A Further Discussion of
Principal Risks
Each Fund is subject to the principal risks noted below, any of which may adversely affect the Funds NAV, trading
price, yield, total return and ability to meet its investment objective. You could lose all or part of your investment in the Fund, and the Fund could underperform other investments. Risk information is applicable to all Funds unless otherwise
noted.
Risks Related to Investing in Brazil.
(db X-trackers MSCI Brazil Hedged Equity Fund only)
Investments in securities of
Brazilian companies are subject to regulatory, economic and political risks related to the significant influence that the Brazilian government exercises over its economy. The Brazilian economy has historically been characterized by frequent, and
occasionally drastic, intervention by the Brazilian government. Government efforts to check inflation and shape other aspects of the economy have involved, among others, the setting of wage and price controls, blocking access to bank accounts,
imposing exchange controls and limiting imports. There can be no assurances that similar measures will not be instituted in the future. Such measures may have significant effects on the Funds investments.
Brazil, like many other South American countries, has historically experienced high rates of inflation and may do so in the future. An increase in prices
for petroleum, the depreciation of the real and future governmental measures seeking to maintain the value of the real in relation to the U.S. dollar, may trigger increases in inflation in Brazil and may slow the rate of growth of the Brazilian
economy. Brazil also continues to suffer from a high level of debt and public spending, which may stifle economic growth, contribute to prolonged periods of recession or lower the countrys sovereign debt rating, all of which may adversely
impact the Funds investments. Investments in Brazilian securities may be subject to certain restriction on foreign investment. Brazilian law provides that whenever a serious imbalance in Brazils balance of payments exists or is
anticipated, the Brazilian government may impose temporary restrictions on the remittance to foreign investors of the proceeds of their investment in Brazil and on the conversion of Brazilian currency into foreign currency. The likelihood of such
restrictions may be affected by the extent of Brazils foreign currency reserves, the availability of sufficient foreign currency in the foreign exchange markets on the date a payment is due, the size of Brazils debt service burden
relative to the economy as a whole and political constraints to which Brazil may be subject. There can be no assurance that the Brazilian government will not impose restrictions or restrictive exchange control policies in the future.
Brazil is heavily dependent on export to the United States, China and other countries in Central and South America, especially fellow member states in
the Mercosur trade bloc. Reduction in spending on Brazilian products and services, or adverse economic events, such as inflation, high interest rates, currency devaluation, political upheaval and high unemployment rates, in any of the trading
partner states may impact the Brazilian economy. Further, many economies in Central and South America, including Brazils, are heavily dependent on commodity exports and may be particularly sensitive to fluctuations in commodity prices.
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Despite rapid development in recent years, Brazil still suffers from high levels of corruption, crime and
income disparity. There is the possibility that such conditions may lead to social unrest and political upheaval in the future, which may have adverse effects on the Funds investments.
Risks Related to Investing in Germany.
(db X-trackers MSCI Germany Hedged Equity Fund only)
The Fund is subject to risks relating to its investment in German securities. The German economy
is dependent on the other countries in Europe as key trade partners. Exports account for more than one-third of Germanys output and are a key element in German economic expansion. Reduction in spending by European countries on German products
and services or negative changes in any of these countries may cause an adverse impact on the German economy. In addition, the U.S. is a large trade and investment partner of Germany. Decreasing U.S. imports, new trade regulations, changes in the
U.S. dollar exchange rates or a recession in the United States may also have an adverse impact on the German economy.
The Economic and
Monetary Union of the European Union (the EU) requires compliance with restrictions on inflation, deficits, interest rates, public debt and fiscal and monetary controls, each of which may significantly affect each country in Europe.
Decreasing imports or exports, changes in governmental or EU regulations on trade, changes in the exchange rate of the euro, the default or threat of default by an EU country on its sovereign debt, and recessions in an EU country may have a
significant adverse effect on the economies of EU countries. The European financial markets have recently experienced volatility and adverse trends due to concerns about rising government debt levels of several European countries, including Greece,
Spain, Ireland, Italy and Portugal. These events have adversely affected the exchange rate of the euro and may continue to significantly affect other countries in Europe.
During the most recent financial crisis, the German economy, along with certain other EU economies, experienced a significant economic slowdown. Recently, new concerns emerged in relation to the economic
health of the EU. These concerns have led to tremendous downward pressure on certain financial institutions, including German financial services companies. During the recent European debt crisis, Germany played a key role in stabilizing the euro.
However, such efforts may prove unsuccessful, and any ongoing crisis may continue to significantly affect the economies of every country in Europe, including Germany.
Investing in German issuers involves political, social and regulatory risks. Certain sectors and regions of Germany have experienced high unemployment and social unrest. These issues may have an adverse
affect on the German economy or the German industries or sectors in which the Fund invests. Heavy regulation of labor and product markets is pervasive in Germany. These regulations may stifle economic growth or result in extended recessionary
periods.
Risks Related to Investing in Japan.
(db X-trackers MSCI Japan Hedged Equity Fund and db X-trackers MSCI EAFE Hedged
Equity Fund only)
The growth of Japans economy has historically lagged that of its Asian neighbors and other major developed economies. The Japanese economy is heavily dependent on international trade and has been adversely affected by
trade tariffs, other protectionist measures, competition from emerging economies and the economic conditions of its trading partners. Japans relations with its neighbors, particularly China, North Korea, South Korea and Russia, have at times
been strained due to territorial disputes, historical animosities and defense concerns. Most recently, the Japanese government has shown concern over the increased nuclear and military activity by North Korea. Strained relations may cause
uncertainty in the Japanese markets and adversely affect the overall Japanese economy in times of crisis. China has become an important trading partner with Japan, yet the countries political relationship has become strained. Should political
tension increase, it could adversely affect the economy, especially the export sector, and destabilize the region as a whole. Japan is located in a part of the world that has historically been prone to natural disasters such as earthquakes,
volcanoes and tsunamis and is economically sensitive to environmental events. Any such event, such as the major earthquake and tsunami which struck Japan in March 2011, could result in a significant adverse impact on the Japanese economy.
Historically, Japan has been subject to unpredictable national politics and may experience frequent political turnover. Future political developments may lead to changes in policy that might adversely affect the Funds investments. In addition,
the Japanese economy faces several concerns, including a financial system with large levels of nonperforming loans, over-leveraged corporate balance sheets, extensive cross-ownership by major corporations, a changing corporate governance structure,
and large government deficits. The Japanese yen has fluctuated widely at times and any increase in its value may cause a decline in exports that could weaken the economy. Furthermore, Japan has an aging workforce. It is a labor market undergoing
fundamental structural changes, as traditional lifetime employment clashes with the need for increased labor mobility, which may adversely affect Japans economic competitiveness. Japan also remains heavily dependent on oil imports, and higher
commodity prices could therefore have a negative impact on the economy. Furthermore, Japanese corporations often engage in high levels of corporate leveraging, extensive cross-purchases of the securities of other corporations and are subject to a
changing corporate governance structure.
33
Currency Risk.
Each Fund, except the db X-trackers Regulated Utilities Index Fund, enters into
forward currency contracts to attempt to minimize the impact of changes in the value of the non-U.S. currencies included in its Underlying Index against the U.S. dollar. These contracts may not be successful. In order to minimize transaction costs
or for other reasons, a Funds exposure to the currencies included in the Underlying Index may not be fully hedged at all times. For example, a Fund may not hedge against exposure to currencies that represent a relatively smaller portion of the
Underlying Index. Changes in currency exchange rates and the relative value of non-U.S. currencies may affect the value of a Funds investment and the value of your Fund shares. To the extent a Funds forward currency contracts are not
successful in hedging against such changes, the U.S. dollar value of your investment in the Fund may go down if the value of the local currency of the non-U.S. markets in which the Fund invests depreciates against the U.S. dollar. This is true even
if the local currency value of securities in a Funds holdings goes up. Conversely, the dollar value of your investment in a Fund may go up if the value of the local currency appreciates against the U.S. dollar. The value of the U.S. dollar
measured against other currencies is influenced by a variety of factors. These factors include: interest rates, national debt levels and trade deficits, changes in balances of payments and trade, domestic and foreign interest and inflation rates,
global or regional political, economic or financial events, monetary policies of governments, actual or potential government intervention, and global energy prices. Political instability, the possibility of government intervention and restrictive or
opaque business and investment policies may also reduce the value of a countrys currency. Government monetary policies and the buying or selling of currency by a countrys government may also influence exchange rates. Furthermore, because
no changes in the currency weights in each Funds Underlying Index are made during the month to account for changes in each Funds Underlying Index due to price movement of securities, corporate events, additions, deletions or any other
changes, changes in the value of the non-U.S. currencies included in a Funds Underlying Index against the U.S. dollar during the month may affect the value of the Funds investment. Currency exchange rates can be very volatile and can
change quickly and unpredictably. Therefore, the value of an investment in a Fund may also go up or down quickly and unpredictably and investors may lose money. Because a Funds NAV is determined on the basis of the U.S. dollar, investors may
lose money if the local currency depreciates against the U.S. dollar, even if the local currency value of the Funds holdings in that market increases.
Non-U.S. Securities Risks.
Investments in non-U.S. securities involve certain risks that may not be present with investments in U.S. securities. Investments in non-U.S. securities may be subject to
risk of loss due to foreign currency fluctuations or to political or economic instability. There may be less information publicly available about a non-U.S. issuer than a U.S. issuer. Non-U.S. issuers may be subject to different accounting,
auditing, financial reporting and investor protection standards than U.S. issuers. Investments in non-U.S. securities may be subject to withholding or other taxes and may be subject to additional trading, settlement, custodial, and operational
risks. With respect to certain countries, there is the possibility of government intervention and expropriation or nationalization of assets. Because legal systems differ, there is also the possibility that it will be difficult to obtain or enforce
legal judgments in certain countries. Since foreign exchanges may be open on days when a Fund does not price its shares, the value of the securities in a Funds portfolio may change on days when shareholders will not be able to purchase or sell
a Funds shares. Conversely, Fund shares may trade on days when foreign exchanges are close. Each of these factors can make investments in a Fund more volatile and potentially less liquid than other types of investments. Finally, the value of
the currency of the country in which the db X-trackers Regulated Utilities Index Fund has invested could decline relative to the value of the U.S. dollar, which may affect the value of the investment to U.S. investors. The db X-trackers Regulated
Utilities Index Fund will not enter into transactions to hedge against declines in the value of the Funds assets that are denominated in a foreign currency.
Each Fund may invest in depositary receipts, which involve similar risks to those associated with investments in foreign securities. Depositary receipts are issued by banks or trust companies, and entitle
the holder to all dividends and capital gains that are paid out on the underlying foreign shares. The issuers of certain depositary receipts are under no obligation to distribute shareholder communications to the holders of such receipts, or to pass
through to them any voting rights with respect to the deposited securities. Investments in depositary receipts may be less liquid than the underlying shares in their primary trading market and may negatively affect the Funds ability to
replicate the performance of its Index. In addition, investments in depositary receipts may lead to tracking error.
European Economic
Risk.
(db X-trackers MSCI EAFE Hedged Equity Fund, db X-trackers MSCI Germany Hedged Equity Fund and db X-trackers Regulated Utilities Index Fund only)
The Economic and Monetary Union of the European Union (the EU) requires
member countries to comply with restrictions on inflation rates, deficits, interest rates, debt levels and fiscal and monetary controls, each of which may significantly affect every country in Europe. Decreasing imports or exports, changes in
governmental or EU regulations on trade, changes in the exchange rate of the euro, the default or threat of default by an EU member country on its sovereign debt, and/or an economic recession in an EU member country may have a significant adverse
effect on the economies of EU
34
member countries and on major trading partners outside Europe. The European financial markets have recently experienced volatility and have been adversely affected by concerns about economic
downturns, credit rating downgrades, rising government debt levels and possible default on or restructuring of government debt in several European countries, including Greece, Ireland, Italy, Portugal and Spain. A default or debt restructuring by
any European country would adversely impact holders of that countrys debt, and sellers of credit default swaps linked to that countrys creditworthiness (which may be located in countries other than those listed in the previous sentence).
These events have adversely affected the value and exchange rate of the euro and may continue to significantly affect the economies of every country in Europe, including EU member countries that do not use the euro and non-EU member countries.
Responses to the financial problems by European governments, central banks and others, including austerity measures and reforms, may not
work, may result in social unrest and may limit future growth and economic recovery or have other unintended consequences. Further defaults or restructurings by governments and other entities of their debt could have additional adverse effects on
economies, financial markets and asset valuations around the world. In addition, one or more countries may abandon the euro and/or withdraw from the EU. The impact of these actions, especially if they occur in a disorderly fashion, is not clear but
could be significant and far-reaching.
Emerging Markets Risk.
(db X-trackers MSCI Emerging Markets Hedged Equity Fund and db
X-trackers MSCI Brazil Hedged Equity Fund only)
Investment in emerging markets subjects a Fund to a greater risk of loss than investments in a developed market. This is due to, among other things, (i) greater market volatility,
(ii) lower trading volume, (iii) political and economic instability, (iv) high levels of inflations, deflation or currency devaluation, (v) greater risk of market shut down, (vi) more governmental limitations on foreign
investments and limitations on repatriation of invested capital than those typically found in a developed market, and (vii) the risk that companies may be held to lower disclosure, corporate governance, auditing and financial reporting
standards than companies in more developed markets.
The financial stability of issuers (including governments) in emerging market countries
may be more precarious than in other countries. As a result, there will tend to be an increased risk of price volatility in a Funds investments in emerging market countries, which may be magnified by currency fluctuations relative to the U.S.
dollar.
Settlement practices for transactions in foreign markets may differ from those in U.S. markets. Such differences include delays
beyond periods customary in the United States and practices, such as delivery of securities prior to receipt of payment, which increase the likelihood of a failed settlement. Failed settlements can result in losses to a Fund. Low trading
volumes and volatile prices in less developed markets make trades harder to complete and settle, and governments or trade groups may compel local agents to hold securities in designated depositories that are not subject to independent evaluation.
Local agents are held only to the standards of care of their local markets.
Forward Currency Contracts Risk.
Each Fund, except the db
X-trackers Regulated Utilities Index Fund, invests in forward currency contracts. A forward currency contract is a negotiated agreement between two parties to exchange specified amounts of two or more currencies at a specified future time at a
specified rate. The rate specified by the forward contract can be higher or lower than the spot rate between the currencies that are the subject of the contract. Settlement of a forward currency contract for the purchase of most currencies typically
must occur at a bank based in the issuing nation. By entering into a forward currency contract for the purchase or sale, for a fixed amount of dollars or other currency, of the amount of foreign currency involved in the underlying security
transactions, the Fund may be able to protect itself against a possible loss resulting from an adverse change in the relationship between the U.S. dollar or other currency which is being used for the security purchase and the foreign currency in
which the security is denominated during the period between the date on which the security is purchased or sold and the date on which payment is made or received. Furthermore, such transactions reduce or preclude the opportunity for gain if the
value of the currency should move in the direction opposite to the position taken. There is an additional risk to the effect that currency contracts create exposure to currencies in which the Funds securities are not denominated. Unanticipated
changes in currency prices may result in poorer overall performance for the Fund than if it had not entered into such contracts. Forward currency contracts may limit gains on portfolio securities that could otherwise be realized had they not been
utilized and could result in losses. The contracts also may increase the Funds volatility and may involve a significant amount of risk relative to the investment of cash.
Equity Securities Risk.
Each Fund invests in equity securities, which are subject to volatile changes in value that may be attributable to market perception of a particular issuer or to general
stock market fluctuations that affect all issuers. Investments in equity securities may be more volatile than investments in other asset classes.
35
Market Risk.
An investment in a Fund involves risks similar to those of investing in any fund of
equity securities, such as market fluctuations caused by such factors as economic and political developments, changes in interest rates and perceived trends in stock prices. The values of equity securities could decline generally or could
underperform other investments. Different types of equity securities tend to go through cycles of outperformance and under-performance in comparison to the general securities markets. In addition, securities may decline in value due to factors
affecting a specific issuer, market or securities markets generally.
Passive Investment Risk.
Each Fund is not actively managed and
may be affected by a general decline in market segments relating to its Underlying Index. Each Fund invests in securities and other instruments included in, or representative of, its respective Underlying Index regardless of their investment merits.
As a result, a Fund may hold constituent securities of its respective Underlying Index regardless of the current or projected performance of a specific security or a particular industry or market sector. Maintaining investments in securities
regardless of market conditions or the performance of individual securities could cause the Funds return to be lower than if the Fund employed an active strategy.
Tracking Error Risk.
Each Funds return may not match the return of its Underlying Index for a number of reasons. For example, a Fund incurs a number of operating expenses not applicable to
its Underlying Index and incurs costs associated with buying and selling securities, especially when rebalancing the Funds securities holdings to reflect changes in the composition of its Underlying Index and raising cash to meet redemptions
or deploying cash in connection with newly created Creation Units. Imperfect correlation between a Funds portfolio securities and those in its Underlying Index, rounding of prices, changes to the Underlying Index and regulatory requirements
may cause tracking error, the divergence of the Funds performance from that of its Underlying Index. This risk may be heightened during times of increased market volatility or other unusual market conditions. Tracking error also may result
because the Fund incurs fees and expenses while its Underlying Index does not. In addition, a Fund may not be able to invest in certain securities and other instruments included in its Underlying Index, or invest in them in the exact proportions
they represent of its Underlying Index, due to legal restrictions or limitations imposed by the governments of certain countries or a lack of liquidity on stock exchanges in which such securities trade. Moreover, a Fund may be delayed in purchasing
or selling securities and other instruments included in its Underlying Index. Any issues a Fund encounters with regard to currency convertibility (including the cost of borrowing funds, if any) and repatriation may also increase the index tracking
risk.
