minimum steps needed to
understand, assess and mitigate the risks related to climate change to the company and the larger economy which may
lead to regulatory risks.
For
2022, minimum steps to understand and mitigate those risks are considered to be the following. Both minimum criteria
will be required to be in compliance:
•
Detailed
disclosure of climate-related risks, such as according to the framework established by the Task Force on
Climate-related Financial Disclosures (TCFD), including:
Board
governance measures;
Corporate
strategy;
Risk
management analyses; and
Metrics
and targets.
•
Appropriate
GHG emissions reduction targets.
For
2022, “appropriate
GHG emissions reduction targets”
will be any well-defined GHG reduction targets. Targets for Scope
3 emissions will not be required for 2022 but the targets should cover at least a significant portion of the company’s
direct emissions. Expectations about what constitutes “minimum
steps to mitigate risks related to climate change”
will increase over time.
15
For 2022, companies defined as “significant
GHG emitters”
will be those on the current Climate Action 100+ Focus Group
list.
Governance Failures
DWS’s
policy is to generally vote case-by-case on directors individually, committee members, or the entire board, due
to:
•
Material
failures of governance, stewardship, risk oversight16,
or fiduciary responsibilities at the company, including failures
to adequately manage or mitigate environmental, social and governance (ESG) risks;
•
Failure
to replace management as appropriate; or
•
Egregious
actions related to a director’s service on other boards that raise substantial doubt about his or her ability
to effectively oversee management and serve the best interests of shareholders at any company.
16
Examples of failure of risk oversight include but are not limited
to: bribery; large or serial fines or sanctions from regulatory
bodies; demonstrably poor oversight of environmental and social issues, including climate change; significant adverse
legal judgments or settlement; or hedging of company stock.
Voting on Director
Nominees in Contested Elections
Vote-No Campaigns
General
Recommendation: In cases where companies are targeted in connection
with public “vote-no”
campaigns, evaluate director nominees under the existing governance
policies for voting on director nominees in uncontested elections.
Take into consideration the arguments submitted by shareholders and other publicly available information.
Proxy Contests/Proxy
Access
General
Recommendation: DWS’s policy is to generally vote case-by-case
on the election of directors in contested elections, considering
the following factors:
•
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 generally vote case-by-case considering any
applicable factors listed above or additional factors 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 there are more candidates than board
seats).
Other Board-Related
Proposals
Adopt Anti-Hedging/Pledging/Speculative
Investments Policy
General
Recommendation: DWS’s policy is to generally vote for proposals
seeking a policy that prohibits named executive officers from
engaging in derivative or speculative transactions involving company stock, including hedging, holding
stock in a margin account, or pledging stock as collateral for a loan. However, the company’s existing policies regarding
responsible use of company stock will be considered.
Board Refreshment
DWS
believes Board refreshment is best implemented through an ongoing program of individual director evaluations, conducted
annually, to ensure the evolving needs of the board are met and to bring in fresh perspectives, skills, and diversity
as needed.
Term/Tenure Limits
General
Recommendation: DWS’s policy is to generally vote case-by-case
on management proposals regarding director term/tenure limits,
considering:
•
The
rationale provided for adoption of the term/tenure limit;
•
The
robustness of the company’s board evaluation process;
•
Whether
the limit is of sufficient length to allow for a broad range of director tenures;
•
Whether
the limit would disadvantage independent directors compared to non-independent directors; and
•
Whether
the board will impose the limit evenly, and not have the ability to waive it in a discriminatory manner.
Vote
case-by-case on shareholder proposals asking for the company to adopt director term/tenure limits, considering:
•
The
scope of the shareholder proposal; and
•
Evidence
of problematic issues at the company combined with, or exacerbated by, a lack of board refreshment.
Age Limits
General
Recommendation: DWS’s policy is to generally vote against
management and shareholder proposals to limit the tenure of independent
directors through mandatory retirement ages. DWS’s policy is to generally vote for proposals
to remove mandatory age limits.
Board Size
General
Recommendation: DWS’s policy is to generally vote for proposals
seeking to fix the board size or designate a range for the board
size. DWS’s policy is to generally vote against proposals that give management the ability to alter
the size of the board outside of a specified range without shareholder approval.
Classification/Declassification
of the Board
General
Recommendation: DWS’s policy is to vote against proposals
to classify (stagger) the board. Vote for proposals to repeal
classified boards and to elect all directors annually.
CEO Succession
Planning
General
Recommendation: DWS’s policy is to generally vote for proposals
seeking disclosure on a CEO succession planning policy, considering,
at a minimum, the following factors:
•
The
reasonableness/scope of the request; and
•
The
company’s existing disclosure on its current CEO succession planning process.
Cumulative Voting
General
Recommendation: DWS’s policy is to generally vote against
management proposals to eliminate cumulate voting, and for shareholder
proposals to restore or provide for cumulative voting, unless:
•
The
company has proxy access17,
thereby allowing shareholders to nominate directors to the company’s ballot; and
•
The
company has adopted a majority vote standard, with a carve-out for plurality voting in situations where there are
more nominees than seats, and a director resignation policy to address failed elections.
DWS’s
policy is to generally vote for proposals for cumulative voting at controlled companies (insider voting power ˃ 50%).
17
A proxy access right that meets the recommended guidelines.
Director and Officer
Indemnification and Liability Protection
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals on director and officer indemnification and liability
protection.
Vote
against proposals that would:
•
Eliminate
entirely directors' and officers' liability for monetary damages for violating the duty of care.
•
Expand
coverage beyond just legal expenses to liability for acts that are more serious violations of fiduciary obligation than
mere carelessness.
•
Expand
the scope of indemnification to provide for mandatory indemnification of company officials in connection with
acts that previously the company was permitted to provide indemnification for, at the discretion of the company's board
(i.e., “permissive
indemnification”),
but that previously the company was not required to indemnify.
Vote
for only those proposals providing such expanded coverage in cases when a director’s or officer’s legal defense was
unsuccessful if both of the following apply:
•
If
the director was found to have acted in good faith and in a manner that s/he reasonably believed was in the best
interests of the company; and
•
If
only the director’s legal expenses would be covered.
Establish/Amend
Nominee Qualifications
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals that establish or amend director qualifications.
Votes should be based on the reasonableness of the criteria and the degree to which they may preclude
dissident nominees from joining the board.
Vote
case-by-case on shareholder resolutions seeking a director nominee who possesses a particular subject matter expertise,
considering:
•
The
company’s board committee structure, existing subject matter expertise, and board nomination provisions relative
to that of its peers;
•
The
company’s existing board and management oversight mechanisms regarding the issue for which board oversight is
sought;
•
The
company’s disclosure and performance relating to the issue for which board oversight is sought and any significant
related controversies; and
•
The
scope and structure of the proposal.
Establish Other
Board Committee Proposals
General
Recommendation: DWS’s policy is to generally vote against
shareholder proposals to establish a new board committee, as
such proposals seek a specific oversight mechanism/structure that potentially limits a company’s flexibility to
determine an appropriate oversight mechanism for itself. However, the following factors will be considered:
•
Existing
oversight mechanisms (including current committee structure) regarding the issue for which board oversight is
sought;
•
Level
of disclosure regarding the issue for which board oversight is sought;
•
Company
performance related to the issue for which board oversight is sought;
•
Board
committee structure compared to that of other companies in its industry sector; and
•
The
scope and structure of the proposal.
Filling Vacancies/Removal
of Directors
General
Recommendation: DWS’s policy is to generally vote against
proposals that provide that directors may be removed only for
cause.
Vote
for proposals to restore shareholders’ ability to remove directors with or without cause.
Vote
against proposals that provide that only continuing directors may elect replacements to fill board vacancies. Vote for
proposals that permit shareholders to elect directors to fill board vacancies.
Independent Board
Chair
General
Recommendation: DWS’s policy is to generally vote for shareholder
proposals requiring that the board chair position be filled by
an independent director, taking into consideration the following:
•
The
scope and rationale of the proposal;
•
The
company's current board leadership structure;
•
The
company's governance structure and practices;
•
Company
performance; and
•
Any
other relevant factors that may be applicable.
The
following factors will increase the likelihood of a “for”
recommendation:
•
A
majority non-independent board and/or the presence of non-independent directors on key board committees;
•
A
weak or poorly defined lead independent director role that fails to serve as an appropriate counterbalance to a
combined CEO/chair role;
•
The
presence of an executive or non-independent chair in addition to the CEO, a recent recombination of the role of
CEO and chair, and/or departure from a structure with an independent chair;
•
Evidence
that the board has failed to oversee and address material risks facing the company;
•
A
material governance failure, particularly if the board has failed to adequately respond to shareholder concerns or
if the board has materially diminished shareholder rights; or
•
Evidence
that the board has failed to intervene when management’s interests are contrary to shareholders' interests.
Majority of Independent
Directors/Establishment of Independent Committees
General
Recommendation: DWS’s policy is to generally vote for shareholder
proposals asking that a majority or more of directors be independent
unless the board composition already meets the proposed threshold by ISS’ definition of
Independent Director.
Vote
for shareholder proposals asking that board audit, compensation, and/or nominating committees be composed exclusively
of independent directors unless they currently meet that standard.
Majority Vote Standard
for the Election of Directors
General
Recommendation: DWS’s policy is to generally vote for management
proposals to adopt a majority of votes cast standard for directors
in uncontested elections. Vote against if no carve-out for a plurality vote standard in contested elections
is included.
DWS’s
policy is to generally vote for precatory and binding shareholder resolutions requesting that the board change the
company’s bylaws to stipulate that directors need to be elected with an affirmative majority of votes cast, provided it
does not conflict with the state law where the company is incorporated. Binding resolutions need to allow for a carve-out
for a plurality vote standard when there are more nominees than board seats.
Companies
are strongly encouraged to also adopt a post-election policy (also known as a director resignation policy) that
will provide guidelines so that the company will promptly address the situation of a holdover director.
Proxy Access
General
Recommendation: DWS’s policy is to generally vote for management
and shareholder proposals for proxy access with the following
provisions:
•
Ownership
threshold: maximum requirement not more than three percent (3%)
of the voting power;
•
Ownership
duration: maximum requirement not longer than three (3) years
of continuous ownership for each member of the nominating group;
•
Aggregation:
minimal or no limits on the number of shareholders permitted to form a nominating group;
•
Cap:
cap on nominees of generally twenty-five percent (25%) of the board.
Review
for reasonableness any other restrictions on the right of proxy access. Generally vote against proposals that are
more restrictive than these guidelines.
Require More Nominees
than Open Seats
General
Recommendation: DWS’s policy is to generally vote against
shareholder proposals that would require a company to nominate
more candidates than the number of open board seats.
Shareholder Engagement
Policy (Shareholder Advisory Committee)
General
Recommendation: DWS’s policy is to generally vote for shareholder
proposals requesting that the board establish an internal mechanism/process,
which may include a committee, in order to improve communications between directors
and shareholders, unless the company has the following features, as appropriate:
•
Established
a communication structure that goes beyond the exchange requirements to facilitate the exchange of
information between shareholders and members of the board;
•
Effectively
disclosed information with respect to this structure to its shareholders;
•
Company
has not ignored majority-supported shareholder proposals or a majority withhold vote on a director nominee;
and
•
The
company has an independent chair or a lead director, according to ISS’ definition. This individual must be made
available for periodic consultation and direct communication with major shareholders.
AUDIT-RELATED
Auditor Indemnification
and Limitation of Liability
General
Recommendation: DWS’s policy is to generally vote case-by-case
on the issue of auditor indemnification and limitation of liability.
Factors to be assessed include, but are not limited to:
•
The
terms of the auditor agreement—the degree to which these agreements impact shareholders' rights;
•
The
motivation and rationale for establishing the agreements;
•
The
quality of the company’s disclosure; and
•
The
company’s historical practices in the audit area.
Vote
against or withhold from members of an audit committee in situations where there is persuasive evidence that the
audit committee entered into an inappropriate indemnification agreement with its auditor that limits the ability of the
company, or its shareholders, to pursue legitimate legal recourse against the audit firm.
Auditor Ratification
General
Recommendation: DWS’s policy is to generally vote for proposals
to ratify auditors unless any of the following apply:
•
An
auditor has a financial interest in or association with the company, and is therefore not independent;
•
There
is reason to believe that the independent auditor has rendered an opinion that is neither accurate nor indicative of
the company’s financial position;
•
Poor
accounting practices are identified that rise to a serious level of concern, such as fraud or misapplication of GAAP;
or
•
Fees
for non-audit services (“Other”
fees) are excessive.
Non-audit
fees are excessive if:
•
Non-audit
(“other”)
fees ˃ audit fees + audit-related fees + tax compliance/preparation fees
Tax
compliance and preparation include the preparation of original and amended tax returns and refund claims, and tax
payment planning. All other services in the tax category, such as tax advice, planning, or consulting, should be added
to “Other”
fees. If the breakout of tax fees cannot be determined, add all tax fees to “Other”
fees.
In
circumstances where “Other”
fees include fees related to significant one-time capital structure events (such as initial
public offerings, bankruptcy emergence, and spin-offs) and the company makes public disclosure of the amount and
nature of those fees that are an exception to the standard “non-audit
fee”
category, then such fees may be excluded from the non-audit fees
considered in determining the ratio of non-audit to audit/audit-related fees/tax compliance and
preparation for purposes of determining whether non-audit fees are excessive.
Shareholder Proposals
Limiting Non-Audit Services
General
Recommendation: DWS’s policy is to generally vote case-by-case
on shareholder proposals asking companies to prohibit or limit
their auditors from engaging in non-audit services, taking into account:
•
The
company’s stated rationale for using its auditor to provide the non-audit services;
•
Relationships
between directors/executives and the audit firm; and
•
The
presence of other accounting issues (material weaknesses, restatements, non-timely filings (Ks and Qs).
Shareholder Proposals
on Audit Firm Rotation
General
Recommendation: DWS’s policy is to generally vote case-by-case
on shareholder proposals asking for audit firm rotation, taking
into account:
•
The
tenure of the audit firm;
•
The
length of rotation specified in the proposal;
•
Any
significant audit-related issues at the company;
•
The
number of Audit Committee meetings held each year;
•
The
number of financial experts serving on the committee; and
•
Whether
the company has a periodic renewal process where the auditor is evaluated for both audit quality and competitive
price.
SHAREHOLDER
RIGHTS & DEFENSES
Advance Notice
Requirements for Shareholder Proposals/Nominations
General
Recommendation: DWS’s policy is to generally vote case-by-case
on advance notice proposals, giving support to those proposals
which allow shareholders to submit proposals/nominations as close to the meeting date as reasonably possible
and within the broadest window possible, recognizing the need to allow sufficient notice for company, regulatory, and
shareholder review.
To
be reasonable, the company’s deadline for shareholder notice of a proposal/nominations must be no earlier than 120
days prior to the anniversary of the previous year’s meeting and have a submittal window of no shorter than 30 days
from the beginning of the notice period. The submittal window is the period under which shareholders must file their
proposals/nominations prior to the deadline.
In
general, support additional efforts by companies to ensure full disclosure in regard to a proponent’s economic and voting
position in the company so long as the informational requirements are reasonable and aimed at providing shareholders with
the necessary information to review such proposals.
Amend Bylaws without
Shareholder Consent
General
Recommendation: DWS’s policy is to generally vote against
proposals giving the board exclusive authority to amend the bylaws.
Vote
case-by-case on proposals giving the board the ability to amend the bylaws in addition to shareholders, taking into
account the following:
•
Any
impediments to shareholders' ability to amend the bylaws (i.e. supermajority voting requirements);
•
The
company's ownership structure and historical voting turnout;
•
Whether
the board could amend bylaws adopted by shareholders; and
•
Whether
shareholders would retain the ability to ratify any board-initiated amendments.
Control Share Acquisition
Provisions
General
Recommendation: DWS’s policy is to generally vote for proposals
to opt out of control share acquisition statutes unless doing
so would enable the completion of a takeover that would be detrimental to shareholders.
Vote
against proposals to amend the charter to include control share acquisition provisions. Vote for proposals to restore voting
rights to the control shares.
Control
share acquisition statutes function by denying shares their voting rights when they contribute to ownership in
excess of certain thresholds. Voting rights for those shares exceeding ownership limits may only be restored by approval
of either a majority or supermajority of disinterested shares. Thus, control share acquisition statutes effectively require
a hostile bidder to put its offer to a shareholder vote or risk voting disenfranchisement if the bidder continues buying
up a large block of shares.
Control Share Cash—Out
Provisions
General Recommendation:
DWS’s policy is to generally vote for proposals to opt out of control share cash-out statutes.
Control
share cash-out statutes give dissident shareholders the right to “cash-out”
of their position in a company at the expense of the shareholder
who has taken a control position. In other words, when an investor crosses a preset threshold
level, remaining shareholders are given the right to sell their shares to the acquirer, who must buy them at the
highest acquiring price.
Disgorgement Provisions
General Recommendation:
DWS’s policy is to generally vote for proposals to opt out of state disgorgement provisions.
Disgorgement
provisions require an acquirer or potential acquirer of more than a certain percentage of a company's stock
to disgorge, or pay back, to the company any profits realized from the sale of that company's stock purchased 24
months before achieving control status. All sales of company stock by the acquirer occurring within a certain period of
time (between 18 months and 24 months) prior to the investor's gaining control status are subject to these recapture-of-profits
provisions.
Fair Price Provisions
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals to adopt fair price provisions (provisions that
stipulate that an acquirer must pay the same price to acquire all shares as it paid to acquire the control shares),
evaluating factors such as the vote required to approve the proposed acquisition, the vote required to repeal the
fair price provision, and the mechanism for determining the fair price.
DWS’s
policy is to generally vote against fair price provisions with shareholder vote requirements greater than a majority of
disinterested shares.
Freeze-Out Provisions
General
Recommendation: DWS’s policy is to generally vote for proposals
to opt out of state freeze-out provisions. Freeze-out provisions
force an investor who surpasses a certain ownership threshold in a company to wait a specified period
of time before gaining control of the company.
