As filed with the Securities and Exchange Commission on January 31, 2013.
Securities Act File No. 333-170122
Investment Company File No. 811-22487
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM N-1A
REGISTRATION STATEMENT
|
|
|
|
|
|
|
UNDER
|
|
|
|
|
THE SECURITIES ACT OF 1933
|
|
x
|
|
|
Pre-Effective Amendment No.
|
|
¨
|
|
|
Post-Effective Amendment No. 5
|
|
x
|
and/or
REGISTRATION STATEMENT
|
|
|
|
|
|
|
UNDER
|
|
|
|
|
THE SECURITIES ACT OF 1940
|
|
x
|
|
|
Amendment No. 7
|
|
x
|
(Check appropriate box or boxes)
DBX ETF TRUST
(Exact name of Registrant as specified in its charter)
60 Wall
Street
New York, New York 10005
(Address of Principal Executive Offices) (Zip Code)
Registrants
Telephone Number, including Area Code:
(212) 250-5883
Alex Depetris
DBX ETF Trust
60 Wall Street
New York, New York 10005
(Name and Address of Agent for Service)
It is proposed that this filing
will become effective: (check appropriate box)
|
¨
|
immediately upon filing pursuant to paragraph (b)
|
|
¨
|
on (date) pursuant to paragraph (b)
|
|
¨
|
60 days after filing pursuant to paragraph (a) (1)
|
|
¨
|
on (date) pursuant to paragraph (a)(1)
|
|
x
|
75 days after filing pursuant to paragraph (a)(2)
|
|
¨
|
on (date) pursuant to paragraph (a)(2) of Rule 485
|
If appropriate, check the following box:
|
¨
|
this post-effective amendment designates a new effective date for a previously filed post-effective amendment
|
db X-trackers Harvest CSI 300 Index ETF
NYSE Arca, Inc.: [XXXX]
PROSPECTUS
[April __], 2013
The Securities and Exchange Commission (SEC) has not approved or
disapproved these securities or passed upon the adequacy of this prospectus. Any representation to the contrary is a criminal offense. Shares in a Fund are not guaranteed or insured by the Federal Deposit Insurance Corporation (FDIC) or
any other agency of the U.S. Government, nor are shares deposits or obligations of any bank.
Such shares in a Fund involve investment risks,
including the loss of principal.
Table of Contents
db X-trackers Harvest CSI 300 Index ETF
|
|
|
|
|
Ticker: [XXXX]
|
|
|
|
Stock Exchange: NYSE Arca
|
Investment Objective
The db X-trackers Harvest CSI 300 Index ETF (the Fund) seeks investment results that correspond generally to the performance, before fees and expenses, of the CSI 300 Index (the
Underlying Index).
Fees and Expenses
The following table describes the fees and expenses that you will incur if you own shares of the Fund.
You will also incur usual and customary brokerage commissions when buying or selling shares of the Fund, which are not reflected in the example that follows:
Annual Fund Operating Expenses
(expenses that you pay each year as a
percentage of the value
of your investment)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Management
Fee
|
|
Other
Expenses
|
|
|
Total
Annual
Fund
Operating
Expenses
|
|
|
Fee Waivers and
Expense
Reimbursement(1)
|
|
|
Total Annual Fund
Operating Expenses
After Fee Waivers
and
Expense
Reimbursement
|
|
X.XX%
|
|
|
X.XX
|
%
|
|
|
X.XX
|
%
|
|
|
X.XX
|
%
|
|
|
X.XX
|
%
|
(1)
|
Effective as of the date of this Prospectus, DBX Advisors LLC (the Adviser) has contractually agreed through
[April
], 2014 to waive fees and/or reimburse the Funds expenses in order to limit the Funds net annual operating expenses to X.XX% of the Funds average daily net assets,
except for interest expense, taxes, brokerage expenses, distribution fees or expenses, litigation expenses and other extraordinary expenses (the Expense Cap). In accordance with and as required by the Expense Cap, the Adviser will
reimburse the Fund for the Independent Trustee Fees. The Expense Cap will remain in effect until at least [April
], 2014 and may only be terminated with the consent of the DBX ETF
Trusts (the Trust) Board of Trustees (the Board) (and may not be terminated by the Adviser) prior to that time. The fee table reflects the effect of the Expense Cap.
|
1
Example.
This example is intended to help you compare the cost of investing in the Fund with the
cost of investing in other funds.
This example assumes that you invest $10,000 in the Fund for the time periods indicated and then sell all
of your Shares at the end of those periods. The example also assumes that your investment has a 5% return each year and that the Funds operating expenses remain the same. Although your actual costs may be higher or lower, based on these
assumptions your costs would be:
Portfolio Turnover.
The Fund pays transaction costs, such as commissions, when it buys and sells securities (or
turns over its portfolio). A higher portfolio turnover rate may indicate higher transaction costs and may result in higher taxes when Fund shares are held in a taxable account. These costs, which are not reflected in annual fund
operating expenses or in the example, affect the Funds performance.
Principal Investment Strategies
The Underlying Index is designed to reflect the price fluctuation and performance of the China A share market and is composed of the 300
largest and most liquid stocks in the China A share market. The Fund, using a passive or indexing investment approach, attempts to approximate the investment performance of the Underlying Index. The Adviser expects that, over time, the
correlation between the Funds performance and that of the Underlying Index, before fees and expenses, will be 95% or better. A figure of 100% would indicate perfect correlation.
A shares are issued by companies incorporated in mainland China and are traded in renminbi
(RMB) on the Shenzhen and Shanghai Stock Exchanges. Subject to minor exceptions, under current regulations in the Peoples Republic of China (China or the PRC), foreign investors can invest in the domestic
PRC securities market only through certain foreign institutional investors that have obtained status as a Qualified Foreign Institutional Investor (QFII) or a Renminbi Qualified Foreign Institutional Investor (RQFII) from the
China Securities Regulatory Commission (CSRC) and have been granted a specific aggregate dollar amount investment quota by the Chinas State Administration of Foreign Exchange (SAFE) to invest foreign freely convertible
currencies (in the case of a QFII) and RMB (in the case of a RQFII) into the PRC for the purpose of investing in the PRCs domestic securities markets. The Sub-Adviser has obtained a RQFII license and has been granted, on behalf of the Fund, an
initial RQFII quota of $[XXX million]. The Sub-Adviser, on behalf of the Fund, may invest in A shares and other permitted China securities listed on the Shanghai and Shenzhen Stock Exchanges up to the specified quota amount. The Sub-Adviser may
apply for an increase of the initial RQFII quota if it uses the initial quota in its entirety.
The Sub-Adviser expects to use a full
replication indexing strategy to seek to track the Underlying Index. As such, the Sub-Adviser expects to invest directly in the component securities (or a
2
substantial number of the component securities) of the Underlying Index in substantially the same weightings in which they are represented in the Underlying Index. If it is not possible for the
Sub-Adviser to acquire component securities due to limited availability or regulatory restrictions, the Sub-Adviser may use a representative sampling indexing strategy to seek to track the Underlying Index instead of a full replication indexing
strategy. Representative sampling is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to the Underlying Index. The securities selected are expected
to have, in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield) and liquidity measures similar to those of the
Underlying Index. The Fund may or may not hold all of the securities in the Underlying Index when the Sub-Adviser is using a representative sampling indexing strategy.
The Fund will normally invest at least 80% of its total assets in securities that comprise the Underlying Index. While the Fund intends to invest primarily and directly in A shares, the Fund may also
invest in securities not included in the Underlying Index, swap contracts and other types of derivative instruments, and other pooled investment vehicles that the Adviser and/or Sub-Adviser believes will help the Fund to achieve its investment
objective. The remainder of the Funds assets will be invested primarily in money market instruments and cash equivalents.
Industry Concentration Policy.
The Fund will concentrate its investments (i.e., hold 25% or more of
its total assets) in a particular industry or group of industries to the extent that its Underlying Index is concentrated. As of December 31, 2012, the Underlying Index is concentrated in the [financial services sector].
Summary of Principal Risks
As with any investment, you could lose all or part of your investment in the Fund, and the Funds performance could trail that of other investments. The 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, as well as numerous other risks that are described in greater detail in the section of the Prospectus
entitled Further Discussion of Principal Risks and in the Statement of Additional Information (SAI).
Special
Risk Considerations Relating to the RQFII Regime and Investments in A Shares.
The Advisers ability to achieve its investment objective by investing in the component securities of the Underlying Index is dependent on the continuous
availability of A shares and the Sub-Advisers ability to obtain additional RQFII quota on behalf of the Fund. If the Sub-Advisers RQFII quota is or becomes inadequate to meet the investment needs of the Fund or if the Sub-Adviser is
unable to maintain its RQFII status, the Adviser and/or Sub-Adviser may seek to gain exposure to the A shares market by investing in securities not included in the Underlying Index, swaps and other derivative instruments, and other pooled
3
investment vehicles that provide exposure to the A shares market until additional RQFII quota can be obtained. A reduction in or elimination of the RQFII quota may not only adversely affect the
ability of the Fund to invest directly in A shares, but also the willingness of swap counterparties to engage in swaps and the performance of pooled investment vehicles linked to the performance of A shares. Therefore, any such reduction or
elimination may have a material adverse effect on the ability of the Fund to achieve its investment objective. These risks are compounded by the fact that at present there are only a limited number of firms and counterparties that have QFII or RQFII
status or are otherwise able to obtain A shares quota. In addition, the RQFII quota may be reduced or revoked by the Chinese regulators if, among other things, the Sub-Adviser fails to observe SAFE and other applicable Chinese regulations, which
could also lead to other adverse consequences, including the requirement that the Fund dispose of its A shares holdings..
If the Fund is
unable to obtain sufficient exposure to the performance of the Underlying Index due to the limited availability of RQFII quota or other investments that provide exposure to the performance of A shares, the Fund could, among other actions, suspend
creations until the Sub-Adviser determines that the requisite exposure to the Underlying Index is obtainable. During the period that creations are suspended, the Fund could trade at a significant premium or discount to the NAV and could experience
substantial redemptions. Alternatively, the Fund could change its investment objective by, for example, seeking to track an alternative index that does not include A shares as its component securities.
Special Risk Considerations of Investing in China.
Investing in securities of Chinese issuers
involves certain risks and considerations not typically associated with investing in securities of U.S. issuers, including, among others, (i) the small size of the market for Chinese securities and the low volume of trading, resulting in lack
of liquidity and in price volatility, (ii) currency devaluations and other currency exchange rate fluctuations or blockage, (iii) the nature and extent of intervention by the Chinese government in the Chinese securities markets, whether
such intervention will continue and the impact of such intervention or its discontinuation, (iv) the risk of nationalization or expropriation of assets, (v) the risk that the Chinese government may decide not to continue to support
economic reform programs, (vi) limitations on the use of brokers, (vii) higher rates of inflation, (viii) greater political, economic and social uncertainty, (ix) market volatility caused by any potential regional territorial
conflicts or natural disasters, and (x) custody risks associated with investing through a RQFII.
A Shares Tax Risk.
Currently, there is no specific PRC tax rule governing the taxation of RQFIIs. In this regard, the general principle of the PRC Corporate Income Tax Law and regulations including Guoshuihan [2009] 47 (Circular 47), which was
issued to address the PRC Withholding Income Tax (WHT) treatment of dividends and interest derived by QFIIs from PRC resident enterprises, and Guoshuihan [2009] 394 (Circular 394), which was
4
issued to clarify the PRC WHT treatment of dividends derived by non PRC resident enterprises from A shares, B shares and overseas listed shares issued by PRC resident enterprises should apply.
Assuming that the RQFIIs are not PRC tax resident enterprises and do not have a place of business, an establishment or a permanent establishment in the PRC, RQFIIs should be liable to PRC WHT at a rate of 10% (which may be reduced by applicable tax
treaty) with respect to dividends derived from A shares and interest. The WHT on dividends and interest should be withheld by the share issuers and interest payer. Circular 47 and Circular 394 did not clarify the WHT treatment in respect of capital
gains derived by non PRC resident enterprises (including RQFIIs) from the trading of A shares. In the absence of specific PRC tax regulations, capital gains realized by RQFIIs on the sale of A shares should be subject to WHT at a rate of 10% (which
may be reduced by applicable tax treaty) in China pursuant to the general principle of the current PRC Corporate Income Tax Law. However, the precise method of calculating and collecting the tax has not been determined. Although the PRC tax bureaus
have not enforced the collection of WHT on capital gains derived from RQFIIs in practice there is a risk that PRC tax authorities may seek to collect WHT on capital gains realized by RQFIIs on the sale of A shares on a retroactive basis without
giving any prior warning. If such WHT is collected, the WHT liability should be payable by the RQFII and may be passed on to and borne by the Fund.
In light of the uncertainty on the WHT treatment on capital gains arising from disposal of PRC securities derived by RQFIIs and in order to meet this potential WHT liability for
capital gains, the Adviser reserves the right to put in place a WHT provision (Capital Gains Tax Provision) on such gains or income and withhold the WHT for the account of the Fund.
The Adviser will at present make a provision of 10% for the account of the Fund in respect of any potential WHT on capital gains from the Funds investments. The amount of actual provision will be disclosed in the Funds annual and
semi-annual reports to investors. Investors should note that such provision may be excessive or inadequate to meet actual PRC WHT liabilities on the Funds investments. As a result, investors may be advantaged or disadvantaged depending on the
final rules of the relevant PRC tax authorities.
In addition, the Adviser intends to make relevant provision on dividends from A shares and
interest if the WHT on dividends and interest is not withheld at the source at the time such income is received.
When the RQFIIs transfer A
shares and B shares, they are also subject to PRC Stamp Duty at a rate of 0.1% on the transacted value. However, RQFIIs are not subject to PRC Stamp Duty when they acquire A shares and B shares. In the absence of specific guidance, RQFIIs may be
potentially subject to PRC Business Tax at a rate of 5% in respect of capital gains derived from the trading of A shares. However, RQFIIs may rely on Caishui [2005] 155, which grants BT exemption to QFIIs in respect of their gains derived from the
trading of PRC securities, to argue for BT exemption on trading gains, though it is subject to further guidance to be issued by the PRC State Administration of
5
Taxation and/or PRC Ministry of Finance. In practice, the PRC tax bureaus have not actively enforced the collection of PRC BT on such gains.
Even if the Fund qualifies and elects, for U.S. federal income tax purposes, to treat certain non-U.S. income taxes (including withholding taxes) paid by
the Fund as paid by its shareholders, your ability to claim a credit for certain PRC taxes may be limited.