Cash Redemption Risk.
Because each Fund, except the db X-trackers Regulated Utilities Index Fund, invests a portion of its
assets in foreign currency forward contracts, such Fund may pay out a portion of its redemption proceeds in cash rather than through the in-kind delivery of portfolio securities. Each Fund may be required to unwind such contracts or sell portfolio
securities in order to obtain the cash needed to distribute redemption proceeds. This may cause a Fund to recognize a capital gain that it might not have incurred if it had made a redemption in-kind. As a result a Fund may pay out higher annual
capital gains distributions than if the in-kind redemption process was used.
Valuation Risk.
Because non-U.S. exchanges may be open on
days when a Fund does not price its shares, the value of the securities in the Funds portfolio may change on days when shareholders will not be able to purchase or sell the Funds shares.
Non-Diversification Risk.
Each Fund is non-diversified. and may invest a larger percentage of its assets in securities of a few
issuers or a single issuer than that of a diversified fund. As a result, the Fund may be more susceptible to the risks associated with these particular issuers, or to a single economic, political or regulatory occurrence affecting these issuers.
This may increase the Funds volatility and cause the performance of a relatively smaller number of issuers to have a greater impact on the Funds performance.
Concentration Risk.
To the extent that a Funds Underlying Index concentrates in the securities of a particular industry or group of industries, the Fund will concentrate its investments to
approximately the same extent as its Underlying Index. A Fund that concentrates, or otherwise invests a large portion of its assets in a single industry or group of industries, may be more susceptible to any single economic, market, political or
regulatory occurrence affecting that industry or group of industries. In such case, the Fund may be more volatile than funds based on broader or less volatile market segments.
Geographic Investment Risk.
To the extent that a Funds Underlying Index invests a significant portion of its assets in the securities of a single country or region, it is more likely to be
impacted by events or conditions affecting that country or region. For example, political and economic conditions and changes in regulatory, tax, or economic policy in a country could significantly affect the market in that country and in
surrounding or related countries and have a negative impact on the Funds performance.
36
Dividends and Distributions
General Policies.
Dividends from net investment income, if any, are generally declared and paid semi-annually by a Fund. Distributions of net
realized securities gains, if any, generally are declared and paid once a year, but the Trust may make distributions on a more frequent basis for the Funds. The Trust reserves the right to declare special distributions if, in its reasonable
discretion, such action is necessary or advisable to preserve its status as a regulated investment company (RIC) or to avoid imposition of income or excise taxes on undistributed income or realized gains.
Dividends and other distributions on shares of the Funds 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 then of record 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 a Fund for reinvestment of their dividend
distributions. Beneficial owners should contact their broker to determine the availability and costs of the service and the details of participation therein. Brokers may require beneficial owners to adhere to specific procedures and timetables. If
this service is available and used, dividend distributions of both income and realized gains will be automatically reinvested in additional whole shares of the Funds purchased in the secondary market.
42
Taxes.
As with any investment, you should consider how your investment in shares of a Fund will be
taxed. The tax information in this Prospectus is provided as general information. You should consult your own tax professional about the tax consequences of an investment in shares of the Fund.
Unless your investment in Fund shares is made through a tax-exempt entity or tax-deferred retirement account, such as an IRA, you need to be aware of the
possible tax consequences when a Fund makes distributions or you sell Fund shares.
Taxes on Distributions.
Distributions from a
Funds net investment income (other than qualified dividend income), including distributions of income from securities lending and distributions out of the Funds net short-term capital gains, if any, are taxable to you as ordinary income.
Distributions by a Fund of net long-term capital gains in excess of net short-term capital losses (capital gain dividends) are taxable to you as long-term capital gains, currently generally at a 15% tax rate (0% at certain income levels), regardless
of how long you have held such Funds shares. Distributions by a Fund that qualify as qualified dividend income are taxable to you at long-term capital gain rates. The 15% and 0% tax rates are scheduled to expire for taxable years beginning
after December 31, 2012, unless extended further by Congress.
Dividends are eligible to be qualified dividend income to you, if you meet
certain holding period requirements discussed below, if they are attributable to qualified dividend income received by a Fund. Generally, qualified dividend income includes dividend income from taxable U.S. corporations and qualified non-U.S.
corporations, provided that a Fund satisfies certain holding period requirements in respect of the stock of such corporations and has not hedged its position in the stock in certain ways. For this purpose, a qualified non-U.S. corporation means any
non-U.S. corporation that is eligible for benefits under a comprehensive income tax treaty with the United States which includes an exchange of information program or if the stock with respect to which the dividend was paid is readily tradable on an
established United States security market. The term excludes a corporation that is a passive foreign investment company.
Dividends received
by a Fund from a real estate investment trust (REIT) or another RIC generally are qualified dividend income only to the extent the dividend distributions are made out of qualified dividend income received by such REIT or RIC. It is
expected that dividends received by a Fund from a REIT and distributed to a shareholder generally will be taxable to the shareholder as ordinary income.
Under current law, the taxation of qualified dividend income at long-term capital gain rates will no longer apply for taxable years beginning after December 31, 2012, unless extended further by
Congress.
For a dividend to be treated as qualified dividend income, the dividend must be received with respect to a share of stock held
without being hedged by a Fund, and to a share of the Fund held without being hedged by you, for 61 days during the 121-day period beginning at the date which is 60 days before the date on which such share becomes ex-dividend with respect to such
dividend or in the case of certain preferred stock 91 days during the 181-day period beginning 90 days before such date.
In general, your
distributions are subject to U.S. federal income tax for the year when they are paid. Certain distributions paid in January, however, may be treated as paid on December 31 of the prior year.
If a Funds distributions exceed current and accumulated earnings and profits, all or a portion of the distributions made in the taxable year may be
recharacterized as a return of capital to shareholders. A return of capital distribution generally will not be taxable but will reduce the shareholders cost basis and result in a higher capital gain or lower capital loss when those shares on
which the distribution was received are sold.
If you are neither a resident nor a citizen of the United States or if you are a non-U.S.
entity, a Funds ordinary income dividends (which include distributions of net short- term capital gains) will generally be subject to a 30% U.S. withholding tax, unless a lower treaty rate applies, provided that withholding tax will generally
not apply to any gain or income realized by a non-U.S. shareholder in respect of any distributions of long-term capital gains or upon the sale or other disposition of shares of a Fund.
Dividends and interest received by a Fund with respect to non-U.S. securities may give rise to withholding and other taxes imposed by non-U.S. countries. Tax conventions between certain countries and the
United States may reduce or eliminate such taxes. If, as is expected, more than 50% of the total assets of a Fund at the close of a year consist of non-U.S. stocks or securities, the Fund may pass through to you certain non-U.S. income
taxes (including withholding taxes) paid by the Fund. This means that you would be considered to have received as an additional dividend your share of such non-U.S. taxes, but you may, in such case, be entitled to either a corresponding tax
deduction in calculating your taxable income, or, subject to certain limitations, a credit in calculating your U.S. federal income tax.
43
With respect to Brazil, a 6% Imposto sobre Operacões Financeiras (IOF) tax, with the rate subject to
change, applies to certain foreign exchange inflows into Brazil with respect to fixed income trades, and a 2% IOF tax, with rates subject to change, applies to certain foreign exchange inflows into Brazil with respect to equity trades. Also, a 1.5%
IOF tax applies to the creation of new American or Global Depositary Receipt issuances with respect to Brazilian equities and a 0.38% IOF tax applies to the cancellation of American or Global Depositary Receipts if the underlying equities are then
issued in the Brazil (local) markets. If incurred by the Fund, an IOF tax would not be creditable against U.S. income tax liability.
If you
are a resident or a citizen of the United States, by law, back-up withholding will apply to your distributions and proceeds if you have not provided a taxpayer identification number or social security number and made other required certifications.
Taxes When Shares are Sold.
Currently, any capital gain or loss realized upon a sale of Fund shares is generally treated as a
long-term gain or loss if the shares have been held for more than one year. Any capital gain or loss realized upon a sale of Fund shares held for one year or less is generally treated as short-term gain or loss, except that any capital loss on the
sale of shares held for six months or less is treated as long-term capital loss to the extent that capital gain dividends were paid with respect to such shares.
The foregoing discussion summarizes some of the consequences under current U.S. federal tax law of an investment in the Funds. It is not a substitute for personal tax advice. You may also be subject to
state and local taxation on Fund distributions and sales of shares. Consult your personal tax adviser about the potential tax consequences of an investment in shares of the Fund under all applicable tax laws.
Creations and Redemptions.
Prior to trading in the secondary market, shares of the Funds are created at NAV by market makers, large
investors and institutions only in block-size Creation Units of 200,000 shares, except for the db X-trackers Regulated Utilities Index Fund which Creation Units are comprised of 50,000 shares, or multiples thereof. Each creator or
Authorized Participant enters into an authorized participant agreement with the Funds distributor, ALPS Distributors, Inc. (the Distributor). Only an Authorized Participant may create or redeem Creation Units directly
with the Funds. Creation Units generally are issued and redeemed in exchange for a specific basket of securities approximating the holdings of a Fund and a designated amount of cash. Because each Fund invests a portion of its assets in foreign
currency forward contracts, each Fund may pay out a portion of its redemption proceeds in cash rather than through the in-kind delivery of portfolio securities.
Except when aggregated in Creation Units, shares are not redeemable by the Fund.
The prices at which creations and redemptions occur are based on the next calculation of NAV after an order is received in a form described in the authorized participant agreement.
Creations and redemptions must be made by an Authorized Participant that is either a member of the Continuous Net Settlement System of the National Securities Clearing Corporation or a DTC participant,
and in each case, must have executed an agreement with the Distributor with respect to creations and redemptions of Creation Unit aggregations. Information about the procedures regarding creation and redemption of Creation Units (including the
cut-off times for receipt of creation and redemption orders) is included in the SAI.
Each Fund intends to comply with the U.S. 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 (the 1933 Act). Further, an Authorized Participant that is not a qualified institutional buyer, as such term is defined under Rule 144A of 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 a Fund a distribution, as such term is used in the 1933 Act, may be occurring.
Broker-dealers and other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner that could render them statutory underwriters and subject
to the prospectus delivery and liability provisions of the 1933 Act. Any determination of whether one is an underwriter must take into account all the relevant facts and circumstances of each particular case.
Broker-dealers should also note that dealers who are not underwriters but are participating in a distribution (as contrasted to ordinary
secondary transactions), and thus dealing with shares that are part of an unsold allotment within the meaning of Section
44
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.
Transaction Fees.
Authorized Participants 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 the maximum amount shown below) to compensate for brokerage and market impact expenses. The standard and maximum creation
transaction fees for each of the Funds are $7,300 for db X-trackers MSCI Emerging Markets Hedged Equity Fund, $5,000 for db X-trackers MSCI EAFE Hedged Equity Fund, $1,500 for db X-trackers MSCI Brazil Hedged Equity Fund, $[850] for db X-trackers
MSCI Germany Hedged Equity Fund, $2,500 for db X-trackers MSCI Japan Hedged Equity Fund, respectively and $[ ] for db X-trackers Regulated Utilities Index Fund, respectively.
Householding.
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.
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 Funds.
The Distributor has no role in determining the policies of the Funds or the securities that are purchased or sold by the Funds. The Distributors principal address is 1290 Broadway, Suite 1100, Denver, Colorado 80203.
The Adviser or its affiliates may make payments to broker-dealers or other financial intermediaries (together, intermediaries) related to
marketing activities and presentations, educational training programs, the support of technology platforms and/or reporting systems or other services relating to the Funds and certain other funds advised by the Adviser or its affiliates. Such
payments, which may be significant to the intermediary, are not made by a Fund. Rather, such payments are made by the Adviser or its affiliates from their own resources, which come directly or indirectly in part from fees paid by the Funds and
certain other funds advised by the Adviser or its affiliates. Payments of this type are sometimes referred to as revenue sharing payments. A financial intermediary may make decisions about which investment options it recommends or makes available,
or the level of services provided, to its customers based on the revenue sharing payments it is eligible to receive. Therefore, such payments to an intermediary create conflicts of interest between the intermediary and its customers and may cause
the intermediary to recommend a Fund or other funds advised by the Adviser or its affiliates. More information regarding these payments is contained in the Funds SAI.
Fund Service Providers
The Bank of New York Mellon, One Wall
Street, New York, New York 10286 (BNY), is the administrator, custodian and fund accounting and transfer agent for each Fund.
Dechert LLP, 1095 Avenue of the Americas, New York, New York 10036, serves as legal counsel to the Funds.
[ ] serves as each Funds
independent registered public accounting firm. The independent registered public accounting firm is responsible for auditing the annual financial statements of the Funds.
Index Providers
MSCI, Inc. (MSCI) is a leading
provider of global indexes and benchmark related products and services to investors worldwide. MSCI is not affiliated with the Trust, the Adviser, the Sub-Adviser, BNY, the Distributor or any of their respective affiliates.
The Adviser has entered into a license agreement with each Index Provider to use each Underlying Index. The Adviser sublicenses rights in each Underlying
Index to the Trust at no charge.
45
Disclaimers
The Funds are not sponsored, endorsed, sold or promoted by MSCI or any affiliate of MSCI. Neither MSCI nor any other party makes any representation or warranty, express or implied, to the owners of the
Funds or any member of the public regarding advisability of investing in funds generally or in this Fund particularly or the ability of each Underlying Index to track general stock market performance. MSCI is the licensor of certain trademarks,
service marks and trade names of MSCI and of the Underlying Indexes which are determined, composed and calculated by MSCI without regard to the Trust, the Adviser or the Fund. MSCI has no obligation to take the needs of the Adviser or the owners of
the Funds into consideration in determining, composing or calculating the Underlying Indexes. MSCI is not responsible for and has not participated in the determination of the timing of, prices at, or quantities of the Funds to be issued or in the
determination or calculation of the equation by which the Funds are redeemable for cash. Neither MSCI nor any other party has any obligation or liability to owners of the Funds in connection with the administration, marketing or trading of the
Funds.
Although MSCI shall obtain information for inclusion in or for use in the calculation of the indexes from sources which MSCI considers
reliable, neither MSCI nor any other party guarantees the accuracy and/or the completeness of the indexes or any data included therein. Neither MSCI nor any other party makes any warranty, express or implied, as to results to be obtained by
licensee, licensees customers and counterparties, owners of the Funds, or any other person or entity from the use of the indexes or any data included hereunder or for any other use. Neither MSCI nor any other party makes any express or implied
warranties, and MSCI hereby expressly disclaims all warranties of merchantability or fitness for a particular purpose with respect to the indexes or any data included therein. Without limiting any of the foregoing, in no event shall MSCI or any
other party have any liability for direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
Shares of the Funds are not sponsored, endorsed or promoted by NYSE Arca. NYSE Arca makes no representation or warranty, express or implied, to the owners of the shares of the Fund or any member of the
public regarding the ability of the Funds to track the total return performance of their Underlying Index or the ability of the Underlying Indexes to track stock market performance. NYSE Arca is not responsible for, nor has it participated in, the
determination of the compilation or the calculation of the Underlying Index, nor in the determination of the timing of, prices of, or quantities of shares of the Funds to be issued, nor in the determination or calculation of the equation by which
the shares are redeemable. NYSE Arca has no obligation or liability to owners of the shares of the Funds in connection with the administration, marketing or trading of the shares of the Funds.
NYSE Arca does not guarantee the accuracy and/or the completeness of the Underlying Indexes or any data included therein. NYSE Arca makes no warranty,
express or implied, as to results to be obtained by the Trust on behalf of the Funds as licensee, licensees customers and counterparties, owners of the shares of the Funds, or any other person or entity from the use of the subject index or any
data included therein in connection with the rights licensed as described herein or for any other use. NYSE Arca makes no express or implied warranties and hereby expressly disclaims all warranties of merchantability or fitness for a particular
purpose with respect to the Underlying Indexes or any data included therein. Without limiting any of the foregoing, in no event shall NYSE Arca have any liability for any direct, indirect, special, punitive, consequential or any other damages
(including lost profits) even if notified of the possibility of such damages.
The Adviser does not guarantee the accuracy or the completeness
of the Underlying Indexes or any data included therein and the Adviser shall have no liability for any errors, omissions or interruptions therein.
The Adviser makes no warranty, express or implied, to the owners of shares of the Funds or to any other person or entity, as to results to be obtained by the Funds from the use of the Underlying Indexes
or any data included therein. The Adviser makes no express or implied warranties and expressly disclaims all warranties of merchantability or fitness for a particular purpose or use with respect to the Underlying Indexes or any data included
therein. Without limiting any of the foregoing, in no event shall the Adviser have any liability for any special, punitive, direct, indirect or consequential damages (including lost profits), even if notified of the possibility of such damages.
Premium/Discount Information
Information regarding how often shares of each Fund traded on NYSE Arca at a price above (i.e., at a premium) or below (i.e., at a discount) the NAV of the Fund during the past calendar year, when
available, can be found at www.dbxetf.com.