Greenmail
General
Recommendation: DWS’s policy is to generally vote for proposals
to adopt anti-greenmail charter or bylaw amendments or otherwise
restrict a company’s ability to make greenmail payments.
Vote
case-by-case on anti-greenmail proposals when they are bundled with other charter or bylaw amendments.
Greenmail
payments are targeted share repurchases by management of company stock from individuals or groups seeking
control of the company. Since only the hostile party receives payment, usually at a substantial premium over the
market value of its shares, the practice discriminates against all other shareholders.
Shareholder Litigation
Rights
Federal Forum Selection
Provisions
Federal
forum selection provisions require that U.S federal courts be the sole forum for shareholders to litigate claims arising
under federal securities law.
General
Recommendation: DWS’s policy is to generally vote for federal
forum selection provisions in the charter or bylaws that specify
“the
district courts of the United States”
as the exclusive forum for federal securities law matters, in
the absence of serious concerns about corporate governance or board responsiveness to shareholders.
Vote
against provisions that restrict the forum to a particular federal district court; unilateral adoption (without a shareholder vote)
of such a provision will generally be considered a one-time failure under the Unilateral Bylaw/Charter Amendments policy.
Exclusive Forum
Provisions for State Law Matters
Exclusive
forum provisions in the charter or bylaws restrict shareholders’ ability to bring derivative lawsuits against the
company, for claims arising out of state corporate law, to the courts of a particular state (generally the state of incorporation).
General
Recommendation: DWS’s policy is to generally vote for charter
or bylaw provisions that specify courts located within the state
of Delaware as the exclusive forum for corporate law matters for Delaware corporations, in the absence of
serious concerns about corporate governance or board responsiveness to shareholders.
For
states other than Delaware, vote case-by-case on exclusive forum provisions, taking into consideration:
•
The
company's stated rationale for adopting such a provision;
•
Disclosure
of past harm from duplicative shareholder lawsuits in more than one forum;
•
The
breadth of application of the charter or bylaw provision, including the types of lawsuits to which it would apply
and the definition of key terms; and
•
Governance
features such as shareholders' ability to repeal the provision at a later date (including the vote standard applied
when shareholders attempt to amend the charter or bylaws) and their ability to hold directors accountable through
annual director elections and a majority vote standard in uncontested elections.
Generally
vote against provisions that specify a state other than the state of incorporation as the exclusive forum for corporate
law matters, or that specify a particular local court within the state; unilateral adoption of such provision will
generally be considered a one-time failure under the Unilateral Bylaw/Charter Amendments policy.
Fee shifting
Fee-shifting
provisions in the charter or bylaws require that a shareholder who sues a company unsuccessfully pay all
litigation expenses of the defendant corporation and its directors and officers.
General
Recommendation: DWS’s policy is to generally vote against
provisions that mandate fee-shifting whenever plaintiffs are
not completely successful on the merits (i.e. including cases where the plaintiffs are partially successful).
Unilateral
adoption of a fee-shifting provision will generally be considered an ongoing failure under the Unilateral Bylaw/Charter Amendments
policy.
Net Operating Loss
(NOL) Protective Amendments
General
Recommendation: DWS’s policy is to generally vote against
proposals to adopt a protective amendment for the stated purpose
of protecting a company's net operating losses (NOL) if the effective term of the protective amendment
would exceed the shorter of three years and the exhaustion of the NOL.
Vote
case-by-case, considering the following factors, for management proposals to adopt an NOL protective amendment that
would remain in effect for the shorter of three years (or less) and the exhaustion of the NOL:
•
The
ownership threshold (NOL protective amendments generally prohibit stock ownership transfers that would result
in a new 5-percent holder or increase the stock ownership percentage of an existing 5-percent holder);
•
Shareholder
protection mechanisms (sunset provision or commitment to cause expiration of the protective amendment upon
exhaustion or expiration of the NOL);
•
The
company's existing governance structure including: board independence, existing takeover defenses, track record
of responsiveness to shareholders, and any other problematic governance concerns; and
•
Any
other factors that may be applicable.
Poison Pills (Shareholder
Rights Plans)
Shareholder Proposals
to Put Pill to a Vote and/or Adopt a Pill Policy
General
Recommendation: DWS’s policy is to generally vote for shareholder
proposals requesting that the company submit its poison pill
to a shareholder vote or redeem it unless the company has: (1) A shareholder-approved poison pill
in place; or (2) The company has adopted a policy concerning the adoption of a pill in the future specifying that the board
will only adopt a shareholder rights plan if either:
•
Shareholders
have approved the adoption of the plan; or
•
The
board, in its exercise of its fiduciary responsibilities, determines that it is in the best interest of shareholders under
the circumstances to adopt a pill without the delay in adoption that would result from seeking stockholder approval
(i.e., the “fiduciary
out”
provision). A poison pill adopted under this fiduciary out will be put to a shareholder ratification
vote within 12 months of adoption or expire. If the pill is not approved by a majority of the votes cast on
this issue, the plan will immediately terminate.
If
the shareholder proposal calls for a time period of less than 12 months for shareholder ratification after adoption, DWS’s
policy is to generally vote for the proposal, but add the caveat that a vote within 12 months would be considered sufficient
implementation.
Management Proposals
to Ratify a Poison Pill
General
Recommendation: DWS’s policy is to generally vote case-by-case
on management proposals on poison pill ratification, focusing
on the features of the shareholder rights plan. Rights plans should contain the following attributes:
•
No
lower than a 20 percent trigger, flip-in or flip-over;
•
A
term of no more than three years;
•
No
deadhand, slowhand, no-hand, or similar feature that limits the ability of a future board to redeem the pill;
•
Shareholder
redemption feature (qualifying offer clause); if the board refuses to redeem the pill 90 days after a qualifying
offer is announced, 10 percent of the shares may call a special meeting or seek a written consent to vote
on rescinding the pill.
In
addition, the rationale for adopting the pill should be thoroughly explained by the company. In examining the request for
the pill, take into consideration the company’s existing governance structure, including: board independence, existing takeover
defenses, and any problematic governance concerns.
Management Proposals
to Ratify a Pill to Preserve Net Operating Losses (NOLs)
General
Recommendation: DWS’s policy is to generally vote against
proposals to adopt a poison pill for the stated purpose of protecting
a company's net operating losses (NOL) if the term of the pill would exceed the shorter of three
years and the exhaustion of the NOL.
DWS’s
policy is to vote case-by-case on management proposals for poison pill ratification, considering the following factors,
if the term of the pill would be the shorter of three years (or less) and the exhaustion of the NOL:
•
The
ownership threshold to transfer (NOL pills generally have a trigger slightly below 5 percent);
•
Shareholder
protection mechanisms (sunset provision, or commitment to cause expiration of the pill upon exhaustion or
expiration of NOLs);
•
The
company's existing governance structure including: board independence, existing takeover defenses, track record
of responsiveness to shareholders, and any other problematic governance concerns; and
•
Any
other factors that may be applicable.
Proxy Voting Disclosure,
Confidentiality, and Tabulation
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals regarding proxy voting mechanics, taking into consideration
whether implementation of the proposal is likely to enhance or protect shareholder rights. Specific
issues covered under the policy include, but are not limited to, confidential voting of individual proxies and ballots,
confidentiality of running vote tallies, and the treatment of abstentions and/or broker non-votes in the company's vote-counting
methodology.
While
a variety of factors may be considered in each analysis, the guiding principles are: transparency, consistency, and
fairness in the proxy voting process. The factors considered, as applicable to the proposal, may include:
•
The
scope and structure of the proposal;
•
The
company's stated confidential voting policy (or other relevant policies) and whether it ensures a “level
playing field”
by providing shareholder proponents with equal access to vote information prior to the annual meeting;
•
The
company's vote standard for management and shareholder proposals and whether it ensures consistency and
fairness in the proxy voting process and maintains the integrity of vote results;
•
Whether
the company's disclosure regarding its vote counting method and other relevant voting policies with respect
to management and shareholder proposals are consistent and clear;
•
Any
recent controversies or concerns related to the company's proxy voting mechanics;
•
Any
unintended consequences resulting from implementation of the proposal; and
•
Any
other factors that may be relevant.
Ratification Proposals:
Management Proposals to Ratify Existing Charter or Bylaw Provisions
General
Recommendation: DWS’s policy is to generally vote against
management proposals to ratify provisions of the company’s
existing charter or bylaws, unless these governance provisions align with best practice.
In
addition, voting against/withhold from individual directors, members of the governance committee, or the full board may
be warranted, considering:
•
The
presence of a shareholder proposal addressing the same issue on the same ballot;
•
The
board's rationale for seeking ratification;
•
Disclosure
of actions to be taken by the board should the ratification proposal fail;
•
Disclosure
of shareholder engagement regarding the board’s ratification request;
•
The
level of impairment to shareholders' rights caused by the existing provision;
•
The
history of management and shareholder proposals on the provision at the company’s past meetings;
•
Whether
the current provision was adopted in response to the shareholder proposal;
•
The
company's ownership structure; and
•
Previous
use of ratification proposals to exclude shareholder proposals.
Reimbursing Proxy
Solicitation Expenses
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals to reimburse proxy solicitation expenses.
When
voting in conjunction with support of a dissident slate, vote for the reimbursement of all appropriate proxy solicitation
expenses associated with the election.
DWS’s
policy is to generally vote for shareholder proposals calling for the reimbursement of reasonable costs incurred in
connection with nominating one or more candidates in a contested election where the following apply:
•
The
election of fewer than 50 percent of the directors to be elected is contested in the election;
•
One
or more of the dissident’s candidates is elected;
•
Shareholders
are not permitted to cumulate their votes for directors; and
The
election occurred, and the expenses were incurred, after the adoption of this bylaw.
Reincorporation
Proposals
General
Recommendation: Management or shareholder proposals to change
a company's state of incorporation should be evaluated case-by-case,
giving consideration to both financial and corporate governance concerns including the
following:
•
Reasons
for reincorporation;
•
Comparison
of company's governance practices and provisions prior to and following the reincorporation; and
•
Comparison
of corporation laws of original state and destination state.
DWS’s
policy is to generally vote for reincorporation when the economic factors outweigh any neutral or negative governance
changes.
Shareholder Ability
to Act by Written Consent
General
Recommendation: DWS’s policy is to generally vote against
management and shareholder proposals to restrict or prohibit
shareholders' ability to act by written consent.
DWS’s
policy is to generally vote for management and shareholder proposals that provide shareholders with the ability to
act by written consent, taking into account the following factors:
•
Shareholders'
current right to act by written consent;
•
The
inclusion of exclusionary or prohibitive language;
•
Investor
ownership structure; and
•
Shareholder
support of, and management's response to, previous shareholder proposals.
DWS’s
policy is to vote case-by-case on shareholder proposals if, in addition to the considerations above, the company has
the following governance and antitakeover provisions:
•
An
unfettered18
right for shareholders to call special meetings at a 10 percent threshold;
•
A
majority vote standard in uncontested director elections;
•
No
non-shareholder-approved pill; and
•
An
annually elected board.
18
“Unfettered”
means no restrictions on agenda items, no restrictions on the number of shareholders who can group together
to reach the 10 percent threshold, and only reasonable limits on when a meeting can be called: no greater than
30 days after the last annual meeting and no greater than 90 prior to the next annual meeting.
Shareholder Ability
to Call Special Meetings
General
Recommendation: DWS’s policy is to generally vote against
management or shareholder proposals to restrict or prohibit shareholders’
ability to call special meetings.
DWS’s
policy is to generally vote for management or shareholder proposals that provide shareholders with the ability to
call special meetings taking into account the following factors:
•
Shareholders’
current right to call special meetings;
•
Minimum
ownership threshold necessary to call special meetings (10 percent preferred);
•
The
inclusion of exclusionary or prohibitive language;
•
Investor
ownership structure; and
•
Shareholder
support of, and management’s response to, previous shareholder proposals.
Stakeholder Provisions
General
Recommendation: DWS’s policy is to generally vote against
proposals that ask the board to consider non-shareholder constituencies
or other non-financial effects when evaluating a merger or business combination.
State Antitakeover
Statutes
General
Recommendation: DWS’s policy is to vote case-by-case on proposals to opt in or out of state takeover statutes (including
fair price provisions, stakeholder laws, poison pill endorsements, severance pay and labor contract provisions, and
anti-greenmail provisions).
Supermajority Vote
Requirements
General Recommendation:
DWS’s policy is to vote against proposals to require a supermajority shareholder vote.
•
Vote
for management or shareholder proposals to reduce supermajority vote requirements. However, for companies with
shareholder(s) who have significant ownership levels, vote case-by-case, taking into account:
•
Quorum
requirements; and
Virtual Shareholder
Meetings
General
Recommendation: DWS’s policy is to generally vote for management
proposals allowing for the convening of shareholder meetings
by electronic means, so long as they do not preclude in-person meetings. Companies are encouraged
to disclose the circumstances under which virtual-only19
meetings would be held, and to allow for comparable rights and
opportunities for shareholders to participate electronically as they would have during an in-person meeting.
19
Virtual-only shareholder meeting” refers to a meeting of
shareholders that is held exclusively using technology without
a corresponding in-person meeting.
Vote
case-by-case on shareholder proposals concerning virtual-only meetings, considering:
•
Scope
and rationale of the proposal; and
•
Concerns
identified with the company’s prior meeting practices.
CAPITAL
/ RESTRUCTURING
Capital
Adjustments to
Par Value of Common Stock
General
Recommendation: DWS’s policy is to vote for management
proposals to reduce the par value of common stock unless the
action is being taken to facilitate an anti-takeover device or some other negative corporate governance action.
Vote
for management proposals to eliminate par value.
Common Stock Authorization
General Authorization
Requests
General
Recommendation: DWS’s policy is to vote case-by-case on
proposals to increase the number of authorized shares of common
stock that are to be used for general corporate purposes:
•
if
share usage (outstanding plus reserved) is less than 50% of the current authorized shares, vote for an increase of
up to 50% of current authorized shares
•
If
share usage is 50% to 100% of the current authorized, vote for an increase of up to 100% of current authorized shares.
•
If
share usage is greater than current authorized shares, vote for an increase of up to the current share usage.
•
In
the case of a stock split, the allowable increase is calculated (per above) based on the post-split adjusted authorization.
DWS’s
policy is to generally vote against proposed increases, even if within the above ratios, if the proposal or the company’s
prior or ongoing use of authorized shares is problematic, including, but not limited to:
•
The
proposal seeks to increase the number of authorized shares of the class of common stock that has superior voting
rights to other share classes;
•
On
the same ballot is a proposal for a reverse split for which support is warranted despite the fact that it would result
in an excessive increase in the share authorization;
•
The
company has a non-shareholder approved poison pill (including an NOL pill); or
•
The
company has previous sizeable placements (within the past 3 years) of stock with insiders at prices substantially below
market value, or with problematic voting rights, without shareholder approval.
However,
generally vote for proposed increases beyond the above ratios or problematic situations when there is disclosure of
specific and severe risks to shareholders of not approving the request, such as:
•
In,
or subsequent to, the company’s most recent 10-k filing, the company discloses that there is substantial doubt about
its ability to continue as a going concern;
•
The
company states that there is a risk of imminent bankruptcy or imminent liquidation if shareholders do not approve
the increase in authorized capital; or
•
A
government body has in the past year required the company to increase capital ratios.
For
companies incorporated in states that allow increases in authorized capital without shareholder approval, DWS’s policy
is to generally vote withhold or against all nominees if a unilateral capital authorization increase does not conform to
the above policies.
Specific Authorization
Requests
General
Recommendation: DWS’s policy is to generally vote for proposals to increase the number of authorized common shares
where the primary purpose of the increase is to issue shares in connection with transaction(s) (such as acquisitions, SPAC
transactions, private placements, or similar transactions) on the same ballot, or disclosed in the proxy statement, that
warrant support. For such transactions, the allowable increase will be the greater of:
•
twice
the amount needed to support the transactions on the ballot, and
•
the
allowable increase as calculated for general issuances above.
Dual Class Structure
General
Recommendation: DWS’s policy is to generally vote against
proposals to create a new class of common stock unless:
•
The
company discloses a compelling rationale for the dual-class capital structure, such as:
•
The
company's auditor has concluded that there is substantial doubt about the company's ability to continue as a
going concern; or
•
The
new class of shares will be transitory;
•
The
new class is intended for financing purposes with minimal or no dilution to current shareholders in both the short
term and long term; and
•
The
new class is not designed to preserve or increase the voting power of an insider or significant shareholder.
Issue Stock for
Use with Rights Plan
General
Recommendation: DWS’s policy is to generally vote against
proposals that increase authorized common stock for the explicit
purpose of implementing a non-shareholder-approved shareholder rights plan (poison pill).
Preemptive Rights
General
Recommendation: DWS’s policy is to generally vote case-by-case
on shareholder proposals that seek preemptive rights, taking
into consideration:
•
The
size of the company;
•
The
shareholder base; and
•
The
liquidity of the stock.
Preferred Stock
Authorization
General Authorization
Requests
General
Recommendation: DWS’s policy is to vote case-by-case on
proposals to increase the number of authorized shares of preferred
stock that are to be used for general corporate purposes:
•
If
share usage (outstanding plus reserved) is less than 50% of the current authorized shares, vote for an increase of
up to 50% of current authorized shares.
•
If
share usage is 50% to 100% of the current authorized, vote for an increase up to 100% of current authorized shares.
•
If
share usage is greater than current authorized shares, vote for an increase of up to the current share usage.
•
In
the case of a stock split, the allowable increase is calculated (per above) based on the post-split adjusted authorization.
•
If
no preferred shares are currently issued and outstanding, vote against the request, unless the company discloses a
specific use for the shares.