In addition, to the extent the
Fund invests in swaps and other derivative instruments, such investments may be less tax-efficient than direct investment in A shares and may be subject to special U.S. federal income tax rules that could adversely affect the Fund. Also the Fund may
be required to periodically adjust its positions in those instruments to comply with certain regulatory requirements which may further cause these investments to be less efficient than a direct investment in A shares. If the Fund does not receive
approval from SAFE (and tax clearance from PRC tax authority for closed-end funds) to repatriate funds associated with direct investment in A shares on a timely basis, it may be unable to satisfy distribution requirements applicable to regulated
investment companies (RICs) under the Internal Revenue Code of 1986, as amended (the Internal Revenue Code), and it may therefore be subject to Fund-level U.S. federal tax.
The PRC taxation of RQFIIs (and QFIIs) are evolving and the tax regulations to be issued by the PRC State Administration of Taxation and/or PRC Ministry
of Finance to clarify the subject matter may apply retrospectively, which may bring adverse impact to the assets of the Fund and its investors.
Derivatives Risk.
The Funds investments in derivatives and swap contracts, in
particular, may pose risks in addition to those associated with investing directly in securities or other investments, including illiquidity of the derivatives, imperfect correlations with underlying investments or the Funds other portfolio
holdings, lack of availability and counterparty risk. To the extent the Fund invests in derivatives to seek to hedge risk or limit leveraged exposure created by other investments, there is no guarantee that such hedging strategies will be effective
at managing risk or limiting exposure to leveraged investments. The Fund could lose more than the principal amount invested.
Currency and Repatriation Risk.
The Underlying Index is calculated in RMB (CNY) whereas the Funds
reference currency is the U.S. dollar. As a result, the Funds return may be adversely affected by currency exchange rates. In addition, the Chinese government heavily regulates the domestic exchange of foreign currencies within China. Chinese
law requires that all domestic transactions must be settled in RMB, places significant restrictions on the remittance of foreign currency, and strictly regulates currency exchange from RMB. Repatriations by RQFIIs are currently permitted daily and
are not subject to repatriation restrictions or prior regulatory approval. However, there is no assurance that PRC rules and regulations will not change or that repatriation restrictions will not be imposed in the future. Further, such changes to
the PRC rules and regulations may be applied retroactively. Any restrictions on
6
repatriation of the Funds portfolio investments may have an adverse effect on the Funds ability to meet redemption requests.
Non-U.S. Securities Risk.
Investments in the securities of non-U.S. issuers involve risks beyond those associated with investments in U.S. securities. These additional risks include greater
market volatility, the availability of less reliable financial information, higher transactional and custody costs, taxation by foreign governments, decreased market liquidity and political instability.
Emerging Market Issuers Risk.
Investments in securities of emerging market issuers are exposed to a number of risks that may make these
investments volatile in price or difficult to trade. Political risks may include unstable governments, nationalization, restrictions on foreign ownership, laws that prevent investors from getting their money out of a country and legal systems that
do not protect property rights as well as the laws of the U.S. Market risks may include economies that concentrate in only a few industries, securities issues that are held by only a few investors, limited trading capacity in local exchanges and the
possibility that markets or issues may be manipulated by foreign nationals who have inside information.
Equity Securities Risk.
An investment in the Fund involves risks similar to those of investing in any fund of equity securities, such as market fluctuations, changes in interest rates and perceived trends in stock prices. Equity securities are subject to volatile changes
in value and their values may be more volatile than other asset classes.
Financial Services Sector Risk.
The Fund invests a significant portion of its assets in
securities of issuers in the financial services sector. The financial services industries are subject to extensive government regulation, can be subject to relatively rapid change due to increasingly blurred distinctions between service segments,
and can be significantly affected by availability and cost of capital funds, changes in interest rates, the rate of corporate and consumer debt defaults, and price competition. In addition, the deterioration of the credit markets since late 2007
generally has caused an adverse impact in a broad range of markets, including U.S. and international credit and interbank money markets generally, thereby affecting a wide range of financial institutions and markets. The Chinese government
encourages banks and certain non-banking financial institutions to conduct strategic transformation and financial innovations in various areas, and continue to facilitate greater access to Chinas financial industries. Such changes may have an
adverse effect on the value of the Funds financial institution holdings. The Fund also may be subject to ownership restrictions with respect to its investments in banks and certain other financial institutions in China.
[
Industrials Sector Risk.
The Fund invests a significant portion of its assets in securities issued by companies in the industrials
sector. Companies in the industrials sector may be adversely affected by changes in government regulation, world events and economic conditions. In addition, these companies are at risk for environmental damage claims. Companies in this sector could
be adversely affected by commodity
7
price volatility, changes in exchange rates, imposition of import controls, increased competition, depletion of resources, technological developments and labor relations.]
[
Basic Materials Sector Risk.
The Fund invests a significant portion of its assets in securities issues by companies in the basic
materials sector, which includes companies that manufacture chemicals, construction materials, glass and paper products, as well as metals, minerals and mining companies. Companies engaged in the production and distribution of basic materials may be
adversely affected by changes in world events, political and economic conditions, energy conservation, environmental policies, commodity price volatility, changes in exchange rates, imposition of import controls, increased competition, depletion of
resources and labor relations.]
Market Risk.
The prices of the securities in the Fund are subject to the risks associated with
investing in equity securities, including general economic conditions and sudden and unpredictable drops in value. The Funds NAV and market price, like security prices generally, will fluctuate within a wide range in response to these and
other factors.
Passive Investment Risk.
The Fund is managed with a passive investment strategy, attempting to track the
performance of an unmanaged index of securities. This differs from an actively managed fund, which typically seeks to outperform a benchmark index. As a result, the Fund may hold constituent securities of the 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.
The
performance of the Fund may diverge from that of its Underlying Index due to operating expenses, transaction costs, cash flows and operational inefficiencies. In addition, the Fund may not be able to invest in certain securities included in the
Underlying Index or invest in them in the exact proportions they represent of the Underlying Index due to legal restrictions or limitations imposed by the Chinese Government or a lack of liquidity on stock exchanges in which such securities trade.
To the extent the Fund calculates its net asset value (NAV) based on fair value prices and the value of the Underlying Index is based on securities closing prices on local foreign markets (i.e., the value of the Underlying Index is
not based on fair value prices), the Funds ability to track the Underlying Index may be adversely affected. If the Fund uses of a representative sampling approach, it may cause the Fund to not be as well correlated with the return of the
Underlying Index as would be the case if the Fund purchased all of the securities in the Underlying Index in the proportions represented in the Underlying Index. Because the Fund bears the costs and risks associated with buying and selling
securities while such costs and risks are not factored into the return of the Underlying Index, the Funds return may deviate significantly from the return of the Underlying Index.
8
Cash Transactions Risk.
Unlike most other ETFs, the Fund expects to effect all of its
creations and redemptions for cash, rather than in-kind securities. Paying redemption proceeds in cash rather than through in-kind delivery of portfolio securities may also require the Fund to dispose of or sell portfolio investments to obtain the
cash needed to distribute redemption proceeds at an inopportune time. This also may cause the Fund to recognize gains or losses that it might not have incurred if it had made a redemption in-kind. As a result the Fund may pay out higher or lower
annual capital gains distributions than ETFs that redeem in kind.
Valuation Risk.
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.
The Fund is non-diversified and may invest a large percentage of its assets in securities issued by or
representing a small number of issuers. As a result, the Fund may be more exposed to the risks associated with and developments affecting an individual issuer or a smaller number of issuers than a fund that invests more widely. 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 the Funds investments are concentrated in a particular industry, the Fund will be susceptible to loss due to adverse occurrences affecting that
industry. Based on the current composition of the Index, it is expected that the Funds assets will be concentrated in the financial services sector and that the Fund will be subject to the
risk that economic, political or other conditions that have a negative effect on that sector may adversely affect the Fund to a greater extent than if the Funds assets were invested in a wider variety of sectors or industries.
Shares May Trade at Prices Different Than NAV.
Shares may trade below their net asset value (NAV). The NAV of shares will
fluctuate with changes in the market value of the Funds holdings. In addition, although the Funds shares are currently listed on the Exchange, there can be no assurance that an active trading market for shares will develop or be
maintained.
Performance Information
As of the date of the Prospectus, the Fund has been in operation for less than one full calendar year and therefore does not report its performance information. Once available, the Funds performance
information will be accessible on the Funds website at www.dbxetf.com and will provide some indication of the risks of investing in the Fund by showing changes in the Funds performance and by showing how the Funds returns compare
with those of a broad measure of market performance.
Management
Investment Adviser.
DBX Advisors LLC.
Sub-Adviser.
Harvest Global Investments Limited.
9
Portfolio Managers.
Mr. Andy Yang and Mr. Jerry Wang, each an employee of the Sub-Adviser,
are primarily responsible for the day-to-day management of the Fund. Each Portfolio Manager functions as a member of a portfolio manager team. Mr. Yang and Mr. Wang have been Portfolio Managers of the Fund since the Funds inception.
Payment to Broker-Dealers and Other Financial Intermediaries
If you purchase shares of the Fund through a broker-dealer or other financial intermediary (such as a bank), the Adviser or other related companies may
pay the intermediary for marketing activities and presentations, educational training programs, the support of technology platforms and/or reporting systems or other services related to the sale or promotion of the Fund. These payments may create a
conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the Fund over another investment. Ask your salesperson or visit your financial intermediarys website for more information.
Purchase and Sale of Fund Shares
Fund shares will be listed and traded at market prices on an exchange. Individual Fund shares may only be purchased and sold on the exchange through a
broker-dealer. The price of Fund shares is based on market price, and because exchange-traded fund shares trade at market prices rather than at NAV, shares may trade at a price greater than NAV (a premium) or less than NAV (a discount). The Fund
will only issue or redeem shares that have been aggregated into blocks of [50,000] shares or multiples thereof (Creation Units) to authorized participants who have entered into agreements with the Funds distributor. Except when
aggregated in Creation Units, the shares are not redeemable securities of a Fund.
Tax Information
The Fund intends to make distributions that may be taxable to you as ordinary income, qualified dividend income, or capital gains. For
more information regarding the tax consequences that may be associated with investing in the Fund, please refer to the section of the Prospectus entitled Taxes on Distributions.
10
Additional Information About the Funds Investment Strategies and Risks
DBX ETF Trust is a Delaware statutory trust offering a number of professionally managed investment series or portfolios. The Fund is a
series of the Trust.
Principal Investment Strategies
The Sub-Adviser intends to fully (or at least substantially) replicate the Underlying Index, but may pursue a representative sampling indexing strategy in circumstances where there is limited availability
of component securities or regulatory restrictions that inhibit the transferability of component securities. The Adviser and Sub-Adviser expect that the Fund may not achieve full replication of the Underlying Index immediately upon commencement of
operations. In addition, from time to time, the Sub-Adviser may choose to underweight or overweight a security in the Underlying Index, purchase securities not included the Underlying Index that the Sub-Adviser believes are appropriate to substitute
for certain securities in the Underlying Index, or utilize various combinations of other available investment techniques to seek to track, before fees and expenses, the performance of the Underlying Index. The Sub-Adviser may also sell securities
that are represented in the Underlying Index in anticipation of their removal from the Underlying Index or purchase securities not represented in the Underlying Index in anticipation of their addition to the Underlying Index.
The Fund may invest its assets in other securities, including swap contracts, interests in pooled investment vehicles, securities not in the Underlying
Index, cash and cash equivalents, money market instruments, such as repurchase agreements or money market funds (including money market funds advised by the Adviser, Sub-Adviser or their affiliates subject to applicable limitations under the
Investment Company Act of 1940, as amended (the 1940 Act), or exemptions therefrom), convertible securities, structured notes (notes on which the amount of principal repayment and interest payments are based on the movement of one or
more specified factors, such as the movement of a particular stock or stock index), and in futures contracts, options on futures contracts, and other types of options related to its Underlying Index. The Fund will not invest in money market
instruments or other short-term investments as part of a temporary defensive strategy to protect against potential stock market declines.
Each of the policies described herein, including the investment objective and 80% investment policy of the Fund, constitutes a non-fundamental policy
that may be changed by the Board without shareholder approval. The Funds 80% investment policy requires 60 days prior written notice to shareholders before it can be changed. Certain fundamental policies of the Fund are set forth in the
Funds SAI.
Information About the Underlying Index.
The Underlying Index is calculated and maintained by China Securities Index
Co., Ltd. (the Index Provider).
The Underlying Index is a modified free-float market capitalization weighted index composed of
the largest and most liquid stocks in the Chinese A share market. Constituent stocks for the Underlying Index must have been listed on either the
11
Shanghai Stock Exchange or the Shenzhen Stock Exchange for more than three months (unless the stocks average daily A share market capitalization since its initial listing ranks among the
top 30 of all A shares), have demonstrated positive performance, and not be subject to abnormal volatility or other evidence of possible market manipulation. As of December 31, 2012, the Index included 300 securities of companies with a market
capitalization range of $[1.1 billion to $295.3 billion] and an average market capitalization of $[23.7] billion. These amounts are subject to change.
When selecting constituent stocks for the Underlying Index, the Index Provider: (1) calculates the daily average trading value and daily average total market capitalization during the most recent
year (or in case of new issue, during the time since its initial listing) for all the stocks in the stock universe; (2) ranks the stocks in the stock universe in descending order according to their average daily trading values, and excludes the
bottom 50%; and (3) ranks the remaining stocks in descending order according to their average daily market capitalization and selects those which rank top 300 as constituent stocks of the Index.
The weighting of a company in the Underlying Index is intended to be a reflection of the current importance of that company in the market as a whole.
Stocks are selected and weighted according to market capitalization. A company is heavily weighted in the Underlying Index if it has a relatively larger free-float market capitalization than the rest of the constituents in the Underlying Index. The
constituents of the Underlying Index are frequently reviewed by the Index Provider to ensure that the Underlying Index continues to reflect the state and structure of the underlying market it measures. The Underlying Index is calculated in real time
and is published every six seconds in RMB. The composition of the Underlying Index is reviewed semi-annually every January and July.
A
Further Discussion of Principal Risks
The 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 of Investing in China.
Whether the Fund invests directly in China by investing in A shares supplied by the Sub-Adviser in its capacity as an
RQFII or indirectly through other instruments, such as swaps, investments in China involve certain risks and special considerations, including the following:
Political and Economic Risk.
The economy of China, which has been in a state of transition from a planned economy to a more market oriented economy, differs from the economies of most developed
countries in many respects, including the level of government involvement, its state of development, its growth rate, control of foreign exchange, and allocation of resources. Although the majority of productive assets in China are still owned by
the PRC government at various levels, in recent years, the PRC government has implemented economic reform measures emphasizing utilization of market forces in the development of the economy of China and a high
12
level of management autonomy. The economy of China has experienced significant growth in the past 30 years, but growth has been uneven both geographically and among various sectors of the
economy. Economic growth has also been accompanied by periods of high inflation. The PRC government has implemented various measures from time to time to control inflation and restrain the rate of economic growth.