46
Statement of Additional Information
Dated [ ], 2013
This combined Statement of Additional Information (SAI) is not a prospectus. It should be read in conjunction with the current prospectus
(the Prospectus) for the following funds (each a Fund and collectively the Funds) of DBX ETF Trust (the Trust), as such Prospectus may be revised or supplemented from time to time:
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Funds
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Ticker
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Stock Exchange
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db X-trackers MSCI Emerging Markets Hedged Equity Fund
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DBEM
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NYSE Arca, Inc.
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db X-trackers MSCI EAFE Hedged Equity Fund
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DBEF
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NYSE Arca, Inc.
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db X-trackers MSCI Brazil Hedged Equity Fund
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DBBR
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NYSE Arca, Inc.
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db X-trackers MSCI Germany Hedged Equity Fund
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DBGR
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NYSE Arca, Inc.
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db X-trackers MSCI Japan Hedged Equity Fund
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DBJP
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NYSE Arca, Inc.
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db X-trackers Regulated Utilities Index Fund
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[ ]
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NYSC Arca, Inc.
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The Prospectus for the Funds included in this SAI is dated [ ], 2013. Capitalized terms used herein that are not defined
have the same meaning as in the Prospectus, unless otherwise noted. A copy of the Prospectus may be obtained without charge by writing to the Trusts distributor, ALPS Distributors, Inc. (the Distributor), at 1290 Broadway, Suite
1100, Denver, Colorado 80203, calling 1-855-329-3837 (1-800-DBX-ETFS) or visiting www.dbxetf.com.
TABLE OF CONTENTS
i
General Description of the Trust and its Funds
The Trust currently consists of six investment series or portfolios. The 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 Securities and Exchange Commission (the SEC) under the Investment Company Act of 1940, as amended (the
1940 Act). The offering of each Funds shares (the Shares) is registered under the Securities Act of 1933, as amended (the 1933 Act).
The investment objective of each Fund is to provide investment results that correspond generally to the performance, before fees and expenses, of a specified benchmark index (each, an Underlying
Index). Each Fund, except the db X-trackers Regulated Utilities Index Fund, is managed by DBX Advisors LLC (the Adviser) and is sub-advised by TDAM USA Inc. (TDAM). The db X-trackers Regulated Utilities Index Fund is managed
by the Adviser and is sub-advised by RREEF America L.L.C. (RREEF). Each of TDAM and RREEF is also referred to as a Sub-Adviser.
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 deposit of a specified cash payment (the Cash Component). Shares of the Funds are expected to be listed
and trade on NYSE Arca, Inc. (the Exchange). Shares trade in the secondary market at market prices that may be at, above or below NAV. Shares are redeemable only in Creation Units, and, partially for cash and partially in-kind for
securities and other instruments generally included in a Funds Underlying Index. A Creation Unit consists of 200,000 Shares thereof, except for the db X-trackers Regulated Utilities Index Fund in which Creation Units consists of 50,000 Shares.
The Trust reserves the right to offer a cash option for creations and redemptions of Shares. Shares may be issued in advance of
receipt of Deposit Securities subject to various conditions, including a requirement to maintain with the Trust a cash deposit, equal to at least 115%, which the Adviser may change from time to time, of the market value of the omitted Deposit
Securities. See the Creation and Redemption of Creation Units section of this SAI. Transaction fees for cash creations and redemptions may be higher than the transaction fees associated with in-kind creations and redemptions.
Exchange Listing and Trading
A discussion of exchange listing and trading matters associated with an investment in each Fund is contained in the Shareholder Information section of the Funds Prospectus. The discussion below
supplements, and should be read in conjunction with, that section of the Prospectus.
Shares of each Fund will be 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 indicative optimized portfolio value (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.
As in the case of other publicly-traded securities, when you buy or sell Shares through a broker you will incur a brokerage commission determined by that
broker.
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 Funds IOPV disseminated during the Exchange trading hours should not be viewed as a real-time update of the
Funds NAV, which is calculated only once a day.
1
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 U.S. 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.
Investment Strategies and Risks
Each Fund is managed to track the performance of its Underlying Index. Each Fund, except the db
X-trackers Regulated Utilities Index Fund, will normally invest at least 80% of its net assets, plus the amount of any borrowings for investment purposes, in equity securities of issuers located in the markets and sectors specified in the applicable
Funds name and in instruments designed to hedge the Funds exposure to non-U.S. currencies. In addition, each Fund will invest at least 80% of its total assets in instruments that comprise its respective Underlying Index. Each Fund may
also invest in depositary receipts in respect of equity securities that comprise the applicable Underlying Index to seek performance that corresponds to the Funds respective Underlying Index. Investments in such depositary receipts will count
towards each Funds 80% investment policy discussed above with respect to instruments that comprise the Underlying Index. Each Fund operates as an index fund and will not be actively managed. Adverse performance of a security in each
Funds portfolio may not result in the elimination of the security from a Funds portfolio.
Each Fund, except the db X-trackers
Regulated Utilities Index Fund, engages in representative sampling, which is investing in a sample of securities selected by the Adviser and/or Sub-Adviser to have a collective investment profile similar to that of the Underlying Index. Securities
selected have aggregate investment characteristics (based on market capitalization and industry weightings), fundamental characteristics (such as return variability, earnings valuation and yield) and liquidity measures similar to those of the
Underlying Index. Funds that use representative sampling generally do not hold all of the securities that are in the relevant Underlying Index.
Diversification Status.
Each Fund is classified as non-diversified. 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 funds investment portfolio. This may adversely affect the funds performance or subject the funds Shares to greater price volatility than that experienced by more diversified investment companies.
Each Fund intends to maintain the required level of diversification and otherwise conduct its operations so as to qualify as a regulated investment
company (RIC) for purposes of the U.S. Internal Revenue Code of 1986, as amended (the Code), and to relieve the Fund of any liability for U.S. federal income tax to the extent that its earnings are distributed to
shareholders, provided that the Fund satisfies a minimum distribution requirement. Compliance with the diversification requirements of the Code may limit the investment flexibility of the Funds and may make it less likely that such Funds will meet
their investment objective.
Repurchase Agreements.
Each Fund may enter into 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 purchasers
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 sellers 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 U.S. government or its agencies or instrumentalities, obligations rated in the highest category by at least two nationally recognized statistical rating organizations (NRSRO),
or, if unrated, determined to be of comparable quality by the Adviser and/or Sub-Adviser. 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. Irrespective of the type of collateral underlying the repurchase agreement, a repurchase obligation with a particular
counterparty must satisfy the credit quality standards applicable to the acquisition of an instrument issued by such counterparty in compliance with Rule 2a-7 under the 1940 Act.
2
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 because of the inherent legal uncertainties involved in repurchase agreements, 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 counterpartys 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.
Reverse Repurchase
Agreements.
Each Fund may enter into reverse repurchase agreements, which involve the sale of securities with an agreement to repurchase the securities at an agreed-upon price, date and interest payment and have the characteristics of borrowing.
Generally the effect of such transactions is that the Fund can recover all or most of the cash invested in the portfolio securities involved during the term of the reverse repurchase agreement, while in many cases the Fund is able to keep some of
the interest income associated with those securities. Such transactions are advantageous only if the Fund has an opportunity to earn a rate of interest on the cash derived from these transactions that is greater than the interest cost of obtaining
the same amount of cash. Opportunities to realize earnings from the use of the proceeds equal to or greater than the interest required to be paid may not always be available and each Fund intends to use the reverse repurchase technique only when the
Adviser and/or Sub-Adviser believe it will be advantageous to the Fund. The use of reverse repurchase agreements may exaggerate any interim increase or decrease in the value of each Funds assets. The Funds exposure to reverse repurchase
agreements will be covered by assets having a value equal to or greater than such commitments. Each Fund maintains liquid assets in connection with reverse repurchase agreements. Under the 1940 Act, reverse repurchase agreements are considered
borrowings.
Currency Transactions.
Each Fund, except the db X-trackers Regulated Utilities Index Fund, may enter into forward currency
contracts designed to offset a Funds exposure to non-U.S. currencies. In addition, the Funds, including the db X-trackers Regulated Utilities Index Fund, may enter into foreign currency forward and foreign currency futures contracts to
facilitate local securities settlements or to protect against currency exposure in connection with distributions to Shareholders. The db X-trackers MSCI Emerging Markets Hedged Equity Fund and db X-trackers MSCI EAFE Hedged Equity Fund invest in
forward foreign currency exchange contracts to hedge against changes in the value of the U.S. dollar against specified non-U.S. currencies. Similarly, the db X-trackers MSCI Brazil Hedged Equity Fund, db X-trackers MSCI Germany Hedged Equity Fund
and db X-trackers MSCI Japan Hedged Equity Fund each invest in forward foreign currency exchange contracts to hedge against changes in the value of the U.S. dollar against the Brazilian real, Euro and the Japanese yen, respectively.
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 is a forward contract where there is no physical settlement of two currencies at maturity. Non-deliverable forward contracts are contracts between parties in which one
party agrees to make a payment to the other party (the Counterparty) based on the change in market value or level of a specified currency. In return, the Counterparty agrees to make payment to the first party based on the return of a
different specified currency. Non-deliverable forward contracts will usually be done on a net basis, with a Fund receiving or paying only the net amount of the two payments. The net amount of the excess, if any, of each Funds obligations over
its entitlements with respect to each non-deliverable forward contract is accrued on a daily basis and an amount of cash or highly liquid securities having an aggregate value at least equal to the accrued excess is maintained in an account at the
Trusts custodian bank. The risk of loss with respect to non-deliverable forward contracts 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.
3
Short-Term Instruments and Temporary Investments
. Each Fund may invest in
short-term instruments, including money market instruments, on an ongoing basis to provide liquidity or for other reasons. 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 Adviser and/or Sub-Adviser); (ii) obligations issued or guaranteed by the U.S. government, its agencies or instrumentalities (including government-sponsored enterprises); (iii) negotiable
certificates of deposit (CDs), bankers acceptances, fixed-time deposits and other obligations of U.S. and non-U.S. banks (including non-U.S. branches) and similar institutions; (iv) commercial paper rated, at the date of
purchase, Prime-1 by Moodys
®
Investors Service, Inc. or A-1 by Standard &
Poors
®
Rating Service, a division of The McGraw-Hill Companies, Inc. (S&P
®
), or if unrated, of comparable quality as determined by the Adviser and/or Sub-Adviser;
(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 rating requirements set forth in Rule 2a-7 under the 1940 Act;
(vi) repurchase agreements; and (vii) short-term U.S. dollar-denominated obligations of non-U.S. banks (including U.S. branches) that, in the opinion of the Adviser and/or Sub-Adviser, are of comparable quality to obligations of U.S. 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.
Non-U.S. Securities.
Each Fund intends to purchase publicly-traded common stocks of non-U.S. issuers. To the extent a Fund invests in stocks of
non-U.S. issuers, certain of the Funds 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-U.S. issuer. For ADRs, the depository is typically a
U.S. financial institution and the underlying securities are issued by a non-U.S. issuer. For other forms of Depositary Receipts, the depository may be a non-U.S. or a U.S. entity, and the underlying securities may be issued by a non-U.S. or a U.S.
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 U.S. 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.
The Fund will
not invest in any unlisted Depositary Receipt or any Depositary Receipt that the Adviser and/or Sub-Adviser deem illiquid at the time of purchase or for which pricing information is not readily available. 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-U.S. issuers involves special risks and considerations not typically associated with investing in U.S. 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 U.S.
investments in non-U.S. countries, and potential restrictions on the flow of international capital. Non-U.S. issuers may be subject to less governmental regulation than U.S. issuers. Moreover, individual non-U.S. economies may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of payment positions.
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 Funds 15% 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.
Securities of Investment Companies.
Each Fund may invest in the securities of other investment companies (including money market funds) and real estate investment trusts (REITs) to the
extent allowed by law. Pursuant to the 1940 Act, a Funds 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
Funds total assets with respect to any one investment company and (iii) 10% of the Funds total assets with respect to investment companies in the aggregate. To the extent allowed by law or regulation, each Fund may invest its assets
in the
4
securities of investment companies that are money market funds, including those advised by the Adviser and/or Sub-Adviser or otherwise affiliated with the Adviser and/or Sub-Adviser, in excess of
the limits discussed above. Other investment companies in which a Fund invests can be expected to incur fees and expenses for operations, such as investment advisory and administration fees, that would be in addition to those incurred by the Fund.
Illiquid Securities.
Each Fund may invest up to an aggregate amount of 15% of its net assets in illiquid securities (calculated at the
time of investment). Illiquid securities include securities subject to contractual or other restrictions on resale and other instruments that lack readily available markets.
Futures and Options.
Each Fund may enter into futures contracts and options. These futures contracts and options will be used to simulate investment in the respective Underlying Index, to
facilitate trading or to reduce transaction costs. Each Fund will enter into futures contracts and options that are traded on a U.S. or non-U.S. exchange. No Fund will use futures or options for speculative purposes. Each Fund intends to use futures
and options in accordance with Rule 4.5 of the Commodity Exchange Act ( CEA ). The Trust, on behalf of each Fund, has claimed an exclusion from the definition of the term commodity pool operator in accordance with Rule 4.5 so
that each Fund is not subject to registration or regulation as a commodity pool operator under the CEA.
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
Adviser and/or Sub-Adviser anticipate purchasing the underlying securities and believe prices will rise before the purchase will be made. To the extent required by law, liquid assets committed to futures contracts will be maintained.
A call option gives a holder the right to purchase a specific security at a specified price (exercise price) within a specified period of
time. A put option gives a holder the right to sell a specific security at a specified exercise price within a specified period of time. The initial purchaser of a call option pays the writer a premium, which is paid at the time of
purchase and is retained by the writer whether or not such option is exercised. Each Fund may purchase put options to hedge its portfolio against the risk of a decline in the market value of securities held and may purchase call options to hedge
against an increase in the price of securities it is committed to purchase. Each Fund may write put and call options along with a long position in options to increase its ability to hedge against a change in the market value of the securities it
holds or is committed to purchase. Investments in futures contracts and other investments that contain leverage may require each Fund to maintain liquid assets. Generally, each Fund maintains an amount of liquid assets equal to its obligations
relative to the position involved, adjusted daily on a marked-to-market basis. With respect to futures contracts that are contractually required to cash-settle, each Fund maintains liquid assets in an amount at least equal to each
Funds daily marked-to-market obligation (i.e., each Funds daily net liability, if any), rather than the contracts notional value (i.e., the value of the underlying asset). By maintaining assets equal to its net obligation under
cash-settled futures contracts, the Fund may employ leverage to a greater extent than if each Fund set aside assets equal to the futures contracts full notional value. Each Fund bases its asset maintenance policies on methods permitted by the
staff of the SEC and may modify these policies in the future to comply with any changes in the guidance articulated from time to time by the SEC or its staff.
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 writers 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
5
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 a
Funds existing position in the contract.
Restrictions on the Use of Futures Contracts and Options on Futures Contracts.
Pursuant
to a claim for exemption filed with the Commodity Futures Trading Commission (CFTC) on behalf of each Fund, neither a Fund nor the Trust is deemed to be a commodity pool or commodity pool operator
(CPO), respectively, under the Commodity Exchange Act (CEA), and they are not subject to registration or regulation as such under the CEA. The Investment Adviser is not deemed to be a commodity trading advisor
with respect to its services as an investment adviser to each Fund. In February 2012, the CFTC adopted certain regulatory changes that may subject the Investment Adviser to register with the CFTC as a commodity pool operator (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, each Fund must meet one of the following tests under the amended regulations in order to claim an exemption from being considered a commodity pool or CPO. First, the aggregate
initial margin and premiums required to establish a Funds positions in such investments may not exceed five percent (5%) of the liquidation value of the Funds 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 Funds
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 Investment Adviser 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 would increase operational expenses. Other potentially adverse regulatory initiatives could also develop. A related CFTC proposal to harmonize
applicable CFTC and SEC regulations could, if adopted, mitigate certain disclosure and operational burdens if CPO registration were required.
Swap Agreements.
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 Funds 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.
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.
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 companys common stock.
Future Developments.
The Board may, in the future, authorize each Fund to invest in securities and investments other than those listed in this SAI
and in the Funds Prospectus, provided they are consistent with each Funds investment objective and do not violate any investment restrictions or policies.
General Considerations and Risks
A discussion of some of the
risks associated with an investment in a Fund is contained in the applicable Prospectus.
An investment in a Fund should be made with an
understanding that the value of a Funds portfolio securities may fluctuate in accordance with changes in the financial condition of the issuers of the portfolio securities, the value of stocks in general and other factors that affect the
market.
6
Risks of 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. There can be no assurance that a market will be made or maintained or that any such
market will be or remain liquid. The price at which securities may be sold and the value of a Funds Shares will be adversely affected if trading markets for a Funds portfolio securities are limited or absent, or if bid/ask spreads are
wide.
Risks of 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 the Funds losses may be greater if it invests in derivatives than if it invests only in conventional securities.
Risks of Futures and Options Transactions.
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. 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, a Fund may be required to deliver the instruments underlying the future 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 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. The Fund, however, intend to 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.
Utilization of futures and options on futures by a Fund 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 Adviser and/or Sub-Adviser as to anticipated trends, which predictions 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 days 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.
7
Risks of Swap Agreements.
The risk of loss with respect to swaps generally is limited to the net
amount of payments that a 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 Funds rights as a creditor (e.g., a Fund may not receive the net amount of payments that it contractually is
entitled to receive).
Risks of Currency Transactions.