DWS’s
policy is to generally vote against proposed increases, even if within the above ratios, if the proposal or the company’s
prior or ongoing use of authorized shares is problematic, including, but not limited to:
•
If
the shares requested are blank check preferred shares that can be used for antitakeover purposes20;
•
The
company seeks to increase a class of non-convertible preferred shares entitled to more than one vote per share
on matters that do not solely affect the rights of preferred stockholders “supervoting
shares”);
•
The
company seeks to increase a class of convertible preferred shares entitled to a number of votes greater than the
number of common shares into which they are convertible (“supervoting
shares”)
on matters that do not solely affect the rights of preferred
stockholders;
•
The
stated intent of the increase in the general authorization is to allow the company to increase an existing designated
class of supervoting preferred shares;
•
On
the same ballot is a proposal for a reverse split for which support is warranted despite the fact that it would result
in an excessive increase in the share authorization;
•
The
company has a non-shareholder approved poison pill (including NOL pill); or
•
The
company has previous sizeable placements (within the past 3 years) of stock with insiders at prices substantially below
market value, or with problematic voting rights, without shareholder approval.
20
To be acceptable, appropriate disclosure would be needed that
the shares are “declawed”;
i.e., representation by the board that it will not, without prior
stockholder approval, issue or use the preferred stock for any defensive or anti-takeover
purpose or for the purpose of implementing any stockholder rights plan.
However,
DWS’s policy is to generally vote for proposed increases beyond the above ratios or problematic situations when
there is disclosure of specific and severe risks to shareholders of not approving the request, such as:
•
In,
or subsequent to, the company’s most recent 10-k filing, the company discloses that there is substantial doubt about
its ability to continue as a going concern;
•
The
company states that there is a risk of imminent bankruptcy or imminent liquidation if shareholders do not approve
the increase in authorized capital; or
•
A
government body has in the past year required the company to increase capital ratios.
For
companies incorporated in states that allow increases in authorized capital without shareholder approval, DWS’s policy
is to generally vote withhold or against all nominees if a unilateral capital authorization increase does not conform to
the above policies.
Specific Authorization
Requests
General
Recommendation: DWS’s policy is to generally vote for proposals
to increase the number of authorized preferred shares where the
primary purpose of the increase is to issue shares in connection with transaction(s) (such as
acquisitions, SPAC transactions, private placements, or similar transactions) on the same ballot, or disclosed in the proxy
statement, that warrant support. For such transactions, the allowable increase will be the greater of:
•
twice
the amount needed to support the transactions on the ballot, and
•
the
allowable increase as calculated for general issuances above.
Recapitalization
Plans
General
Recommendation: DWS’s policy is to generally vote case-by-case
on recapitalizations (reclassifications of securities), taking
into account the following:
•
More
simplified capital structure;
•
Fairness
of conversion terms;
•
Impact
on voting power and dividends;
•
Reasons
for the reclassification;
•
Conflicts
of interest; and
•
Other
alternatives considered.
Reverse Stock Splits
General
Recommendation: DWS’s policy is to generally vote for management
proposals to implement a reverse stock split if:
•
The
number of authorized shares will be proportionately reduced; or
•
The
effective increase in authorized shares is equal to or less than the allowable increase calculated in accordance with
ISS' Common Stock Authorization policy.
DWS’s
policy is to generally vote case-by-case on proposals that do not meet either of the above conditions, taking into
consideration the following factors:
•
Stock
exchange notification to the company of a potential delisting;
•
Disclosure
of substantial doubt about the company's ability to continue as a going concern without additional financing;
•
The
company's rationale; or
•
Other
factors as applicable.
Share Repurchase
Programs
General
Recommendation: For U.S.-incorporated companies, and foreign-incorporated
U.S. Domestic Issuers that are traded solely on U.S. exchanges,
DWS’s policy is to generally vote for management proposals to institute open-market share
repurchase plans in which all shareholders may participate on equal terms, or to grant the board authority to conduct
open-market repurchases, in the absence of company-specific concerns regarding:
•
The
use of buybacks to inappropriately manipulate incentive compensation metrics,
•
Threats
to the company's long-term viability, or
•
Other
company-specific factors as warranted.
DWS’s
policy is to generally vote case-by-case on proposals to repurchase shares directly from specified shareholders, balancing
the stated rationale against the possibility for the repurchase authority to be misused, such as to repurchase shares
from insiders at a premium to market price.
Share Repurchase
Programs Shareholder Proposals
General
Recommendation: DWS’s policy is to generally vote against
shareholder proposals prohibiting executives from selling shares
of company stock during periods in which the company has announced that it may or will be repurchasing
shares of its stock. Vote for the proposal when there is a pattern of abuse by executives exercising options or
selling shares during periods of share buybacks.
Stock Distributions:
Splits and Dividends
General
Recommendation: DWS’s policy is to generally vote for management
proposals to increase the common share authorization for stock
split or stock dividend, provided that the effective increase in authorized shares is equal to
or is less than the allowable increase calculated in accordance with ISS' Common Stock Authorization policy.
Tracking Stock
General
Recommendation: DWS’s policy is to generally vote case-by-case
on the creation of tracking stock, weighing the strategic value
of the transaction against such factors as:
•
Adverse
governance changes;
•
Excessive
increases in authorized capital stock;
•
Unfair
method of distribution;
•
Diminution
of voting rights;
•
Adverse
conversion features;
•
Negative
impact on stock option plans; and
•
Alternatives
such as spin-off.
Restructuring
Appraisal Rights
General
Recommendation: DWS’s policy is to generally vote for proposals
to restore or provide shareholders with rights of appraisal.
Asset Purchases
General
Recommendation: DWS’s policy is to generally vote case-by-case
on asset purchase proposals, considering the following factors:
•
Financial
and strategic benefits;
•
How
the deal was negotiated;
•
Other
alternatives for the business;
Asset Sales
General
Recommendation: DWS’s policy is to generally vote case-by-case
on asset sales, considering the following factors:
•
Impact
on the balance sheet/working capital;
•
Potential
elimination of diseconomies;
•
Anticipated
financial and operating benefits;
•
Anticipated
use of funds;
•
Value
received for the asset;
•
How
the deal was negotiated;
Bundled Proposals
General
Recommendation: DWS’s policy is to generally vote case-by-case
on bundled or “conditional”
proxy proposals. In the case of items that are conditioned upon
each other, examine the benefits and costs of the packaged items. In instances
when the joint effect of the conditioned items is not in shareholders’ best interests, vote against the proposals. If
the combined effect is positive, support such proposals.
Conversion of Securities
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals regarding conversion of securities. When evaluating
these proposals, the investor should review the dilution to existing shareholders, the conversion
price relative to market value, financial issues, control issues, termination penalties, and conflicts of interest.
DWS’s
policy is to vote for the conversion if it is expected that the company will be subject to onerous penalties or will
be forced to file for bankruptcy if the transaction is not approved.
Corporate Reorganization/Debt
Restructuring/Prepackaged Bankruptcy Plans/Reverse Leveraged Buyouts/Wrap Plans
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals to increase common and/or preferred shares and to
issue shares as part of a debt restructuring plan, after evaluating:
•
Dilution
to existing shareholders' positions;
•
Terms
of the offer - discount/premium in purchase price to investor, including any fairness opinion; termination penalties;
exit strategy;
•
Financial
issues - company's financial situation; degree of need for capital; use of proceeds; effect of the financing on
the company's cost of capital;
•
Management's
efforts to pursue other alternatives;
•
Control
issues - change in management; change in control, guaranteed board and committee seats; standstill provisions;
voting agreements; veto power over certain corporate actions; and
•
Conflict
of interest - arm's length transaction, managerial incentives.
Vote
for the debt restructuring if it is expected that the company will file for bankruptcy if the transaction is not approved.
Formation of Holding
Company
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals regarding the formation of a holding company, taking
into consideration the following:
•
The
reasons for the change;
•
Any
financial or tax benefits;
•
Increases
in capital structure; and
•
Changes
to the articles of incorporation or bylaws of the company.
Absent
compelling financial reasons to recommend for the transaction, vote against the formation of a holding company if
the transaction would include either of the following:
•
Increases
in common or preferred stock in excess of the allowable maximum (see discussion under “Capital”);
or
•
Adverse
changes in shareholder rights.
Going Private and
Going Dark Transactions (LBOs and Minority Squeeze-outs)
General
Recommendation: DWS’s policy is to generally vote case-by-case
on going private transactions, taking into account the following:
•
How
the deal was negotiated;
•
Other
alternatives/offers considered; and
DWS’s
policy is to vote case-by-case on going dark transactions, determining whether the transaction enhances shareholder value
by taking into consideration:
•
Whether
the company has attained benefits from being publicly-traded (examination of trading volume, liquidity, and
market research of the stock);
•
Balanced
interests of continuing vs. cashed-out shareholders, taking into account the following:
•
Are
all shareholders able to participate in the transaction?
•
Will
there be a liquid market for remaining shareholders following the transaction?
•
Does
the company have strong corporate governance?
•
Will
insiders reap the gains of control following the proposed transaction?
•
Does
the state of incorporation have laws requiring continued reporting that may benefit shareholders?
Joint Ventures
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals to form joint ventures, taking into account the
following:
•
Percentage
of assets/business contributed;
•
Financial
and strategic benefits;
•
Other
alternatives; and
Liquidations
General
Recommendation: DWS’s policy is to generally vote case-by-case
on liquidations, taking into account the following:
•
Management’s
efforts to pursue other alternatives;
•
Appraisal
value of assets; and
•
The
compensation plan for executives managing the liquidation.
DWS’s
policy is to vote for the liquidation if the company will file for bankruptcy if the proposal is not approved.
Mergers and Acquisitions
General
Recommendation: DWS’s policy is to generally vote case-by-case
on mergers and acquisitions. 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.
Private Placements/Warrants/Convertible
Debentures
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals regarding private placements, warrants, and convertible
debentures taking into consideration:
•
Dilution
to existing shareholders' position: The amount and timing of shareholder ownership dilution should be weighed
against the needs and proposed shareholder benefits of the capital infusion. Although newly issued common
stock, absent preemptive rights, is typically dilutive to existing shareholders, share price appreciation is
often the necessary event to trigger the exercise of “out
of the money”
warrants and convertible debt. In these instances from a value
standpoint, the negative impact of dilution is mitigated by the increase in the company's stock
price that must occur to trigger the dilutive event.
•
Terms
of the offer (discount/premium in purchase price to investor, including any fairness opinion, conversion features,
termination penalties, exit strategy):
−
The
terms of the offer should be weighed against the alternatives of the company and in light of company's financial
condition. Ideally, the conversion price for convertible debt and the exercise price for warrants should be
at a premium to the then prevailing stock price at the time of private placement.
−
When
evaluating the magnitude of a private placement discount or premium, consider factors that influence the
discount or premium, such as, liquidity, due diligence costs, control and monitoring costs, capital scarcity, information
asymmetry, and anticipation of future performance.
−
The
company's financial condition;
−
Degree
of need for capital;
−
Effect
of the financing on the company's cost of capital;
−
Current
and proposed cash burn rate;
−
Going
concern viability and the state of the capital and credit markets.
•
Management's
efforts to pursue alternatives and whether the company engaged in a process to evaluate alternatives: A
fair, unconstrained process helps to ensure the best price for shareholders. Financing alternatives can include joint
ventures, partnership, merger, or sale of part or all of the company.
−
Guaranteed
board and committee seats;
−
Veto
power over certain corporate actions; and
−
Minority
versus majority ownership and corresponding minority discount or majority control premium.
−
Conflicts
of interest should be viewed from the perspective of the company and the investor.
−
Were
the terms of the transaction negotiated at arm's length? Are managerial incentives aligned with shareholder interests?
−
The
market's response to the proposed deal. A negative market reaction is a cause for concern. Market reaction
may be addressed by analyzing the one-day impact on the unaffected stock price.
Vote
for the private placement, or for the issuance of warrants and/or convertible debentures in a private placement, if
it is expected that the company will file for bankruptcy if the transaction is not approved.
Reorganization/Restructuring
Plan (Bankruptcy)
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals to common shareholders on bankruptcy plans of reorganization,
considering the following factors including, but not limited to:
•
Estimated
value and financial prospects of the reorganized company;
•
Percentage
ownership of current shareholders in the reorganized company;
•
Whether
shareholders are adequately represented in the reorganization process (particularly through the existence of
an Official Equity Committee);
•
The
cause(s) of the bankruptcy filing, and the extent to which the plan of reorganization addresses the cause(s);
•
Existence
of a superior alternative to the plan of reorganization; and
•
Governance
of the reorganized company.
Special Purpose
Acquisition Corporations (SPACs)
General
Recommendation: DWS’s policy is to generally vote case-by-case
on SPAC mergers and acquisitions taking into account the following:
•
Valuation
- Is the value being paid by the SPAC reasonable? SPACs generally lack an independent fairness opinion and
the financials on the target may be limited. Compare the conversion price with the intrinsic value of the target company
provided in the fairness opinion. Also, evaluate the proportionate value of the combined entity attributable to
the SPAC IPO shareholders versus the pre-merger value of SPAC. Additionally, a private company discount may
be applied to the target, if it is a private entity.
•
Market
reaction - How has the market responded to the proposed deal?
A negative market reaction may be a cause for concern. Market
reaction may be addressed by analyzing the one-day impact on the unaffected stock price.
•
Deal
timing - A main driver for most transactions is that the SPAC
charter typically requires the deal to be complete within 18
to 24 months, or the SPAC is to be liquidated. Evaluate the valuation, market reaction, and potential conflicts
of interest for deals that are announced close to the liquidation date.
•
Negotiations
and process - What was the process undertaken to identify potential
target companies within specified industry or location specified
in charter? Consider the background of the sponsors.
•
Conflicts
of interest - How are sponsors benefiting from the transaction
compared to IPO shareholders? Potential conflicts could arise
if a fairness opinion is issued by the insiders to qualify the deal rather than a third party or if
management is encouraged to pay a higher price for the target because of an 80 percent rule (the charter requires that
the fair market value of the target is at least equal to 80 percent of net assets of the SPAC). Also, there may be
sense of urgency by the management team of the SPAC to close the deal since its charter typically requires a
transaction to be completed within the 18-24 month timeframe.
•
Voting
agreements - Are the sponsors entering into enter into any voting
agreements/tender offers with shareholders who are likely to
vote against the proposed merger or exercise conversion rights?
•
Governance
- What is the impact of having the SPAC CEO or founder on key committees following the proposed merger?
Special Purpose
Acquisition Corporations (SPACs) - Proposals for Extensions
General
Recommendation: DWS’s policy is to generally vote case-by-case
on SPAC extension proposals taking into account the length of
the requested extension, the status of any pending transaction(s) or progression of the acquisition process,
any added incentive for non-redeeming shareholders, and any prior extension requests.
•
Length
of request: Typically, extension requests range from two to six
months, depending on the progression of the SPAC's acquisition
process.
•
Pending
transaction(s) or progression of the acquisition process: Sometimes
an initial business combination was already put to a shareholder
vote, but, for varying reasons, the transaction could not be consummated by the termination
date and the SPAC is requesting an extension. Other times, the SPAC has entered into a definitive transaction
agreement, but needs additional time to consummate or hold the shareholder meeting.
•
Added
incentive for non-redeeming shareholders: Sometimes the SPAC
sponsor (or other insiders) will contribute, typically as a loan
to the company, additional funds that will be added to the redemption value of each public share
as long as such shares are not redeemed in connection with the extension request. The purpose of the “equity
kicker”
is to incentivize shareholders to hold their shares through the end of the requested extension or until
the time the transaction is put to a shareholder vote, rather than electing redemption at the extension proposal meeting.
•
Prior
extension requests: Some SPACs request additional time beyond
the extension period sought in prior extension requests.
Spin-offs
General Recommendation:
DWS’s policy is to generally vote case-by-case on spin-offs, considering:
•
Tax
and regulatory advantages;
•
Planned
use of the sale proceeds;
•
Benefits
to the parent company;
•
Corporate
governance changes;
•
Changes
in the capital structure.
Value Maximization
Shareholder Proposals
General
Recommendation: DWS’s policy is to generally vote case-by-case
on shareholder proposals seeking to maximize shareholder value
by:
•
Hiring
a financial advisor to explore strategic alternatives;
•
Selling
the company; or
•
Liquidating
the company and distributing the proceeds to shareholders.
These
proposals should be evaluated based on the following factors:
•
Prolonged
poor performance with no turnaround in sight;
•
Signs
of entrenched board and management (such as the adoption of takeover defenses);
•
Strategic
plan in place for improving value;
•
Likelihood
of receiving reasonable value in a sale or dissolution; and
•
The
company actively exploring its strategic options, including retaining a financial advisor.
COMPENSATION
Executive Pay Evaluation
Advisory Votes
on Executive Compensation—Management Proposals (Say-on-Pay)
General
Recommendation: DWS’s policy is to generally vote case-by-case
on ballot items related to executive pay and practices, as well
as certain aspects of outside director compensation.
DWS’s
policy is to vote against Advisory Votes on Executive Compensation (Say-on-Pay or “SOP”)
if:
•
There
is an unmitigated 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.
DWS’s
policy is to generally vote against or withhold from the members of the Compensation Committee and potentially the
full board if:
•
There
is no SOP on the ballot, and an against vote on an SOP would otherwise be warranted due to pay-for-performance misalignment,
problematic pay practices, or the lack of adequate responsiveness on compensation issues raised previously,
or a combination thereof;
•
The
board fails to respond adequately to a previous SOP proposal that received less than 70 percent support of votes
cast;
•
The
company has recently practiced or approved problematic pay practices, such as option repricing or option backdating;
or
•
The
situation is egregious.
Frequency of Advisory
Vote on Executive Compensation (“Say
When on Pay”)
General
Recommendation: DWS’s policy is to generally vote for annual
advisory votes on compensation, which provide the most consistent
and clear communication channel for shareholder concerns about companies' executive pay
programs.
Voting on Golden
Parachutes in an Acquisition, Merger, Consolidation, or Proposed Sale
General
Recommendation: DWS’s policy is to generally vote case-by-case
on say on Golden Parachute proposals, including consideration
of existing change-in-control arrangements maintained with named executive officers but also considering
new or extended arrangements.