For more than 30 years, the PRC government has carried out economic reforms to achieve decentralization and utilization of market forces
to develop the economy of the PRC. These reforms have resulted in significant economic growth and social progress. There, however, can be no assurance that the PRC government will continue to pursue such economic policies or that such policies, if
pursued, will be successful. Any adjustment and modification of those economic policies may have an adverse impact on the securities market in the PRC as well as the underlying securities of the Index. Further, the PRC government may from time to
time adopt corrective measures to control the growth of the PRC economy which may also have an adverse impact on the capital growth and performance of the Fund.
Political changes, social instability and adverse diplomatic developments in the PRC could result in the imposition of additional government restrictions including expropriation of assets, confiscatory
taxes or nationalization of some or all of the property held by the underlying issuers of the A shares in the Underlying Index. The laws, regulations, including the investment regulations allowing RQFIIs to invest in A shares, government policies
and political and economic climate in China may change with little or no advance notice. Any such change could adversely affect market conditions and the performance of the Chinese economy and, thus, the value of securities in the Funds
portfolio.
The Chinese government continues to be an active participant in many economic sectors through ownership positions
and regulation. The allocation of resources in China is subject to a high level of government control. The Chinese government strictly regulates the payment of foreign currency denominated obligations and sets monetary policy. Through its policies,
the government may provide preferential treatment to particular industries or companies. The policies set by the government could have a substantial effect on the Chinese economy and the Funds investments.
The Chinese economy is export-driven and highly reliant on trade. The performance of the Chinese economy may differ favorably or
unfavorably from the U.S. economy in such respects as growth of gross domestic product, rate of inflation, currency depreciation, capital reinvestment, resource self-sufficiency and balance of payments position. Adverse changes to the economic
conditions of its primary trading partners, such as the European Union, the United States, Hong Kong, the Association of South East Asian Nations, and Japan, would adversely impact the Chinese economy and the Funds investments.
13
China has been transitioning to a market economy since the late seventies, and has only
recently opened up to foreign investment and permitted private economic activity. Under the economic reforms implemented by the Chinese government, the Chinese economy has experienced tremendous growth, developing into one of the largest and fastest
growing economies in the world. There is no assurance, however, that the Chinese government will not revert to the economic policy of central planning that it implemented prior to 1978 or that such growth will be sustained in the future. Moreover,
the current major slowdown in other significant economies of the world, such as the United States, the European Union and certain Asian countries, may adversely affect economic growth in China. An economic downturn in China would adversely impact
the Funds investments.
Inflation.
Economic growth in China has historically been accompanied by periods of high
inflation. Beginning in 2004, the Chinese government commenced the implementation of various measures to control inflation, which included the tightening of the money supply, the raising of interest rates and more stringent control over certain
industries. If these measures are not successful, and if inflation were to steadily increase, the performance of the Chinese economy and the Funds investments could be adversely affected.
Nationalization and Expropriation.
After the formation of the Chinese socialist state in 1949, the Chinese government renounced
various debt obligations and nationalized private assets without providing any form of compensation. There can be no assurance that the Chinese government will not take similar actions in the future. Accordingly, an investment in the Fund involves a
risk of a total loss.
Hong Kong Policy.
As part of Hong Kongs transition from British to Chinese sovereignty in
1997, China agreed to allow Hong Kong to maintain a high degree of autonomy with regard to its political, legal and economic systems for a period of at least 50 years. China controls matters that relate to defense and foreign affairs. Under the
agreement, China does not tax Hong Kong, does not limit the exchange of the Hong Kong dollar for foreign currencies and does not place restrictions on free trade in Hong Kong. However, there is no guarantee that China will continue to honor the
agreement, and China may change its policies regarding Hong Kong at any time. Any such change could adversely affect market conditions and the performance of the Chinese economy and, thus, the value of securities in the Funds portfolio.
Chinese Securities Markets.
The securities markets in China have a limited operating history and are not as developed
as those in the United States. These markets tend to be smaller in size, have less liquidity and historically have had greater volatility than markets in the United States and some other countries. In addition, there is less regulation and
monitoring of Chinese securities markets and the activities of investors, brokers and other participants than in the United States. Accordingly, issuers of securities in China are not subject to the same degree of regulation as are U.S. issuers with
respect to such matters as insider trading rules, tender offer regulation, stockholder proxy requirements and the requirements
14
mandating timely disclosure of information. Stock markets in China are in the process of change and further development. This may lead to trading volatility, difficulty in the settlement and
recording of transactions and difficulty in interpreting and applying the relevant regulations.
Available Disclosure About
Chinese Companies.
Disclosure and regulatory standards in emerging market countries, such as China, are in many respects less stringent than U.S. standards. There is substantially less publicly available information about Chinese issuers than
there is about U.S. issuers. Therefore, disclosure of certain material information may not be made, and less information may be available to the Fund and other investors than would be the case if the Funds investments were restricted to
securities of U.S. issuers. Chinese issuers are subject to accounting, auditing and financial standards and requirements that differ, in some cases significantly, from those applicable to U.S. issuers. In particular, the assets and profits appearing
on the financial statements of a Chinese issuer may not reflect its financial position or results of operations in the way they would be reflected had such financial statements been prepared in accordance with U.S. Generally Accepted Accounting
Principles.
Chinese Corporate and Securities Law.
The regulations which regulate investments by RQFIIs in the PRC and
the repatriation of capital from RQFII investments are relatively new. As a result, the application and interpretation of such investment regulations are therefore relatively untested. In addition, PRC authorities and regulators have broad
discretion under such investment regulations and there is little precedent or certainty evidencing how such discretion will be exercised now or in the future.
The Funds rights with respect to its investments in A shares, if any, generally will not be governed by U.S. law, and instead will generally be governed by Chinese law. China operates under a civil
law system, in which court precedent is not binding. Because there is no binding precedent to interpret existing statutes, there is uncertainty regarding the implementation of existing law.
Legal principles relating to corporate affairs and the validity of corporate procedures, directors fiduciary duties and liabilities
and stockholders rights often differ from those that may apply in the United States and other countries. Chinese laws providing protection to investors, such as laws regarding the fiduciary duties of officers and directors, are undeveloped and
will not provide investors, such as the Fund, with protection in all situations where protection would be provided by comparable law in the United States. China lacks a national set of laws that address all issues that may arise with regard to a
foreign investor such as the Fund. It may therefore be difficult for the Fund to enforce its rights as an investor under Chinese corporate and securities laws, and it may be difficult or impossible for the Fund to obtain a judgment in court.
Moreover, as Chinese corporate and securities laws continue to develop, these developments may adversely affect foreign investors, such as the Fund.
15
Investments in A shares.
The Funds investment in A shares is limited to the RQFII quota amount
obtained by the Sub-Adviser in its capacity as a RQFII on behalf of the Fund. In addition, restrictions may be imposed on the repatriation of gains and income that may affect the Funds ability to satisfy redemption requests. Currently, there
are two stock exchanges in mainland China, the Shanghai and Shenzhen Stock Exchanges. The Shanghai and Shenzhen Stock Exchanges are supervised by the CSRC and are highly automated with trading and settlement executed electronically. The Shanghai and
Shenzhen Stock Exchanges are substantially smaller, less liquid and more volatile than the major securities markets in the United States.
The
Shanghai Stock Exchange commenced trading on December 19, 1990, and the Shenzhen Stock Exchange commenced trading on July 3, 1991. The Shanghai and Shenzhen Stock Exchanges divide listed shares into two classes: A shares and B-shares.
Companies whose shares are traded on the Shanghai and Shenzhen Stock Exchanges that are incorporated in mainland China may issue both A shares and B shares. In China, the A shares and B shares of an issuer may only trade on one exchange. A shares
and B shares may both be listed on either the Shanghai or Shenzhen Stock Exchanges. Both classes represent an ownership interest comparable to a share of common stock and all shares are entitled to substantially the same rights and benefits
associated with ownership. A shares are traded on the Shanghai and Shenzhen Stock Exchanges in RMB.
As of December 31, 2012, the CSRC
had granted licenses to [24] RQFIIs and to [207] QFIIs bringing total investment quotas to US$[37.44 billion] in A shares and other permitted Chinese securities. Because restrictions continue to exist and capital therefore cannot flow freely into
the A share market, it is possible that in the event of a market disruption, the liquidity of the A share market and trading prices of A shares could be more severely affected than the liquidity and trading prices of markets where securities are
freely tradable and capital therefore flows more freely. The Fund cannot predict the nature or duration of such a market disruption or the impact that it may have on the A share market and the short-term and long-term prospects of its investments in
the A share market.
The Chinese government has in the past taken actions that benefited holders of A shares. As A shares become more
available to foreign investors, such as the Fund, the Chinese government may be less likely to take action that would benefit holders of A shares. In addition, there is no guarantee that the Sub-Adviser will continue to maintain its existing RQFII
quota or be able to obtain additional RQFII quota if the RQFII quota is reduced or eliminated by SAFE or if the RQFII license is revoked by CSRC at some point in the future. The Fund cannot predict what would occur if the RQFII quota were reduced or
eliminated or if the RQFII license were to be revoked, although such an occurrence would likely have a material adverse effect on the Fund.
Sanctions and Embargoes.
From time to time, certain of the companies in which the Fund expects to invest may operate in, or have dealings with, countries subject to sanctions or embargoes imposed
by the U.S. Government and the United Nations and/or countries identified by the U.S. Government as state sponsors of terrorism. A
16
company may suffer damage to its reputation if it is identified as a company which operates in, or has dealings with, countries subject to sanctions or embargoes imposed by the U.S. Government
and the United Nations and/or countries identified by the U.S. Government as state sponsors of terrorism. As an investor in such companies, the Fund will be indirectly subject to those risks.
Investment and Repatriation Restrictions.
Investments by the Fund in A shares and other Chinese financial instruments permitted by
the CSRC and the Peoples Bank of China, including Chinese government bonds, convertible bonds, corporate bonds, warrants and open- and closed-end investment companies, are subject to governmental pre-approval limitations on the quantity that
the Fund may purchase or limits on the classes of securities in which the Fund may invest.
Repatriations by RQFIIs for
investors such as the Fund are permitted daily and are not subject to any lock-up periods or prior approval. There is no assurance, however, that PRC rules and regulations will not change or that repatriation restrictions will not be imposed in the
future. Any restrictions on repatriation of the Funds assets may adversely affect the Funds ability to meet redemptions requests and/or may cause the Fund to borrow money in order to meet its obligations. These limitations may also
prevent the Fund from making certain distributions to shareholders.
The Chinese government limits foreign investment in the
securities of certain Chinese issuers entirely, if foreign investment is banned in respect of the industry in which the relevant Chinese issuers are conducting their business. These restrictions or limitations may have adverse effects on the
liquidity and performance of the Fund holdings as compared to the performance of the Underlying Index. This may increase the risk of tracking error and, at the worst, the Fund may not be able to achieve its investment objective.
Tax on Retained Income and Gains.
To the extent the Fund does not distribute to shareholders all of its investment company taxable
income and net capital gain in a given year, it will be required to pay U.S. federal income tax on the retained income and gains, thereby reducing the Funds return. The Fund may elect to treat any retained net capital gain as having been
distributed to shareholders. In that case, shareholders of record on the last day of the Funds taxable year will be required to include their attributable share of the retained gain in income for the year as a long-term capital gain despite
not actually receiving the dividend, and will be entitled to a tax credit or refund for the tax deemed paid on their behalf by the Fund as well as an increase in the basis of their shares to reflect the difference between their attributable share of
the gain and the related credit or refund.
U.S. Tax Risk.
The Fund intends to distribute annually all or substantially
all of its investment company taxable income and net capital gain. However, if the Fund does not receive approval from SAFE and tax clearance from PRC tax authority for closed-end funds to repatriate funds associated with direct investment in A
shares on a timely basis, it may be unable to satisfy distribution requirements applicable to
17
RICs under the Internal Revenue Code. If the Fund fails to satisfy the distribution requirement necessary to qualify for treatment as a RIC for any taxable year, the Fund would be treated as a
corporation subject to U.S. federal income tax, thereby subjecting any income earned by the Fund to tax at the corporate level. If the Fund fails to satisfy a separate distribution requirement, it will be subject to a Fund-level excise tax. These
Fund-level taxes will apply in addition to taxes payable at the shareholder level on distributions.
Foreign Exchange
Control.
The Chinese government heavily regulates the domestic exchange of foreign currencies within China. Under SAFE regulations, Chinese corporations may only purchase foreign currencies through government approved banks. In general, Chinese
companies must receive approval from or register with the Chinese government before investing in certain capital account items, including direct investments and loans, and must thereafter maintain separate foreign exchange accounts for the capital
items. Foreign investors may only exchange foreign currencies at specially authorized banks after complying with documentation requirements. These restrictions may adversely affect the Fund and its investments. The international community has
requested that China ease its restrictions on currency exchange, but it is unclear whether the Chinese government will change its policy.
RMB is currently not a freely convertible currency as it is subject to foreign exchange control, fiscal policies and repatriation restrictions imposed by the Chinese government. Such control of currency
conversion and movements in the RMB exchange rates may adversely affect the operations and financial results of companies in the PRC. In addition, if such control policies change in the future, the Fund may be adversely affected.
Since 2005, the exchange rate of the RMB is no longer pegged to the U.S. dollar. The RMB has now moved to a managed floating exchange rate
based on market supply and demand with reference to a basket of foreign currencies. The daily trading price of the RMB against other major currencies in the inter-bank foreign exchange market would be allowed to float within a narrow band around the
central parity published by the Peoples Bank of China. As the exchange rates are based primarily on market forces, the exchange rates for RMB against other currencies, including the U.S. dollar, are susceptible to movements based on external
factors. The possibility that the appreciation of RMB will be accelerated cannot be excluded. On the other hand, there can be no assurance that the RMB will not be subject to devaluation. Any devaluation of the RMB could adversely affect the value
of the Funds investments.
The PRC government imposes restrictions on the remittance of RMB out of and into China. The
Fund will be required to remit RMB from Hong Kong to the PRC to settle the purchase of A shares and other permissible securities by the Fund from time to time. In the event such remittance is disrupted, the Fund will not be able to fully replicate
the Index by investing in the relevant A shares and this may increase the tracking error of the Fund. Any delay in repatriation of RMB out of China may result in delay in payment of redemption proceeds to the redeeming investors. The Chinese
governments policies on exchange control and repatriation restrictions are subject to change, and the Funds performance may be adversely affected.
18
Custody Risks of Investing in A shares.