Currency exchange transactions involve a significant degree of risk and the
markets in which currency exchange transactions are effected are highly volatile, highly specialized and highly 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 a Funds return with
the performance of its underlying Index and may lower the Funds 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, each Fund will incur transaction costs, including trading commissions, in connection with certain
foreign currency transactions.
Risks of Investing in Non-U.S. Equity Securities.
An investment in a Fund involves risks similar to
those of investing in a broad-based portfolio of equity securities traded on foreign exchanges. These risks include market fluctuations caused by such factors as economic and political developments, changes in interest rates and perceived trends in
stock prices. Investing in securities issued by issuers domiciled in countries other than the domicile of the investor and denominated in currencies other than an investors local currency entails certain considerations and risks not typically
encountered by the investor in making investments in its home country and in that countrys currency. These considerations include favorable or unfavorable changes in interest rates, currency exchange rates, exchange control regulations and the
costs that may be incurred in connection with conversions between various currencies. Investing in a Fund also involves certain risks and considerations not typically associated with investing in a fund whose portfolio contains exclusively
securities of U.S. issuers. These risks include generally less liquid and less efficient securities markets; generally greater price volatility; less publicly available information about issuers; the imposition of withholding or other taxes; the
imposition of restrictions on the expatriation of funds or other assets of the Fund; higher transaction and custody costs; delays and risks attendant in settlement procedures; difficulties in enforcing contractual obligations; lower liquidity and
significantly smaller market capitalization; different accounting and disclosure standards; lower levels of regulation of the securities markets; more substantial government interference with the economy; higher rates of inflation; greater social,
economic, and political uncertainty; the risk of nationalization or expropriation of assets; and the risk of war.
Dividend Risk. T
here
is no guarantee that the issuer of the stocks held by a Fund will declare dividends in the future or that if declared, they will either remain at current levels or increase over time.
Proxy Voting
The Board has delegated responsibility for
decisions regarding proxy voting for securities held by each Fund to the Sub-Adviser. The Sub-Adviser votes such proxies in accordance with its proxy policies and procedures, which are summarized in Appendix A to this SAI. The Board will
periodically review each Funds proxy voting record.
Information with respect to how the Sub-Adviser voted proxies relating to the
Funds portfolio securities during the 12-month period ended June 30 will be available: (i) without charge, upon request, by calling 1-855-329-3837 (1-800-DBX-ETFS) or through the Funds website at www.dbxetf.com; and
(ii) on the SECs website at www.sec.gov.
Portfolio Holdings Information
The Trust has adopted a policy regarding the disclosure of information about the Trusts portfolio holdings. The Board must approve all material
amendments to this policy.
The Funds 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
8
disseminated daily prior to the opening of the Exchanges via the National Securities Clearing Corporation (NSCC). The basket represents one Creation Unit of each Fund. The Trust, the
Adviser and the Administrator will not disseminate non-public information concerning the Trust.
Construction and
Maintenance of the Underlying Indexes
Descriptions of the MSCI Currency-Hedged Indexes are provided below.
Defining the Equity Universe.
MSCI begins with securities listed in countries in the MSCI Global Index Series. Of these countries, 23 are
classified as developed markets and 23 as emerging markets. All listed equity securities and listed securities that exhibit characteristics of equity securities, except mutual funds, exchange traded funds, equity derivatives, limited partnerships
and most investment trusts, are eligible for inclusion in the equity universe. REITs in some countries and certain income trusts in Canada are also eligible for inclusion. Each company and its securities (i.e., Share classes) are classified in only
one country, which allows for a distinctive sorting of each company by its respective country.
Maintaining the MSCI Hedged Indices.
The MSCI Hedged Indices are maintained with an objective of reflecting the evolution of the underlying currency exposures in the MSCI Equity Indexes on a timely basis. In particular, index maintenance involves:
Resetting the weights of the currencies to be sold in the index; and
Rolling the forward contracts over to the next month.
The MSCI Hedged Indices are rebalanced monthly on the last trading day of the month, when the index will take into account the effect of rolling into new 1-month forward contracts based on the newly
determined weights of currency to be sold for the next months index calculation. The currency weights are determined as of the close of two business days before the first calendar day of following month and remain constant intra month. This
means that no changes in the weights are made during the month to account for changes in the indexes due to price movement of securities, corporate events, additions, deletions or any other changes. The daily calculation of MSCI Hedged Indices marks
to market the one-month forward contracts on a daily basis by using an equal and offsetting forward position.
MSCI EM US Dollar Hedged
Index
Number of Components: approximately 820
Index Description.
The MSCI EM US Dollar Hedged Index is designed to provide exposure to equity securities in the global emerging markets, while at the same time mitigating exposure to fluctuations
between the value of the U.S. dollar and selected emerging market currencies. As of August 31, 2012, the Underlying Index consisted of the following 21 emerging market country indexes: Brazil, Chile, China, Colombia, Czech Republic, Egypt,
Hungary, India, Indonesia, South Korea, Malaysia, Mexico, Morocco, Peru, Philippines, Poland, Russia, South Africa, Taiwan, Thailand, and Turkey.
MSCI EAFE US Dollar Hedged Index
Number of Components: approximately 921
Index Description.
The MSCI EAFE US Dollar Hedged Index is designed provide exposure to equity securities in developed
international stock markets, while at the same time mitigating exposure to fluctuations between the value of the U.S. dollar and selected non-U.S. currencies. As of August 31, 2012, the Underlying Index consisted of the following 22 developed
market country indexes: Australia, Austria, Belgium, Denmark, Finland, France, Germany, Greece, Hong Kong, Ireland, Israel, Italy, Japan, the Netherlands, New Zealand, Norway, Portugal, Singapore, Spain, Sweden, Switzerland, and the United Kingdom.
MSCI Brazil US Dollar Hedged Index
Number of Components: approximately 78
Index Description.
The MSCI Brazil US Dollar
Hedged Index is designed to provide exposure to Brazilian equity markets, while at the same time mitigating exposure to fluctuations between the value of the U.S. dollar and Brazilian real.
9
MSCI Germany US Dollar Hedged Index*
Number of Components: approximately 50
Index Description.
The MSCI Germany US
Dollar Hedged Index is designed to provide exposure to German equity markets, while at the same time mitigating exposure to fluctuations between the value of the U.S. dollar and Euro.
*[Prior to May 31, 2013, the Funds underlying index was the MSCI Canada US Dollar Hedged Index.]
MSCI Japan US Dollar Hedged Index
Number of Components: approximately 316
Index Description.
The MSCI Japan US Dollar Hedged Index is designed to provide exposure to Japanese equity markets, while at the
same time mitigating exposure to fluctuations between the value of the U.S. dollar and Japanese yen.
Additional Information.
MSCI and
MSCI Index are service marks of MSCI Inc. and have been licensed for use by the Adviser. The Funds are not sponsored, endorsed, sold or promoted by MSCI Inc. Nor does MSCI Inc. make any representation regarding the advisability of investing in any
of the Funds.
Description of the DBIQ Regulated Utility Index is provided below.
Number of Components: approximately [ ]
Index Description.
The DBIQ Regulated Utility Index is designed to track the price movements in shares of companies whose main business operations are in the regulated utilities sector. As of
[ ], 2012, the DBIQ Regulated Utility Index consisted of [ ].
The universe of companies eligible for the Underlying Index are those companies that fulfill the following conditions:
(a) Legal domicile in a developed market country with the exception of Japan. The following markets are classified as a developed market: Canada, USA, Austria, Belgium, Denmark, Finland, France, Germany,
Greece, Ireland, Israel, Italy, Netherlands, Norway, Portugal, Spain, Sweden, Switzerland, United Kingdom, Australia, Hong Kong, Japan, New Zealand, Singapore.
(b) Listing on a regulated stock exchange in the form of shares tradable for foreign investors without restrictions in a developed market country with the exception of Japan;
(c) Main business operations in the regulated utilities sector;
(d) Free float market capitalization of at least $500 million;
(e) Average daily
trading volume in the last three months of at least $1 million.
A company is considered to be in the regulated utilities sector if its
ancillary, non-utility businesses and/or unregulated utilities business does not represent more than 25% of the companys earnings before interest, taxes, depreciation and amortization (EBITDA) in any year of the previous three
years (though this period may not apply to companies which have sold or purchased non-utility or unregulated utility businesses during that time). The Underlying Index is a total return index.
The composition of the Underlying Index is ordinarily adjusted annually on the fifth Business Day after the Selection Day (the Adjustment
Day). The composition of the Underlying Index is determined the first Business Day in October (the Selection Day).
10
The companies meeting the criteria set forth above are ranked according to their market capitalization, from
highest to lowest. The companies with the highest ranks are then chosen as index components and the new index composition determined thereby is valid as of the immediately following Adjustment Day.
The minimum number of index components is 30 and the maximum number of index components is 100. The Committee may decide to increase the maximum number
of index components on a Selection Day. In case the rank assigned to a company which is currently an index component on a Selection Day is not sufficient to be selected as an index component, it shall only be removed from the Underlying Index if its
rank exceeds the maximum number of index components by more than ten ranks. The company with the lowest rank which is selected as an index component on this Selection Day but which is not currently an index component on the Selection Day will not be
included in the Underlying Index in this case.
On each Adjustment Day each index component is weighted proportionally according to its market
capitalization. The percentage weight of any index component is capped at 5 percent on the Selection Days. The excess weight is allocated proportionally to all index components whose percentage weights are not capped. The new index composition and
weightings are implemented after the close of trading on the Adjustment Day.
Additional Information.
Investment Limitations
The Board has adopted as non-fundamental policies the investment objectives of the Funds discussed in this SAI. Therefore, each of these Funds may change its investment objective and its Underlying Index
without a Shareholder vote. The Board has adopted as fundamental policies for each Fund set forth below investment restrictions numbered 1 through 6 below. The restrictions for such Fund cannot be changed without the approval of the holders of a
majority of that Funds outstanding voting securities. A vote of a majority of the outstanding voting securities is defined in the 1940 Act as the lesser of (a) 67% or more of the voting securities present at a fund meeting, if the holders
of more than 50% of the outstanding voting securities are present or represented by proxy, and (b) more than 50% of outstanding voting securities.
Each Fund will not:
1. Concentrate its investments (i.e., invest 25% or more of its total
assets in the securities of a particular industry or group of industries), except that a Fund will concentrate to the extent that its underlying index concentrates in the securities of such particular industry or group of industries. For purposes of
this limitation, securities of the U.S. government (including its agencies and instrumentalities), repurchase agreements collateralized by U.S. government securities, and securities of state or municipal governments and their political subadvisors
are not considered to be issued by members of any industry;
2. Borrow money, except that (i) each Fund may borrow from banks for
temporary or emergency (not leveraging) purposes, including the meeting of redemption requests which might otherwise require the untimely disposition of securities, and (ii) each Fund may, to the extent consistent with its investment policies,
enter into repurchase agreements, reverse repurchase agreements, forward roll transactions and similar investment strategies and techniques; to the extent that it engages in transactions described in (i) and (ii), each Fund will be limited so
that no more than 33 1/3% of the value of its total assets (including the amount borrowed) is derived from such transactions. Any borrowings which come to exceed this amount will be reduced in accordance with applicable law;
3. Issue any senior security, except as permitted under the 1940 Act, as amended, and as interpreted, modified or otherwise permitted by regulatory
authority having jurisdiction, from time to time;
4. Make loans, except as permitted under the 1940 Act, as interpreted, modified or
otherwise permitted by regulatory authority having jurisdiction, from time to time;
5. Purchase or sell real estate unless acquired as a
result of ownership of securities or other investments (but this restriction shall not prevent each Fund from investing in securities of companies engaged in the real estate business or securities or other instruments backed by real estate or
mortgages), or commodities or commodity contracts (but this restriction shall not prevent each Fund from trading in futures contracts and options on futures contracts, including options on currencies to the extent consistent with each Funds
investment objectives and policies); or
11
6. Engage in the business of underwriting securities issued by other persons, except to the extent that each
Fund may technically be deemed to be an underwriter under the 1933 Act, the disposing of portfolio securities.
In addition to the
investment limitations adopted as fundamental as set forth above, each Fund observes the following restrictions, which may be changed by the Board without a Shareholder vote. A Fund will not:
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, although the Fund may not acquire any securities of registered open-end investment companies or registered unit investment trusts in reliance on
Sections 12(d)(1)(F) or 12(d)(1)(G) of 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 Funds 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 in a violation of such restriction, except that certain
percentage limitations will be observed continuously in accordance with applicable law.
Each Fund, except the db X-trackers Regulated
Utilities Index Fund, has adopted a non-fundamental investment policy in accordance with Rule 35d-1 under the 1940 Act to invest, under normal circumstances, at least 80% of its net assets, plus the amount of any borrowings for investment purposes,
in equity securities of issuers located in the markets specified in the applicable Funds name. Each Fund may also invest in depositary receipts to seek performance that corresponds to its respective Underlying Index. Each Fund also has adopted
a policy to provide its shareholders with at least 60 days prior written notice of any change in such policy.
Management
Trustees and Officers.
The Board has responsibility for the overall management and operations of the Funds, including general supervision of the
duties performed by the Adviser, the Sub-Adviser and other service providers. Each Trustee 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 four Trustees. Three Trustees have no affiliation or business connection with the Adviser or
Sub-Adviser or any of their affiliated persons and do not own any stock or other securities issued by the Adviser or Sub-Adviser. These are the non-interested or independent Trustees (the Independent Trustees).
The other Trustee (the Interested Trustee) is affiliated with the Adviser.
The Independent Trustees 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 Trustee, and other directorships, if any, held by the
Trustee are shown below. The Fund Complex includes all open- and closed-end funds (including all of their portfolios) advised by the Adviser and any funds that have an investment adviser that is an affiliated person of the Adviser. As of the date of
this SAI, the Fund Complex consists of the Trusts six funds and six exchange-traded funds advised by DBX Strategic Advisors LLC, an affiliate of the Adviser, as well as the mutual funds advised by certain other affiliates of the Adviser.
12
Independent Trustees
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Name, Address,
and Age
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Position(s)
Held with
Fund
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Terms of
Office and
Length of
Time
Served
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Principal
Occupation(s)
During Past 5 Years
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Number of Portfolios
in
Fund
Complex Overseen
by Director
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Other Directorships
held by Director
During
Past 5 Years
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J. David Officer
Age:
64
60 Wall Street New York, New York 10005
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Trustee, Member of the Audit and Nominating Committees
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Since
2011
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Independent Director; Formerly, Consultant, Fidelity (2011), Pershing LLC (2010), The Dreyfus Corporation (2009-2010); Vice President, The Dreyfus Family of Funds (2010); Vice
Chairman, The Dreyfus Corporation (1998-2009); Chief Operating Officer, The Dreyfus Corporation (2006-2009); President, The Dreyfus Family of Funds, Inc. (2006-2009); Chief Executive Officer and Chairman, Laurel Capital Advisors (2005-2009);
Executive Vice President, The Bank of New York Mellon (2008-2009); President and Chairman, Dreyfus Founders Funds, Inc. (2007-2009); President, Chairman and Chief Executive Officer, Founders Asset Management (2007-2009); Vice President BNY Mellon
Funds Trust (2007-2009); President, MBSC Securities Corporation (2007-2009); Vice President, Dreyfus Service Organization, Inc. (2004-2009); President, Dreyfus Service Corporation (2000-2007); President, MBSC, LLC (2002-2007); Executive Vice
President, Mellon Bank, N.A. (1994-2008).
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GLG Investment Series Trust; The Dreyfus Corporation; MBSC Securities Corporation; Dreyfus Services Corporation; MBSC, LLC; Dreyfus Transfer, Inc.; Dreyfus Service Organization,
Inc.; Seven Six Seven Agency, Inc.; Mellon Residential Funding Corp.; Mellon United National Bank; Laurel Capital Advisors; Mellon United National Bank; Dreyfus Founders Funds, Inc.; Founders Asset Management; Bessemer Trust Company,
N.A.