Features
that may result in an “against”
recommendation include one or more of the following, depending on the number,
magnitude, and/or timing of issue(s):
•
Single-
or modified-single-trigger cash severance;
•
Single-trigger
acceleration of unvested equity awards;
•
Full
acceleration of equity awards granted shortly before the change in control;
•
Acceleration
of performance awards above the target level of performance without compelling rationale;
•
Excessive
cash severance (generally ˃3x base salary and bonus);
•
Excise
tax gross-ups triggered and payable;
•
Excessive
golden parachute payments (on an absolute basis or as a percentage of transaction equity value); or
•
Recent
amendments that incorporate any problematic features (such as those above) or recent actions (such as extraordinary
equity grants) that may make packages so attractive as to influence merger agreements that may not
be in the best interests of shareholders; or
•
The
company's assertion that a proposed transaction is conditioned on shareholder approval of the golden parachute advisory
vote.
Recent
amendment(s) that incorporate problematic features will tend to carry more weight on the overall analysis. However,
the presence of multiple legacy problematic features will also be closely scrutinized.
In
cases where the golden parachute vote is incorporated into a company's advisory vote on compensation (management say-on-pay),
DWS will evaluate the say-on-pay proposal in accordance with these guidelines, which may give higher weight
to that component of the overall evaluation.
Equity-Based and
Other Incentive Plans
General
Recommendation: DWS’s policy is to generally vote case-by-case
on certain equity-based compensation plans21
depending on a combination of certain plan features and equity grant practices, where positive factors may counterbalance
negative factors, and vice versa, as evaluated using an “Equity
Plan Scorecard”
(EPSC) approach with three pillars:
•
Plan
Cost: The total estimated cost of the company’s equity
plans relative to industry/market cap peers, measured by the
company's estimated Shareholder Value Transfer (SVT) in relation to peers and considering both:
−
SVT
based on new shares requested plus shares remaining for future grants, plus outstanding unvested/unexercised grants;
and
−
SVT
based only on new shares requested plus shares remaining for future grants.
−
Quality
of disclosure around vesting upon a change in control (CIC);
−
Discretionary
vesting authority;
−
Liberal
share recycling on various award types;
−
Lack
of minimum vesting period for grants made under the plan;
−
Dividends
payable prior to award vesting.
−
The
company’s three-year burn rate relative to its industry/market cap peers;
−
Vesting
requirements in CEO's recent equity grants (3-year look-back);
−
The
estimated duration of the plan (based on the sum of shares remaining available and the new shares requested,
divided by the average annual shares granted in the prior three years);
−
The
proportion of the CEO's most recent equity grants/awards subject to performance conditions;
−
Whether
the company maintains a sufficient claw-back policy;
−
Whether
the company maintains sufficient post-exercise/vesting share-holding requirements.
21
Proposals evaluated under the EPSC policy generally include those
to approve or amend (1) stock option plans for employees and/or
employees and directors, (2) restricted stock plans for employees and/or employees and directors, and
(3) omnibus stock incentive plans for employees and/or employees and directors; amended plans will be further evaluated
case-by-case.
DWS’s
policy is to generally vote against the plan proposal if the combination of above factors indicates that the plan is
not, overall, in shareholders' interests, or if any of the following egregious factors (“overriding
factors”)
apply:
•
Awards
may vest in connection with a liberal change-of-control definition;
•
The
plan would permit repricing or cash buyout of underwater options without shareholder approval (either by expressly
permitting it – for NYSE and Nasdaq listed companies – or by not prohibiting it when the company has a
history of repricing – for non-listed companies);
•
The
plan is a vehicle for problematic pay practices or a significant pay-for-performance disconnect under certain circumstances;
•
The
plan is excessively dilutive to shareholders' holdings;
•
The
plan contains an evergreen (automatic share replenishment) feature; or
•
Any
other plan features are determined to have a significant negative impact on shareholder interests.
Further Information
on certain EPSC Factors:
Shareholder Value
Transfer (SVT)
The
cost of the equity plans is expressed as Shareholder Value Transfer (SVT), which is measured using a binomial option
pricing model that assesses the amount of shareholders’ equity flowing out of the company to employees and directors.
SVT is expressed as both a dollar amount and as a percentage of market value, and includes the new shares proposed,
shares available under existing plans, and shares granted but unexercised (using two measures, in the case of
plans subject to the Equity Plan Scorecard evaluation, as noted above). All award types are valued. For omnibus plans,
unless limitations are placed on the most expensive types of awards (for example, full-value awards), the assumption is
made that all awards to be granted will be the most expensive types.
For
proposals that are not subject to the Equity Plan Scorecard evaluation, Shareholder Value Transfer is reasonable if
it falls below a company-specific benchmark. The benchmark is determined as follows: The top quartile performers in
each industry group (using the Global Industry Classification Standard: GICS) are identified. Benchmark SVT levels for
each industry are established based on these top performers’ historic SVT. Regression analyses are run on each industry
group to identify the variables most strongly correlated to SVT. The benchmark industry SVT level is then adjusted
upwards or downwards for the specific company by plugging the company-specific performance measures, size
and cash compensation into the industry cap equations to arrive at the company’s benchmark.22
22
For plans evaluated under the Equity Plan Scorecard policy, the
company's SVT benchmark is considered along with other factors.
Three-Year Burn
Rate
For
meetings held prior to February 1, 2023, burn-rate benchmarks (utilized in Equity Plan Scorecard evaluations) are calculated
as the greater of: (1) the mean (μ) plus one standard deviation (σ) of the company's GICS group segmented by
S&P 500, Russell 3000 index (less the S&P500), and non-Russell 3000 index; and (2) two percent of weighted common
shares outstanding. In addition, year-over-year burn-rate benchmark changes will be limited to a maximum of
two (2) percentage points plus or minus the prior year's burn-rate benchmark.
For
meetings held prior to February 1, 2023, a company’s adjusted burn rate is calculated as follows:
Burn
Rate = (# of appreciation awards granted + # of full value awards granted * Volatility Multiplier) / Weighted average common
shares outstanding
The
Volatility Multiplier is used to provide more equivalent valuation between stock options and full value shares, base on
the company’s historical stock price volatility.
Effective
for meetings held on or after February 1, 2023, a “Value-Adjusted
Burn Rate”
will instead be used for stock plan valuations. Value-Adjusted
Burn Rate benchmarks will be calculated as the greater of: (1) an industry-specific threshold
based on three-year burn rates within the company's GICS group segmented by S&P 500, Russell 3000
index
(less the S&P 500) and non-Russell 3000 index; and (2) a de minimis threshold established separately for each of
the S&P 500, the Russell 3000 index less the S&P 500, and the non-Russell 3000 index. Year-over-year burn-rate benchmark
changes will be limited to a predetermined range above or below the prior year's burn-rate benchmark.
The
Value-Adjusted Burn rate will be calculated as follows:
Value-Adjusted
Burn Rate = ((# of options * option’s dollar value using a Black-Scholes model) + (# of full-value awards *
stock price)) / (Weighted average common shares * stock price).
Egregious Factors
Liberal Change
in Control Definition
Generally
vote against equity plans if the plan has a liberal definition of change in control and the equity awards could vest
upon such liberal definition of change in control, even though an actual change in control may not occur. Examples of
such a definition include, but are not limited to, announcement or commencement of a tender offer, provisions for acceleration
upon a “potential”
takeover, shareholder approval of a merger or other transactions, or similar language.
Repricing Provisions
Vote
against plans that expressly permit the repricing or exchange of underwater stock options/stock appreciate rights (SARs)
without prior shareholder approval. “Repricing”
typically includes the ability to do any of the following:
•
Amend
the terms of outstanding options or SARs to reduce the exercise price of such outstanding options or SARs;
•
Cancel
outstanding options or SARs in exchange for options or SARs with an exercise price that is less than the exercise
price of the original options or SARs;
•
Cancel
underwater options in exchange for stock awards; or
•
Provide
cash buyouts of underwater options.
Also,
vote against or withhold from members of the Compensation Committee who approved repricing (as defined above
or otherwise determined by ISS), without prior shareholder approval, even if such repricings are allowed in their equity
plan.
Vote
against plans that do not expressly prohibit repricing or cash buyout of underwater options without shareholder approval
if the company has a history of repricing/buyouts without shareholder approval, and the applicable listing standards
would not preclude them from doing so.
Problematic Pay
Practices or Significant Pay-for-Performance Disconnect
If
the equity plan on the ballot is a vehicle for problematic pay practices, vote against the plan.
ISS
may recommend a vote against the equity plan if the plan is determined to be a vehicle for pay-for-performance misalignment.
Considerations in voting against the equity plan may include, but are not limited to:
•
Severity
of the pay-for-performance misalignment;
•
Whether
problematic equity grant practices are driving the misalignment; and/or
•
Whether
equity plan awards have been heavily concentrated to the CEO and/or the other NEOs.
Amending Cash and
Equity Plans (including Approval for Tax Deductibility (162(m))
General
Recommendation: DWS’s policy is to generally vote case-by-case
on amendments to cash and equity incentive plans.
DWS’s
policy is to vote for proposals to amend executive cash, stock, or cash and stock incentive plans if the proposal:
•
Addresses
administrative features only; or
•
Seeks
approval for Section 162(m) purposes only and the plan administering committee consists entirely of independent directors.
Note that if the company is presenting the plan to shareholders for the first time for any reason (including after
the company’s initial public offering), or if the proposal is bundled with other material plan amendments, then
the recommendation will be case-by-case (see below).
DWS’s
policy is to vote against proposals to amend executive cash, stock, or cash and stock incentive plans if the proposal:
•
Seeks
approval for Section 162(m) purposes only, and the plan administering committee does not consist entirely of
independent directors.
Vote
case-by-case on all other proposals to amend c ash incentive plans. This includes plans presented to shareholders for
the first time after the company's IPO and/or proposals that bundle material amendment(s) other than those for Section
162(m) purposes.
Vote
case-by-case on all other proposals to amend equity incentive plans, considering the following:
•
If
the proposal requests additional shares and/or the amendments include a term extension or addition of full value
awards as an award type, the recommendation will be based on the Equity Plan Scorecard evaluation as well
as an analysis of the overall impact of the amendments.
•
If
the plan is being presented to shareholders for the first time (including after the company's IPO), whether or not
additional shares are being requested, the recommendation will be based on the Equity Plan Scorecard evaluation as
well as an analysis of the overall impact of any amendments.
•
If
there is no request for additional shares and the amendments do not include a term extension or addition of full
value awards as an award type, then the recommendation will be based entirely on an analysis of the overall impact
of the amendments, and the EPSC evaluation will be shown only for informational purposes.
In
the first two case-by-case evaluation scenarios, the EPSC evaluation/score is the more heavily weighted consideration.
Specific Treatment
of Certain Award Types in Equity Plan Evaluations
Dividend Equivalent
Rights
Options
that have Dividend Equivalent Rights (DERs) associated with them will have a higher calculated award value than
those without DERs under the binomial model, based on the value of these dividend streams. The higher value will
be applied to new shares, shares available under existing plans, and shares awarded but not exercised per the plan
specifications. DERS transfer more shareholder equity to employees and non-employee directors and this cost should
be captured.
Operating Partnership
(OP) Units in Equity Plan Analysis of Real Estate Investment Trusts (REITs)
For
Real Estate Investment Trusts (REITS), include the common shares issuable upon conversion of outstanding Operating Partnership
(OP) units in the share count for the purposes of determining: (1) market capitalization in the Shareholder Value
Transfer (SVT) analysis and (2) shares outstanding in the burn rate analysis.
Other Compensation
Plans
401(k) Employee
Benefit Plans
General
Recommendation: DWS’s policy is to generally vote for proposals
to implement a 401(k) savings plan for employees.
Employee Stock
Ownership Plans (ESOPs)
General
Recommendation: DWS’s policy is to generally vote for proposals
to implement an ESOP or increase authorized shares for existing
ESOPs, unless the number of shares allocated to the ESOP is excessive (more than five percent of
outstanding shares).
Employee Stock
Purchase Plans—Qualified Plans
General
Recommendation: DWS’s policy is to generally vote case-by-case
on qualified employee stock purchase plans. Vote for employee
stock purchase plans where all of the following apply:
•
Purchase
price is at least 85 percent of fair market value;
•
Offering
period is 27 months or less; and
•
The
number of shares allocated to the plan is 10 percent or less of the outstanding shares.
Vote
against qualified employee stock purchase plans where when the plan features do not meet all of the above criteria.
Employee Stock
Purchase Plans—Non-Qualified Plans
General
Recommendation: DWS’s policy is to generally vote case-by-case
on nonqualified employee stock purchase plans. Vote for nonqualified
employee stock purchase plans with all the following features:
•
Broad-based
participation;
•
Limits
on employee contribution, which may be a fixed dollar amount or expressed as a percent of base salary;
•
Company
matching contribution up to 25 percent of employee’s contribution, which is effectively a discount of 20
percent from market value; and
•
No
discount on the stock price on the date of purchase when there is a company matching contribution.
DWS’s
policy is to generally vote against nonqualified employee stock purchase plans when the plan features do not meet
all of the above criteria. If the matching contribution or effective discount exceeds the above, DWS may evaluate the
SVT cost of the plan as part of the assessment.
Option Exchange
Programs/Repricing Options
General
Recommendation: DWS’s policy is to generally vote case-by-case
on management proposals seeking approval to exchange/reprice
options taking into consideration:
•
Historic
trading patterns—the
stock price should not be so volatile that the options are likely to be back “in-the-money”
over the near term;
•
Rationale
for the re-pricing—was
the stock price decline beyond management's control?;
•
Is
this a value-for-value exchange?;
•
Are
surrendered stock options added back to the plan reserve?;
•
Timing—repricing
should occur at least one year out from any precipitous drop in company's stock price;
•
Option
vesting—does
the new option vest immediately or is there a black-out period?;
•
Term
of the option—the
term should remain the same as that of the replaced option;
•
Exercise
price—should
be set at fair market or a premium to market;
•
Participants—executive
officers and directors must be excluded.
If
the surrendered options are added back to the equity plans for re-issuance, then also take into consideration the company’s
total cost of equity plans and its three-year average burn rate.
In
addition to the above considerations, evaluate the intent, rationale, and timing of the repricing proposal. The proposal should
clearly articulate why the board is choosing to conduct an exchange program at this point in time. Repricing underwater
options after a recent precipitous drop in the company’s stock price demonstrates poor timing and warrants additional
scrutiny. Also, consider the terms of the surrendered options, such as the grant date, exercise price and vesting
schedule. Grant dates of surrendered options should be far enough back (two to three years) so as not to suggest
that repricings are being done to take advantage of short-term downward price movements. Similarly, the exercise
price of surrendered options should be above the 52-week high for the stock price.
Vote
for shareholder proposals to put option repricings to a shareholder vote.
Stock Plans in
Lieu of Cash
General
Recommendation: DWS’s policy is to generally vote case-by-case on plans that provide participants with the option
of taking all or a portion of their cash compensation in the form of stock.
Vote
for non-employee director-only equity plans that provide a dollar-for-dollar cash-for-stock exchange.
Vote
case-by-case on plans which do not provide a dollar-for-dollar cash for stock exchange. In cases where the exchange is
not dollar-for-dollar, the request for new or additional shares for such equity program will be considered using the binomial
option pricing model. In an effort to capture the total cost of total compensation, DWS will not make any adjustments
to carve out the in-lieu-of cash compensation.
Transfer Stock
Option (TSO) Programs
General
Recommendation: One-time Transfers: DWS’s policy is to generally vote against or withhold from compensation committee
members if they fail to submit one-time transfers to shareholders for approval.
Vote
case-by-case on one-time transfers. Vote for if:
•
Executive
officers and non-employee directors are excluded from participating;
•
Stock
options are purchased by third-party financial institutions at a discount to their fair value using option pricing models
such as Black-Scholes or a Binomial Option Valuation or other appropriate financial models; and
•
There
is a two-year minimum holding period for sale proceeds (cash or stock) for all participants.
Additionally,
management should provide a clear explanation of why options are being transferred to a third-party institution
and whether the events leading up to a decline in stock price were beyond management's control. A review of
the company's historic stock price volatility should indicate if the options are likely to be back “in-the-money”
over the near term.
Ongoing
TSO program: Vote against equity plan proposals if the details of ongoing TSO programs are not provided to shareholders.
Since TSOs will be one of the award types under a stock plan, the ongoing TSO program, structure and mechanics
must be disclosed to shareholders. The specific criteria to be considered in evaluating these proposals include,
but not limited, to the following:
•
Cost
of the program and impact of the TSOs on company’s total option expense; and
•
Option
repricing policy.
Amendments
to existing plans that allow for introduction of transferability of stock options should make clear that only
options granted post-amendment shall be transferable.
Director Compensation
Shareholder Ratification
of Director Pay Programs
General
Recommendation: DWS’s policy is to generally vote case-by-case
on management proposals seeking ratification of non-employee
director compensation, based on the following factors:
•
If
the equity plan under which non-employee director grants are made is on the ballot, whether or not it warrants support;
and
•
An
assessment of the following qualitative factors:
•
The
relative magnitude of director compensation as compared to companies of a similar profile;
•
The
presence of problematic pay practices relating to director compensation;
•
Director
stock ownership guidelines and holding requirements;
•
Equity
award vesting schedules;
•
The
mix of cash and equity-based compensation;
•
Meaningful
limits on director compensation;
•
The
availability of retirement benefits or perquisites; and
•
The
quality of disclosure surrounding director compensation.
Equity Plans for
Non-Employee Directors
General
Recommendation: DWS’s policy is to generally vote case-by-case
on compensation plans for non-employee directors, based on:
•
The
total estimated cost of the company’s equity plans relative to industry/market cap peers, measured by the company’s
estimated Shareholder Value Transfer (SVT) based on new shares requested plus shares remaining for
future grants, plus outstanding unvested/unexercised grants;
•
The
company’s three-year burn rate relative to its industry/market cap peers (in certain circumstances); and
•
The
presence of any egregious plan features (such as an option repricing provision or liberal CIC vesting risk).