The Fund is required to select a PRC
sub-custodian (the PRC sub-custodian), which is a mainland commercial bank qualified both as a custodian for qualified foreign institutional investors (QFII custodian) and as a settlement agent on the inter-bank bond market.
The PRC sub-custodian maintains the Funds RMB deposit accounts and oversees the Funds investments in A shares in the PRC to ensure their compliance with the rules and regulations of the CSRC and the Peoples Bank of China. A shares
that are traded on the Shanghai or Shenzhen Stock Exchange are dealt and held in book-entry form through the China Securities Depository and Clearing Corporation Limited (CSDCC). A shares purchased by the Sub-Adviser, in its capacity as
a RQFII, on behalf of the Fund, may be received by the CSDCC as credited to a securities trading account maintained by the PRC sub-custodian in the joint names of the Fund and the Sub-Adviser as a RQFII. The Fund will pay the cost of the account.
The Sub-Adviser may not use the account for any other purpose than for maintaining the Funds assets. However, given that the securities trading account will be maintained in the joint names of the Sub-Adviser and the Fund, the Funds
assets may not be as well protected as they would be if it were possible for them to be registered and held solely in the name of the Fund. In particular, there is a risk that creditors of the Sub-Adviser may assert that the securities are owned by
the Sub-Adviser and not the Fund, and that a court would uphold such an assertion, in which case creditors of the Sub-Adviser could seize assets of the Fund. Because the Sub-Advisers RQFII quota would be in the name of the Sub-Adviser rather
than the Fund, there is also a risk that regulatory actions taken against the Sub-Adviser by PRC government authorities may affect the Fund.
PRC Brokers Risk.
Regulations adopted by the CSRC and SAFE under which the Fund will invest in A shares specify that all securities traded by the Sub-Adviser, if licensed as a RQFII, on behalf of
the Fund must be executed through one of three specified brokers per exchange in the PRC. The market practice currently allows only one Chinese broker to be used per stock exchange in the PRC. As a result, the Adviser and/or Sub-Adviser will have
less flexibility to choose among brokers on behalf of the Fund than is typically the case for investment managers. The Fund will rely on only one PRC broker for each stock exchange in the PRC, which may be the same PRC broker.
If the Sub-Adviser is unable to use its designated PRC broker in the PRC, the operation of the Fund will be adversely affected and may
cause units of the Fund to trade at a premium or discount to its net asset value or the Fund may not be able to track the Underlying Index. Further, the operation of the Fund may be adversely affected in case of any acts or omissions of the PRC
broker, which may result in higher tracking error or the Fund being traded at a significant premium or discount to its NAV. If a single PRC broker is appointed, the Fund may not necessarily pay the lowest commission available in the market. The
Sub-Adviser, however, in its
19
selection of PRC brokers will consider such factors as the competitiveness of commission rates, size of the relevant orders, and execution standards. There is a risk that the Fund may suffer
losses from the default, bankruptcy or disqualification of the PRC brokers. In such event, the Fund may be adversely affected in the execution of any transaction.
Foreign Currency Considerations.
The Funds assets will be invested primarily in the equity securities of issuers in China and the income received by the Fund will be primarily in RMB.
Meanwhile, the Fund will compute and expects to distribute its income in U.S. dollars, and the computation of income will be made on the date that the income is earned by the Fund at the foreign exchange rate in effect on that date. Any gain or loss
attributable to fluctuations in exchange rates between the time the Fund accrues income or gain and the time the Fund converts such income or gain from RMB to the dollar is generally treated as ordinary income or loss. Therefore, if the value of the
RMB increases relative to the U.S. dollar between the accrual of income and the time at which the Fund converts the RMB to U.S. dollars, the Fund will recognize ordinary income when the RMB is converted. In such circumstances, if the Fund has
insufficient cash in U.S. dollars to meet distribution requirements under the Internal Revenue Code, the Fund may be required to liquidate certain positions in order to make distributions. The liquidation of investments, if required, may also have
an adverse impact on the Funds performance.
Furthermore, the Fund may incur costs in connection with conversions between
U.S. dollars and RMB. Foreign exchange dealers realize a profit based on the difference between the prices at which they are buying and selling various currencies. Thus, a dealer normally will offer to sell a foreign currency to the Fund at one
rate, while offering a lesser rate of exchange should the Fund desire immediately to resell that currency to the dealer. The Fund will conduct its foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing
in the foreign currency exchange market, or through entering into forward, futures or options contracts to purchase or sell foreign currencies.
RMB can be further categorized into onshore RMB (CNY), traded only in the PRC, and offshore RMB (CNH), traded outside the PRC. CNY and CNH are traded at different exchange rates
and their exchange rates may not move in the same direction. Although there has been a growing amount of RMB held offshore, CNH cannot be freely remitted into the PRC and is subject to certain restrictions, and vice versa. The Fund may also be
adversely affected by the exchange rates between CNY and CNH.
Currently, there is no market in China in which the Fund may
engage in hedging transactions to minimize RMB foreign exchange risk, and there can be no guarantee that instruments suitable for hedging currency will be available to the Fund in China at any time in the future. In the event that in the future it
becomes possible to hedge RMB currency risk in China, the Fund may seek to protect the value of some portion or all of its portfolio holdings against currency risks by engaging in hedging transactions. In that case, the Fund may enter into forward
currency exchange
20
contracts and currency futures contracts and options on such futures contracts, as well as purchase put or call options on currencies, in China. Currency hedging would involve special risks,
including possible default by the other party to the transaction, illiquidity and, to the extent the Sub-Advisers view as to certain market movements is incorrect, the risk that the use of hedging could result in losses greater than if they
had not been used. The use of currency transactions could result in the Funds incurring losses as a result of the imposition of exchange controls, exchange rate regulation, suspension of settlements or the inability to deliver or receive a
specified currency.
Disclosure of Interests and Short Swing Profit Rule.
The Fund may be subject to shareholder disclosure of interest
regulations promulgated by the CSRC. These regulations currently require the Fund to make certain public disclosures when the Fund and parties acting in concert with the Fund acquire 5% or more of the issued securities of a listed company (which
include A shares of the listed company). If the reporting requirement is triggered, the Fund will be required to report information which includes, but is not limited to: (a) information about the Fund (and parties acting in concert with the
Fund) and the type and extent of its holdings in the company; (b) a statement of the Funds purposes for the investment and whether the Fund intends to increase its holdings over the following 12-month period; (c) a statement of the
Funds historical investments in the company over the previous six months; (d) the time of, and other information relating to, the transaction that triggered the Funds holding in the listed company reaching the 5% reporting
threshold; and (e) other information that may be required by the CSRC or the stock exchange. Additional information may be required if the Fund and its concerted parties constitute the largest shareholder or actual controlling shareholder of
the listed company. The report must be made to the CSRC, the stock exchange, the invested company, and the CSRC local representative office where the listed company is located. The Fund would also be required to make a public announcement through a
media outlet designated by the CSRC. The public announcement must contain the same content as the official report. The public announcement may require the Fund to disclose its holdings to the public, which could have an adverse effect on the
performance of the Fund.
The relevant PRC regulations presumptively treat all affiliated investors and investors under common control as
parties acting in concert. As such, under a conservative interpretation of these regulations, the Fund may be deemed as a concerted party of other funds managed by the Adviser, Sub-Adviser or their affiliates and therefore may be subject
to the risk that the Funds holdings may be required to be reported in the aggregate with the holdings of such other funds should the aggregate holdings trigger the reporting threshold under the PRC law.
If the 5% shareholding threshold is triggered by the Fund and parties acting in concert with the Fund, the Fund would be required to file its report
within three days of the date the threshold is reached. During the time limit for filing the report, a trading freeze applies and the Fund would not be permitted to make subsequent trades in the invested companys securities. Any such trading
freeze may undermine the Funds performance, if the Fund would otherwise make trades during that period but is prevented from doing so by the regulation.
21
Once the Fund and parties acting in concert reach the 5% trading threshold as to any listed company, any
subsequent incremental increase or decrease of 5% or more will trigger a further reporting requirement and an additional three-day trading freeze, and also an additional freeze on trading within two days of the Funds report and announcement of
the incremental change. These trading freezes may undermine the Funds performance as described above. Also, Shanghai Stock Exchange requirements currently require the Fund and parties acting in concert, once they have reach the 5% threshold,
to disclose whenever their shareholding drops below this threshold (even as a result of trading which is less than the 5% incremental change that would trigger a reporting requirement under the relevant CSRC regulation).
CSRC regulations also contain additional disclosure (and tender offer) requirements that apply when an investor and parties acting in concert reach
thresholds of 20% and greater than 30% shareholding in a company.
Subject to the interpretation of PRC courts and PRC regulators, the
operation of the PRC short swing profit rule may be applicable to the trading of the Fund with the result that where the holdings of the Fund (possibly with the holdings of other investors deemed as concert parties of the Fund) exceed 5% of the
total issued shares of a listed company, the Fund may not reduce its holdings in the company within six months of the last purchase of shares of the company. If the Fund violates the rule, it may be required by the listed company to return any
profits realized from such trading to the listed company. In addition, the rule limits the ability of the Fund to repurchase securities of the listed company within six months of such sale. Moreover, under PRC civil procedures, the Funds
assets may be frozen to the extent of the claims made by the company in question. These risks may greatly impair the performance of the Fund.
Derivatives Risk.
Derivatives are financial instruments, such as swaps, whose values are based on the value of one or more indicators, such as a
security, asset, currency, interest rate, or index. Derivatives involve risks different from, and possibly greater than, the risks associated with investing directly in securities and other more traditional investments. For example, derivatives
involve the risk of mispricing or improper valuation and the risk that changes in the value of a derivative may not correlate perfectly with the underlying indicator. Derivative transactions can create investment leverage, may be highly volatile and
the Fund could lose more than the amount it invests. Many derivative transactions are entered into over-the-counter (not on an exchange or contract market); as a result, the value of such a derivative transaction will depend on the
ability and the willingness of the Funds counterparty to perform its obligations under the transaction. If a counterparty were to default on its obligations, the Funds contractual remedies against such counterparty may be subject to
bankruptcy and insolvency laws, which could affect the Funds rights as a creditor (e.g., the Fund may not receive the net amount of payments that it is contractually entitled to receive). A liquid secondary market may not always exist for the
Funds derivative positions at any time.
22
Limited Availability of Swaps.
To the extent the Adviser or Sub-Adviser invests in
swaps to gain exposure to A shares in an effort to achieve its investment objective, it will be subject to the risk that the number of counterparties able to enter into swaps to provide exposure to A shares may be limited. To the extent that the
RQFII quota of a potential swap counterparty is reduced or eliminated due to actions by the Chinese government or as a result of transactions entered into by the counterparty with other investors, the counterpartys ability to continue to enter
into swaps or other derivative transactions with the Fund may be reduced or eliminated, which could have a material adverse effect on the Fund. These risks are compounded by the fact that at present there are only a limited number of potential
counterparties willing and able to enter into swap transactions linked to the performance of A shares. Furthermore, swaps are of limited duration and there is no guarantee that swaps entered into with a counterparty will continue indefinitely.
Accordingly, the duration of a swap depends on, among other things, the ability of the Fund to renew the expiration period of the relevant swap at agreed upon terms. In addition, under the current regulations regarding quotas of QFIIs and RQFIIs
administered by SAFE, QFIIs and RQFIIs are prohibited from transferring or selling their quotas to any third party. However, there is uncertainty over how this prohibition is implemented. Therefore, subject to interpretation by SAFE, QFIIs and
RQFIIs may be limited or prohibited from providing the Fund access to RQFII quotas by entering into swap or other derivative transactions, which, in turn, could adversely affect the Fund.
Liquidity Risk.
Swap agreements may be subject to liquidity risk, which exists when a particular swap is difficult to purchase or
sell. If a swap transaction is particularly large or if the relevant market is illiquid, it may not be possible to initiate a transaction or liquidate a position at an advantageous time or price, which may result in significant losses to the Fund.
This is especially true given the limited number of potential counterparties willing and able to enter into swap transactions on A shares. In addition, a swap transaction may be subject to the Funds limitation on investments in illiquid
securities. Swap agreements may be subject to pricing risk, which exists when a particular swap agreement becomes extraordinarily expensive (or inexpensive) relative to historical prices or the prices of corresponding cash market instruments. The
swaps market is largely unregulated. It is possible that developments in the swaps market, including potential government regulation, could adversely affect the Funds ability to terminate existing swap agreements or to realize amounts to be
received under such agreements.
Tax Risk.
Currently, there is no specific PRC tax rule governing the taxation of RQFIIs. In this
regard, the general principle of the Corporate Income Tax Law and regulations including Guoshuihan [2009] 47 (Circular 47), which was issued to address the PRC Withholding Income Tax (WHT) treatment of dividends and interest
derived by QFIIs from PRC resident enterprises, and Guoshuihan [2009] 394 (Circular 394), which was issued to clarify the WHT treatment of dividends derived by non PRC resident enterprises from A shares, B shares and overseas listed
shares issued by PRC resident enterprises should apply. Assuming that the RQFIIs are not PRC tax resident enterprises and does not have a place of business, an establishment or a permanent establishment in the PRC, RQFIIs should be liable to PRC WHT
at a rate of 10% (which
23
may be reduced by applicable tax treaty) with respect to dividends derived from A shares and interest. The WHT on dividends and interest should be withheld by the share issuers and payer of
interest. Circular 47 and Circular 394 did not clarify the WHT treatment in respect of capital gains derived by non PRC resident enterprises (including RQFIIs) from the trading of A shares. In the absence of specific PRC tax regulations, capital
gains realized by RQFIIs on the sale of A shares should be subject to WHT at a rate of 10% (which may be reduced by applicable tax treaty) in China pursuant to the general principle of the current PRC Corporate Income Tax Law. However, the precise
method of calculating and collecting the WHT has not been determined. Although the PRC tax bureaus have not enforced the collection of WHT on capital gains derived from RQFIIs in practice, there is a risk that PRC tax authorities may seek to collect
WHT on capital gains realized by RQFIIs on the sale of A shares on a retroactive basis without giving any prior warning. If such WHT is collected, the WHT liability will be payable by the RQFII. [Under the terms of the Sub-Advisory Agreement, any
WHT levied on and payable by the Sub-Adviser as an RQFII in the PRC may be passed on to and borne by the Fund to the extent such WHT is indirectly attributable to the Fund through its holdings of the Sub-Advisers RQFII quota.]