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Independent Trustees
|
|
|
|
|
|
|
|
|
|
|
Name, Address,
and Age
|
|
Position(s)
Held with
Fund
|
|
Terms of
Office and
Length of
Time
Served
|
|
Principal
Occupation(s)
During Past 5 Years
|
|
Number of Portfolios
in
Fund
Complex Overseen
by Director
|
|
Other Directorships
held by Director
During Past 5 Years
|
Stephen R. Byers
Age:
59
60 Wall Street New York, New York 10005
|
|
Trustee, Member and Chairman of the Audit and Nominating Committees
|
|
Since
2011
|
|
Retired. Previously, Chief Investment Officer, The Dreyfus Corporation (2000-2006).
|
|
6
|
|
The Dreyfus Corporation; Sierra Income Corporation.
|
|
|
|
|
|
|
George O. Elston
Age:
48
60 Wall Street New York, New York 10005
|
|
Trustee, Member of the Audit and Nominating Committees
|
|
Since
2011
|
|
M&A Advisor, Chief Financial, Operating and Business Officer, Optherion, Inc. (2008-2010); and Vice President, Finance and Government Affairs, Secretary and Treasurer, Elusys
Therapeutics, Inc. (2000-2007).
|
|
6
|
|
Celldex Therapeutics.
|
13
Interested Trustee
|
|
|
|
|
|
|
|
|
|
|
Name, Address,
and Age
|
|
Position(s)
Held with
Fund
|
|
Terms of
Office and
Length of
Time
Served
|
|
Principal
Occupation(s)
During Past 5 Years
|
|
Number of Portfolios
in
Fund
Complex Overseen
by Director
|
|
Other Directorships
held by Director
During Past 5
Years
|
Alex Depetris
Age:
32
60 Wall Street New York, New York 10005
|
|
Trustee, Chairman of the Board, President, Chief Executive Officer and Secretary
|
|
Since
2010
|
|
Director in the DBX Group at Deutsche Bank AG since 2008; Associate, Arnold & Porter, 2006-2008; Associate, Sullivan & Worcester, 2005-2006.
|
|
11
|
|
Director, Chairman of the Board of db-X Exchange Traded Funds Inc.
|
Officers
|
|
|
|
|
|
|
Name, Address,
and Age
|
|
Position(s)
Held with
Fund
|
|
Terms of
Office and
Length of
Time
Served
|
|
Principal
Occupation(s)
During Past 5 Years
|
Michael Gilligan
Age:
46
60 Wall Street New York, New York 10005
|
|
Treasurer, Chief Financial Officer and Controller
|
|
Since
2010
|
|
Director in the Finance Group at Deutsche Bank AG with CFO responsibility for DBX Strategic Advisors LLC and DB Commodity Services LLC since 2008; Chief Operating Officer, Americas
Credit Trading, Credit Suisse, 2007-2008; Director in the Finance Group, Credit Suisse, 1998 to 2007.
|
|
|
|
|
Martin Kremenstein
Age:
36
60 Wall Street New York, New York 10005
|
|
Chief Operating Officer
|
|
Since
2010
|
|
Director in the DBX Group at Deutsche Bank AG with responsibility for providing investor solutions to the DB sales force in North America since 2006; Vice President, Market Risk
Management JP Morgan Chase until 2006.
|
|
|
|
|
Frank Gecsedi
Age:
45
60 Wall Street New York, New York 10005
|
|
Chief Compliance Officer
|
|
Since
2010
|
|
Vice President in Deutsche Banks Global Markets Legal, Risk and Capital Division since 2010; Vice President and Compliance Manager at Bank of America Merrill Lynch (formerly
Merrill Lynch), ( 2000 to 2010).
|
Board Leadership, Structure and Oversight Responsibilities.
Board Structure.
As noted above, the Board is responsible for oversight of the Funds, including oversight of the duties performed by the Adviser
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.
14
Mr. Depetris, an Interested Trustee, serves as chairman of the Board. While the Board does not have a
lead Independent Trustee, the chairmen of the Audit Committee and Nominating Committee serve as liaisons between the Adviser and other service providers and the other Independent Trustees. The Board regularly reviews its Committee structure and
membership and believes that its current structure is appropriate based on the assets and number of Funds overseen by the Trustees, as well as the nature of the Funds business.
Risk Oversight.
The 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 Adviser and the Trusts 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 Adviser 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 Adviser, other service providers, the
Trusts independent registered public accounting firm and Trust 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 objective, policies and restrictions, and reviews any areas of
non-compliance with the Funds investment policies and restrictions. The Audit Committee monitors the Trusts 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 Trusts 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.
Experience, Qualifications and
Attributes.
The Board has concluded, based on each Trustees experience, qualifications and attributes, that each Board member should serve as a Trustee. Following is a brief summary of the information that led to this conclusion.
Mr. Stephen Byers. Mr. Byers gained extensive experience with a variety of financial, accounting, management, regulatory and
operational issues facing funds through his more than 30 years of experience on the boards and/or in senior management of such companies as The Dreyfus Corporation, Gruntal & Co., LLC, Painewebber, Citibank/Citicorp and American Airlines.
Mr. Byers possesses a strong understanding of the regulatory framework under which investment companies must operate and can provide management input and investment guidance to the Board.
Mr. George Elston. Through his prior positions on the boards and in senior management of such companies as Celldex Therapeutics, 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 general partner of Chatham
Partners LLC.
Mr. David Officer. 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 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.
Mr. Alex Depetris. In addition to his tenure as Vice President in the DBX Group at Deutsche Bank AG, Mr. Depetris has experience as
an attorney at the law firms of Arnold & Porter and Sullivan & Worcester. Therefore, Mr. Depetris has extensive knowledge of the regulatory framework under which investment companies operate, including with respect to
exchange-traded funds.
Committees of the Board of Trustees.
The Board has two standing committees, the Audit Committee and the
Nominating Committee, and has delegated certain responsibilities to those Committees.
Messrs. Byers, Elston and Officer currently
serve as members of the Audit Committee. The Audit Committee has the responsibility, among other things, to: (i) approve and recommend to the Board the selection of the Trusts independent registered public accounting firm,
(ii) review the scope of the independent registered public accounting firms 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 Trusts internal controls. The Audit Committee met twice during the fiscal year ended May 31, 2012.
15
Messrs. Byers, Elston and Officer currently serve as members of the Nominating Committee. 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 trustees from Shareholders. Nominations from
Shareholders should be in writing and sent to the Secretary of the Trust to the attention of the Chairman of the Nominating Committee, as described below under the caption Shareholder Communications to the Board. During the fiscal year
ended May, 31, 2012, the Nominating Committee did not meet.
Shareholder Communications to the Board.
Shareholders may send
communications to the Trusts 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 Trusts office or directly to such Board members at the address specified for each Trustee. 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 managements discretion based on the matters contained therein.
Remuneration of` Trustees.
The Trust pays each Independent Trustee (i) an annual retainer of $25,000; (ii) $2,500 for each Board meeting
attended in person and $1,500 for each Board meeting attended telephonically; (iii) $1,500 to members of the Boards Audit Committee for each meeting of the Audit Committee attended; and (iv) a retainer of $2,000 to the chairperson of
the Audit Committee. The Trust also reimburses each Trustee for travel and other out-of-pocket expenses incurred by him/her in connection with attending such meetings.
The table below sets forth the compensation paid to each Trustee for the calendar year ended December 31, 2012:
|
|
|
|
|
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|
|
|
|
|
|
Name of Trustee
|
|
Aggregate
Compensation from
the Trust
|
|
|
Pension or
Retirement
Benefits Accrued As
Part of Trust
Expenses
1
|
|
Estimated Annual
Benefits Upon
Retirement
|
|
Total
Compensation
From the Fund and
Fund Complex
|
|
|
|
|
|
|
J. David Officer
|
|
$
|
[
|
]
|
|
Not Applicable
|
|
Not Applicable
|
|
$
|
[
|
]
|
|
|
|
|
|
Stephen R. Byers
|
|
$
|
[
|
]
|
|
Not Applicable
|
|
Not Applicable
|
|
$
|
[
|
]
|
|
|
|
|
|
George O. Elston
|
|
$
|
[
|
]
|
|
Not Applicable
|
|
Not Applicable
|
|
$
|
[
|
]
|
Control Persons and Principal Holders of Securities.
As of [ ], 2013, the officers and Trustees, as a group owned beneficially less than [ ]% of the shares of any
of the Funds.
Although the Funds do not have information concerning the beneficial ownership of shares held in the names of Depository Trust
Company (DTC) participants, as of [ ], 2013, the name and percentage ownership of each DTC participant that owned of record 5% or more of the outstanding shares of a
Fund is set forth in the table below:
db X-trackers MSCI Emerging Markets Hedged Equity Fund
|
|
|
|
|
Name and Address
|
|
Percentage Ownership
|
|
Merrill Lynch Pierce Fenner & Smith
101 Hudson Street
8th Floor
Jersey City, NJ 07302
|
|
|
48.79
|
%
|
|
|
JPMC Clearing
One Metrotech
Center North, 4th Fl.
Brooklyn, NY 11201-3862
|
|
|
18.76
|
%
|
|
|
State Street SBT Company
1776
Heritage Drive
North Quincy, Massachusetts 02171
|
|
|
15.00
|
%
|
|
|
National Financial Services LLC
200 Liberty Street
New York, NY
10281
|
|
|
11.82
|
%
|
16
db X-trackers MSCI Brazil Hedged Equity Fund
|
|
|
|
|
Name and Address
|
|
Percentage Ownership
|
|
State Street SBT Company
1776
Heritage Drive
North Quincy, Massachusetts 02171
|
|
|
82.50
|
%
|
|
|
JPMC Clearing
One Metrotech
Center North, 4th Fl.
Brooklyn, NY 11201-3862
|
|
|
6.22
|
%
|
db X-trackers MSCI Germany Hedged Equity Fund
|
|
|
|
|
Name and Address
|
|
Percentage Ownership
|
|
State Street SBT Company
1776
Heritage Drive
North Quincy, Massachusetts 02171
|
|
|
95.00
|
%
|
db X-trackers MSCI Japan Hedged Equity Fund
|
|
|
|
|
Name and Address
|
|
Percentage Ownership
|
|
State Street SBT Company
1776
Heritage Drive
North Quincy, Massachusetts 02171
|
|
|
55.00
|
%
|
|
|
First Clearing LLC
One North
Jefferson Street
St. Louis, MO 63103
|
|
|
14.75
|
%
|
|
|
Brown Brothers Harriman & Co
50 Milk Street
Boston, MA 02109
|
|
|
7.32
|
%
|
|
|
The Bank of New York Mellon
525 William Penn Place
Suite 153-0400
Pittsburgh, PA 15259
|
|
|
5.60
|
%
|
db X-trackers MSCI EAFE Hedged Equity Fund
|
|
|
|
|
Name and Address
|
|
Percentage Ownership
|
|
JPMC Clearing
One Metrotech
Center North, 4th Fl.
Brooklyn, NY 11201-3862
|
|
|
27.60
|
%
|
|
|
Merrill Lynch Pierce Fenner & Smith
101 Hudson Street
8th Floor
Jersey City, NJ 07302
|
|
|
19.62
|
%
|
|
|
National Financial Services LLC
200 Liberty Street
New York, NY
10281
|
|
|
9.85
|
%
|
17
Potential Conflicts of Interest
The Adviser is owned by Deutsche Bank AG, a multi-national financial services company. Therefore, the Adviser 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 Adviser 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 Adviser 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 may cause conflicts
that could be to the disadvantage of the Advisers advisory clients, including the Fund. The Adviser 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 Funds Board.
Investment Advisory, Sub-Advisory,
Administrative and Distribution Services
Investment Adviser and Sub-Adviser.
DBX Advisors LLC serves as investment adviser to each
Fund pursuant to an Investment Advisory Agreement between the Trust and the Adviser. The Adviser is a Delaware limited liability company and was registered as an investment adviser 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 Deutsche Bank AG. TDAM USA Inc. serves as the investment sub-adviser to each Fund, except the db X-trackers Regulated Utilities Index Fund, pursuant to a
Sub-Advisory Agreement. RREEF America L.L.C. serves as the investment sub-adviser to the db X-trackers Regulated Utilities Index Fund pursuant to a Sub-Advisory Agreement.
Under the Investment Advisory Agreement, the Adviser, 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 each Sub-Adviser and manages or delegates to each Sub-Adviser the duties of the investment and reinvestment of each Funds assets. Each Sub-Adviser manages the investment and reinvestment of each applicable Funds assets on an
ongoing basis under the supervision of the Adviser.
For its investment advisory services to the Funds, the Adviser is entitled to receive a
unitary management fee from each Fund based on the Funds average daily net assets at an annual rate of: 0.65% with respect to db X-trackers MSCI Emerging Markets Hedged Equity Fund, 0.35% with respect to db X-trackers MSCI EAFE Hedged Equity
Fund, 0.60% with respect to db X-trackers MSCI Brazil Hedged Equity Fund, 0.50% with respect to db X-trackers MSCI Germany Hedged Equity Fund, 0.50% with respect db X-trackers MSCI Japan Hedged Equity Fund and [ ]% with
respect to db X-trackers Regulated Utilities Index Fund.
Under the Investment Advisory Agreement, the Adviser is responsible for
substantially all expenses of the Fund (including the payments to each Sub-Adviser, the cost of transfer agency, custody, fund administration, 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. Each Fund also bears the cost of compensation paid to the Independent Trustees in respect of the Independent
Trustees service to the Fund (Independent Trustee Fees).
For the fiscal year ended May 31, 2012, the advisory fees
paid by each Fund were as follows:
|
|
|
|
|
db X-trackers MSCI Brazil Hedged Equity Fund
|
|
$
|
26,660
|
|
db X-trackers MSCI Germany Hedged Equity Fund
|
|
$
|
22,653
|
|
db X-trackers MSCI EAFE Hedged Equity Fund
|
|
$
|
74,217
|
|
db X-trackers MSCI Emerging Markets Hedged Equity Fund
|
|
$
|
28,822
|
|
db X-trackers MSCI Japan Hedged Equity Fund
|
|
$
|
23,220
|
|
18
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 Funds outstanding voting securities (as defined in the 1940 Act). The Investment Advisory Agreement is also terminable upon 60 days notice by the Adviser and will terminate automatically in the
event of its assignment (as defined in the 1940 Act).
The Adviser has contractually agreed through September 30, 2013 to waive fees
and/or reimburse each Funds expenses, and through [ ], 2014 for the db X-trackers Regulated Utilities Index Fund, in order to limit each Funds net annual operating
expenses to 0.65% (with respect to db X-trackers MSCI Emerging Markets Hedged Equity Fund), 0.35% (with respect to db X-trackers MSCI EAFE Hedged Equity Fund), 0.60% (with respect to db X-trackers MSCI Brazil Hedged Equity Fund), 0.50% (with respect
to db X-trackers MSCI Germany Hedged Equity Fund), 50% (with respect db X-trackers MSCI Japan Hedged Equity Fund) and [ ]% (with respect to db X-trackers Regulated Utilities Index Fund) of each Funds average daily net
assets, except for interest expense, taxes, brokerage expenses, distribution fees or expenses, litigation expenses and other extraordinary expenses (the Expense Caps). In accordance with and as required by the Expense Caps, the Adviser
will reimburse the Fund for the Independent Trustee Fees. The Expense Caps will remain in effect until at least [ ] 2013 and may only be terminated with the consent of the
Trusts Board (and may not be terminated by the Adviser) prior to that time.
Under each Sub-Advisory Agreement, each Sub-Adviser will
not be liable for any error of judgment or mistake of law or for any loss suffered by a Fund in connection with the performance of the applicable Sub-Advisory Agreement, except a loss resulting from willful misfeasance, bad faith or gross negligence
on the part of each Sub-Adviser in the performance of its duties or from reckless disregard of its duties and obligations thereunder. Each Sub-Advisory Agreement continues in effect until two years from its initial effective date, and thereafter
only if approved annually by the Board, including a majority of the Independent Trustees.
Each Sub-Advisory Agreement terminates
automatically upon assignment and is terminable at any time without penalty as to the Fund by the Board, including a majority of the Independent Trustees, or by vote of the holders of a majority of that Funds outstanding voting securities on
60 days written notice to the Sub-Adviser, by the Adviser on 60 days written notice to the Sub-Adviser or by a Sub-Adviser on 60 days written notice to the Adviser and the Trust. For the fiscal year ended May 31, 2012, the fee
paid by the Adviser to TDAM was $300,000.
Pursuant to the Sub-Advisory Agreement with TDAM, the Adviser pays the Sub-Adviser on a monthly
basis a portion of the net advisory fees it receives from the db X-trackers MSCI Emerging Markets Hedged Equity Fund at the annual rate of 0.20% of the first $100 million of such Funds daily net assets, 0.15% of the next $400 million of such
Funds daily net assets and 0.06% of such Funds daily net assets in excess of $500 million. For the db X-trackers MSCI Germany Hedged Equity Fund and db X-trackers MSCI Japan Hedged Equity Fund, the Adviser pays the Sub-Adviser on a
monthly basis a portion of the advisory fees it receives from such Funds at an annual rate of 0.15% of the first $100 million of such Funds daily net assets, 0.07% of the next $400 million of such Funds daily net assets and 0.04% of such
Funds daily net assets in excess of $500 million. For the db X-trackers MSCI Brazil Hedged Equity Fund, the Adviser pays the Sub-Adviser on a monthly basis a portion of the advisory fees it receives from such Fund at an annual rate of 0.20% of
the first $100 million of such Funds daily net assets, 0.12% of the next $400 million of such Funds daily net assets and 0.06% of such Funds daily net assets in excess of $500 million. For the db X-trackers MSCI EAFE Hedged Equity
Fund, the Adviser pays the Sub-Adviser on a monthly basis a portion of the advisory fees it receives from such Fund at an annual rate of 0.12% of the first $100 million of such Funds daily net assets, 0.08% of the next $400 million of such
Funds daily net assets and 0.04% of such Funds daily net assets in excess of $500 million.
Pursuant to the Sub-Advisory Agreement
with RREEF for the db X-trackers Regulated Utilities Index Fund, the Adviser pays the Sub-Adviser on a monthly basis a portion of the advisory fees it receives from such Fund at an annual rate of [ ]% of the first $100 million
of such Funds daily net assets, [ ]% of the next $400 million of such Funds daily net assets and [ ]% of such Funds daily net assets in excess of $500 million. The total aggregate fees
paid by the Adviser to the Sub-Adviser will be at least $[ ] per year.
TDAM is located at 161
Bay Street, 35th Floor, TD Canada Trust Tower, Toronto, Ontario, Canada M5J 2T2. RREEF is located at 875 N. Michigan Avenue, Chicago, Illinois 60611.
19
Portfolio Managers.
Set forth below is additional information regarding the individuals identified in the Prospectus as primarily responsible for the day-to-day management of the Funds (Portfolio Managers).