On
occasion, non-employee director stock plans will exceed the plan cost or burn-rate benchmarks when combined with
employee or executive stock plans. In such cases, vote case-by-case on the plan taking into consideration the following
qualitative factors:
•
The
relative magnitude of director compensation as compared to companies of a similar profile;
•
The
presence of problematic pay practices relating to director compensation;
•
Director
stock ownership guidelines and holding requirements;
•
Equity
award vesting schedules;
•
The
mix of cash and equity-based compensation;
•
Meaningful
limits on director compensation;
•
The
availability of retirement benefits or perquisites; and
•
The
quality of disclosure surrounding director compensation.
Non-Employee Director
Retirement Plans
General
Recommendation: DWS’s policy is to generally vote against
retirement plans for non-employee directors. Vote for shareholder
proposals to eliminate retirement plans for non-employee directors.
Shareholder Proposals
on Compensation
Bonus Banking/Bonus
Banking “Plus”
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals seeking deferral of a portion of annual bonus pay,
with ultimate payout linked to sustained results for the performance metrics on which the bonus was
earned (whether for the named executive officers or a wider group of employees), taking into account the following factors:
•
The
company’s past practices regarding equity and cash compensation;
•
Whether
the company has a holding period or stock ownership requirements in place, such as a meaningful retention ratio
(at least 50 percent for full tenure); and
•
Whether
the company has a rigorous claw-back policy in place.
Compensation Consultants—Disclosure
of Board or Company’s Utilization
General
Recommendation: DWS’s policy is to generally vote for shareholder
proposals seeking disclosure regarding the company, board, or
compensation committee’s use of compensation consultants, such as company name, business relationship(s),
and fees paid.
Disclosure/Setting
Levels or Types of Compensation for Executives and Directors
General
Recommendation: DWS’s policy is to generally vote for shareholder
proposals seeking additional disclosure of executive and director
pay information, provided the information requested is relevant to shareholders' needs, would not
put the company at a competitive disadvantage relative to its industry, and is not unduly burdensome to the company.
DWS’s
policy is to generally vote against shareholder proposals seeking to set absolute levels on compensation or otherwise
dictate the amount or form of compensation (such as types of compensation elements or specific metrics) to
be used for executive or directors.
DWS’s
policy is to generally vote against shareholder proposals that mandate a minimum amount of stock that directors must
own in order to qualify as a director or to remain on the board.
Vote
case-by-case on all other shareholder proposals regarding executive and director pay, taking into account relevant factors,
including but not limited to: company performance, pay level and design versus peers, history of compensation concerns
or pay-for-performance disconnect, and/or the scope and prescriptive nature of the proposal.
Golden Coffins/Executive
Death Benefits
General
Recommendation: DWS’s policy is to generally vote for proposals
calling for companies to adopt a policy of obtaining shareholder
approval for any future agreements and corporate policies that could oblige the company to make
payments or awards following the death of a senior executive in the form of unearned salary or bonuses, accelerated vesting
or the continuation in force of unvested equity grants, perquisites and other payments or awards made in lieu of
compensation. This would not apply to any benefit programs or equity plan proposals for which the broad-based employee
population is eligible.
Hold Equity Past
Retirement or for a Significant Period of Time
General
Recommendation: DWS’s policy is to generally vote case-by-case
on shareholder proposals asking companies to adopt policies requiring
senior executive officers to retain a portion of net shares acquired through compensation plans.
The following factors will be taken into account:
•
The
percentage/ratio of net shares required to be retained;
•
The
time period required to retain the shares;
•
Whether
the company has equity retention, holding period, and/or stock ownership requirements in place and the
robustness of such requirements;
•
Whether
the company has any other policies aimed at mitigating risk taking by executives;
•
Executives'
actual stock ownership and the degree to which it meets or exceeds the proponent’s suggested holding
period/retention ratio or the company’s existing requirements; and
•
Problematic
pay practices, current and past, which may demonstrate a short-term versus long-term focus.
Pay Disparity
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals calling for an analysis of the pay disparity between
corporate executives and other non-executive employees. The following factors will be considered:
•
The
company’s current level of disclosure of its executive compensation setting process, including how the company considers
pay disparity;
•
If
any problematic pay practices or pay-for-performance concerns have been identified at the company; and
•
The
level of shareholder support for the company's pay programs.
DWS’s
policy is to generally vote against proposals calling for the company to use the pay disparity analysis or pay ratio
in a specific way to set or limit executive pay.
Pay for Performance/Performance-Based
Awards
General
Recommendation: DWS’s policy is to generally vote case-by-case
on shareholder proposals requesting that a significant amount
of future long-term incentive compensation awarded to senior executives shall be performance-based and
requesting that the board adopt and disclose challenging performance metrics to shareholders, based on the following
analytical steps:
•
First,
vote for shareholder proposals advocating the use of performance-based equity awards, such as performance contingent
options or restricted stock, indexed options or premium-priced options, unless the proposal is overly restrictive
or if the company has demonstrated that it is using a “substantial”
portion of performance-based awards for its top executives. Standard
stock options and performance-accelerated awards do not meet the criteria to be
considered as performance-based awards. Further, premium-priced options should have a meaningful premium to
be considered performance-based awards.
•
Second,
assess the rigor of the company’s performance-based equity program. If the bar set for the performance-based program
is too low based on the company’s historical or peer group comparison, generally vote for the proposal. Furthermore,
if target performance results in an above target payout, vote for the shareholder proposal due to program’s
poor design. If the company does not disclose the performance metric of the performance-based equity program,
vote for the shareholder proposal regardless of the outcome of the first step to the test.
In
general, vote for the shareholder proposal if the company does not meet both of the above two steps.
Pay for Superior
Performance
General
Recommendation: DWS’s policy is to generally vote case-by-case
on shareholder proposals that request the board establish a pay-for-superior
performance standard in the company's executive compensation plan for senior executives.
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.
Consider
the following factors in evaluating this proposal:
•
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?
Pre-Arranged Trading
Plans (10b5-1 Plans)
General
Recommendation: DWS’s policy is to generally vote for shareholder
proposals calling for the addition of certain safeguards in prearranged
trading plans (10b5-1 plans) for executives. Safeguards may include:
•
Adoption,
amendment, or termination of a 10b5-1 Plan must be disclosed in a Form 8-K;
•
Amendment
or early termination of a 10b5-1 Plan is allowed only under extraordinary circumstances, as determined by
the board;
•
Request
that a certain number of days that must elapse between adoption or amendment of a 10b5-1 Plan and initial
trading under the plan;
•
Reports
on Form 4 must identify transactions made pursuant to a 10b5-1 Plan;
•
An
executive may not trade in company stock outside the 10b5-1 Plan;
•
Trades
under a 10b5-1 Plan must be handled by a broker who does not handle other securities transactions for the
executive.
Prohibit Outside
CEOs from Serving on Compensation Committees
General
Recommendation: DWS’s policy is to generally vote against proposals seeking a policy to prohibit any outside CEO
from serving on a company’s compensation committee, unless the company has demonstrated problematic pay practices
that raise concerns about the performance and composition of the committee.
Recoupment of Incentive
or Stock Compensation in Specified Circumstances
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals to recoup incentive cash or stock compensation made
to senior executives if it is later determined that the figures upon which incentive compensation is
earned turn out to have been in error, or if the senior executive has breached company policy or has engaged in misconduct
that may be significantly detrimental to the company's financial position or reputation, or if the senior executive
failed to manage or monitor risks that subsequently led to significant financial or reputational harm to the company.
Many companies have adopted policies that permit recoupment in cases where an executive's fraud, misconduct, or
negligence significantly contributed to a restatement of financial results that led to the awarding of unearned incentive compensation.
However, such policies may be narrow given that not all misconduct or negligence may result in significant financial
restatements. Misconduct, negligence or lack of sufficient oversight by senior executives may lead to significant financial
loss or reputational damage that may have long-lasting impact.
In
considering whether to support such shareholder proposals, DWS will take into consideration the following factors:
•
If
the company has adopted a formal recoupment policy;
•
The
rigor of the recoupment policy focusing on how and under what circumstances the company may recoup incentive
or stock compensation;
•
Whether
the company has chronic restatement history or material financial problems;
•
Whether
the company’s policy substantially addresses the concerns raised by the proponent;
•
Disclosure
of recoupment of incentive or stock compensation from senior executives or lack thereof; or
•
Any
other relevant factors.
Severance Agreements
for Executives/Golden Parachutes
General
Recommendation: DWS’s policy is to generally vote for shareholder
proposals requiring that golden parachutes or executive severance
agreements be submitted for shareholder ratification, unless the proposal requires shareholder approval
prior to entering into employment contracts.
DWS’s
policy is to generally vote case-by-case on proposals to ratify or cancel golden parachutes. An acceptable parachute should
include, but is not limited to, the following:
•
The
triggering mechanism should be beyond the control of management;
•
The
amount should not exceed three times base amount (defined as the average annual taxable W-2 compensation during
the five years prior to the year in which the change of control occurs);
•
Change-in-control
payments should be double-triggered, i.e., (1) after a change in control has taken place, and (2)
termination of the executive as a result of the change in control. Change in control is defined as a change in the
company ownership structure.
Share Buyback Impact
on Incentive Program Metrics
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals requesting the company exclude the impact of share
buybacks from the calculation of incentive program metrics, considering the following factors:
•
The
frequency and timing of the company's share buybacks;
•
The
use of per-share metrics in incentive plans;
•
The
effect of recent buybacks on incentive metric results and payouts; and
•
Whether
there is any indication of metric result manipulation.
Supplemental Executive
Retirement Plans (SERPs)
General
Recommendation: DWS’s policy is to generally vote for shareholder
proposals requesting to put extraordinary benefits contained
in SERP agreements to a shareholder vote unless the company’s executive pension plans do not contain
excessive benefits beyond what is offered under employee-wide plans.
Generally
vote for shareholder proposals requesting to limit the executive benefits provided under the company’s supplemental
executive retirement plan (SERP) by limiting covered compensation to a senior executive’s annual salary or
those pay elements covered for the general employee population.
Tax Gross-Up Proposals
General
Recommendation: DWS’s policy is to generally vote for proposals calling for companies to adopt a policy of not
providing tax gross-up payments to executives, except in situations where gross-ups are provided pursuant to a plan,
policy, or arrangement applicable to management employees of the company, such as a relocation or expatriate tax
equalization policy.
Termination of
Employment Prior to Severance Payment/Eliminating Accelerated Vesting of Unvested Equity
General
Recommendation: DWS’s policy is to generally vote case-by-case
on shareholder proposals seeking a policy requiring termination
of employment prior to severance payment and/or eliminating accelerated vesting of unvested equity.
The
following factors will be considered:
•
The
company's current treatment of equity upon employment termination and/or in change-in-control situations (i.e.,
vesting is double triggered and/or pro rata, does it allow for the assumption of equity by acquiring company, the
treatment of performance shares, etc.);
•
Current
employment agreements, including potential poor pay practices such as gross-ups embedded in those agreements.
DWS’s
policy is to generally vote for proposals seeking a policy that prohibits automatic acceleration of the vesting of
equity awards to senior executives upon a voluntary termination of employment or in the event of a change in control
(except for pro rata vesting considering the time elapsed and attainment of any related performance goals between
the award date and the change in control).
ROUTINE
/ MISCELLANEOUS
Adjourn Meeting
General
Recommendation: DWS’s policy is to generally vote against
proposals to provide management with the authority to adjourn
an annual or special meeting absent compelling reasons to support the proposal.
Vote
for proposals that relate specifically to soliciting votes for a merger or transaction if supporting that merger or transaction.
Vote against proposals if the wording is too vague or if the proposal includes “other
business.”
Amend Quorum Requirements
General
Recommendation: DWS’s policy is to generally vote against
proposals to reduce quorum requirements for shareholder meetings
below a majority of the shares outstanding unless there are compelling reasons to support the proposal.
Amend Minor Bylaws
General
Recommendation: DWS’s policy is to generally vote for bylaw
or charter changes that are of a housekeeping nature (updates
or corrections).
Change Company
Name
General
Recommendation: DWS’s policy is to generally vote for proposals
to change the corporate name unless there is compelling evidence
that the change would adversely impact shareholder value.
Change Date, Time,
or Location of Annual Meeting
General
Recommendation: DWS’s policy is to generally vote for management
proposals to change the date, time, or location of the annual
meeting unless the proposed change is unreasonable.
Vote
against shareholder proposals to change the date, time, or location of the annual meeting unless the current scheduling
or location is unreasonable.
Other Business
General
Recommendation: DWS’s policy is to generally vote against
proposals to approve other business when it appears as a voting
item.
SOCIAL AND ENVIRONMENTAL
ISSUES
General
Recommendation: DWS’s policy will consider the Coalition
for Environmentally Responsible Economies (“CERES”)
recommendation on environmental and social matters contained in the CERES Roadmap 2030 as well as the
recommendations of ISS Socially Responsible Investment “SRI”
Policy on social and sustainability issues. DWS will rely on
ISS to identify shareholder proposals addressing CERES Roadmap 2030 to examine theses proxy items and
to provide DWS with a voting recommendation based on ISS’s application of the Guidelines including any factors set
forth in the Guidelines. DWS will generally vote such proxies in accordance with ISS’ recommendations for topics covered
under CERES Roadmap 2030.
General Approach
DWS’s
policy is to generally vote for social and environmental shareholder proposals that enhance long-term shareholder value.
DWS’s general 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 analyze the following factors:
•
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 by the proposal
•
Whether
there are significant controversies, fines, penalties or litigation associated with the company’s environmental or
social practices
•
If
the proposal requests increased disclosure or greater transparency, whether sufficient information is publicly 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
Endorsement of
Principles
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals seeking a company's endorsement of principles that
support a particular public policy position. Endorsing a set of principles may require a company to take
a stand on an issue that is beyond its own control and may limit its flexibility with respect to future developments. Management
and the board should be afforded the flexibility to make decisions on specific public policy positions based
on their own assessment of the most beneficial strategies for the company.
Animal Welfare
Animal Welfare
Policies
General
Recommendation: DWS’s policy is to generally vote for proposals
seeking a report on a company’s animal welfare standards,
or animal welfare-related risks, considering whether:
•
The
company has already published a set of animal welfare standards and monitors compliance;
•
The
company’s standards are comparable to industry peers; and
•
There
are no recent significant fines, litigation, or controversies related to the company’s and/or its suppliers' treatment
of animals.
Animal Testing
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals to phase out the use of animals in product testing,
considering whether:
•
The
company is conducting animal testing programs that are unnecessary or not required by regulation;
•
The
company is conducting animal testing when suitable alternatives are commonly accepted and used by industry peers;
or
•
There
are recent, significant fines or litigation related to the company’s treatment of animals.
Animal Slaughter
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals requesting the implementation of Controlled Atmosphere
Killing (CAK) methods at company and/or supplier operations unless such methods are required
by legislation or generally accepted as the industry standard.
DWS’s
policy is to vote case-by-case on proposals requesting a report on the feasibility of implementing CAK methods at
company and/or supplier operations considering the availability of existing research conducted by the company or industry
groups on this topic and any fines or litigation related to current animal processing procedures at the company.
Consumer Issues
Genetically Modified
Ingredients
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals requesting that a company voluntarily label genetically
engineered (GE) ingredients in its products.
DWS’s
policy is to generally vote for proposals asking for a report on the feasibility of labeling products containing GE
ingredients, taking into account:
•
The
potential impact of such labeling on the company's business;
•
The
quality of the company’s disclosure on GE product labeling, related voluntary initiatives, and how this disclosure compares
with industry peer disclosure; and
•
Company’s
current disclosure on the feasibility of GE product labeling.
DWS’s
policy is to generally vote case-by-case on proposals seeking a report on the social, health, and environmental effects
of genetically modified organisms (GMOs).
DWS’s
policy is to generally vote case-by-case on proposals to phase out GE ingredients from the company's products, or
proposals asking for reports outlining the steps necessary to eliminate GE ingredients from the company’s products.
Reports on Potentially
Controversial Business/Financial Practices
General
Recommendation: DWS’s policy is to generally vote for requests
for reports on a company’s potentially controversial business
or financial practices or products, taking into account:
•
Whether
the company has adequately disclosed mechanisms in place to prevent abuses;
•
Whether
the company has adequately disclosed the financial risks of the products/practices in question;
•
Whether
the company has been subject to violations of related laws or serious controversies; and
•
Peer
companies’ policies/practices in this area.
Pharmaceutical
Pricing, Access to Medicines, and Prescription Drug Reimportation
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals requesting that companies implement specific price
restraints on pharmaceutical products taking into account whether the company fails to adhere to
legislative guidelines or industry norms in its product pricing practices.
DWS’s
policy is to generally vote for proposals requesting that a company report on its product pricing or access to medicine
policies, considering:
•
The
potential for reputational, market, and regulatory risk exposure;
•
Existing
disclosure of relevant policies;
•
Deviation
from established industry norms;
•
Relevant
company initiatives to provide research and/or products to disadvantaged consumers;
•
Whether
the proposal focuses on specific products or geographic regions;
•
The
potential burden and scope of the requested report;
•
Recent
significant controversies, litigation, or fines at the company.
DWS’s
policy is to generally vote for proposals requesting that a company report on the financial and legal impact of its
prescription drug reimportation policies unless such information is already publicly disclosed.
DWS’s
policy is to generally vote case-by-case on proposals requesting that companies adopt specific policies to encourage or
constrain prescription drug reimportation.
Product Safety
and Toxic/Hazardous Materials
General
Recommendation: DWS’s policy is to generally vote for proposals
requesting that a company report on its policies, initiatives/procedures,
and oversight mechanisms related to toxic/hazardous materials or product safety in its
supply chain, considering whether:
•
The
company already discloses similar information through existing reports such as a supplier code of conduct and/or
a sustainability report;
•
The
company has formally committed to the implementation of a toxic/hazardous materials and/or product safety and
supply chain reporting and monitoring program based on industry norms or similar standards within a specified time
frame; and
•
The
company has not been recently involved in relevant significant controversies, fines, or litigation.