In light of the uncertainty on the WHT treatment on capital gains arising from disposal of PRC securities derived by RQFIIs and in order to meet this
potential WHT liability for capital gains, the Adviser reserves the right to put in place a WHT provision (Capital Gains Tax Provision) on such gains or income and withhold the WHT for the account of the Fund. The Adviser will at present
make a provision of 10% for the account of the Fund in respect of any potential WHT on capital gains from the Funds investments. The amount of actual provision will be disclosed in the Funds annual and semi-annual reports to
shareholders. Investors should note that such provision may be excessive or inadequate to meet actual PRC WHT liabilities on the Funds investments. As a result, investors may be advantaged or disadvantaged depending on the final rules of the
relevant PRC tax authorities.
In addition, the Adviser intends to make relevant provision on dividend from A shares and interest if the WHT
on dividends and interest is not withheld at the source at the time such income is received.
When the RQFIIs transfer A shares and B shares,
they are also subject to PRC Stamp Duty at a rate of 0.1% on the transacted value. However, RQFIIs are not subject to PRC Stamp Duty when they acquire A shares and B shares. In the absence of specific guidance, RQFIIs may be potentially subject to
PRC Business Tax at a rate of 5% in respect of capital gains derived from the trading of A shares. However, RQFIIs may rely on Caishui [2005] 155, which grants BT exemption to QFIIs in respect of their gains derived from the trading of PRC
securities, to argue for BT exemption on trading gains, though it is subject to further guidance to be issued by the PRC State Administration of Taxation and/or PRC Ministry of Finance. In practice, the PRC tax bureaus have not actively enforced the
collection of PRC BT on such gains.
To the extent the Fund invests in swaps linked to A shares, such investments may be less tax-efficient
than a direct investment in A shares. Any tax liability incurred by the swap counterparty may be passed on to the Fund. When the Fund sells a swap on A shares, the sale price may take into account of the RQFIIs tax liability.
24
The PRC taxation of RQFIIs (and QFIIs) are evolving and the tax regulations to be issued by the PRC State
Administration of Taxation and/or PRC Ministry of Finance to clarify the subject matter may apply retrospectively, which may bring adverse impact to the assets of the Fund and its shareholders.
Investments in swaps and other derivatives may be subject to special U.S. federal income tax rules that could adversely affect the character, timing and
amount of income earned by the Fund (e.g., by causing amounts that would be capital gain to be taxed as ordinary income or to be taken into income earlier than would otherwise be necessary). Also, the Fund may be required to periodically adjust its
positions in its swaps and derivatives to comply with certain regulatory requirements which may further cause these investments to be less efficient than a direct investment in A shares. For example, swaps in which the Fund may invest may need to be
reset on a regular basis in order to maintain compliance with the 1940 Act, which may increase the likelihood that the Fund will generate short-term capital gains. In addition, because the application of special tax rules applicable to the Fund and
its investments may be uncertain, it is possible that the manner in which they are applied by the Fund may be determined to be incorrect. In that event, the Fund may be found to have failed to maintain its qualification as a RIC or to be subject to
additional U.S. tax liability. The Fund may make investments, both directly and through swaps or other derivative positions, in companies classified as passive foreign investment companies for U.S. federal income tax purposes (PFICs).
Investments in PFICs are subject to special tax rules which may result in adverse tax consequences to the Fund and its shareholders.
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 the 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. Conversely, Fund shares may trade on days when foreign exchanges are closed. Each of these factors can make investments in the Fund more volatile and potentially less
liquid than other types of investments.
25
The Funds investments in A shares will be denominated in RMB and the income received by the Fund in
respect of such investments will be in RMB. As a result, changes in currency exchange rates may adversely affect the Funds returns. The value of the RMB may be subject to a high degree of fluctuation due to changes in interest rates, the
effects of monetary policies issued by the PRC, the United States, foreign governments, central banks or supranational entities, the imposition of currency controls or other national or global political or economic developments. Therefore, the
Funds exposure to RMB may result in reduced returns to the Fund. The Fund does not expect to hedge its currency risk. Moreover, the Fund may incur costs in connection with conversions between U.S. dollars and RMB and will bear the risk of any
inability to convert the RMB.
In addition, various PRC companies derive their revenues in RMB but have requirements for foreign currency,
including for the import of materials, debt service on foreign currency denominated debt, purchases of imported equipment and payment of any cash dividends declared. The existing PRC foreign exchange regulations have significantly reduced government
foreign exchange controls for certain transactions, including trade and service related foreign exchange transactions and payment of dividends. However, it is impossible to predict whether the PRC government will continue its existing foreign
exchange policy and when the PRC government will allow free conversion of the RMB to foreign currency. Certain foreign exchange transactions, including principal payments in respect of foreign currency-denominated obligations, currently continue to
be subject to significant foreign exchange controls and require the approval of SAFE. Since 1994, the conversion of RMB into U.S. dollars has been based on rates set by the Peoples Bank of China, which are set daily based on the previous
days PRC interbank foreign exchange market rate. It is not possible to predict nor give any assurance of any future stability of the RMB to U.S. dollar exchange rate. Fluctuations in exchange rates may adversely affect the Funds NAV.
Furthermore, because dividends are declared in U.S. dollars and underlying payments are made in RMB, fluctuations in exchange rates may adversely affect dividends paid by the Fund.
Emerging Markets Risk.
Investment in emerging markets subjects the Fund to a greater risk of loss than investments in a developed market. This is due to, among other things, (i) greater market
volatility, (ii) lower trading volume, (iii) political and economic instability, (iv) high levels of inflation, deflation or currency devaluation, (v) greater risk of market shut down, (vi) more governmental limitations on
foreign investments and limitations on repatriation of invested capital than those typically found in a developed market, and (vii) the risk that companies may be held to lower disclosure, corporate governance, auditing and financial reporting
standards than companies in more developed markets.
The financial stability of issuers (including governments) in emerging market countries
may be more precarious than in other countries. As a result, there will tend to be an increased risk of price volatility in the Funds investments in emerging market countries, which may be magnified by currency fluctuations relative to the
U.S. dollar.
26
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 the Fund. Low trading volumes and volatile prices in less developed markets make trades harder to complete and settle, and governments or trade groups may compel local agents to hold securities in designated depositories that are not
subject to independent evaluation. Local agents are held only to the standards of care of their local markets.
Financial Services Sector
Risk.
As of the date of this Prospectus, the Underlying Index is expected to be concentrated in the financial services sector, which includes companies involved in such activities as banking, commercial and consumer finance, investment banking,
brokerage, asset management, custody and insurance. As a result, the Fund will be sensitive to changes in, and its performance may depend on, the overall condition of the financial services sector. Companies in the financial services sector may be
subject to extensive government regulation that affects the scope of their activities, the prices they can charge and the amount of capital they must maintain. The profitability of companies in the financial services sector may be adversely affected
by increases in interest rates and loan losses, which usually increase in economic downturns. Events in the financial sector since late 2008 have resulted, and may continue to result, in an unusually high degree of volatility in the financial
markets, both domestic and foreign. Numerous financial services companies have experienced substantial declines in the valuations of their assets, taken action to raise capital (such as the issuance of debt or equity securities), or even ceased
operations. These actions have caused the securities of many financial services companies to experience a dramatic decline in value. Moreover, certain financial companies have avoided collapse due to intervention by governmental regulatory
authorities, but such interventions have often not averted a substantial decline in the value of such companies common stock. Issuers that have exposure to the real estate, mortgage and credit markets have been particularly affected by the
foregoing events and the general market turmoil, and it is uncertain whether or for how long these conditions will continue.
The financial
services sector in China is also undergoing significant change, including continuing consolidations, development of new products and structures and changes to its regulatory framework, which may have an impact on the issuers included in the
Underlying Index. Increased government involvement in the financial services sector, including measures such as taking ownership positions in financial institutions, could result in a dilution of the Funds investments in financial
institutions.
[Industrials Sector Risk.
The industrials sector includes companies engaged in the manufacture and distribution of
capital goods, such as those used in defense, construction and engineering, companies that manufacture and distribute electrical equipment and industrial machinery and those that provide commercial and transportation services and supplies. To the
extent the Underlying Index includes securities of issuers in the industrials sector, the Fund will invest in securities of issuers in such sector. As such, the Fund may be sensitive to changes in, and its performance may depend on, the overall
condition of the industrials sector. Companies in the industrials sector may be adversely affected by changes in government regulation,
27
world events and economic conditions. In addition, companies in the industrials sector may be adversely affected by environmental damages, product liability claims and exchange rates. The success
of these companies is affected by supply and demand both for their specific product or service and for industrial sector products in general. The products of manufacturing companies may face product obsolescence due to rapid technological
developments and frequent new product introduction. In addition, the industrials sector may also be adversely affected by changes or trends in commodity prices, which may be influenced or characterized by unpredictable factors.]
[Basic Materials Sector Risk.
The basic materials sector includes companies that manufacture chemicals, construction materials, glass and paper
products, as well as metals, minerals and mining companies. To the extent the Underlying Index includes securities of issuers in the basic materials sector, the Fund will invest in companies in such sector. As such, the Fund may be sensitive to
changes in, and its performance may depend on, the overall condition of the basic materials sector. Companies engaged in the production and distribution of basic materials may be adversely affected by changes in world events, political and economic
conditions, energy conservation, environmental policies, commodity price volatility, changes in exchange rates, imposition of import controls, increased competition, depletion of resources and labor relations.]
Equity Securities Risk.
The 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.
Market Risk.
An investment in the 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.
The Fund is not actively managed and may be affected by a general decline in market segments
relating to its Underlying Index. The Fund invests in securities and other instruments included in, or representative of, its respective Underlying Index regardless of their investment merits. As a result, the 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.
28
Tracking Error Risk.
The Funds return may not match the return of its Underlying Index for a
number of reasons. For example, the 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 the 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, the 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 government of China or a lack of liquidity on stock
exchanges in which such securities trade. Moreover, the 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.
Unlike many
ETFs, the Fund expects to effect all of its creations and redemptions for cash, rather than in-kind securities. Other more conventional ETFs generally are able to make in-kind redemptions and avoid realizing gains in connection with transactions
designed to meet redemption requests. Effecting all redemptions for cash may cause the Fund to sell portfolio securities in order to obtain the cash needed to distribute redemption proceeds. Such dispositions may occur at an inopportune time
resulting in potential losses to the Fund and involve transaction costs. If the Fund recognizes a capital loss on these sales, the loss will offset capital gains and may result in smaller capital gain distributions from the Fund. If the Fund
recognizes gain on these sales, this generally will cause the Fund to recognize gain it might not otherwise have recognized if it were to distribute portfolio securities in-kind or to recognize such gain sooner than would otherwise be required. The
Fund generally intends to distribute these gains to shareholders to avoid being taxed on this gain at the Fund level and otherwise comply with the special tax rules that apply to it. This strategy may cause shareholders to be subject to tax on gains
they would not otherwise be subject to, or at an earlier date than, if they had made an investment in a more conventional ETF.
In addition,
cash transactions may have to be carried out over several days if the securities market is relatively illiquid and may involve considerable brokerage fees and taxes. These brokerage fees and taxes, which will be higher than if the Fund sold and
redeemed its shares principally in-kind, will generally be passed on to purchasers and redeemers of Creation Units in the form of creation and redemption transaction fees. However, the Fund has capped the total fees that may be charged in connection
with the redemption of Creation Units at 2% of the value of the Creation Units redeemed. To the extent transaction and other costs associated with a redemption exceed that cap, those transaction costs will be borne by the Funds remaining
shareholders. China may also impose higher local tax rates on transactions involving certain companies. In addition, these factors may result in wider spreads between the bid and the offered prices of the Funds Shares than for more
conventional ETFs.
29
Valuation Risk.
Because non-U.S. exchanges may be open on days when the 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.
The 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 the 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. To the extent
the Fund concentrates, or otherwise invests a large portion of its assets in a single industry or group of industries, it 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.
Additional Investment Strategies
Borrowing Money
The Fund may borrow money from a bank up to a limit of 10% of the value of its assets, but only for temporary or emergency purposes.
Additional Risks of Investing in the Fund
Absence of Active
Market.
Although shares of the Fund are listed for trading on one or more stock exchanges, there can be no assurance that an active trading market for such shares will develop or be maintained.
Trading Risks.
Secondary market trading in Fund shares may be halted by a stock exchange because of market conditions or other reasons. In
addition, trading in Fund shares on a stock exchange or in any market may be subject to trading halts caused by extraordinary market volatility pursuant to circuit breaker rules on the exchange or market. There can be no assurance that
the requirements necessary to maintain the listing or trading of Fund shares will continue to be met or will remain unchanged.
Shares of
the Fund May Trade at Prices Other Than NAV.
Shares of the Fund may trade at, above or below their NAV. The per share NAV of the Fund will fluctuate with changes in the market value of the Funds holdings. The trading prices of Shares will
fluctuate in accordance with changes in its NAV as well as market supply and demand.
30
However, given that shares can be created and redeemed only in Creation Units at NAV (unlike shares of many closed-end funds, which frequently trade at appreciable discounts from, and sometimes
at premiums to, their NAVs), the Adviser and Sub-Adviser believe that large discounts or premiums to the NAV of the shares should not be sustained. While the creation/redemption feature is designed to make it likely that shares normally will trade
close to the Funds NAV, disruptions to creations and redemptions may result in trading prices that differ significantly from NAV. Since foreign exchanges may be open on days when the 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 Shares.
Leveraging Risk.
The
Funds investment in swaps and other derivative instruments provide leveraged exposure. The Funds investment in these instruments generally requires a small investment relative to the amount of investment exposure assumed. As a result,
such investments may give rise to losses that exceed the amount invested in those instruments. The use of derivatives and other similar financial instruments may at times be an integral part of the Funds investment strategy and may expose the
Fund to potentially dramatic losses (or gains) in the value of a derivative or other financial instrument and, thus, in the value the Funds portfolio. The cost of investing in such instruments generally increases as interest rates increase,
which will lower the Funds return.
Costs of Buying or Selling Fund Shares.
Buying or selling Fund shares involves two types of
costs that apply to all securities transactions. When buying or selling shares of the Fund through a broker, you will incur a brokerage commission or other charges imposed by brokers as determined by that broker. In addition, you will also incur the
cost of the spread that is, the difference between what investors are willing to pay for Fund shares (the bid price) and the price at which they are willing to sell Fund shares (the ask price). Because of
the costs inherent in buying or selling Fund shares, frequent trading may detract significantly from investment results and an investment in Fund shares may not be advisable for investors who anticipate regularly making small investments.
Commodity Regulatory Risk.