TDAM supervises and manages the investment portfolio of each Fund, except the db X-trackers Regulated Utilities Index Fund, and directs the
purchase and sale of the Funds investment securities. TDAM utilizes teams of investment professionals acting together to manage the assets of each Fund. The TDAM Portfolio Managers that have direct oversight responsibility and are primarily
responsible for the day-to-day management of the Funds are: Vishal Bhatia and Dino Bourdos.
Vishal Bhatia, CFA, is a Vice
President & Director of TDAM. Mr. Bhatia joined TD Asset Management Inc. in December 1996. As the lead of the Structured and Equity Index Team, he oversees research, portfolio management, and daily trading activity for US, Canadian and
Global equity funds. Mr. Bhatia is also a Product Specialist specifically responsible for developing and marketing passive and active fundamental equity strategies. In this capacity he works closely with existing and prospective clients to
incorporate these strategies into solutions that meet their needs. Mr. Bhatia graduated from the University of Toronto with an Honours Bachelor of Science in Cell & Molecular Biology and is a CFA charterholder.
Dino Bourdos, CFA, is a Managing Director of TDAM. Mr. Bourdos joined TD Asset Management Inc. as part of Canada Trust merger in February 2000. At
TDAM, he is responsible for the management of and trading within derivatives-based strategies for a variety of equity, fixed income and currency overlay mandates. He also oversees the Derivatives and Passive & Structured Equity businesses.
Mr. Bourdos is also a product specialist and is specifically responsible for developing and marketing portable alpha and derivatives-based strategies. In this capacity, he works closely with existing and prospective clients to provide solutions
for managing overall portfolio, market and currency exposures. Prior to joining TDAM, Mr. Bourdos was an analyst and trader with Canada Trust Investment Management Group Inc. At CT IMG, his responsibilities included analyzing and trading
derivatives, fixed income and currency products. Mr. Bourdos was awarded the CFA designation in 1998, completed the Chartered Market Technicians (CMT) program in 2001 and completed the first level of the Chartered Alternative Investment Analyst
(CAIA) Program in 2008. He obtained his undergraduate degree in Economics from the University of Toronto in 1994.
RREEF supervises and
manages the investment portfolio of the db X-trackers Regulated Utilities Index Fund and directs the purchase and sale of the Funds investment securities. RREEF utilizes teams of investment professionals acting together to manage the assets of
the Fund. The RREEF Portfolio Managers that have direct oversight responsibility and are primarily responsible for the day-to-day management of the Funds are: John F. Robertson, John W. Vojticek, Francis Greywitt and Manoj H. Patel.
John F. Robertson, CFA, is a Managing Director of RREEF. Mr. Robertson joined RREEF in 1997 and Deutsche Asset Management in 2002. He is the Global
Head of RREEF Real Estate Securities with over 20 years of investment industry experience. Previously, he was an Assistant Vice President of Lincoln Investment Management responsible for REIT research. Mr. Robertson obtained his MBA degree from
Indiana University, and his undergraduate degree, Bachelor of Arts, from Wabash College.
John W. Vojticek is a Managing Director of RREEF.
Mr. Vojticek joined RREEF and Deutsche Asset Management in 2004. Previously, he worked as Principal at KG Redding and Associates and as Managing Director of RREEF from 1996-March 2004 and Deutsche Asset Management from 2002-March 2004. He has
over 15 years of investment industry experience. Mr. Vojticek obtained his undergraduate degree, Bachelor of Science, from the University of Southern California.
Francis Greywitt is a Director of RREEF. Mr. Greywitt joined RREEF and Deutsche Asset Management in 2005. Previously, he worked as a REIT analyst with KeyBanc Capital Markets covering the office
sector. He has over 11 years of investment industry experience. Mr. Greywitt obtained his undergraduate degree, Bachelor of Business Administration, from St. Bonaventure University.
Manoj H. Patel, CFA, is a Director of RREEF. Mr. Patel joined RREEF and Deutsche Asset Management in 2011. Previously, he worked as a Director and Portfolio Manager of infrastructure securities funds
at Brookfield Investment Management. He has over 10 years investment experience. Mr. Patel obtained his undergraduate degree, Bachelor of Science, from Indiana University-Bloomington.
20
Other Accounts Managed
The Portfolio Managers were also primarily responsible for the day-to-day management of other accounts, as set forth in the tables below.
As of [ ], 2012, Mr. Bhatia was responsible for the day-to-day portfolio management of
[ ] registered investment companies,
[ ] other pooled investment companies and
[ ] other accounts managed by TDAM.
As of [ ], 2012, Mr. Bourdos was responsible for the day-to-day management of
[ ] pooled investment companies and
[ ] other accounts managed by TDAM.
As of [ ], 2012, Mr. Robertson was responsible for the day-to-day portfolio management of
[ ] registered investment companies,
[ ] other pooled investment companies and
[ ] other accounts managed by RREEF.
As of [ ], 2012, Mr. Vojticek was responsible for the day-to-day portfolio management of
[ ] registered investment companies,
[ ] other pooled investment companies and
[ ] other accounts managed by RREEF.
As of [ ], 2012, Mr. Greywitt was responsible for the day-to-day portfolio management of
[ ] registered investment companies,
[ ] other pooled investment companies and
[ ] other accounts managed by RREEF.
As of [ ], 2012, Mr. Patel was responsible for the day-to-day portfolio management of
[ ] registered investment companies,
[ ] other pooled investment companies and
[ ] other accounts managed by RREEF.
The table below shows the number of other accounts managed by each Portfolio Manager and the total assets in the accounts, as of [ ], 2012, except as otherwise noted, in each of the following categories:
registered investment companies, other pooled investment vehicles and other accounts. For each category, the table also shows the number of accounts and the total assets in the accounts with respect to which the advisory fee is based on account
performance.
The following table provides information relating to other accounts managed by Mr. Bhatia:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered
Investment
Companies
|
|
|
Other Pooled
Investment
Companies
|
|
|
Other
Accounts
|
|
Number of Accounts Managed
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
Number of Accounts Managed with Performance-Based Fees
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
Assets Managed (assets in millions)
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
Assets Managed with Performance-Based Fees
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
The following table provides information relating to other accounts managed by Mr. Bourdos:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered
Investment
Companies
|
|
|
Other Pooled
Investment
Companies
|
|
|
Other
Accounts
|
|
Number of Accounts Managed
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
Number of Accounts Managed with Performance-Based Fees
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
Assets Managed (assets in millions)
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
Assets Managed with Performance-Based Fees
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
The following table provides information relating to other accounts managed by Mr. Robertson:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered
Investment
Companies
|
|
|
Other Pooled
Investment
Companies
|
|
|
Other
Accounts
|
|
Number of Accounts Managed
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
Number of Accounts Managed with Performance-Based Fees
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
Assets Managed (assets in millions)
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
Assets Managed with Performance-Based Fees
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
21
The following table provides information relating to other accounts managed by Mr. Vojticek:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered
Investment
Companies
|
|
|
Other Pooled
Investment
Companies
|
|
|
Other
Accounts
|
|
Number of Accounts Managed
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
Number of Accounts Managed with Performance-Based Fees
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
Assets Managed (assets in millions)
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
Assets Managed with Performance-Based Fees
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
The following table provides information relating to other accounts managed by Mr. Greywitt:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered
Investment
Companies
|
|
|
Other Pooled
Investment
Companies
|
|
|
Other
Accounts
|
|
Number of Accounts Managed
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
Number of Accounts Managed with Performance-Based Fees
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
Assets Managed (assets in millions)
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
Assets Managed with Performance-Based Fees
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
The following table provides information relating to other accounts managed by Mr. Patel:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered
Investment
Companies
|
|
|
Other Pooled
Investment
Companies
|
|
|
Other
Accounts
|
|
Number of Accounts Managed
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
Number of Accounts Managed with Performance-Based Fees
|
|
|
[
|
]
|
|
|
[
|
]
|
|
|
[
|
]
|
Assets Managed (assets in millions)
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
Assets Managed with Performance-Based Fees
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
|
$
|
[
|
]
|
Portfolio Manager Compensation
As a member of TD Bank Financial Group (TDBFG), TDAM has the following major components in its compensation program for the Portfolio Managers:
|
|
|
Annual Incentive Program
|
|
|
|
Long Term Incentive Plan
|
TDAM
maintains competitive salaries for all employees, based on independent research of the investment management industry.
Each Portfolio Manager
may be eligible to participate in the Long Term Incentive Plan. The purpose of this plan is to encourage employees to increase their interest in TDBFGs long term success by awarding them Units which will provide future compensation
related to the price of the common shares of TD Bank at that future time.
22
The investment performance of products under management does not drive any variable components of
compensation. Amounts paid under the Annual Incentive Program will vary. In the case of TDAM, these amounts are based on how well the individual employee and TDAM performed over the course of the most recent fiscal year.
Participation in the Profit Sharing Plan enables employees to share in the profits of TDAM, limited to a certain percentage.
RREEF is an affiliate of Deutsche Investment Management Americas Inc. (DIMA). DIMA has the following major components in its compensation
program for the Portfolio Managers:
|
|
|
Short Term Variable Pay
|
Variable pay can be delivered via a short-term and/or long-term vehicle, namely cash, restricted equity awards, and/or restricted incentive awards.
Variable pay comprises a greater proportion of total compensation as a portfolio managers seniority and total compensation level increase. The proportion of variable pay delivered via a long-term incentive award, which is subject to clawback,
will increase significantly as the amount of variable pay increases. All variable pay delivered via long-term incentive award is subject to clawback.
To evaluate its investment professionals, Deutsche Asset Management reviews investment performance for all accounts managed in relation to both account peer group and benchmark related data (i.e.,
appropriate Morningstar peer group universes and/or benchmark index(es) with respect to each account). The ultimate goal of this process is to evaluate the degree to which investment professionals deliver investment performance that meets or exceeds
their clients risk and return objectives. When determining Total Compensation, Deutsche Asset Management considers a number of quantitative and qualitative factors:
|
|
Quantitative measures (e.g. one-, three- and five-year pre-tax returns versus the benchmark and appropriate peer group, taking risk targets into
account) 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. teamwork, adherence to compliance rules, risk management and living the values of Deutsche Asset Management) 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.
|
Portfolio Manager Ownership of Fund Shares
As of
[ ], 2013, none of the Portfolio Managers beneficially owned any Shares of the Funds.
Potential Conflicts of Interest
Because the Portfolio Managers manage multiple
portfolios for multiple clients, the potential for conflicts of interest exists. The Portfolio Managers may manage other portfolios that have a similar investment style as the Funds. However, the portfolios managed by a Portfolio Manager may not
have portfolio compositions identical to those of the Funds managed by the Portfolio Manager due, for example, to specific investment limitations or guidelines present in some portfolios or accounts, but not others. The Portfolio Managers may
purchase securities for one portfolio and not another portfolio, and the performance of securities purchased for one portfolio may vary from the performance of securities purchased for other portfolios. A Portfolio Manager may place transactions on
behalf of other accounts that are directly or indirectly contrary to investment decisions made on behalf of the Fund, or make investment decisions that are similar to those made for the Fund, both of which have the potential to adversely impact the
Fund depending on market conditions. For example, a Portfolio Manager may purchase a security in one portfolio while appropriately selling that same security in another portfolio. In addition, some of these portfolios have fee structures that are or
have the potential to be higher than the advisory fees paid by the Fund, which can cause potential conflicts in the allocation of investment opportunities between the Fund and the other accounts. However, the compensation structure for Portfolio
Managers does not generally provide
23
incentive to favor one account over another because that part of a managers bonus based on performance is not based on the performance of one account to the exclusion of others. There are
many other factors considered in determining the Portfolio Managers bonus and there is no formula that is applied to weight the factors listed (see Compensation of Portfolio Managers and Other Accounts Managed). In addition,
current trading practices do not allow TDAM or RREEF to intentionally favor one portfolio over another as trades are executed as trade orders are received. Portfolios rebalancing dates also generally vary between fund families. Program trades
created from the portfolio rebalance are executed at market on close.
Codes of Ethics.
The Trust, the Adviser, the Sub-Adviser and the
Distributor have adopted Codes of Ethics pursuant to Rule 17j-1 of the 1940 Act. The Codes of Ethics permit personnel subject to the Codes of Ethics to invest in securities, subject to certain limitations, including securities that may be purchased
or held by the Fund. The Codes of Ethics are on public file with, and are available from, the SEC.
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 U.S. 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 Authorized Participants to enable it to form a reasonable belief that it knows the true identity of its Authorized Participants. This information will be used to verify the
identity of Authorized Participants 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 the 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.
Administrator, Custodian and Transfer Agent.
The Bank of New York Mellon (BNY) serves as administrator, custodian and transfer agent for the Funds. BNYs principal address is One
Wall Street, New York, New York 10286. Pursuant to a Fund Administration and Accounting Agreement with the Trust, BNY provides necessary administrative, legal, tax and accounting and financial reporting services for the maintenance and operations of
the Trust and each Fund. In addition, BNY makes available the office space, equipment, personnel and facilities required to provide such services. Pursuant to a Custody Agreement with the Trust, BNY 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. BNY is required, upon the order of the Trust, to deliver securities held by BNY and to make payments for securities purchased by the
Trust for each Fund. Also, pursuant to the Custody Agreement, BNY is authorized to appoint certain foreign custodians or foreign custody managers for Fund investments outside the United States. Pursuant to a Transfer Agency and Service Agreement
with the Trust, BNY acts as a transfer agent for each Funds authorized and issued Shares of beneficial interest, and as dividend disbursing agent of the Trust. As compensation for these services, BNY receives certain out-of-pocket costs,
transaction fees and asset-based fees which are accrued daily and paid monthly the Adviser from its management fee.
Distributor.
The
Distributors principal address is 1290 Broadway, Suite 1100, Denver, Colorado 80203. 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 persons 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 Securities Exchange Act of 1934, as amended (the 1934 Act), and a member of the
Financial Industry Regulatory Authority (FINRA).
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 Trustees, 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).
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 may also be
Authorized Participants (as defined below), DTC participants and/or investor services organizations.
The Adviser 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 Adviser currently pays the Distributor, from the
Advisers own resources, an amount of approximately $20,000 per year per Fund for such purposes.
24
The Adviser and/or its subsidiaries or affiliates (db-X Entities) may pay certain broker-dealers
and other financial intermediaries (Intermediaries) for certain marketing activities related to the Fund or other funds advised by the Adviser or its affiliates (db-X Funds) (with such payments being Payments).
Any Payments made by db-X Entities will be made from their own assets and not from the assets of a Fund. Although a portion of db-X Entities revenue comes directly or indirectly in part from fees paid by the Funds and other db-X Funds,
Payments do not increase the price paid by investors for the purchase of shares of, or the cost of owning, a Fund or other db-X Funds. db-X 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 Funds 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). db-X Entities may also make Payments to Intermediaries for certain printing, publishing and mailing costs associated with a Fund or materials relating to other db-X Funds
or exchange-traded funds in general (Publishing Costs). In addition, db-X Entities may make Payments to Intermediaries that make shares of the Funds and certain other db-X Funds available to their clients or for otherwise promoting the
Funds and other db-X 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 it will recommend or make available to its clients 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 and these financial incentives may cause the Intermediary to recommend the Funds and other db-X
Funds over other investments. 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.
As of [ ], 2013, db-X Entities had arrangements to make Payments to E*Trade
Financial Corporation (E*Trade). Pursuant to the db-X Entities arrangement with E*Trade, E*Trade has agreed to promote the Funds to E*Trades customers and not to charge certain of its customers any commissions when those
customers purchase or sell shares of certain Funds online (the Co-Branded Marketing Program). db-X Entities have agreed to facilitate the Co-Branded Marketing Program by making Payments to E*Trade during the term of the agreement based
on a certain percentage of the assets of the Funds held in the accounts of E*Trades customers.
db-X Entities may determine to make
Payments based on any number of metrics. For example, db-X Entities may make Payments at year end or other intervals in a fixed amount, based upon an Intermediarys services at defined levels or an amount based on the Intermediarys net
sales of one or more db-X 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 db-X Entities to an Intermediary may create the
incentive for an Intermediary to encourage customers to buy shares of the Funds or other db-X Funds.
Brokerage
Transactions
The Adviser and/or each Sub-Adviser assume general supervision over placing orders on behalf of each Fund for the purchase
and sale of portfolio securities. In selecting brokers or dealers for any transaction in portfolio securities, the Advisers and/or each Sub-Advisers 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 Adviser and/or each Sub-Adviser 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 a Funds Shares as a factor in the selection of a broker or a dealer to execute its
portfolio transactions.
Consistent with Section 28(e) of the Securities Exchange Act of 1934, as amended, and interpretations
thereunder, a Sub-Adviser 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 Sub-Adviser determines in good faith that the commission
is reasonable in relation to the services and products utilized. In addition to agency transactions, a Sub-Adviser 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. A Sub-Adviser 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.