DWS’s
policy is to generally vote for resolutions requesting that companies develop a feasibility assessment to phase-out of
certain toxic/hazardous materials, or evaluate and disclose the potential financial and legal risks associated with utilizing
certain materials, considering:
•
The
company’s current level of disclosure regarding its product safety policies, initiatives, and oversight mechanisms;
•
Current
regulations in the markets in which the company operates; and
•
Recent
significant controversies, litigation, or fines stemming from toxic/hazardous materials at the company.
Generally
vote case-by-case on resolutions requiring that a company reformulate its products.
Tobacco-Related
Proposals
General
Recommendation: DWS’s policy is to generally vote case-by-case
on resolutions regarding the advertisement of tobacco products,
considering:
•
Recent
related fines, controversies, or significant litigation;
•
Whether
the company complies with relevant laws and regulations on the marketing of tobacco;
•
Whether
the company’s advertising restrictions deviate from those of industry peers;
•
Whether
the company entered into the Master Settlement Agreement, which restricts marketing of tobacco to youth;
and
•
Whether
restrictions on marketing to youth extend to foreign countries.
DWS’s
policy is to generally vote case-by-case on proposals regarding second-hand smoke, considering;
•
Whether
the company complies with all laws and regulations;
•
The
degree that voluntary restrictions beyond those mandated by law might hurt the company’s competitiveness; and
•
The
risk of any health-related liabilities.
DWS’s
policy is to generally vote case-by-case on resolutions to cease production of tobacco-related products, to avoid
selling products to tobacco companies, to spin-off tobacco-related businesses, or prohibit investment in tobacco equities.
Such business decisions are better left to company management or portfolio managers.
DWS’s
policy is to generally vote case-by-case on proposals regarding tobacco product warnings.
Climate Change
Say on Climate
(SoC) Management Proposals
General
Recommendation: DWS’s policy is to vote case-by-case on
management proposals that request shareholders to approve the
company’s transition action plan23,
taking into account the completeness and rigor of the plan.
23
Variations of this request also include climate transition related
ambitions, or commitment to reporting on the implementation of
a climate plan.
Information
that will be considered where available includes the following:
•
The
extent to which the company’s climate related disclosures are in line with TCFD recommendations and meet other
market standards;
•
Disclosure
of its operational and supply chain Green House Gas (GHG) emissions (Scopes 1, 2, and 3);
•
The
completeness and rigor of company’s short-, medium-, and long-term targets for reducing operational and supply
chain GHG emissions (Scopes 1, 2 and 3 if relevant);
•
Whether
the company has sought and received third-party approval that its targets are science-based;
•
Whether
the company has made a commitment to be “net
zero”
for operational and supply chain emissions (Scopes 1, 2, and
3) by 2050;
•
Whether
the company discloses a commitment to report on the implementation of its plan in subsequent years;
•
Whether
the company’s climate data has received third-party assurance;
•
Disclosure
of how the company’s lobbying activities and its capital expenditures align with company strategy;
•
Whether
there are specific industry decarbonization challenges; and
•
The
company’s related commitment, disclosure, and performance compared to its industry peers.
Say on Climate
(SoC) Shareholder Proposals
General
Recommendation: DWS’s policy is to vote case-by-case on
shareholder proposals that request the company to disclose a
report on providing its GHG emissions levels and reduction targets and/or its upcoming/approved climate transition
action plan and provide shareholders the opportunity to express approval or disapproval of its GHG emissions reduction
plan, taking into account information such as the following:
•
The
completeness and rigor of the company’s climate-related disclosure;
•
The
company’s actual GHG emissions performance;
•
Whether
the company has been the subject of recent, significant violations, fines litigation, or controversy related to
its GHG emissions; and
•
Whether
the proposal’s request is unduly burdensome (scope or timeframe) or overly prescriptive.
Climate Change/Greenhouse
Gas (GHG) Emissions
General
Recommendation: DWS’s policy is to generally vote for resolutions
requesting that a company disclose information on the financial,
physical, or regulatory risks it faces related to climate change on its operations and investments or
on how the company identifies, measures, and manages such risks, considering:
•
Whether
the company already provides current, publicly-available information on the impact that climate change may
have on the company as well as associated company policies and procedures to address related risks and/or opportunities;
•
The
company's level of disclosure compared to industry peers; and
•
Whether
there are significant controversies, fines, penalties, or litigation associated with the company's climate change-related
performance.
DWS’s
policy is to generally vote for on proposals requesting a report on greenhouse gas (GHG) emissions from company operations
and/or products and operations, considering whether:
•
The
company already discloses current, publicly-available information on the impacts that GHG emissions may have
on the company as well as associated company policies and procedures to address related risks and/or opportunities;
•
The
company's level of disclosure is comparable to that of industry peers; and
•
There
are no significant, controversies, fines, penalties, or litigation associated with the company's GHG emissions.
DWS’s
policy is to generally vote for proposals that call for the adoption of GHG reduction goals from products and operations,
taking into account:
•
Whether
the company provides disclosure of year-over-year GHG emissions performance data;
•
Whether
company disclosure lags behind industry peers;
•
The
company's actual GHG emissions performance;
•
The
company's current GHG emission policies, oversight mechanisms, and related initiatives; and
•
Whether
the company has been the subject of recent, significant violations, fines, litigation, or controversy related to
GHG emissions.
Energy Efficiency
General
Recommendation: DWS’s policy is to generally vote for proposals
requesting that a company report on its energy efficiency policies,
considering whether:
•
The
company complies with applicable energy efficiency regulations and laws, and discloses its participation in energy
efficiency policies and programs, including disclosure of benchmark data, targets, and performance measures; or
•
The
proponent requests adoption of specific energy efficiency goals within specific timelines.
Renewable Energy
General
Recommendation: DWS’s policy is to generally vote for requests
for reports on the feasibility of developing renewable energy
resources unless the report would be duplicative of existing disclosure or irrelevant to the company’s line
of business.
DWS’s
policy is to generally vote case-by-case on proposals seeking increased investment in renewable energy resources taking
into consideration whether the terms of the resolution are overly restrictive.
DWS’s
policy is to generally vote for proposals that call for the adoption of renewable energy goals, taking into account:
•
The
scope and structure of the proposal;
•
The
company's current level of disclosure on renewable energy use and GHG emissions; and
•
The
company's disclosure of policies, practices, and oversight implemented to manage GHG emissions and mitigate climate
change risks.
Diversity
Board Diversity
General
Recommendation: DWS’s policy is to generally vote for requests
for reports on a company's efforts to diversify the board, considering
whether:
•
The
gender and racial minority representation of the company’s board is reasonably inclusive in relation to companies of
similar size and business; and
•
The
board already reports on its nominating procedures and gender and racial minority initiatives on the board and
within the company.
DWS’s
policy is to generally vote for proposals asking a company to increase the gender and racial minority representation on
its board, taking into account:
•
The
degree of existing gender and racial minority diversity on the company’s board and among its executive officers;
•
The
level of gender and racial minority representation that exists at the company’s industry peers;
•
The
company’s established process for addressing gender and racial minority board representation;
•
Whether
the proposal includes an overly prescriptive request to amend nominating committee charter language;
•
The
independence of the company’s nominating committee;
•
Whether
the company uses an outside search firm to identify potential director nominees; and
•
Whether
the company has had recent controversies, fines, or litigation regarding equal employment practices.
Equality of Opportunity
General
Recommendation: DWS’s policy is to generally vote for proposals
requesting a company disclose its diversity policies or initiatives,
or proposals requesting disclosure of a company’s comprehensive workforce diversity data, including
requests for EEO-1 data, considering whether:
•
The
company publicly discloses equal opportunity policies and initiatives in a comprehensive manner;
•
The
company already publicly discloses comprehensive workforce diversity data; and
•
The
company has no recent significant EEO-related violations or litigation.
DWS’s
policy is to generally vote for shareholder proposals requesting nondiscrimination in salary, wages and all benefits.
DWS’s
policy is to generally vote for shareholder proposals calling for action on equal employment opportunity and antidiscrimination.
DWS’s
policy is to generally vote case-by-case on proposals seeking information on the diversity efforts of suppliers and
service providers.
Gender Identity,
Sexual Orientation, and Domestic Partner Benefits
General
Recommendation: DWS’s policy is to generally vote for proposals
seeking to amend a company’s EEO statement or diversity
policies to prohibit discrimination based on sexual orientation and/or gender identity.
DWS’s
policy is to generally vote for shareholder proposals seeking reports on a company’s initiatives to create a workplace
free of discrimination on the basis of sexual orientation or gender identity.
DWS’s
policy is to generally vote against shareholder proposals that seek to eliminate protection already afforded to gay
and lesbian employees.
Gender, Race /
Ethnicity Pay Gap
General
Recommendation: DWS’s policy is to generally vote for requests
for reports on a company's pay data by gender or race /ethnicity,
or a report on a company’s policies and goals to reduce any gender, or race /ethnicity pay gaps,
taking into account:
•
The
company's current policies and disclosure related to both its diversity and inclusion policies and practices and
its compensation philosophy on fair and equitable compensation practices;
•
Whether
the company has been the subject of recent controversy, litigation, or regulatory actions related to gender, race,
or ethnicity pay gap issues;
•
The
company’s disclosure regarding gender, race, or ethnicity pay gap policies or initiatives is compared to its industry
peers; and
•
Local
laws regarding categorization of race and/or ethnicity and definitions of ethnic and/or racial minorities.
Racial Equity and/or
Civil Rights Audit Guidelines
General
Recommendation: DWS’s policy is to vote case-by-case on proposals asking a company to conduct an independent racial
equity and/or civil rights audit, taking into account:
•
The
company's established process or framework for addressing racial inequity and discrimination internally;
•
Whether
the company has issued a public statement related to its racial justice efforts in recent years; or has committed
to internal policy review;
•
Whether
the company has engaged with impacted communities, stakeholders, and civil rights experts;
•
The
company’s track record in recent years of racial justice measures and outreach externally;
•
Whether
the company has been the subject of recent controversy, litigation, or regulatory actions related to racial inequity
or discrimination; and
•
Whether
the company’s actions are aligned with market norms on civil rights, and racial or ethnic diversity.
Environment and
Sustainability
Facility and Workplace
Safety
General
Recommendation: DWS’s policy is to generally vote for requests
for workplace safety reports, including reports on accident risk
reduction efforts, taking into account:
•
The
company’s current level of disclosure of its workplace health and safety performance data, health and safety management
policies, initiatives, and oversight mechanisms;
•
The
nature of the company’s business, specifically regarding company and employee exposure to health and safety
risks;
•
Recent
significant controversies, fines, or violations related to workplace health and safety; and
•
The
company's workplace health and safety performance relative to industry peers.
DWS’s
policy is to generally vote case-by-case on resolutions requesting that a company report on or implement safety/security risk
procedures associated with their operations and/or facilities, considering:
•
The
company’s compliance with applicable regulations and guidelines;
•
The
company’s current level of disclosure regarding its security and safety policies, procedures, and compliance monitoring;
and
•
The
existence of recent, significant violations, fines, or controversy regarding the safety and security of the company’s operations
and/or facilities.
General Environmental
Proposals and Community Impact Assessments
General
Recommendation: DWS’s policy is to generally vote for requests
for reports on policies and/or the potential (community) social
and/or environmental impact of company operations, considering:
•
Current
disclosure of applicable policies and risk assessment report(s) and risk management procedures;
•
The
impact of regulatory non-compliance, litigation, remediation, or reputational loss that may be associated with failure
to manage the company’s operations in question, including the management of relevant community and stakeholder
relations;
•
The
nature, purpose, and scope of the company’s operations in the specific region(s);
•
The
degree to which company policies and procedures are consistent with industry norms; and
•
The
scope of the resolution.
Hydraulic Fracturing
General
Recommendation: DWS’s policy is to generally vote for proposals
requesting greater disclosure of a company's (natural gas) hydraulic
fracturing operations, including measures the company has taken to manage and mitigate the potential
community and environmental impacts of those operations, considering:
•
The
company's current level of disclosure of relevant policies and oversight mechanisms;
•
The
company's current level of such disclosure relative to its industry peers;
•
Potential
relevant local, state, or national regulatory developments; and
•
Controversies,
fines, or litigation related to the company's hydraulic fracturing operations.
Operations in Protected
Areas
General
Recommendation: DWS’s policy is to generally vote for requests
for reports on potential environmental damage as a result of
company operations in protected regions, considering whether:
•
Operations
in the specified regions are not permitted by current laws or regulations;
•
The
company does not currently have operations or plans to develop operations in these protected regions; or
•
The
company’s disclosure of its operations and environmental policies in these regions is comparable to industry peers.
DWS’s
policy is to generally vote for shareholder proposals asking companies to prepare reports or adopt policies on operations
that include mining, drilling or logging in environmentally sensitive areas.
DWS’s
policy is to generally vote for shareholder proposals seeking to curb or reduce the sale of products manufactured from
materials extracted from environmentally sensitive areas such as old growth forests.
Recycling
General
Recommendation: DWS’s policy is to generally vote for proposals
to report on an existing recycling program, to increase their
recycling efforts or adopt a new recycling program, taking into account:
•
The
nature of the company’s business;
•
The
current level of disclosure of the company's existing related programs;
•
The
timetable and methods of program implementation prescribed by the proposal;
•
The
company’s ability to address the issues raised in the proposal; and
•
How
the company's recycling programs compare to similar programs of its industry peers.
Sustainability
Reporting
General
Recommendation: DWS’s policy is to generally vote for proposals
requesting that a company report on its policies, initiatives,
and oversight mechanisms related to social, economic, and environmental sustainability, considering whether:
•
The
company already discloses similar information through existing reports or policies such as an environment, health,
and safety (EHS) report; a comprehensive code of corporate conduct; and/or a diversity report; or
•
The
company has formally committed to the implementation of a reporting program based on Global Reporting Initiative
(GRI) guidelines or a similar standard within a specified time frame.
Water Issues
General
Recommendation: DWS’s policy is to generally vote for proposals
requesting a company report on, or adopt a new policy on, water-related
risks and concerns, taking into account:
•
The
company's current disclosure of relevant policies, initiatives, oversight mechanisms, and water usage metrics;
•
Whether
or not the company's existing water-related policies and practices are consistent with relevant internationally recognized
standards and national/local regulations;
•
The
potential financial impact or risk to the company associated with water-related concerns or issues; and
•
Recent,
significant company controversies, fines, or litigation regarding water use by the company and its suppliers.
General Corporate
Issues
Charitable Contributions
General
Recommendation: DWS’s policy is to generally vote against
proposals restricting a company from making charitable contributions.
Charitable
contributions are generally useful for assisting worthwhile causes and for creating goodwill in the community.
Data Security,
Privacy, and Internet Issues
General
Recommendation: DWS’s policy is to generally vote for proposals
requesting the disclosure or implementation of data security,
privacy, or information access and management policies and procedures, considering:
•
The
level of disclosure of company policies and procedures relating to data security, privacy, freedom of speech, information
access and management, and Internet censorship;
•
Engagement
in dialogue with governments or relevant groups with respect to data security, privacy, or the free flow
of information on the Internet;
•
The
scope of business involvement and of investment in countries whose governments censor or monitor the Internet
and other telecommunications;
•
Applicable
market-specific laws or regulations that may be imposed on the company; and
•
Controversies,
fines, or litigation related to data security, privacy, freedom of speech, or Internet censorship.
Environmental,
Social, and Governance (ESG) Compensation-Related Proposals
General
Recommendation: DWS’s policy is to generally vote for proposals
to link, or report on linking, executive compensation to sustainability
(environmental and social) criteria, considering:
•
The
scope and prescriptive nature of the proposal;
•
Whether
the company has significant and/or persistent controversies or regulatory violations regarding social and/or
environmental issues;
•
Whether
the company has management systems and oversight mechanisms in place regarding its social and environmental
performance;
•
The
degree to which industry peers have incorporated similar non-financial performance criteria in their executive compensation
practices; and
•
The
company's current level of disclosure regarding its environmental and social performance.
Human Rights, Human
Capital Management, and International Operations
Human Rights Proposals
General
Recommendation: DWS’s policy is to generally vote for proposals
requesting a report on company or company supplier labor and/or
human rights standards and policies unless such information is already publicly disclosed.
DWS’s
policy is to generally vote for proposals to implement company or company supplier labor and/or human rights standards
and policies, considering:
The
degree to which existing relevant policies and practices are disclosed;
•
Whether
or not existing relevant policies are consistent with internationally recognized standards;
•
Whether
company facilities and those of its suppliers are monitored and how;
•
Company
participation in fair labor organizations or other internationally recognized human rights initiatives;
•
Scope
and nature of business conducted in markets known to have higher risk of workplace labor/human rights abuse;
•
Recent,
significant company controversies, fines, or litigation regarding human rights at the company or its suppliers;
•
The
scope of the request; and
•
Deviation
from industry sector peer company standards and practices.
DWS’s
policy is to generally vote for proposals requesting that a company conduct an assessment of the human rights risks
in its operations or in its supply chain, or report on its human rights risk assessment process, considering:
•
The
degree to which existing relevant policies and practices are disclosed, including information on the implementation of
these policies and any related oversight mechanisms;
•
The
company’s industry and whether the company or its suppliers operate in countries or areas where there is a
history of human rights concerns;
•
Recent
significant controversies, fines, or litigation regarding human rights involving the company or its suppliers, and
whether the company has taken remedial steps; and
•
Whether
the proposal is unduly burdensome or overly prescriptive.