The Trust, on behalf of the Fund, has filed with the National Futures Association (NFA), a
notice claiming an exclusion from the definition of the term commodity pool operator under Commodity Futures Trading Commission (CFTC) Regulation 4.5 with respect to the Funds operation. However, due to recent
amendments adopted by the CFTC and depending on the extent of the Funds investment in swaps and other derivative instruments, the Fund could be subject to regulation by the CFTC as a commodity pool. Prior to becoming subject to such
regulation, the Fund will determine whether to limit its investment in swaps and other derivatives to enable it to continue to rely of the exemption provided by CFTC Regulation 4.5 or to become subject to CFTC regulation and comply with all
applicable requirements, including registration and disclosure requirements governing commodity pools under the Commodity Exchange Act (CEA). Compliance with the CFTCs additional regulatory requirements may increase the Funds
operating expenses. Certain of the rules that would apply to the Fund if it determines to become subject to CFTC regulation as a commodity pool have not yet been adopted, and it is unclear what the effect of those rules would be if they are adopted.
31
Portfolio Holdings Information
A description of the Trusts policies and procedures with respect to the disclosure of the Funds portfolio securities is available in the
Funds SAI. The top holdings of the Fund can be found at www.dbxetf.com. Fund fact sheets provide information regarding the Funds top holdings and may be requested by calling 1-855-329-3837 (1-855-DBX-ETFS).
Management
Investment Adviser and Sub-Adviser.
The Adviser has overall responsibility for the general management and administration of the Trust and oversight
of the Sub-Adviser.
The Sub-Adviser is a registered investment adviser and serves as the investment sub-adviser for the Fund and, subject to
the supervision of the Adviser and the Trusts Board, is responsible for the investment management of the Fund.
For its investment
advisory services to the Fund, the Adviser is entitled to receive a unitary management fee from the Fund at an annual rate equal to [0.XX]% of its average daily net assets.
The Adviser also has contractually agreed through [April
], 2014 to waive fees and/or reimburse the Funds expenses in order to limit the
Funds net annual operating expenses to [X.XX]% of the Funds average daily net assets, except for interest expense, taxes, brokerage expenses, distribution fees or expenses, litigation expenses and other extraordinary expenses (the
Expense Cap). In accordance with and as required by the Expense Cap, the Adviser will reimburse the Fund for the Independent Trustee Fees. The Expense Cap will remain in effect until at least [April
], 2014 and may only be terminated with the consent of the Trusts Board (and may not be terminated by the Adviser) prior to that time.
The Adviser is located at 60 Wall Street, New York, New York 10005 and is an indirect, wholly-owned subsidiary of Deutsche Bank AG, a multi-national
financial services company. The Adviser has been a registered investment adviser since August 2010, with assets under management totaling $[XX.X] million as of December 31, 2012.
The Sub-Adviser is located at 31/F One Exchange Square, Connaught Place, Central, Hong Kong, Hong Kong and is a wholly-owned subsidiary of Harvest Fund Management Co., Ltd. (HFM), one of the
first ten asset management institutions authorized by the Chinese government as part of its strategy to open up and develop the financial sector. HFM is a leading asset manager in China with approximately $[45.7 billion] in assets under management.
The Sub-Adviser has been a registered investment adviser since 2011, with assets under management totaling $[3.29 billion] as of December 31, 2012.
32
A discussion regarding the basis for the Boards approval of the Investment Advisory Agreement and the
Sub-Advisory Agreement will be available in the Funds first semi-annual or annual report following its commencement of operations.
Manager of Managers Structure.
The Adviser and the Trust may rely on an exemptive order (the Order) from the SEC that permits the
Adviser to enter into investment sub-advisory agreements with sub-advisers without obtaining shareholder approval. The Adviser, subject to the review and approval of the Board, selects sub-advisers for the Fund and supervises, monitors and evaluates
the performance of each sub-adviser.
The Order also permits the Adviser, subject to the approval of the Board, to replace sub-advisers and
amend investment sub-advisory agreements, including fees, without shareholder approval whenever the Adviser and the Board believe such action will benefit the Fund and its shareholders. The Adviser thus has the ultimate responsibility (subject to
the ultimate oversight of the Board) to recommend the hiring and replacement of sub-advisers as well as the discretion to terminate any sub-adviser and reallocate the Funds assets for management among any other sub-adviser(s) and itself. This
means that the Adviser is able to reduce the sub-advisory fees and retain a larger portion of the management fee, or increase the sub-advisory fees and retain a smaller portion of the management fee. The Adviser compensates each sub-adviser out of
its management fee.
Portfolio Managers.
Andy Yang and Jerry Wang (the Portfolio Managers) are primarily responsible for
the day-to-day management of the Fund. Each Portfolio Manager is responsible for various functions related to portfolio management, including, but not limited to, investing cash inflows, coordinating with members of his or her team to focus on
certain asset classes, implementing investment strategy, researching and reviewing investment strategy and overseeing members of his or her portfolio management team with more limited responsibilities.
Mr. Yang was transferred to the Sub-Adviser in 2012 and is a portfolio manager for passive strategies. Prior to joining the Sub-Adviser,
Mr. Yang was a portfolio manager at Harvest Fund Management (the Sub-Advisers corporate parent) from 2008. Before Harvest Fund Management, Mr. Yang worked for Goldman Sachs New York Office where he was a senior credit derivatives
analyst within their FICC department. He also worked as an analyst in Bear Stearns from 2000 and subsequently as a quantitative portfolio manager and analyst in HBK Investment Co. where he created HBKs high frequency future trading desk. Prior
to that, he has worked for Citadel Investment Co. for 4 years and was a key member in extending Citadels option market business in Europe and Asia. Mr. Yang holds a Master Degree of Science from Pennsylvania State University.
Mr. Wang was transferred to the Sub-Adviser in April 2011 and is a portfolio manager for China equities. Prior to joining the Sub-Adviser,
Mr. Wang was a portfolio manager at Harvest Fund Management (the Sub-Advisers corporate parent) from September 2009. Before Harvest Fund Management, Mr. Wang was Vice President at CDHCephei Capital for 3 years and was involved
in the portfolio management of offshore
33
hedge fund products and QFII account. He has also spent 3 years with CLSA Asia-Pacific Markets in Singapore, Hong Kong and Shanghai where he was an investment analyst covering consumer
sector and small-cap companies listed in the Great China region. In his previous roles at CLSA, CDH and HFM, Mr. Wang has accumulated experience investing in ETFs as well as closed-end Funds in both China domestic A-share and offshore Hong Kong
market. He has also been responsible for providing in-depth research reports about closed-end Funds, ETF listed and traded in Hong Kong and China. Mr. Wang received a BE (First Class Honors) and a Master in Engineering from National University
of Singapore.
The Funds SAI provides additional information about the Portfolio Managers compensation, other accounts managed by
the Portfolio Managers and the Portfolio Managers ownership (if any) of shares in the Fund.
Shareholder
Information
Additional shareholder information, including how to buy and sell shares of the Fund, is available free of charge by calling
toll-free:1-855-329-3837 (1-800-DBX-ETFS) or visiting our website atwww.dbxetf.com.
Buying and Selling Shares.
Shares of the Fund will
be listed for trading on a national securities exchange during the trading day. Shares can be bought and sold throughout the trading day like shares of other publicly-traded companies. The Trust does not impose any minimum investment for shares of
the Fund purchased on an exchange. Buying or selling Fund shares involves two types of costs that may apply to all securities transactions. When buying or selling shares of the Fund through a broker, you will likely incur a brokerage commission or
other charges determined by your broker. In addition, you may incur the cost of the spread that is, any difference between the bid price and the ask price. The commission is frequently a fixed amount and may be a significant
proportional cost for investors seeking to buy or sell small amounts of shares. The spread varies over time for shares of the Fund based on its trading volume and market liquidity, and is generally lower if the Fund has a lot of trading volume and
market liquidity and higher if the Fund has little trading volume and market liquidity. The Funds Shares trade on NYSE Arca under the following symbol:
|
|
|
Fund
|
|
Ticker Symbol
|
db X-trackers Harvest CSI 300 Index ETF
|
|
[XXXX]
|
Shares of the Fund may be acquired or redeemed directly from the Fund only in Creation Units or multiples thereof, as
discussed in the section of this Prospectus entitled Creations and Redemptions. Only an Authorized Participant (as defined herein) may engage in creation or redemption transactions directly with the Fund. Once created, shares of the Fund
generally trade in the secondary market in amounts less than a Creation Unit.
34
The Board has evaluated the risks of market timing activities by the Funds shareholders. The Board
noted that the Funds Shares can only be purchased and redeemed directly from the Fund in Creation Units by Authorized Participants and that the vast majority of trading in the Funds Shares occurs on the secondary market.
Because the secondary market trades do not involve the Fund directly, it is unlikely those trades would cause many of the harmful effects of market timing, including dilution, disruption of portfolio management, increases in the Funds trading
costs and the realization of capital gains. With regard to the purchase or redemption of Creation Units directly with the Fund, because such trades will be effected in cash, the Board noted that such trades could result in dilution to the Fund and
increased transaction costs, which could negatively impact the Funds ability to achieve its investment objective. However, the Board noted that direct trading by Authorized Participants is critical to ensuring that the Funds Shares trade
at or close to NAV. The Fund also employs fair valuation pricing to minimize potential dilution from market timing. In addition, the Fund imposes both fixed and variable transaction fees on purchases and redemptions of Fund Shares to cover the
custodial and other costs incurred by the Fund in effecting trades. Given this structure, the Board determined that with respect to the Fund it is not necessary to adopt policies and procedures to detect and deter market timing of the Funds
Shares.
The national securities exchange on which the Funds shares are listed is open for trading Monday through Friday and is closed
on weekends and the following holidays: New Years Day, Martin Luther King, Jr. Day, Presidents Day, Good Friday, Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
Section 12(d)(1) of the 1940 Act restricts investments by registered investment companies in the securities of other investment companies.
Registered investment companies are permitted to invest in the Fund beyond the limits set forth in Section 12(d)(1), subject to certain terms and conditions set forth in an SEC exemptive order issued to the Trust, including that such investment
companies enter into an agreement with the Trust.
Book Entry.
Shares of the Fund are held in book-entry form, which means that no
stock certificates are issued. The Depository Trust Company (DTC) or its nominee is the record owner of all outstanding shares of the Fund and is recognized as the owner of all shares for all purposes.
Investors owning shares of the Fund are beneficial owners as shown on the records of DTC or its participants. DTC serves as the securities depository for
shares of the Fund. DTC participants include securities brokers and dealers, banks, trust companies, clearing corporations and other institutions that directly or indirectly maintain a custodial relationship with DTC. As a beneficial owner of
shares, you are not entitled to receive physical delivery of stock certificates or to have shares registered in your name, and you are not considered a registered owner of shares. Therefore, to exercise any right as an owner of shares, you must rely
upon the procedures of DTC and its participants. These procedures are the same as those that apply to any other securities that you hold in book-entry or street name form.
35
Share Prices.
The trading prices of the Funds shares in the secondary market generally differ
from the Funds daily NAV per share and are affected by market forces such as supply and demand, economic conditions and other factors. Information regarding the intraday value of shares of a Fund, also known as the indicative optimized
portfolio value (IOPV), is disseminated every 15 seconds throughout the trading day by the national securities exchange on which the Funds shares are listed or by market data vendors or other information providers. The IOPV
is based on the current market value of the securities and/or cash required to be deposited in exchange for a Creation Unit. The IOPV does not necessarily reflect the precise composition of the current portfolio of securities held by the Fund at a
particular point in time nor the best possible valuation of the current portfolio. Therefore, the IOPV should not be viewed as a real-time update of the NAV, which is computed only once a day. The IOPV is generally determined by using
both current market quotations and/or price quotations obtained from broker-dealers that may trade in the portfolio securities held by the Fund. The quotations of certain Fund holdings may not be updated during U.S. trading hours if such holdings do
not trade in the U.S. The Fund is not involved in, or responsible for, the calculation or dissemination of the IOPV and makes no representation or warranty as to its accuracy.
Determination of Net Asset Value.
The NAV of the Fund is generally determined once daily Monday through Friday generally as of the regularly scheduled close of business of the New York Stock
Exchange (NYSE) (normally 4:00 p.m., Eastern time) on each day that the NYSE is open for trading. NAV is calculated by deducting all of the Funds liabilities from the total value of its assets and dividing the result by the number
of shares outstanding, rounding to the nearest cent. All valuations are subject to review by the Trusts Board or its delegate.
In
determining NAV, expenses are accrued and applied daily and securities and other assets for which market quotations are available are valued at market value. Equity investments are valued at market value, which is generally determined using the last
reported official closing or last trading price on the exchange or market on which the security is primarily traded at the time of valuation. The approximate value of shares of the Fund, an amount representing on a per share basis the sum of the
current value of the deposit securities based on their then current market price and the estimated cash component will be disseminated every 15 seconds throughout the trading day through the facilities of the Consolidated Tape Association. As the
respective international local markets close, the market value of the deposit securities will continue to be updated for foreign exchange rates for the remainder of the U.S. trading day at the prescribed 15 second intervals. The value of the
Underlying Index will not be calculated and disseminated intraday. The value and return of the Underlying Index is calculated once each trading day by the Index Provider based on prices received from the respective international local markets.
The value of the Funds portfolio securities is based on the securities closing price on local markets when available. If a
securitys market price is not readily available or does not otherwise accurately reflect the fair value of the security, the security will be valued by another method that the Adviser believes will better reflect fair value in accordance
36
with the Trusts valuation policies and procedures approved by the Board. Money market securities maturing in 60 days or less will be valued at amortized cost. The Fund may use fair value
pricing in a variety of circumstances, including but not limited to, situations when the value of a security in the Funds portfolio has been materially affected by events occurring after the close of the market on which the security is
principally traded (such as a corporate action or other news that may materially affect the price of a security) or trading in a security has been suspended or halted. Fair value pricing involves subjective judgments and it is possible that a fair
value determination for a security is materially different than the value that could be realized upon the sale of the security. In addition, fair value pricing could result in a difference between the prices used to calculate the Funds NAV and
the prices used by the Funds Underlying Index. This may adversely affect the Funds ability to track its Underlying Index. Because A shares are listed on foreign exchanges, the value of the Funds portfolio securities may change on
days when you will not be able to purchase or sell your Shares.
Dividends and Distributions
General Policies.
Dividends from net investment income, if any, are generally declared and paid at least annually by the Fund. Distributions of net
realized capital gains, if any, generally are declared and paid once a year. The Fund reserves the right to declare special distributions if, in its reasonable discretion, such action is necessary or advisable to preserve its status as a RIC or to
avoid imposition of income or excise taxes on undistributed income or realized gains.
Dividends and other distributions on shares of the Fund
are distributed on a pro rata basis to beneficial owners of such shares. Dividend payments are made through DTC participants and indirect participants to beneficial owners then of record with proceeds received from the Fund.
Dividend Reinvestment Service.