25
The Funds purchase and sale orders for securities may be combined with those of other investment
companies, clients or accounts that the Adviser and/or each Sub-Adviser 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 Adviser and/or a Sub-Adviser are considered at or about the same time, transactions in such securities are allocated among the Fund and the other accounts in a manner deemed equitable to all by the Adviser and/or Sub-Adviser. 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 Fund. The Adviser and/or each Sub-Adviser may deal, trade and invest for their own account in the types of securities in which the Funds may invest. The Adviser and/or Sub-Adviser may, from time to time,
effect trades on behalf of and for the account of the Funds with brokers or dealers that are affiliated with the Adviser and/or each Sub-Adviser, 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 may vary from year to year as well as within a year. High
turnover rates may result in comparatively greater brokerage expenses. The overall reasonableness of brokerage commissions is evaluated by the Adviser and/or each Sub-Adviser based upon their knowledge of available information as to the general
level of commissions paid by the other institutional investors for comparable services.
Brokerage commissions for the fiscal year ended
May 31, 2012 are shown in the table below.
|
|
|
|
|
db X-trackers MSCI Brazil Hedged Equity Fund
|
|
$
|
8,180
|
|
db X-trackers MSCI Germany Hedged Equity Fund
|
|
$
|
1,894
|
|
db X-trackers MSCI EAFE Hedged Equity Fund
|
|
$
|
4,513
|
|
db X-trackers MSCI Emerging Markets Hedged Equity Fund
|
|
$
|
4,871
|
|
db X-trackers MSCI Japan Hedged Equity Fund
|
|
$
|
3,012
|
|
Additional Information Concerning the Trust
Shares.
The Trust currently is comprised of six separate investment series or portfolios called funds. Each series issues Shares of common stock,
no par value. The Trust issues Shares of beneficial interests in each fund with no par value. The Board may designate additional funds.
Each
Share issued by a fund has a pro rata interest in the assets of that fund. Shares have no preemptive, exchange, subscription or conversion rights and are freely transferable. Each Share is entitled to participate equally in dividends and
distributions declared by the Board with respect to the relevant fund, and in the net distributable assets of such fund on liquidation. Each Share has one vote with respect to matters upon which the Shareholder is entitled to vote. In any matter
submitted to Shareholders for a vote, each fund shall hold a separate vote, provided that Shareholders of all effected 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 members of the Board. 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 Funds
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 1100,
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).
26
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 Trusts
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.
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, the NYSE Amex Equities and the FINRA. 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.
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.
27
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 Funds NAV next determined after receipt, on any Business Day (as defined herein), of an order in proper form. The following table sets forth the number of Shares of a Fund that constitute a Creation Unit for such Fund:
|
|
|
|
|
Fund
|
|
Shares Per
Creation Unit
|
|
db X-trackers MSCI Emerging Markets Hedged Equity Fund
|
|
|
200,000
|
|
db X-trackers MSCI EAFE Hedged Equity Fund
|
|
|
200,000
|
|
db X-trackers MSCI Brazil Hedged Equity Fund
|
|
|
200,000
|
|
db X-trackers MSCI Germany Hedged Equity Fund
|
|
|
200,000
|
|
db X-trackers MSCI Japan Hedged Equity Fund
|
|
|
200,000
|
|
db X-trackers Regulated Utilities Index Fund
|
|
|
50,000
|
|
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.
A Business Day with respect to each Fund is any day on which the Exchange on which the Fund is listed for trading is open
for business. As of the date of this SAI, each Exchange observes the following holidays, as observed: New Years Day, Dr. Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day,
Thanksgiving Day and Christmas Day.
Fund Deposit.
The consideration for purchase of Creation Units of a Fund generally consists of the
in-kind deposit of a designated portfolio of securities (i.e., the Deposit Securities), which constitutes an optimized representation of the securities of the relevant Funds 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 Authorized Participant purchasing a Creation Unit.
The
Adviser and/or Sub-Adviser makes available through the 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 Funds portfolio and changes as rebalancing adjustments and corporate action events are reflected from time to time by the Adviser and/or Sub-Adviser 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 Authorized Participant (as described below) would be restricted under applicable securities laws or where the delivery of the Deposit Security to the Authorized Participant would result in the disposition of
the Deposit Security by the Authorized Participant becoming restricted under applicable securities laws, or in certain other situations. The adjustments described above will reflect changes, known to the Adviser and/or Sub-Adviser 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.
28
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). Such Authorized Participant 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 Authorized Participant 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 Authorized Participant may require the investor to enter into an agreement with such Authorized
Participant with respect to certain matters, including payment of the Cash Component. Investors who are not Authorized Participants must make appropriate arrangements with an Authorized Participant. 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 investors broker through an Authorized Participant. As a result, purchase
orders placed through an Authorized Participant may result in additional charges to such investor. The Trust does not expect to enter into an Authorized Participant Agreement with more than a small number of DTC Participants. A list of current
Authorized Participants may be obtained from the Distributor.
Purchase Order.
To initiate an order for a Creation Unit, an Authorized
Participant must submit to the Distributor an irrevocable order to purchase Shares of a Fund. The Distributor will notify the Adviser and/or Sub-Adviser and the Custodian of such order. The Custodian will then provide such information to the
appropriate subcustodian. For each Fund, the Custodian shall cause the subcustodian to maintain an account into which the Authorized Participant shall deliver, on behalf of itself or the party on whose behalf it is acting, the 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 must be delivered to an account maintained at the applicable local subcustodian. Those placing orders to purchase Creation Units through an Authorized Participant 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 Authorized Participant 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 Authorized Participant may require orders for purchases of Shares placed with it to be in the particular form required
by the individual Authorized Participant.
Timing of Submission of Purchase Orders.
An Authorized Participant must submit an
irrevocable purchase order before 4:00 p.m., Eastern time on any Business Day in order to receive that days 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 Authorized Participant 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 Authorized Participant or the investor for which it is acting or other relevant reason. Orders to create Shares of a Fund that are submitted on the Business Day immediately preceding a holiday or day (other than a weekend) when the equity
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 Authorized Participant at any time (including on days on which the
Exchange is not open for business) via communication through the facilities of the Distributors proprietary website maintained for this purpose. 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 Trusts standard cut-off times as provided in the Authorized Participant Agreement and disclosed in this SAI.
Acceptance of Order for Creation Unit.
Subject to the conditions that (i) an irrevocable purchase order has been submitted by the Authorized Participant (either on its own or another
investors 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 Adviser and/or Sub-Adviser) 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 Authorized Participant that placed the
order.
29
The Trust reserves the absolute right to reject or revoke a creation order transmitted to it by the
Distributor in respect of any Fund if (i) the order is not in proper form; (ii) the investor(s) upon obtaining the Shares ordered, would own 80% or more of the currently outstanding Shares of any Fund; (iii) the Deposit Securities
delivered do not conform to the identity and number of Shares specified by the Adviser and/or Sub-Adviser, as described above; (iv) acceptance of the Deposit Securities would have certain adverse tax consequences to the Fund;
(v) acceptance of the Fund Deposit would, in the opinion of counsel, be unlawful; (vi) acceptance of the Fund Deposit would, in the discretion of the Trust or the Adviser and/or Sub-Adviser, have an adverse effect on the Trust or the
rights of beneficial owners; or (vii) circumstances outside the control of the Trust, the Distributor and the Adviser and/or Sub-Adviser make it impracticable to process purchase orders. The Trust shall notify a prospective purchaser of a
Creation Unit and/or the Authorized Participant acting on behalf of such purchaser of its rejection of such order. The Trust, the Custodian, the subcustodian 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 have been completed. When the subcustodian 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 subcustodian or subcustodians, the Distributor and the Adviser 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+3 basis (i.e.,
three Business Days after trade date).
To the extent contemplated by an Authorized Participants agreement with the Distributor, the
Trust will issue Creation Units to such Authorized Participant notwithstanding the fact that the corresponding Portfolio Deposits have not been received in part or in whole, in reliance on the undertaking of the Authorized Participant to deliver the
missing Deposit Securities as soon as possible, which undertaking shall be secured by such Authorized Participants delivery and maintenance of collateral having a value at least equal to 115%, which the Adviser and/or Sub-Adviser may change
from time to time, of the value of the missing Deposit Securities in accordance with the Trusts then-effective procedures. The only collateral that is acceptable to the Trust is cash in U.S. 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 Authorized Participant may be invested at the risk of the Authorized Participant, and income, if any, on invested cash collateral will be paid to that
Authorized Participant. Information concerning the Trusts current procedures for collateralization of missing Deposit Securities is available from the Distributor. The Authorized Participant Agreement will permit the Trust to buy the missing
Deposit Securities at any time and will subject the Authorized Participant 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, Authorized Participants 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 Authorized Participants 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 Trusts 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 Trusts 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. Purchasers of Creation Units for cash are required to pay an additional variable
charge to compensate the relevant Fund for brokerage and market impact expenses. When the Trust permits an in-kind purchaser to substitute cash in lieu of depositing a portion of the Deposit Securities, the purchaser will be assessed the additional
variable charge for cash purchases on the cash in lieu portion of its investment up to a maximum additional variable charge as indicated in the chart below. Investors 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.
30
The following table sets forth each Funds standard maximum creation transaction fees and maximum
additional variable charges:
|
|
|
|
|
|
|
|
|
Fund
|
|
Standard Creation
Transaction Fee
|
|
|
Maximum Additional
Variable Charge*
|
|
db-X MSCI Emerging Markets Hedged Equity Fund
|
|
$
|
7,300
|
|
|
|
0
|
%
|
db X-trackers MSCI EAFE Hedged Equity Fund
|
|
|
5,000
|
|
|
|
0
|
%
|
db X-trackers MSCI Brazil Hedged Equity Fund
|
|
|
1,500
|
|
|
|
0
|
%
|
db X-trackers MSCI Germany Hedged Equity Fund
|
|
|
850
|
|
|
|
0
|
%
|
db X-trackers MSCI Japan Hedged Equity Fund
|
|
|
2,500
|
|
|
|
0
|
%
|
db X-trackers Regulated Utilities Index Fund
|
|
|
[
|
]
|
|
|
[
|
]%
|
*
|
As a percentage of the amount invested.
|
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 by the Distributor 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 partially for cash and partially in-kind. In the case of in-kind redemptions, the Adviser and/or Sub-Adviser 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.
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 fee will be the same regardless of the number of Creation Units redeemed by an investor on the same day. The redeeming investor may be assessed an additional variable charge on the cash in
lieu portion of its redemption proceeds. The standard redemption transaction fees are set forth below. Investors 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.
The following table sets forth each Funds
standard redemption transaction fees:
|
|
|
|
|
Fund
|
|
Standard Redemption
Transaction Fee
|
|
db X-trackers MSCI Emerging Markets Hedged Equity Fund
|
|
$
|
7,300
|
|
db X-trackers MSCI EAFE Hedged Equity Fund
|
|
|
5,000
|
|
db X-trackers MSCI Brazil Hedged Equity Fund
|
|
|
1,500
|
|
db X-trackers MSCI Germany Hedged Equity Fund
|
|
|
850
|
|
db X-trackers MSCI Japan Hedged Equity Fund
|
|
|
2,500
|
|
db X-trackers Regulated Utilities Index Fund
|
|
|
[
|
]
|
The maximum redemption fee, as a percentage of the amount redeemed, is 2%. Redemption requests for Creation Units of any
Fund must be submitted to the Distributor by or through an Authorized Participant. An Authorized Participant must submit an irrevocable redemption request before 4:00 p.m., Eastern time on any Business Day in order to receive that days NAV. In
the case of custom redemptions, the order must be received by the Distributor no later than 3:00 p.m., Eastern time. Investors other than through Authorized Participants are responsible for making arrangements for a redemption request to be made
through an Authorized Participant. The Distributor will provide a list of current Authorized Participants upon request.
The Authorized
Participant must transmit the request for redemption in the form required by the Trust to the Distributor 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
31
investors broker through an Authorized Participant 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 Authorized Participant. Investors making a request to redeem Creation Units should allow
sufficient time to permit proper submission of the request by an Authorized Participant and transfer of the Shares to the Trusts 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 Authorized Participants.
A redemption request
is considered to be in proper form if (i) an Authorized Participant has transferred or caused to be transferred to the Trusts 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 by the Distributor from the Authorized Participant 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 investors Shares through DTCs 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 Distributor shall notify the Trust and the Trusts
Transfer Agent of such redemption request. The tender of an investors 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 Authorized
Participant 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 Authorized Participant submitting the
redemption request.
A redeeming Beneficial Owner or Authorized Participant 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 Authorized Participant acting on behalf of such redeeming Beneficial Owner has appropriate
arrangements to take delivery of Fund Securities in the applicable non-U.S. 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
Trusts 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 U.S. 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 Authorized Participant
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 Funds portfolio securities or
determination of its NAV is not reasonably practicable or (iv) in such other circumstance as is permitted by the SEC.
An Authorized
Participant submitting a redemption request is deemed to represent to the Trust that it (or its client) (i) owns outright or has full legal authority and legal beneficial right to tender for redemption the requisite number of Fund shares to be
redeemed and can receive the entire proceeds of the redemption, and (ii) the Fund shares to be redeemed have not been loaned or pledged to another party nor are they the subject of a repurchase agreement, securities lending agreement or such
other arrangement that would preclude the delivery of such fund shares to the Trust. 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 Authorized Participant, 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.
32
Taxation on Creation and Redemptions of Creation Units.
An Authorized Participant 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 Authorized Participants 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. Authorized Participants 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 Authorized Participant 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.
Taxes
Regulated Investment Company Qualifications.
Each Fund intends to qualify for treatment as a separate RIC under Subchapter M of the Code. To qualify for treatment as a RIC, each Fund must annually
distribute at least 90% of its investment company taxable income (which includes dividends, interest and net short-term capital gains) and meet several other requirements. Among such other requirements are the following: (i) at least 90% of
each Funds 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-U.S. currencies, other income (including, but not
limited to, gains from options, futures or forward contracts) derived with respect to its business of investing in such stock, securities or currencies, and net income derived from interests in qualified publicly-traded partnerships (i.e.,
partnerships that are traded on an established securities market or tradable on a secondary market, other than partnerships that derive 90% of their income from interest, dividends, capital gains and other traditionally permitted mutual fund
income); and (ii) at the close of each quarter of each Funds taxable year, (a) at least 50% of the market value of each Funds total assets must be represented by cash and cash items, U.S. 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 Funds 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 Funds total assets may be invested in the securities (other than U.S. government securities or the securities of other RICs) of any one issuer, of 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.
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 Funds investments in partnerships, including in qualified publicly-traded partnerships, may result in a Fund being subject to state, local, or non-U.S. income, franchise or
withholding tax liabilities.
Taxation of RICs.
As a RIC, a Fund will not be subject to U.S. 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 at least
the sum of (i) 90% of its investment company taxable income (i.e., income other than its net realized long-term capital gain over its net realized short-term capital loss), plus or minus certain adjustments, and (ii) 90% of its
net tax-exempt income for the taxable year. A Fund will be subject to income tax at regular corporation rates on any taxable income or gains that it does not distribute to its Shareholders. If a Fund fails to qualify for any taxable year as a RIC or
fails to meet the distribution requirement, all of its taxable income will be subject to tax at regular corporate income tax rates without any deduction for distributions to Shareholders, and such distributions generally will be taxable to
Shareholders as ordinary dividends to the extent of the Funds current and accumulated earnings and profits. In such event, distributions to individuals should be eligible to be treated as qualified dividend income and distributions to
corporate Shareholders generally should be eligible for the dividends received deduction. Although each Fund intends to distribute substantially all of its net investment income and its capital gains for each taxable year, each Fund will be subject
to U.S. 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.
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Excise Tax.
A Fund will be subject to a 4% excise tax on certain undistributed income if it does not
distribute to its Shareholders in each calendar year at least 98% of its ordinary income for the calendar year plus 98% of its capital gain net income 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 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 underdistribution or overdistribution, 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.
Net Capital Loss Carryforwards.
Net capital loss carryforwards may be applied against any net realized capital
gains in each succeeding year.
Taxation of U.S. Shareholders.
Dividends and other distributions by a Fund are generally treated under
the Code as received by the Shareholders at the time the dividend or distribution is made. However, any dividend or distribution declared by a Fund in October, November or December of any calendar year and payable to Shareholders of record on a
specified date in such a month shall be deemed to have been received by each Shareholder on December 31 of such calendar year and to have been paid by the Fund not later than such December 31, provided such dividend is actually paid by the
Fund during January of the following calendar year.
Each Fund intends to distribute annually to its Shareholders substantially all of its
investment company taxable income and any net realized long-term capital gains in excess of net realized short-term capital losses (including any capital loss carryovers). However, if a Fund retains for investment an amount equal to all or a portion
of its net long-term capital gains in excess of its net short-term capital losses (including any capital loss carryovers), it will be subject to a corporate tax (currently at a maximum rate of 35%) on the amount retained. In that event, the Fund may
designate such retained amounts as undistributed capital gains in a notice to its Shareholders who (a) will be required to include in income for U.S. federal income tax purposes, as long-term capital gains, their proportionate Shares of the
undistributed amount, (b) will be entitled to credit their proportionate Shares of the 35% tax paid by the Fund on the undistributed amount against their U.S. federal income tax liabilities, if any, and to claim refunds to the extent their
credits exceed their liabilities, if any, and (c) will be entitled to increase their tax basis, for U.S. federal income tax purposes, in their Shares by an amount equal to 65% of the amount of undistributed capital gains included in the
Shareholders income. Organizations or persons not subject to U.S. federal income tax on such capital gains will be entitled to a refund of their pro rata Share of such taxes paid by the Fund upon filing appropriate returns or claims for refund
with the IRS.