Mandatory Arbitration
General
Recommendation: DWS’s policy is to generally vote for requests
for a report on a company’s use of mandatory arbitration
on employment-related claims, taking into account:
•
The
company's current policies and practices related to the use of mandatory arbitration agreements on workplace claims;
•
Whether
the company has been the subject of recent controversy, litigation, or regulatory actions related to the use
of mandatory arbitration agreements on workplace claims; and
•
The
company's disclosure of its policies and practices related to the use of mandatory arbitration agreements compared
to its peers.
Operations in High
Risk Markets
General
Recommendation: DWS’s policy is to generally vote for requests
for a report on a company’s potential financial and reputational
risks associated with operations in “high-risk”
markets, such as a terrorism-sponsoring state or politically/socially
unstable region, taking into account:
•
The
nature, purpose, and scope of the operations and business involved that could be affected by social or political disruption;
•
Current
disclosure of applicable risk assessment(s) and risk management procedures;
•
Compliance
with U.S. sanctions and laws;
•
Consideration
of other international policies, standards, and laws; and
•
Whether
the company has been recently involved in recent, significant controversies, fines, or litigation related to
its operations in “high-risk”
markets.
Outsourcing/Offshoring
General
Recommendation: DWS’s policy is to generally vote for proposals
calling for companies to report on the risks associated with
outsourcing/plant closures, considering:
•
Controversies
surrounding operations in the relevant market(s);
•
The
value of the requested report to shareholders;
•
The
company’s current level of disclosure of relevant information on outsourcing and plant closure procedures; and
•
The
company’s existing human rights standards relative to industry peers.
Sexual Harassment
General
Recommendation: DWS’s policy is to generally vote for requests
for a report on company actions taken to strengthen policies
and oversight to prevent workplace sexual harassment, or a report on risks posed by a company’s failure
to prevent workplace sexual harassment, taking into account:
•
The
company’s current policies, practices, oversight mechanisms related to preventing workplace sexual harassment;
•
Whether
the company has been the subject of recent controversy, litigation, or regulatory actions related to workplace sexual
harassment issues; and
•
The
company’s disclosure regarding workplace sexual harassment policies or initiatives compared to its industry peers.
Weapons and Military
Sales
General
Recommendation: DWS’s policy is to generally vote for reports
on foreign military sales or offsets, taking into account;
•
such
disclosures may involve sensitive and confidential information
DWS’s
policy is to generally vote for shareholder proposals seeking a report on the renouncement of future landmine production
DWS’s
policy is to generally vote for shareholder proposals requesting a report on the involvement, policies, and procedures related
to depleted uranium and nuclear weapons.
DWS’s
policy is to generally vote case-by-case on proposals that call for outright restrictions on foreign military sales.
DWS’s
policy is to generally vote for shareholder proposals asking companies to review and amend, if necessary, the company’s
code of conduct and statements of ethical criteria for military production related contract bids, awards and
execution.
Political Activities
Lobbying
General
Recommendation: DWS’s policy is to generally vote for proposals
requesting information on a company’s lobbying (including
direct, indirect, and grassroots lobbying) activities, policies, or procedures, considering:
•
The
company’s current disclosure of relevant lobbying policies, and management and board oversight;
•
The
company’s disclosure regarding trade associations or other groups that it supports, or is a member of, that engage
in lobbying activities; and
•
Recent
significant controversies, fines, or litigation regarding the company’s lobbying-related activities.
Political Contributions
General
Recommendation: DWS’s policy is to generally vote for proposals
requesting greater disclosure of a company's political contributions
and trade association spending policies and activities, considering:
•
The
company's policies, and management and board oversight related to its direct political contributions and payments
to trade associations or other groups that may be used for political purposes;
•
The
company's disclosure regarding its support of, and participation in, trade associations or other groups that may
make political contributions; and
•
Recent
significant controversies, fines, or litigation related to the company's political contributions or political activities.
Vote
case-by-case on proposals barring a company from making political contributions. Businesses are affected by legislation
at the federal, state, and local level; barring political contributions can put the company at a competitive disadvantage.
Vote
case-by-case on proposals to publish in newspapers and other media a company's political contributions. Such publications
could present significant cost to the company without providing commensurate value to shareholders.
Political Ties
General
Recommendation: DWS’s policy is to generally vote for proposals
asking a company to affirm political nonpartisanship in the workplace,
considering whether:
•
There
are no recent, significant controversies, fines, or litigation regarding the company’s political contributions or
trade association spending; and
•
The
company has procedures in place to ensure that employee contributions to company-sponsored political action
committees (PACs) are strictly voluntary and prohibit coercion.
DWS’s
policy is to generally vote for shareholder proposals calling for the disclosure of prior government service of the
company’s key executives.
REGISTERED
INVESTMENT COMPANY PROXIES
Election of Directors
General Recommendation:
DWS’s policy is to generally vote case-by-case on the election of directors and trustees.
Closed End Fund
- Unilateral Opt-In to Control Share Acquisition Statutes
General
Recommendation: For closed-end management investment companies
(CEFs), DWS’s policy is to generally vote on a case-by-case
basis for nominating/governance committee members (or other directors on a case-by-case basis)
at CEFs that have not provided a compelling rationale for opting-in to a Control Share Acquisition Statute, nor submitted
a by-law amendment to a shareholder vote.
Converting Closed-end
Fund to Open-end Fund
General
Recommendation: DWS’s policy is to generally vote case-by-case
on conversion proposals, considering the following factors:
•
Past
performance as a closed-end fund;
•
Market
in which the fund invests;
•
Measures
taken by the board to address the discount; and
•
Past
shareholder activism, board activity, and votes on related proposals.
Proxy Contests
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proxy contests, considering the following factors:
•
Past
performance relative to its peers;
•
Market
in which the fund invests;
•
Measures
taken by the board to address the issues;
•
Past
shareholder activism, board activity, and votes on related proposals;
•
Strategy
of the incumbents versus the dissidents;
•
Independence
of directors;
•
Experience
and skills of director candidates;
•
Governance
profile of the company;
•
Evidence
of management entrenchment.
Investment Advisory
Agreements
General
Recommendation: DWS’s policy is to generally vote case-by-case
on investment advisory agreements, considering the following
factors:
•
Proposed
and current fee schedules;
•
Fund
category/investment objective;
•
Performance
benchmarks;
•
Share
price performance as compared with peers;
•
Resulting
fees relative to peers;
•
Assignments
(where the advisor undergoes a change of control).
Approving New Classes
or Series of Shares
General
Recommendation: DWS’s policy is to generally vote case-by-case
on the establishment of new classes or series of shares.
Preferred Stock
Proposals
General
Recommendation: DWS’s policy is to generally vote case-by-case
on the authorization for or increase in preferred shares, considering
the following factors:
•
Stated
specific financing purpose;
•
Possible
dilution for common shares;
•
Whether
the shares can be used for antitakeover purposes.
1940 Act Policies
General
Recommendation: DWS’s policy is to generally vote case-by-case
on policies under the Investment Advisor Act of 1940, considering
the following factors:
•
Potential
competitiveness;
•
Regulatory
developments;
•
Current
and potential returns; and
•
Current
and potential risk.
DWS’s
policy is to generally vote for these amendments as long as the proposed changes do not fundamentally alter the
investment focus of the fund and do comply with the current SEC interpretation.
Changing a Fundamental
Restriction to a Nonfundamental Restriction
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals to change a fundamental restriction to a non-fundamental
restriction, considering the following factors:
•
The
fund's target investments;
•
The
reasons given by the fund for the change; and
•
The
projected impact of the change on the portfolio.
Change Fundamental
Investment Objective to Nonfundamental
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals to change a fund’s fundamental investment
objective to non-fundamental.
Name Change Proposals
General
Recommendation: DWS’s policy is to generally vote case-by-case
on name change proposals, considering the following factors:
•
Political/economic
changes in the target market;
•
Consolidation
in the target market; and
•
Current
asset composition.
Change in Fund's
Subclassification
General
Recommendation: DWS’s policy is to generally vote case-by-case
on changes in a fund's sub-classification, considering the following
factors:
•
Potential
competitiveness;
•
Current
and potential returns;
•
Consolidation
in target industry.
Business Development
Companies—Authorization to Sell Shares of Common Stock at a Price below Net Asset
Value
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals authorizing the board to issue shares below Net
Asset Value (NAV) if:
•
The
proposal to allow share issuances below NAV has an expiration date no more than one year from the date shareholders
approve the underlying proposal, as required under the Investment Company Act of 1940;
•
The
sale is deemed to be in the best interests of shareholders by (1) a majority of the company's independent directors
and (2) a majority of the company's directors who have no financial interest in the issuance; and
•
The
company has demonstrated responsible past use of share issuances by either:
•
Outperforming
peers in its 8-digit GICS group as measured by one- and three-year median TSRs; or
•
Providing
disclosure that its past share issuances were priced at levels that resulted in only small or moderate discounts
to NAV and economic dilution to existing non-participating shareholders.
Disposition of
Assets/Termination/Liquidation
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals to dispose of assets, to terminate or liquidate,
considering the following factors:
•
Strategies
employed to salvage the company;
•
The
fund’s past performance;
•
The
terms of the liquidation.
Changes to the
Charter Document
General
Recommendation: DWS’s policy is to generally vote case-by-case
on changes to the charter document, considering the following
factors:
•
The
degree of change implied by the proposal;
•
The
efficiencies that could result;
•
The
state of incorporation;
•
Regulatory
standards and implications.
Changing the Domicile
of a Fund
General
Recommendation: DWS’s policy is to generally vote case-by-case
on re-incorporations, considering the following factors:
•
Regulations
of both states;
•
Required
fundamental policies of both states;
•
The
increased flexibility available.
Authorizing the
Board to Hire and Terminate Subadvisers Without Shareholder Approval
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals authorizing the board to hire or terminate subadvisers
without shareholder approval if the investment adviser currently employs only one subadviser.
Distribution Agreements
General
Recommendation: DWS’s policy is to generally vote case-by-case
on distribution agreement proposals, considering the following
factors:
•
Fees
charged to comparably sized funds with similar objectives;
•
The
proposed distributor’s reputation and past performance;
•
The
competitiveness of the fund in the industry;
•
The
terms of the agreement.
Master-Feeder Structure
General
Recommendation: DWS’s policy is to generally vote case-by-case
on the establishment of a master-feeder structure.
Mergers
General
Recommendation: DWS’s policy is to generally vote case-by-case
on merger proposals, considering the following factors:
•
Resulting
fee structure;
•
Performance
of both funds;
•
Continuity
of management personnel;
•
Changes
in corporate governance and their impact on shareholder rights.
Shareholder Proposals
for Mutual Funds
Establish Director
Ownership Requirement
General
Recommendation: DWS’s policy is to generally vote case-by-case
on shareholder proposals that mandate a specific minimum amount
of stock that directors must own in order to qualify as a director or to remain on the board.
Reimburse Shareholder
for Expenses Incurred
General
Recommendation: DWS’s policy is to generally vote case-by-case
on shareholder proposals to reimburse proxy solicitation expenses.
When supporting the dissidents, vote for the reimbursement of the proxy solicitation expenses.
Terminate the Investment
Advisor
General
Recommendation: DWS’s policy is to generally vote case-by-case
on proposals to terminate the investment advisor, considering
the following factors:
•
Performance
of the fund’s Net Asset Value (NAV);
•
The
fund’s history of shareholder relations;
•
The
performance of other funds under the advisor’s management.
INTERNATIONAL PROXY
VOTING
The
above guidelines pertain to issuers organized in the United States. 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.
Appendix I
Classification
of Directors – U.S.
1.1.
Current
employee or current officer1
of the company or one of its affiliates2.
2.
Non-Independent
Non-Executive Director
Board
Identification
2.1.
Director
identified as not independent by the board.
Controlling/Significant
Shareholder
2.2.
Beneficial
owner of more than 50 percent of the company's voting power (this may be aggregated if voting
power is distributed among more than one member of a group).
Current
Employment at Company or Related Company
2.3.
Non-officer
employee of the firm (including employee representatives).
2.4.
Officer1,
former officer, or general or limited partner of a joint venture or partnership with the company.
Former
Employment
2.5.
Former
CEO of the company.3, 4
2.6.
Former
non-CEO officer1
of the company or an affiliate2
within the past five years.
2.7.
Former
officer1
of an acquired company within the past five years.4
2.8.
Officer1
of a former parent or predecessor firm at the time the company was sold or split off within the
past five years.
2.9.
Former
interim officer if the service was longer than 18 months. If the service was between 12 and 18
months, an assessment of the interim officer’s employment agreement will be made.5
Family
Members
2.10.
Immediate
family member6
of a current or former officer1
of the company or its affiliates2
within the last five years.
2.11.
Immediate
family member6
of a current employee of company or its affiliates2
where additional factors raise concern (which may include, but
are not limited to, the following: a director related to numerous
employees; the company or its affiliates employ relatives of numerous board members; or a
non-Section 16 officer in a key strategic role).
Professional,
Transactional, and Charitable Relationships
Director
who (or whose immediate family member6)
currently provides professional services7
in excess of the $10,000 per year to the company, an affiliate2
or an individual officer of the company or
2.12.
(an
affiliate; or who is (or whose immediate family member6
is) a partner, employee or controlling shareholder of, an organization
which provides services.
Director
who (or whose immediate family member6)
currently has any material transactional relationship8
with the company or its affiliates2.
2.13.
;
or who is (or whose immediate family member6
is) a partner in, or a controlling shareholder or an executive
officer of, an organization which has the material transactional relationship8
(excluding investments in the company through a private placement).
2.14.
Director
who (or whose immediate family member6)
is) a trustee, director, or employee of a charitable or non-profit
organization that receives material grants or endowments8
from the company or its affiliates2.
Other
Relationships
2.15.
Party
to a voting agreement9
to vote in line with management on proposals being brought to shareholder
vote.
2.16.
Has
(or an immediate family member6
has) an interlocking relationship as defined by the SEC involving
members of the board of directors or its Compensation Committee.10
2.17.
Founder11
of the company but not currently an employee.
2.18.
Director
with pay comparable to Named Executive Officers.
2.19.
Any
material12
relationship with the company.
3.1.
No
material12
connection to the company other than a board seat.
Footnotes:
1
The definition of officer will generally follow that of a “Section
16 officer”
(officers subject to Section 16 of the Securities and Exchange
Act of 1934) and includes the chief executive, operating, financial, legal, technology, and accounting
officers of a company (including the president, treasurer, secretary, controller, or any vice president in charge
of a principal business unit, division, or policy function). Current interim officers are included in this category. For
private companies, the equivalent positions are applicable. A non-employee director serving as an officer due to statutory
requirements (e.g. corporate secretary) will generally be classified as a Non-Independent Non-Executive Director
under 2.19: “Any
material relationship with the company.”
However, if the company provides explicit disclosure that the
director is not receiving additional compensation exceeding $10,000 per year for serving in that capacity, then
the director will be classified as an Independent Director.
2
“Affiliate”
includes a subsidiary, sibling company, or parent company. 50 percent control ownership is used by the parent
company as the standard for applying its affiliate designation. The manager/advisor of an externally managed issuer
(EMI) is considered an affiliate.
3
Includes any former CEO of the company prior to the company’s
initial public offering (IPO).
4
When there is a former CEO of a special purpose acquisition company
(SPAC) serving on the board of an acquired company, DWS will
generally classify such directors as independent unless determined otherwise taking into account the
following factors: the applicable listing standards determination of such director’s independence; any operating ties
to the firm; and the existence of any other conflicting relationships or related party transactions.
5
ISS will look at the terms of the interim officer’s employment
contract to determine if it contains severance pay, long-term
health and pension benefits, or other such standard provisions typically contained in contracts of permanent, non-temporary
CEOs. DWS will also consider if a formal search process was under way for a full-time officer at the time.
6
“Immediate
family member”
follows the SEC’s definition of such and covers spouses, parents, children, step-parents, step-children,
siblings, in-laws, and any person (other than a tenant or employee) sharing the household of any director, nominee
for director, executive officer, or significant shareholder of the company.
7
Professional services can be characterized as advisory in nature,
generally involve access to sensitive company information or
to strategic decision-making, and typically have a commission- or fee-based payment structure. Professional services generally
include but are not limited to the following: investment banking/financial advisory services, commercial banking (beyond
deposit services), investment services, insurance services, accounting/audit services, consulting services, marketing
services, legal services, property management services, realtor services, lobbying services, executive search services,
and IT consulting services. The following would generally be considered transactional relationships and not professional
services: deposit services, IT tech support services, educational services, and construction services. The case
of participation in a banking syndicate by a non-lead bank should be considered a transactional (and hence subject to
the associated materiality test) rather than a professional relationship. “Of
Counsel”
relationships are only considered immaterial if the individual
does not receive any form of compensation (in excess of $10,000 per year) from, or is a retired
partner of, the firm providing the professional service. The case of a company providing a professional service to
one of its directors or to an entity with which one of its directors is affiliated, will be considered a transactional rather
than a professional relationship. Insurance services and marketing services are assumed to be professional services
unless the company explains why such services are not advisory.
8
A material transactional relationship, including grants to non-profit
organizations, exists if the company makes annual payments to,
or receives annual payments from, another entity, exceeding the greater of: $200,000 or 5 percent of the
recipient’s gross revenues, for a company that follows NASDAQ listing standards; or the greater of $1,000,000 or
2 percent of the recipient’s gross revenues, for a company that follows NYSE listing standards. For a company that follows
neither of the preceding standards, DWS will apply the NASDAQ-based materiality test. (The recipient is the party
receiving the financial proceeds from the transaction).
9
Dissident directors who are parties to a voting agreement pursuant
to a settlement or similar arrangement may be classified as Independent
Directors if an analysis of the following factors indicates that the voting agreement does not
compromise their alignment with all shareholders’ interests: the terms of the agreement; the duration of the standstill
provision in the agreement; the limitations and requirements of actions that are agreed upon; if the dissident director
nominee(s) is subject to the standstill; and if there any conflicting relationships or related party transactions.