No dividend reinvestment service is provided by the Fund. Broker-dealers may make available the DTC book-entry
Dividend Reinvestment Service for use by beneficial owners of the Fund for reinvestment of their dividend distributions. Beneficial owners should contact their broker to determine the availability and costs of the service and the details of
participation therein. Brokers may require beneficial owners to adhere to specific procedures and timetables. If this service is available and used, dividend distributions of both income and realized gains will be automatically reinvested in
additional whole shares of the Fund purchased in the secondary market.
Taxes.
As with any investment, you should consider how your
investment in shares of the Fund will be taxed. The tax information in this Prospectus is provided as general information. You should consult your own tax professional about the tax consequences of an investment in shares of the Fund.
Unless your investment in Fund shares is made through a tax-exempt entity or tax-deferred retirement account, such as an IRA, you need to be aware of the
possible tax consequences when the Fund makes distributions or you sell Fund shares.
37
Taxes on Distributions.
Distributions from the 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 the Fund of net long-term
capital gains in excess of net short-term capital losses (capital gain dividends) are taxable to non-corporate shareholders as long-term capital gains, which are subject to reduced maximum tax rates, regardless of how long the shareholders have held
the Funds shares. Distributions by the Fund that qualify as qualified dividend income are taxable to non-corporate shareholders at long-term capital gain rates.
If certain holding period requirements are met, qualified dividend income received by the Fund may be eligible to be treated as qualified dividend income when distributed to non-corporate shareholders.
Generally, qualified dividend income includes dividend income from taxable U.S. corporations and qualified non-U.S. corporations, provided that the Fund satisfies certain holding period requirements in respect of the stock of such corporations and
has not hedged its position in the stock in certain ways. For this purpose, a qualified non-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 PRC has such a treaty with the U.S. Dividends from PFICs are not qualified
dividend income.
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.
Distributions in excess of the Funds current
and accumulated earnings and profits will, as to each shareholder, be treated as a return of capital to the extent of the shareholders basis in his or her shares of the Fund, and generally as a capital gain thereafter. A return of capital
distribution generally will not be taxable but will reduce the 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, the 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 the Fund. For Fund taxable years beginning before January 1, 2014, the 30% withholding tax also will not apply to
dividends that the Fund reports as (a) interest-related dividends, to the extent such dividends are derived from the Funds qualified net interest income, or (b) short-term capital gain dividends, to the extent such
dividends are derived from the Funds qualified short-term gain. Qualified net interest income is the Funds net income derived from U.S.-source interest and original issue discount, subject to certain exceptions
and limitations. Qualified short-term gain generally means the excess of the net short-term capital gain of the Fund for the taxable year over its net long-term capital loss, if any.
38
As noted above, investment income earned by the Fund may be subject to non-U.S. taxes; in particular, taxes
imposed by China. If, as is expected, more than 50% of the total assets of the Fund at the close of a year consist of non-U.S. stocks or securities, the Fund may elect, for U.S. federal income tax purposes, to treat certain non-U.S. income taxes
(including withholding taxes) paid by the Fund as paid by its shareholders. 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 tax
deduction in calculating your taxable income, or a credit in calculating your U.S. federal income tax. Your ability to use foreign tax credits is subject to certain generally applicable limitations as further described in the SAI.
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.
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 Fund. It is
not a substitute for personal tax advice. You may also be subject to state and local taxation on Fund distributions and sales of shares. Consult your personal tax 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 Fund are
created at NAV by market makers, large investors and institutions only in block-size Creation Units of [50,000] shares or multiples thereof. 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 Fund. Creation Units generally are issued and
redeemed in exchange for a specified amount of cash totaling the NAV of the Creation Units.
Except when aggregated in Creation Units, shares are not redeemable by the Fund.
The prices at which creations and redemptions occur are based on the
next calculation of NAV after an order is received in a form described in the authorized participant agreement.
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
39
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.
The 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 the Fund a distribution, as such term is used in the 1933 Act, may be occurring.
Broker-dealers and other persons are cautioned that some activities on their part may, depending on the circumstances, result in their being deemed participants in a distribution in a manner that could render them statutory underwriters and subject
to the prospectus delivery and liability provisions of the 1933 Act. Any determination of whether one is an underwriter must take into account all the relevant facts and circumstances of each particular case.
Broker-dealers should also note that dealers who are not underwriters but are participating in a distribution (as contrasted to ordinary
secondary transactions), and thus dealing with shares that are part of an unsold allotment within the meaning of Section 4(3)(C) of the 1933 Act, would be unable to take advantage of the prospectus delivery exemption provided by
Section 4(3) of the 1933 Act. For delivery of prospectuses to exchange members, the prospectus delivery mechanism of Rule 153 under the 1933 Act is available only with respect to transactions on a national securities exchange.
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 fee for the Fund is $[X,XXX].
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.
40
Distribution
The Distributor distributes Creation Units for the Fund on an agency basis. The Distributor does not maintain a secondary market in shares of the Fund. The Distributor has no role in determining the
policies of the Fund or the securities that are purchased or sold by the Fund. The 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 Fund and certain other funds advised by the Adviser or its affiliate. Such payments, which may be significant to the intermediary, are
not made by the 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 Fund 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 the 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 the Fund.
Ernst & Young LLP serves as the Funds independent registered public accounting firm. The independent registered public accounting firm is
responsible for auditing the annual financial statements of the Fund.
Index Provider
China Securities Index Co., Ltd. (CSI), a leading index provider in China, is a joint venture between the Shanghai Stock Exchanges and the
Shenzhen Stock Exchange that specializes in the creation of indices and index-related services. CSI 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 the Index Provider to use the Underlying Index. The Adviser sublicenses rights in the Underlying
Index to the Trust at no charge.
41
Disclaimers
Shares of the Fund are not sponsored, endorsed, sold or promoted by the Index Provider or any affiliate of the Index Provider and the Index Provider bears no liability with respect to the Fund or any
security. The Underlying Index is compiled and calculated by the Index Provider. The Index Provider will apply all necessary means to ensure the accuracy of the Underlying Index. However, neither the Index Provider nor the Shanghai Stock Exchange
not the Shenzhen Stock Exchange shall be liable (whether in negligence or otherwise) to any person for any error in the Underlying Index and neither the Index Provider nor the Shanghai Stock Exchange nor the Shenzhen Stock Exchange shall be under
any obligation to advise any person of any error therein. All copyright in Underlying Index values and constituent list vests in the Index Provider. Neither the publication of the Underlying Index by the Index Provider nor the granting of a license
regarding the Underlying Index as well as the Index Trademark for the utilization in connection with the Fund, which derived from the Underlying Index, represents a recommendation by the Index Provider for a capital investment or contains in any
manner a warranty or opinion by the Index Provider with respect to the attractiveness on an investment in the Fund.
Shares of the Fund are
not sponsored, endorsed or promoted by NYSE Arca. NYSE Arca makes no representation or warranty, express or implied, to the owners of the shares of the Fund or any member of the public regarding the ability of the Fund to track the total return
performance of its Underlying Index or the ability of the Underlying Index to track stock market performance. NYSE Arca is not responsible for, nor has it participated in, the determination of the compilation or the calculation of the Underlying
Index, nor in the determination of the timing of, prices of, or quantities of shares of the Fund to be issued, nor in the determination or calculation of the equation by which the shares are redeemable. NYSE Arca has no obligation or liability to
owners of the shares of the Fund in connection with the administration, marketing or trading of the shares of the Fund.
NYSE Arca does not
guarantee the accuracy and/or the completeness of the Underlying Index or any data included therein. NYSE Arca makes no warranty, express or implied, as to results to be obtained by the Trust on behalf of the Fund as licensee, licensees
customers and counterparties, owners of the shares of the Fund, or any other person or entity from the use of the subject index or any data included therein in connection with the rights licensed as described herein or for any other use. NYSE Arca
makes no express or implied warranties and hereby expressly disclaims all warranties of merchantability or fitness for a particular purpose with respect to the Underlying Index or any data included therein. Without limiting any of the foregoing, in
no event shall NYSE Arca have any liability for any direct, indirect, special, punitive, consequential or any other damages (including lost profits) even if notified of the possibility of such damages.
The Adviser does not guarantee the accuracy or the completeness of the Underlying Index or any data included therein and the Adviser shall have no
liability for any errors, omissions or interruptions therein.
42
The Adviser makes no warranty, express or implied, to the owners of shares of the Fund or to any other
person or entity, as to results to be obtained by the Fund from the use of the Underlying Index or any data included therein. The 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 Index 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 the Fund traded on NYSE Arca at a price above (i.e., at a premium) or below (i.e.,
at a discount) the NAV of the Fund during the past calendar year, when available, can be found at www.dbxetf.com.
Financial Highlights
The Fund had not commenced operations as of the date of this Prospectus and therefore does not yet have financial information.
43
For more information:
WWW.DBXETF.COM
1-855-329-3837 (1-855-DBX-ETFS)
Copies of the Prospectus, SAI and recent shareholder
reports can be found on our website at www.dbxetf.com. For more information about the Fund, you may request a copy of the SAI. The SAI provides detailed information about the Fund and is incorporated by reference into this Prospectus. This means
that the SAI, for legal purposes, is a part of this Prospectus.
If you have any questions about the Trust or shares of the Fund or you wish
to obtain the SAI or shareholder report free of charge, please:
Call:
|
1-855-329-3837 or 1-855-DBX-ETFS (toll free)
|
|
Monday through Friday, 8:30 a.m. to 6:30 p.m.
|
|
E-mail: dbxquestions@list.db.com
|
|
c/o ALPS Distributors, Inc.
|
|
1290 Broadway, Suite 1100
|
Information about the
Fund (including the SAI) can be reviewed and copied at the SECs Public Reference Room in Washington, D.C., and information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-202-551-8090. Reports and other
information about the Fund are available on the EDGAR Database on the SECs website at www.sec.gov, and copies of this information may be obtained, after paying a duplicating fee, by electronic request at the following e-mail address:
publicinfo@sec.gov, or by writing to the SECs Public Reference Section, Washington, D.C. 20549-1520.
No person is authorized to give
any information or to make any representations about the Fund and its shares not contained in this Prospectus and you should not rely on any other information. Read and keep the Prospectus for future reference.
Investment Company Act File No.: 811-22487
DBX ETF Trust
Statement of Additional Information
Dated [April
, 2013]
This Statement of Additional Information (SAI) is not a
prospectus. It should be read in conjunction with the current prospectus (the Prospectus) for the db X-trackers Harvest CSI 300 Index Fund of DBX ETF Trust (the Trust), as such Prospectus may be revised or supplemented from
time to time.
The Prospectus for the Fund included in this SAI is dated [April
,
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 the Fund
The Trust currently consists of six investment series or portfolios. This SAI relates to the db X-trackers Harvest CSI 300 Index ETF (the
Fund). 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 the Funds shares (the Shares) is registered under the Securities Act of 1933, as amended
(the 1933 Act).
The investment objective of the Fund is to seek investment results that correspond generally to the performance,
before fees and expenses, of the CSI 300 Index (the Underlying Index). The Fund is managed by DBX Advisors LLC (the Adviser) and is sub-advised by Harvest Global Investments Limited (the Sub-Adviser or
HGI).
The 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 specified amount of cash totaling the NAV of the Creation Units. Shares of the Fund 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. A Creation Unit consists of [50,000] Shares thereof.
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 the 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
the 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 the Fund will continue to be met. The Exchange may,
but is not required to, remove the Shares of the 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 (as that term is define below)
of Shares of the Fund for 30 or more consecutive trading days, (ii) the value of the Underlying Index on which the Fund is based is no longer calculated or available, (iii) the indicative optimized portfolio value
(IOPV) of the 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 the 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 basket of
securities included in the Funds Underlying Index (the Deposit Securities). While the IOPV reflects the current market value of the Deposit Securities, it does not necessarily reflect the precise composition of the current
portfolio of securities held by the 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, the 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, if any, consists of estimated accrued interest, dividends and other
income, less expenses. Each IOPV also reflects changes in currency exchange rates between the U.S. dollar and the applicable currency, in this case the renminbi (RMB).
The Trust reserves the right to adjust the Share prices of Fund 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
The Fund is managed to track the performance of its Underlying Index, which is designed to reflect the price fluctuation and performance
of the China A share market and is composed of the 300 largest and most liquid stocks in the China A share market. The Fund will normally invest at least 80% of its total assets in securities that comprise the Underlying Index. The Fund operates as
an index fund and will not be actively managed. Adverse performance of a security in the Funds portfolio may not result in the elimination of the security from the Funds portfolio.
As discussed in greater detail in the Funds Prospectus, A shares are issued by companies incorporated in mainland China and are traded in renminbi
(RMB) on the Shenzhen and Shanghai Stock Exchanges. Subject to minor exceptions, under current regulations in the Peoples Republic of China (China or the PRC), foreign investors can invest in the domestic
PRC securities market only through certain foreign institutional investors that have obtained status as a Qualified Foreign Institutional Investor (QFII) or a Renminbi Qualified Foreign Institutional Investor (RQFII) from the
China Securities Regulatory Commission (CSRC) and have been granted a specific aggregate dollar amount investment quota by the Chinas State Administration of Foreign Exchange (SAFE) to invest foreign freely convertible
currencies (in the case of a QFII) and RMB (in the case of a RQFII) into the PRC for the purpose of investing in the PRCs domestic securities markets. The Sub-Adviser has obtained a RQFII license and has been granted, on behalf of the Fund, an
initial RQFII quota. As a result, the Sub-Adviser, on behalf of the Fund, may invest in A shares and other permitted China securities listed on the Shanghai and Shenzhen Stock Exchanges up to the specified quota amount.
The Sub-Adviser expects to use a full replication indexing strategy to seek to track the Underlying Index. As such, the Sub-Adviser expects to invest
directly in the component securities (or a substantial number of the component securities) of the Underlying Index in substantially the same weightings in which they are represented in the Underlying Index. If it is not possible for the Sub-Adviser
to acquire component securities due to limited availability or regulatory restrictions, the Sub-Adviser may use a representative sampling indexing strategy to seek to track the Underlying Index instead of a full replication indexing strategy.
Representative sampling is an indexing strategy that involves investing in a representative sample of securities that collectively has an investment profile similar to the Underlying Index. The securities selected are expected to have,
in the aggregate, investment characteristics (based on factors such as market capitalization and industry weightings), fundamental characteristics (such as return variability and yield) and liquidity measures similar to those of the Underlying
Index. The Fund may or may not hold all of the securities in the Underlying Index when the Sub-Adviser is using a representative sampling indexing strategy.