Distributions of net realized long-term capital gains, if any, that a Fund reports as capital gains dividends are taxable as
long-term capital gains, whether paid in cash or in Shares and regardless of how long a Shareholder has held Shares of the Fund. All other dividends of a Fund (including dividends from short-term capital gains) from its current and accumulated
earnings and profits (regular dividends) are generally subject to tax as ordinary income, subject to the discussion of qualified dividend income below.
If an individual receives a regular dividend qualifying for the long-term capital gains rates and such dividend constitutes an extraordinary dividend, and the individual subsequently
recognizes a loss on the sale or exchange of stock in respect of which the extraordinary dividend was paid, then the loss will be long-term capital loss to the extent of such extraordinary dividend. An extraordinary dividend on common
stock for this purpose is generally a dividend (i) in an amount greater than or equal to 10% of the taxpayers 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 taxpayers 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 Funds 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 Shareholders 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 be treated for U.S. 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 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 Funds gross income not as of the date received but as of the later of (a) the date such security became ex-dividend with respect to such dividends (i.e., the date on which a buyer of the
security would not be entitled to receive the declared, but unpaid, dividends); or (b) the date the Fund acquired such security. Accordingly, in order to satisfy its income distribution requirements, a Fund may be required to pay dividends
based on anticipated earnings, and Shareholders may receive dividends in an earlier year than would otherwise be the case.
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In certain situations, a Fund may, for a taxable year, defer all or a portion of its capital losses and
currency losses realized after October 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 realized after October may affect the tax character of Shareholder distributions.
For taxable years beginning after December 31,
2012, an additional 3.8% Medicare tax will be 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
U.S. individuals, estates and trusts to the extent that such persons modified adjusted gross income (in the case of an individual) or adjusted gross income (in the case of an estate or trust) exceeds a threshold amount.
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 Shareholders basis in Shares of a Fund. A redemption of Shares by a Fund will be treated as a sale for this purpose. Such gain or loss will be treated as capital gain or loss if the Shares are
capital assets in the Shareholders 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 U.S. federal income tax purposes as a long-term capital loss to the extent of any distributions or deemed distributions of long-term capital gains received by the Shareholder with respect to such Share.
If a Shareholder incurs a sales charge in acquiring Shares of a Fund, disposes of those Shares within 90 days and then acquires, prior to February 1
of the following calendar year, Shares in a mutual fund for which the otherwise applicable sales charge is reduced by reason of a reinvestment right (e.g., an exchange privilege), the original sales charge will not be taken into account in computing
gain/loss on the original Shares to the extent the subsequent sales charge is reduced. Instead, the disregarded portion of the original sales charge will be added to the tax basis of the newly acquired Shares. Furthermore, the same rule also applies
to a disposition of the newly acquired Shares made within 90 days of the second acquisition. This provision prevents Shareholders from immediately deducting the sales charge by shifting their investments within a family of mutual funds.
Back-Up Withholding.
In certain cases, a Fund will be required to withhold at the applicable withholding rate (currently 28% and scheduled to
increase to 31% after 2012), and remit to the U.S. Treasury such amounts withheld 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 to a Fund that such Shareholder is not subject to back-up withholding; or (iv) has not certified that such Shareholder is a U.S. person (including a U.S. resident alien). Back-up withholding is not
an additional tax and any amount withheld may be credited against a Shareholders U.S. federal income tax liability.
Sections 351 and
362.
The Trust, on behalf of each Fund, has the right to reject an order for a purchase of Shares of the Fund if the purchaser (or group of purchasers) would, upon obtaining the Shares so ordered, own 80% or more of the outstanding Shares of a
given Fund and if, pursuant to Sections 351 and 362 of the Code, that Fund would have a basis in the securities different from the market value of such securities on the date of deposit. If a Funds 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.
Taxation of Certain Derivatives.
A
Funds transactions in zero coupon securities, non-U.S. currencies, forward contracts, options and futures contracts (including options and futures contracts on non-U.S. currencies), to the extent permitted, will be subject to special
provisions of the Code (including provisions relating to hedging transactions and straddles) that, among other things, may affect the character of gains and losses realized by the Fund (i.e., may affect whether gains or
losses are ordinary or capital), accelerate recognition of income to the Fund and defer Fund losses. These rules could therefore affect the character, amount and timing of distributions to Shareholders. These provisions also (a) will require a
Fund to mark-to-market certain types of the positions in its portfolio (i.e., treat them as if they were closed out at the end of each year) and (b) may cause a Fund to recognize income without
35
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-U.S. 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 Funds investment in so-called
Section 1256 contracts, such as regulated futures contracts, most non-U.S. 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 Funds income as if each position had been sold for its fair market value
at the end of the taxable year. The resulting gain or loss will be combined with any gain or loss realized by the Fund from positions in Section 1256 contracts closed during the taxable year. Provided such positions were held as capital assets
and were not part of a hedging transaction nor part of a straddle, 60% of the resulting net gain or loss will be treated as long-term capital gain or loss, and 40% of such net gain or loss will be treated as short-term
capital gain or loss, regardless of the period of time the positions were actually held by the Fund.
As a result of entering into swap
contracts, a Fund may make or receive periodic net payments. A Fund may also make or receive a payment when a swap is terminated prior to maturity through an assignment of the swap or other closing transaction. Periodic net payments will generally
constitute ordinary income or deductions, while termination of a swap will generally result in capital gain or loss (which will be a long-term capital gain or loss if the Fund has been a party to the swap for more than one year). With respect to
certain types of swaps, a Fund may be required to currently recognize income or loss with respect to future payments on such swaps or may elect under certain circumstances to mark such swaps to market annually for tax purposes as ordinary income or
loss. The tax treatment of many types of credit default swaps is uncertain.
Qualified Dividend Income.
Distributions by a Fund of
investment company taxable income (including any short-term capital gains), whether received in cash or Shares, will be taxable either as ordinary income or as qualified dividend income, eligible for the reduced maximum rate to individuals of 15%
(0% for individuals in lower tax brackets) to the extent the Fund receives qualified dividend income on the securities it holds and the Fund designates the distribution as qualified dividend income. Absent further legislation, the maximum 15% rate
on qualified dividend income will not apply to dividends received in taxable years beginning after December 31, 2012. Distributions by a Fund of its net short-term capital gains will be taxable as ordinary income. Capital gain distributions
consisting of a Funds net capital gains will be taxable as long-term capital gains. Qualified dividend income is, in general, dividend income from taxable U.S. corporations (but generally not from U.S. REITs) and certain non-U.S. corporations
(e.g., non-U.S. corporations that are not passive foreign investment companies and which are incorporated in a possession of the U.S. or in certain countries with a comprehensive tax treaty with the U.S., or the stock of which is readily
tradable on an established securities market in the U.S.). Under current IRS guidance, the United States has appropriate comprehensive income tax treaties with the following countries: Australia, Austria, Bangladesh, Barbados, Belgium, Canada, China
(but not with Hong Kong, which is treated as a separate jurisdiction for U.S. 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, Mexico, Morocco, the Netherlands, New Zealand, Norway, Pakistan, the Philippines, Poland, Portugal, Romania, Russia, Slovak Republic, Slovenia, South Africa, South Korea, Spain, Sri Lanka, Sweden,
Switzerland, Thailand, Trinidad and Tobago, Tunisia, Turkey, Ukraine, the United Kingdom, and Venezuela.
A dividend from a Fund will not be
treated as qualified dividend income to the extent that (i) the Shareholder has not held the Shares on which the dividend was paid for 61 days during the 121-day period that begins on the date that is 60 days before the date on which the Shares
become ex-dividend with respect to such dividend or the Fund fails to satisfy those holding period requirements with respect to the securities it holds that paid the dividends distributed to the Shareholder (or, in the case of certain preferred
stocks, the holding requirement of 91 days during the 181-day period beginning on the date that is 90 days before the date on which the stock becomes ex-dividend with respect to such dividend); (ii) the Fund or the Shareholder is under an
obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to substantially similar or related property; or (iii) the Shareholder elects to treat such dividend as investment income under
Section 163(d)(4)(B) of the Code. Dividends received by a Fund from a REIT or another RIC may be treated as qualified dividend income only to the extent the dividend distributions are attributable to qualified dividend income received by such
REIT or other RIC. It is expected that dividends received by a Fund from a REIT and distributed to a Shareholder generally will be taxable to the Shareholder as ordinary income.
If you lend your Fund Shares pursuant to securities lending arrangements you may lose the ability to use non-U.S. tax credits passed through by the Fund or to treat Fund dividends (paid while the Shares
are held by the borrower) as qualified dividends. Consult your financial intermediary or tax advisor. If you enter into a short sale with respect to Shares of the Fund, substitute payments made to the lender of such Shares may not be deductible.
Consult your financial intermediary or tax advisor.
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Corporate Dividends Received Deduction.
Each Fund does not expect dividends that are paid to its
corporate Shareholders to be eligible, in the hands of such Shareholders, for the corporate dividends received deduction.
Excess Inclusion
Income.
Under current law, the Funds serve to block unrelated business taxable income from being realized by their tax-exempt Shareholders. Notwithstanding the foregoing, a tax-exempt Shareholder could realize unrelated business taxable income
by virtue of its investment in a 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 a Fund from REITs, real
estate mortgage investment conduits, taxable mortgage pools or other investments may cause the Fund to designate some or all of its distributions as excess inclusion income. To Fund Shareholders, such excess inclusion income may
(i) constitute taxable income, as unrelated business taxable income for those Shareholders who would otherwise be tax-exempt such as individual retirement accounts, 401(k) accounts, Keogh plans, pension plans and certain charitable
entities; (ii) not be offset by otherwise allowable deductions for tax purposes; (iii) not be eligible for reduced U.S. withholding for non-U.S. 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-U.S. 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 non-U.S. currency and the time the Fund actually collects such income or pays such liabilities are generally
treated as ordinary income or ordinary loss. In general, 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 U.S. dollar and the
currencies in which the instruments are denominated. Similarly, gain or losses on non-U.S. currency, non-U.S. currency forward contracts and certain non-U.S. currency options or futures contracts denominated in non-U.S 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.
Each Fund may be subject to non-U.S. income taxes withheld at the source. Each Fund, if permitted to do so, may elect to pass through to its investors the amount of non-U.S. income taxes paid
by the Fund provided that the Fund held the security on the dividend settlement date and for at least 15 additional days immediately before and/or thereafter, with the result that each investor with respect to Shares of the Fund held for a minimum
16-day holding period at the time of deemed distribution will (i) include in gross income, even though not actually received, the investors pro rata Share of the Funds non-U.S. income taxes, and (ii) either deduct (in
calculating U.S. taxable income) or credit (in calculating U.S. federal income tax) the investors pro rata Share of the Funds non-U.S. income taxes. A non-U.S. person invested in the Fund in a year that the Fund elects to pass
through its non-U.S. taxes may be treated as receiving additional dividend income subject to U.S. withholding tax. A non-U.S. tax credit may not exceed the investors U.S. federal income tax otherwise payable with respect to the
investors non-U.S. source income. For this purpose, Shareholders must treat as non-U.S. source gross income (i) their proportionate Shares of non-U.S. taxes paid by the Fund and (ii) the portion of any dividend paid by the Fund that
represents income derived from non-U.S. sources; the Funds gain from the sale of securities will generally be treated as U.S.-source income. Certain limitations will be imposed to the extent to which the non-U.S. tax credit may be claimed.
Passive Foreign Investment Companies.
If a Fund purchases Shares in passive foreign investment companies
(PFICs), it may be subject to U.S. 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.
If a Fund were to invest in a PFIC and elect to treat the PFIC as a qualified electing fund under the Code, in lieu of the foregoing requirements, the Fund might 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 such gains as ordinary income and would deduct any such losses as ordinary losses to the extent of previously recognized gains. The election must be made separately for each PFIC owned
37
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. The
Fund may have to distribute this phantom income and gain to satisfy the 90% distribution requirement and to avoid imposition of the 4% excise tax.
A Fund will make the appropriate tax elections, if possible, and take any additional steps that are necessary to mitigate the effects of these rules.
Reporting.
If a Shareholder recognizes a loss with respect to a Funds 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 taxpayers 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-U.S. taxes depending on each Shareholders particular situation.
Taxation of Non-U.S. Shareholders.
Dividends paid by a Fund to non-U.S. 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. In order to obtain a reduced rate of withholding, a non-U.S. Shareholder will be required to provide an IRS Form W-8BEN certifying its entitlement to benefits under a
treaty. The withholding tax does not apply to regular dividends paid to a non-U.S. Shareholder who provides a Form W-8ECI, certifying that the dividends are effectively connected with the non-U.S. Shareholders conduct of a trade or business
within the United States. Instead, the effectively connected dividends will be subject to regular U.S. income tax as if the non-U.S. Shareholder were a U.S. Shareholder. A non-U.S. 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-U.S. Shareholder who fails to provide an IRS Form W-8BEN or other applicable form may be subject to back-up withholding at the appropriate
rate.
In general, U.S. federal withholding tax will not apply to any gain or income realized by a non-U.S. Shareholder in respect of any
distributions of net long-term capital gains over net short-term capital losses, exempt-interest dividends, 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-U.S. person subject to U.S. tax on disposition of a U.S. real property interest as if such person were a U.S.
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 RICs assets consists of interests in REITs and U.S. real property holding corporations); and (ii) you are a non-U.S. shareholder that owns
more than 5% of a Funds 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 U.S. real property
interest (USRPI), may also be treated as USRPI gain and therefore subject to U.S. withholding tax at a rate of 35%, and requiring that you file a nonresident U.S. income tax return. Also, such gain may be subject to a 30% branch profits
tax in the hands of a non-U.S. shareholder that is a corporation. Even if a non-U.S. Shareholder does not own more than 5% of a Funds 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.
These rules apply to dividends paid by a Fund before
January 1, 2012 (unless such sunset date is extended, possibly retroactively to January 1, 2012, or made permanent). After such sunset date, Fund distributions from a U.S. REIT attributable to FIRPTA gain will continue to be subject to the
withholding rules described above provided the fund would otherwise be classified as a qualified investment entity.
Further, if a
Fund is a U.S. 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
U.S. shareholder. A Fund will be a U.S. real property holding corporation if, in general, 50% or more of the fair market value of its assets consists of U.S. real property interests, including stock of certain U.S. REITs.
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For taxable years beginning before January 1, 2012 (unless further extended by Congress), properly
designated dividends received by a nonresident alien or foreign entity are generally exempt from U.S. federal withholding tax when they (a) are paid in respect of a Funds qualified net interest income (generally, a Funds
U.S. source interest income, reduced by expenses that are allocable to such income), or (b) are paid in connection with a Funds qualified short-term capital gains (generally, the excess of a Funds net short-term capital
gain over the Funds long-term capital loss for such taxable year). However, depending on the circumstances, a Fund may designate all, some or none of the Funds potentially eligible dividends as such qualified net interest income or as
qualified short-term capital gains, and a portion of the Funds distributions (e.g. interest from non U.S. sources or any foreign currency gains) would be ineligible for this potential exemption from withholding. There can be no assurance as to
whether or not legislation will be enacted to extend this exemption.
Shares of a Fund held by a non-U.S. Shareholder at death will be
considered situated within the United States and subject to the U.S. estate tax.
Effective January 1, 2014, the Funds will be required
to withhold U.S. tax (at a 30% rate) on payments of taxable dividends and (effective January 1, 2015) redemption proceeds made to certain non-U.S. entities that fail to comply (or be deemed compliant) with extensive new reporting and
withholding requirements designed to inform the U.S. Department of the Treasury of U.S.-owned foreign investment accounts. Shareholders may be requested to provide additional information to the Funds to enable the Funds to determine whether
withholding is required.
The foregoing discussion is a summary of certain material U.S. federal income tax considerations only and is not
intended as a substitute for careful tax planning. Purchasers of Shares should consult their own tax advisers as to the tax consequences of investing in such Shares, including under state, local and non-U.S 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.
With respect to Brazil, a 6% Imposto sobre Operacões Financeiras (IOF) tax, with the rate subject to
change, applies to certain foreign exchange inflows into Brazil with respect to fixed income trades, and 2% IOF tax, with rates subject to change, applies to certain foreign exchange inflows into Brazil with respect to equity trades. Also, a 1.5%
IOF tax applies to the creation of new American or Global Depositary Receipt issuances with respect to Brazilian equities and a 0.38% IOF tax applies to the cancellation of American or Global Depositary Receipts if the underlying equities are then
issued in the Brazil (local) markets. If incurred by the Fund, an IOF tax would not be creditable against U.S. income tax liability.
Miscellaneous Information
Counsel.
Dechert LLP, located at 1095 Avenue of the Americas, New York, New York 10036, is counsel to
the Trust.
Independent Registered Public Accounting Firm.
[ ], located at [ ], serves as
the Trusts independent registered public accounting firm, audits the Funds financial statements, and may perform other services.
Financial Statements
Each of the Annual Report to shareholders as of May 31, 2012 and for the fiscal period then ended and the Semi-Annual Report to Shareholders as of November 30, 2012 and for the six months then
ended is a separate document supplied with this SAI. The audited financial statements included in the Annual Report, including the financial highlights, accompanying notes and report appearing therein of Ernst & Young LLP, the
Companys independent registered public accounting firm and the unaudited financial statements included in the Semi-Annual Report, including the financial highlights and accompanying notes, are incorporated by reference into this SAI. You may
request a copy of the Trusts Annual Report at no charge by calling 1-855-329-3837 (1-800-DBX-ETFS) during normal business hours.
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