10
Interlocks include: executive officers serving as directors on
each other’s compensation or similar committees (or, in
the absence of such a committee, on the board); or executive officers sitting on each other’s boards and at least one
serves on the other’s compensation or similar committees (or, in the absence of such a committee, on the board).
11
The operating involvement of the founder with the company will
be considered; if the founder was never employed by the company,
DWS may deem him or her an Independent Director.
12
For purposes of ISS’s director independence classification,
“material”
will be defined as a standard of relationship (financial, personal
or otherwise) that a reasonable person might conclude could potentially influence one’s objectivity in
the boardroom in a manner that would have a meaningful impact on an individual's ability to satisfy requisite fiduciary standards
on behalf of shareholders.
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 By-Laws, dated November 25, 2019 (see
Article 9). Referenced in exhibits (b)(1) through (b)(2) to this Item, above. |
|
(d) |
(1) |
Investment
Advisory Agreement, dated January 31, 2011, and amended as of August 10, 2021, with a schedule dated as of August 16, 2022, between the
Trust and DBX Advisors LLC. (Filed herein.) |
|
|
(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
16, dated as of August 16, 2022, to the Distribution Agreement, dated April 16, 2018, between the Registrant and ALPS Distributors, Inc.
(Incorporated by reference to Post-Effective Amendment No. 486 to the Trust’s
Registration Statement, as filed with the SEC on September 27, 2022.) |
|
|
|
|
|
|
(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) |
Amended
Appendix A dated August 18, 2021, to the Amended and Restated Supplement to the Global Custody Agreement, Hong Kong – China –
Stock Connect Service, dated October 18, 2018, which amends 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. 474 to the Trust’s Registration Statement, as filed with the SEC on August 17, 2021.) |
|
|
(4) |
Amendment,
dated as of August 16, 2022, to the Custody Agreement, dated January 31, 2011, between the Registrant and The Bank of New York Mellon.
(Incorporated by reference to Post-Effective Amendment No. 486 to the Trust’s
Registration Statement, as filed with the SEC on September 27, 2022.) |
|
|
(5) |
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.) |
|
|
(6) |
Amendment,
dated as of August 16, 2022, to the Foreign Custody Manager Agreement, dated January 31, 2011, between the Registrant and The Bank of
New York Mellon. (Incorporated by reference to Post-Effective Amendment
No. 486 to the Trust’s Registration Statement, as filed with the SEC on September 27, 2022.) |
|
(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) |
Third
Amendment, dated as of July 28, 2022, 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. 486 to the Trust’s Registration Statement, as filed with the SEC on September 27, 2022.) |
|
|
(6) |
Amendment,
dated as of October 5, 2022, to the Third Amendment, dated as of July 28, 2022, 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.) |
|
|
(7) |
Amendment,
dated as of August 16, 2022, 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. 486 to the Trust’s Registration Statement, as filed with the SEC on September 27, 2022.) |
|
|
(8) |
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.)
|
|
|
(9) |
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. 481 to the Trust’s Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(10) |
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.) |
|
|
(11) |
Amendment,
dated as of August 16, 2022, 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. 486 to the Trust’s Registration Statement, as filed with the SEC on September 27, 2022.) |
|
|
(12) |
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.) |
|
|
(13) |
Amendment,
dated as of August 16, 2022, to the Transfer Agency and Service Agreement, dated January 31, 2011, between the Registrant and The Bank
of New York Mellon. (Incorporated by reference to Post-Effective Amendment
No. 486 to the Trust’s Registration Statement, as filed with the SEC on September 27, 2022.) |
|
|
(14) |
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.) |
|
|
(15) |
Expense
Limitation Agreement (with respect to Xtrackers International Real Estate ETF), effective as of October 1, 2022.
(Incorporated by reference to Post-Effective Amendment No. 486 to the Trust’s Registration Statement, as filed with the SEC
on September 27, 2022.) |
|
|
(16) |
Expense
Limitation Agreement (with respect to Xtrackers MSCI All China Equity ETF), effective as of October 1, 2022.
(Incorporated by reference to Post-Effective Amendment No. 486 to the Trust’s Registration Statement, as filed with the SEC on September
27, 2022.) |
|
|
(17) |
Expense
Limitation Agreement (with respect to Xtrackers FTSE Developed ex US Multifactor ETF), effective as of December 17, 2021. (Incorporated
by reference to Post-Effective Amendment No. 477 to the Trust’s Registration Statement, as filed with the SEC on December 16, 2021.) |
|
|
(18) |
Expense
Limitation Agreement (with respect to Xtrackers USD High Yield Corporate Bond ETF), effective as of December 17, 2021. (Incorporated
by reference to Post-Effective Amendment No. 477 to the Trust’s Registration Statement, as filed with the SEC on December 16, 2021.)
|
|
|
(19) |
Expense
Limitation Agreement (with respect to Xtrackers High Beta High Yield Bond ETF), effective as of December 17, 2021. (Incorporated
by reference to Post-Effective Amendment No. 477 to the Trust’s Registration Statement, as filed with the SEC on December 16, 2021.) |
|
|
(20) |
Expense
Limitation Agreement (with respect to Xtrackers Low Beta High Yield Bond ETF), effective as of December 17, 2021. (Incorporated
by reference to Post-Effective Amendment No. 477 to the Trust’s Registration Statement, as filed with the SEC on December 16, 2021.) |
|
|
(21) |
Expense
Limitation Agreement (with respect to Xtrackers S&P 500 ESG ETF), effective as of December 17, 2021. (Incorporated
by reference to Post-Effective Amendment No. 477 to the Trust’s Registration Statement, as filed with the SEC on December 16, 2021.) |
|
|
(22) |
Amended
and Restated Expense Limitation Agreement, effective as of August 16, 2022. (Incorporated
by reference to Post-Effective Amendment No. 486 to the Trust’s Registration Statement, as filed with the SEC on September 27, 2022.) |
|
|
(23) |
Fund
of Funds Investment Agreement between DBX ETF Trust and Absolute Shares Trust, dated January 19, 2022. (Incorporated
by reference to Post-Effective Amendment No. 481 to the Trust’s Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(24) |
Fund
of Funds Investment Agreement among DBX ETF Trust, GPS Funds I, GPS Funds II, and Savos Investments Trust, dated January 19, 2022.
(Incorporated by reference to Post-Effective Amendment No. 481 to the Trust’s
Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(25) |
Fund
of Funds Investment Agreement between DBX ETF Trust and Direxion Shares ETF Trust, dated January 19, 2022. (Incorporated
by reference to Post-Effective Amendment No. 481 to the Trust’s Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(26) |
Fund
of Funds Investment Agreement among DBX ETF Trust and Eaton Vance Growth Trust and Eaton Vance Mutual Funds Trust, dated January 19, 2022.
(Incorporated by reference to Post-Effective Amendment No. 481 to the Trust’s
Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(27)
|
Fund
of Funds Investment Agreement between DBX ETF Trust and E-Valuator Funds Trust, dated January 19, 2022. (Incorporated
by reference to Post-Effective Amendment No. 481 to the Trust’s Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(28) |
Fund
of Funds Investment Agreement among DBX ETF Trust and the Fidelity Trusts listed on Schedule A, dated January 19, 2022. (Incorporated
by reference to Post-Effective Amendment No. 481 to the Trust’s Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(29) |
Fund
of Funds Investment Agreement between DBX ETF Trust and Fidelity Rutland Square Trust II, dated as of January 19, 2022. (Incorporated
by reference to Post-Effective Amendment No. 481 to the Trust’s Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(30) |
Fund
of Funds Investment Agreement between DBX ETF Trust and Franklin Fund Allocator Series and Franklin ETF Trust, dated January 19, 2022.
(Incorporated by reference to Post-Effective Amendment No. 481 to the Trust’s
Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(31) |
Fund
of Funds Investment Agreement between DBX ETF Trust, Goldman Sachs Trust, Goldman Sachs Variable Insurance Trust, Goldman Sachs Trust
II, Goldman Sachs ETF Trust, Goldman Sachs ETF Trust II, Goldman Sachs MLP and Energy Renaissance Fund, and Goldman Sachs Real Estate
Diversified Income Fund, dated January 19, 2022. (Incorporated by
reference to Post-Effective Amendment No. 481 to the Trust’s Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(32) |
Fund
of Funds Investment Agreement between DBX ETF Trust and Horizon Funds, dated January 19, 2022. (Incorporated
by reference to Post-Effective Amendment No. 481 to the Trust’s Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(33) |
Fund
of Funds Investment Agreement between DBX ETF Trust and IndexIQ ETF Funds, dated January 19, 2022. (Incorporated
by reference to Post-Effective Amendment No. 481 to the Trust’s Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(34) |
Fund
of Funds Investment Agreement among DBX ETF Trust, the Invesco Growth Series, and the Invesco Investment Funds, dated January 19, 2022.
(Incorporated by reference to Post-Effective Amendment No. 481 to the Trust’s
Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(35) |
Fund
of Funds Investment Agreement between DBX ETF Trust and Janus Henderson – Clayton School Trust, dated January 19, 2022.
(Incorporated by reference to Post-Effective Amendment No. 481 to the Trust’s
Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(36) |
Fund
of Funds Investment Agreement between DBX ETF Trust and Janus Investment Fund, dated January 19, 2022. (Incorporated
by reference to Post-Effective Amendment No. 481 to the Trust’s Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(37) |
Fund
of Funds Investment Agreement among DBX ETF Trust, John Hancock Variable Insurance Trust and John Hancock Funds II, dated January 19,
2022. (Incorporated by reference to Post-Effective Amendment No. 481
to the Trust’s Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(38) |
Fund
of Funds Investment Agreement among DBX ETF Trust and MainStay VP Funds Trust, and MainStay Funds Trust, dated January 19, 2022.
(Incorporated by reference to Post-Effective Amendment No. 481 to the Trust’s
Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(39) |
Fund
of Funds Investment Agreement between DBX ETF Trust and Morningstar Funds Trust, dated January 19, 2022. (Incorporated
by reference to Post-Effective Amendment No. 481 to the Trust’s Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(40) |
Fund
of Funds Investment Agreement between DBX ETF Trust and Voya Partners, Inc., dated January 19, 2022. (Incorporated
by reference to Post-Effective Amendment No. 481 to the Trust’s Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(41) |
Fund
of Funds Investment Agreement between DBX ETF Trust and Highland Funds I, dated January 25, 2022. (Incorporated
by reference to Post-Effective Amendment No. 481 to the Trust’s Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(42) |
Fund
of Funds Investment Agreement among DBX ETF Trust, Exchange Traded Concepts Trust, and Exchange Listed Funds Trust, dated April 27, 2022.
(Incorporated by reference to Post-Effective Amendment No. 481 to the Trust’s
Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(43) |
Fund
of Funds Investment Agreement between DBX ETF Trust and The Lazard Funds, Inc., dated April 27, 2022. (Incorporated
by reference to Post-Effective Amendment No. 481 to the Trust’s Registration Statement, as filed with the SEC on June 17, 2022.) |
|
(i) |
(1) |
Opinion
and Consent of Counsel, 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
of Morgan, Lewis & Bockius LLP, relating to shares of the Xtrackers 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.) |
|
|
(3) |
Opinion
of Morgan, Lewis & Bockius LLP, relating to shares of the Xtrackers 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.) |
|
|
(4) |
Opinion
of Morgan, Lewis & Bockius LLP, relating to shares of the Xtrackers 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.) |
|
|
(5) |
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.) |
|
|
(6) |
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.) |
|
|
(7) |
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.) |
|
|
(8) |
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.) |
|
|
(9) |
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.) |
|
|
(10) |
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.) |
|
|
(11) |
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.) |
|
|
(12) |
Opinion
and Consent of Counsel, Dechert LLP. (Incorporated by reference to
Post-Effective Amendment No. 472 to the Trust’s Registration Statement, as filed with the SEC on January 25, 2021.) |
|
|
(13) |
Opinion
and Consent of Counsel, Vedder Price P.C. (Incorporated by reference
to Post-Effective Amendment No. 478 to the Trust’s Registration Statement, as filed with the SEC on December 20, 2021.) |
|
|
(14) |
Opinion
and Consent of Counsel, Vedder Price P.C. (Incorporated by reference
to Post-Effective Amendment No. 481 to the Trust’s Registration Statement, as filed with the SEC on June 17, 2022.) |
|
|
(15) |
Opinion
and Consent of Counsel, Vedder Price P.C. (Incorporated by reference
to Post-Effective Amendment No. 487 to the Trust’s Registration Statement, as filed with the SEC on October 7, 2022.) |
|
|
(16) |
Opinion
and Consent of Counsel, Vedder Price P.C. (Filed herein.) |
|
(j) |
|
Not
applicable. |
|
(k) |
|
Not
applicable. |
|
(l) |
|
Initial
Share Purchase 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.) |
|
(m) |
|
Not
applicable. |
|
(n) |
|
Not
applicable. |
|
(o) |
|
Reserved. |
|
(p) |
(1) |
Code
of Ethics of the Registrant, dated May 11, 2021. (Incorporated by
reference to Post-Effective Amendment No. 474 to the Trust’s Registration Statement, as filed with the SEC on August 17, 2021.)
|
|
|
(2) |
Global
Code of Ethics – DWS Group, dated July 1, 2021. (Incorporated
by reference to Post-Effective Amendment No. 474 to the Trust’s Registration Statement, as filed with the SEC on August 17, 2021.) |
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, Alpha Alternative Assets Fund, ALPS Series Trust, Alternative Credit Income Fund, Apollo Diversified Credit Fund (fka Griffin Institutional
Access Credit Fund), Apollo Diversified Real Estate Fund (fka Griffin Institutional Access Real Estate Fund), The Arbitrage Funds, AQR
Funds, Axonic Alternative Income Fund, Axonic Funds, BBH Trust, Bluerock High Income Institutional Credit Fund, Bluerock Total Income+
Real Estate Fund, Brandes Investment Trust, Bridge Builder Trust, Broadstone Real Estate Access Fund, Cambria ETF Trust, 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 Core Income Fund, 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, Graniteshares ETF Trust, Hartford Funds Exchange-Traded
Trust, Hartford Funds NextShares Trust, Heartland Group, Inc., IndexIQ Active ETF Trust, IndexIQ ETF Trust, James Advantage Funds, Janus
Detroit Street Trust, Lattice Strategies Trust, Litman Gregory Funds Trust, Longleaf Partners Funds Trust, MassMutual Premier Funds, MassMutual
Advantage Funds, Meridian Fund, Inc., MVP Private Markets Fund, Natixis ETF Trust, Natixis ETF Trust II, Opportunistic Credit Interval
Fund, PRIMECAP Odyssey Funds, Principal Exchange-Traded Funds, Reality Shares ETF Trust, RiverNorth Funds, RiverNorth Opportunities Fund,
Inc., RiverNorth/DoubleLine Strategic Opportunity Fund, Inc., SPDR Dow Jones Industrial Average ETF Trust, SPDR S&P 500 ETF Trust,
SPDR S&P MidCap 400 ETF Trust, Sprott Funds Trust, Stone Harbor Investment Funds, Stone Ridge Trust, Stone Ridge Trust II, Stone Ridge
Trust III, Stone Ridge Trust IV, Stone Ridge Trust V, Stone Ridge Trust VI, Stone Ridge Residential Real Estate Income Fund I, Inc., USCF
ETF Trust, Valkyrie ETF Trust II, 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 |
Stephen
J. Kyllo |
President,
Chief Operating Officer, Director, Chief Compliance Officer |
None |
Patrick
J. Pedonti** |
Vice
President, Treasurer and Assistant Secretary |
None |
Eric
Parsons |
Vice
President, Controller and Assistant Treasurer |
None |
Jason
White*** |
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 |
Terence
Digan |
Vice
President |
|
None |
James
Stegall |
Vice
President |
|
None |
|
|
|
|
|
Gary Ross |
Senior
Vice President |
None |
Hilary
Quinn |
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 Mr. Pedonti is 333 W. 11th
Street, 5th Floor, Kansas City, Missouri 64105.
*** The principal business address for Mr. White is 4 Times Square, New
York, NY 10036.
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 |
|
100 Summer Street
Boston, MA 02110-2146
|
Investment Advisor |
DBX Advisors LLC
875 Third Avenue
New York, NY 10022-6225 |
|
|
|
DBX Advisors LLC
100 Summer Street
Boston, MA 02110-2146 |
|
|
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 18th day of October 2022.
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 |
October 18, 2022 |
|
|
|
/s/George O. Elston |
|
|
George O. Elston* |
Trustee |
October 18, 2022 |
|
|
|
/s/Diane Kenneally |
|
|
Diane Kenneally |
Treasurer, Chief Financial Officer and
Controller |
October 18,
2022 |
|
|
|
/s/Freddi Klassen |
|
|
Freddi Klassen* |
President and Chief Executive Officer |
October 18, 2022 |
|
|
|
/s/J. David Officer |
|
|
J. David Officer* |
Trustee |
October 18, 2022 |
|
|
|
*By:
/s/Caroline
Pearson
Caroline Pearson**
Assistant Secretary
DBX ETF TRUST
EXHIBIT INDEX
|
Ex. Number |
Description |
|
|
|
|
(d)(1) |
Investment Advisory Agreement, dated January 31, 2011, and amended as of August 10, 2021, with a schedule dated as of August 16, 2022,
between the Trust and DBX Advisors LLC. |
|
|
|
|
(h)(6) |
Amendment, dated as of October 5, 2022, to the Third Amendment, dated as of July 28, 2022, to the Fund Administration and Accounting Agreement,
dated as of January 31, 2011, between the Registrant and The Bank of New York Mellon. |
|
|
|
|
(i)(16) |
Opinion and Consent of Counsel, Vedder Price P.C. |
EXHIBIT
LIST FOR INTERACTIVE DATA FILES
|
Ex. Number |
Description |
|
|
|
|
EX-101.INS |
XBRL Instance Document – the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within
the Inline XBRL document. |
|
|
|
|
EX-101.SCH |
XBRL Taxonomy Extension Schema Document |
|
|
|
|
EX-101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
EX-101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
EX-101.LAB |
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
EX-101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document |