While the Fund intends to invest primarily and directly in A shares, the Fund may also invest in securities not included in the Underlying Index, swap contracts and other types of derivative instruments,
and other pooled investment vehicles that the Adviser and/or Sub-Adviser believes will help the Fund to achieve its investment objective. The remainder of the Funds assets will be invested primarily in money market instruments and cash
equivalents. The various types of instruments and strategies in which the Fund may invest are described below as are the risks associated with the Funds investment strategy.
Diversification Status.
The 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.
The 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 Fund and may make it less likely that the Fund will meet its investment objective.
2
Non-U.S. Securities.
The Fund intends to purchase publicly-traded common stocks of non-U.S. issuers.
To the extent the 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 the 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.
Short-Term Instruments and Temporary Investments
. The 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 the 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.
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 the Fund receiving or paying only the net amount of the two payments. The net amount of the excess, if any, of the 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 the 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.
Securities of Investment Companies.
The 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, the 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
3
respect to investment companies in the aggregate. To the extent allowed by law or regulation, the Fund may invest its assets in the 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 the 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.
The 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.
The Fund may, but does not expect to, 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. The 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. The Fund
intends to use futures and options in accordance with Rule 4.5 of the Commodity Exchange Act (CEA ). The Trust, on behalf of the Fund, has claimed an exclusion from the definition of the term commodity pool operator in
accordance with Rule 4.5 so that the 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. The 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. The 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. The 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 the Fund to maintain liquid assets. Generally, the 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, the Fund maintains liquid assets in an amount at least equal to
the Funds daily marked-to-market obligation (i.e., the 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 the Fund set aside assets equal to the futures contracts full notional value. The 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 the
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.
The Fund may, but does not expect to, 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.
4
Upon entering into a futures contract, the 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 the Fund upon termination of the futures contract, assuming all contractual
obligations have been satisfied. Subsequent payments, known as variation margin, to and from the broker will be made daily as the price of the index underlying the futures contract fluctuates, making the long and short positions in the
futures contract more or less valuable, a process known as marking-to-market. At any time prior to the expiration of a futures contract, the Fund may elect to close the position by taking an opposite position, which will operate to
terminate the Funds existing position in the contract.
Lending Portfolio Securities.
The Fund may lend portfolio securities to
approved borrowers. The borrowers provide collateral that is maintained in an amount at least equal to the current market value of the securities loaned. No securities loan shall be made on behalf of the Fund if, as a result, the aggregate value of
all securities loans of the Fund exceeds one-third of the value of the Funds total assets (including the value of the collateral received). The Fund may terminate a loan at any time and obtain the return of the securities loaned. The Fund
receives the value of any interest or cash or non-cash distributions paid on the loaned securities.
With respect to loans that are
collateralized by cash, the borrower will be entitled to receive a fee based on the amount of cash collateral. The Fund is compensated by the difference between the amount earned on the reinvestment of cash collateral and the fee paid to the
borrower. In the case of collateral other than cash, the Fund is compensated by a fee paid by the borrower equal to a percentage of the market value of the loaned securities. Any cash collateral may be reinvested in certain short-term instruments
either directly on behalf of the Fund or through one or more joint accounts or money market funds, including those advised by the Adviser and/or Sub-Adviser; such reinvestments are subject to investment risk.
Securities lending involves exposure to certain risks, including operational risk (i.e., the risk of losses resulting from problems in the settlement and
accounting process), gap risk (i.e., the risk of a mismatch between the return on cash collateral reinvestments and the fees the Fund has agreed to pay a borrower), and credit, legal, counterparty and market risk. In the event a borrower
does not return the Funds securities as agreed, the Fund may experience losses if the proceeds received from liquidating the collateral does not at least equal the value of the loaned security at the time the collateral is liquidated plus the
transaction costs incurred in purchasing replacement securities.
The Fund pays a portion of the interest or fees earned from securities
lending to a borrower as described above and to a securities lending agent who administers the lending program in accordance with guidelines approved by the Trusts Board of Trustees (the Board or the Trustees).
Repurchase Agreements.
The Fund may enter into repurchase agreements. A repurchase agreement is an instrument under which the
purchaser (i.e., the 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 the 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, the 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 the 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.
Repurchase agreements pose certain risks for the Fund that utilizes them. Such risks are not unique to the Fund but are inherent in repurchase
agreements. The Fund seeks 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, the 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, the Fund would be at risk of losing some
or all of the principal and income involved in the transaction.
5
Reverse Repurchase Agreements.
The 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 the 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 the Funds assets. The Funds exposure to reverse repurchase agreements will be covered by assets having a value equal to or greater than such
commitments. The Fund maintains liquid assets in connection with reverse repurchase agreements. Under the 1940 Act, reverse repurchase agreements are considered borrowings.
Currency Transactions.
The Fund may enter into forward currency contracts designed to offset the Funds exposure to non-U.S. currencies. In addition, the 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. 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 the Fund receiving or paying only the
net amount of the two payments. The net amount of the excess, if any, of the 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 the 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.
Restricted Securities/Rule 144A Securities.
The Fund 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 Fund may not be
able to sell a restricted security promptly or at a reasonable price. Although there is a substantial institutional market for Rule 144A securities, it is not possible to predict exactly how the market for Rule 144A securities will develop. A
restricted security that was liquid at the time of purchase may subsequently become illiquid and its value may decline as a result. Restricted securities that are deemed illiquid will count towards the Funds 15% limitation on illiquid
securities. In addition, transaction costs may be higher for restricted securities than for more liquid securities. The Fund may have to bear the expense of registering Rule 144A securities for resale and the risk of substantial delays in effecting
the registration.
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.
6
Future Developments.
The Board may, in the future, authorize the Fund to invest in securities and
investments other than those listed in this SAI and in the Funds Prospectus, provided they are consistent with the Funds investment objective, do not violate any investment restrictions or policies, and otherwise permitted by the 1940
Act and any other applicable law.
General Considerations and Risks
An investment in the Fund is subject to a number of risks, which are discussed in the Funds Prospectus and below. The risks may adversely affect the
Funds ability to achieve its investment objective, performance, NAV, and trading price of the Funds Shares. An investment in the Fund should be made with an understanding that the value of the 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 U.S. and Chinese markets. There can be no assurance that the Fund will
achieve it investment objective or generate positive performance. Investors should carefully evaluate the merits and risks of an investment in the Fund in the context of his or her overall financial circumstances, knowledge and experience as an
investor. The discussion of the risk factors set forth below should be read together with the discussion of risks in the Funds Prospectus.
Risks of Equity Securities.
An investment in the 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 the 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 the
securities in the Underlying Index are listed, 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 the Funds Shares
will be adversely affected if trading markets for the Funds portfolio securities are limited or absent, or if bid/ask spreads are wide.
In addition, in the current economic environment, global markets are experiencing very high level of volatility and an increased risk of corporate
failures. The insolvency or other corporate failures of any one or more of the constituents of the Underlying Index may have an adverse effect on the Underlying Indexs and, therefore, the Funds performance.
RQFII Program Risk.
The current RQFII Regulations include rules on investment restrictions applicable to the Fund. Transaction sizes for RQFIIs
are relatively large (with the corresponding heightened risk of exposure to decreased market liquidity and significant price volatility leading to possible adverse effects on the timing and pricing of acquisition or disposal of securities). Onshore
PRC securities are registered in the joint names of the Sub-Adviser (as the RQFII holder) and the Fund in accordance with the relevant rules and regulations, and maintained in electronic form via a securities account with the China Securities
Depository and Clearing Co., Ltd. (CSDCC). The account is required to bear the name of Harvest Global Investments Limited as this is the name under which the RQFII is approved by the relevant regulator. The Sub-Adviser must
select a PRC broker (the PRC Broker) to act on its behalf in each of the two onshore PRC securities markets as well as the PRC Custodian to maintain its assets in custody in accordance with the terms of the PRC Custody Agreement.
In the event of any default of either the relevant PRC Broker or the PRC Custodian (directly or through its delegate) in the execution or
settlement of any transaction or in the transfer of any funds or securities in the PRC, the Fund may encounter delays in recovering its assets which may in turn adversely impact the NAV of the Fund.
The Fund will utilize the Sub-Advisers RQFII quota granted under the RQFII Regulation. This RQFII quota is limited. While the Sub-Adviser does not
believe that the size of the creations in the Fund is such that this quota may be reached, it is nonetheless possible. In such event, unless the Sub-Adviser is able to acquire additional RQFII quota, it may be necessary for the Fund to suspend
creations of Creation Units. In such event it is possible that the trading price of the Funds Shares on the Exchange will be at a significant premium to the NAV (which may also increase tracking error of the Fund). In extreme circumstances,
the Fund may incur significant loss due to limited investment capabilities, or may not be able fully to implement or pursue its investment objectives or strategies, due to RQFII investment restrictions, illiquidity of the PRCs securities
markets, and delay or disruption in execution of trades or in settlement of trades.
7
The regulations which regulate investments by RQFIIs in the PRC and the repatriation of capital from RQFII
investments are relatively new. The application and interpretation of such investment regulations are therefore relatively untested and there is no certainty as to how they will be applied as the PRC authorities and regulators have been given wide
discretion in such investment regulations and there is no precedent or certainty as to how such discretion may be exercised now or in the future.
PRC Custodian and PRC Broker Risk.
The Sub-Adviser is responsible for selecting the PRC Broker to execute transactions for the Fund in the PRC markets. The Sub-Adviser can only appoint one PRC
Broker per market (the Shanghai Stock Exchange and the Shenzhen Stock Exchange). As such the Fund will rely on only one PRC Broker (where the same PRC Broker is appointed for both markets) or two PRC Brokers (where a different PRC Broker is
appointed in each market which is the Sub-Advisers present intention). Should, for any reason, the Funds ability to use the relevant PRC Broker be affected, this could disrupt the operations of the Fund and affect the ability of
the Fund to track the Underlying Index, causing a premium or a discount to the trading price of the Funds Shares. The Fund may also incur losses due to the acts or omissions of either the relevant PRC Broker or the PRC Custodian in the
execution or settlement of any transaction or in the transfer of any funds or Securities. Subject to the applicable laws and regulations in the PRC, the Adviser and the Sub-Adviser will make arrangements to ensure that the PRC Brokers and PRC
Custodian have appropriate procedures to properly safe-keep the Funds assets.
According to the RQFII Regulations and market practice,
the securities and cash accounts for the Fund in the PRC are to be maintained in the joint names of the Sub-Adviser as the RQFII holder and the Fund. Although the Sub-Adviser has obtained a legal opinion that the assets in such securities account
would belong to the Fund, such opinion cannot be relied on as being conclusive, as the RQFII Regulations are subject to the interpretation of the relevant authorities in the PRC.
Investors should note that cash deposited in the cash account of the Fund with the PRC Custodian will not be segregated but will be a debt owing from the PRC Custodian to the Fund as a depositor. Such
cash will be co-mingled with cash belong to other clients of the PRC Custodian. In the event of bankruptcy or liquidation of the PRC Custodian, the Fund will not have any proprietary rights to the cash deposited in such cash account, and the Fund
will become an unsecured creditor, ranking pari passu with all other unsecured creditors, of the PRC Custodian. The Fund may face difficulty and/or encounter delays in recovering such debt, or may not be able to recover it in full or at all, in
which case the Fund will suffer losses.
Repatriation Risk.
Repatriations by RQFIIs in respect of funds such as the Fund conducted in
RMB are permitted daily and are not subject to any lock-up periods or prior approval. There is no assurance, however, that PRC rules and regulations will not change or that repatriation restrictions will not be imposed in the future. Any
restrictions on repatriation of the invested capital and net profits may impact on the Funds ability to meet redemption requests.
Economic, political and social risks of the PRC.
The economy of China, which has been in a state of transition from a planned economy to a more
market oriented economy, differs from the economies of most developed countries in many respects, including the level of government involvement, its state of development, its growth rate, control of foreign exchange, and allocation of resources.
Although the majority of productive assets in China are still owned by the PRC government at various levels, in recent years, the PRC
government has implemented economic reform measures emphasizing utilization of market forces in the development of the economy of China and a high level of management autonomy. The economy of China has experienced significant growth in the past 20
years, but growth has been uneven both geographically and among various sectors of the economy. Economic growth has also been accompanied by periods of high inflation. The PRC government has implemented various measures from time to time to control
inflation and restrain the rate of economic growth.
For more than 20 years, the PRC government has carried out economic reforms to achieve
decentralization and utilization of market forces to develop the economy of the PRC. These reforms have resulted in significant economic growth and social progress. There can, however, be no assurance that the PRC government will continue to pursue
such economic policies or, if it does, that those policies will continue to be successful. Any such adjustment and modification of those economic policies may have an adverse impact on the securities market in the PRC as well as the portfolio
securities of the Fund. Further, the PRC government may from time to time adopt corrective measures to control the growth of the PRC economy which may also have an adverse impact on the capital growth and performance of the Fund. Political changes,
social instability and adverse diplomatic developments in the PRC could result in the imposition of additional government restrictions including expropriation of assets, confiscatory taxes or nationalization of some or all of the property held by
the underlying issuers of the Funds portfolio securities.
8
PRC Laws and Regulations Risk.
The regulatory and legal framework for capital markets and joint stock
companies in the PRC may not be as well developed as those of developed countries. PRC laws and regulations affecting securities markets are relatively new and evolving, and because of the limited volume of published cases and judicial
interpretation and their non-binding nature, interpretation and enforcement of these regulations involve significant uncertainties. In addition, as the PRC legal system develops, no assurance can be given that changes in such laws and regulations,
their interpretation or their enforcement will not have a material adverse effect on their business operations.
Restricted Markets Risk.
The Fund may invest in certain securities that are subject to limitations or restrictions on foreign ownership or holdings imposed by the PRC. Such legal and regulatory restrictions or limitations may have adverse effects on the liquidity and
performance of the Funds portfolio holdings as compared to the performance of the Underlying Index. This may increase the risk of tracking error.
A Share Market Suspension Risk.
A shares may only be bought from, or sold to, the Fund from time to time where the relevant A shares may be sold or purchased on the Shanghai Stock Exchange or the
Shenzhen Stock Exchange, as appropriate. Given that the A share market is considered volatile and unstable (with the risk of suspension of a particular stock or government intervention), the creation and redemption of Creation Units may also be
disrupted. A participating dealer may not redeem or create Creation Units of the Fund if it believes that A shares are not available.
Changes in PRC Taxation Risk.
The PRC Government has implemented a number of tax reform policies in recent years. The current tax laws and
regulations may be revised or amended in the future. Any revision or amendment in tax laws and regulations may affect the after-taxation profit of PRC companies and foreign investors in such companies, such as the Fund.
PRC Withholding Taxation Risk.
In light of the uncertainty on the income tax treatment on capital gains arising from disposal of PRC securities
and in order to meet this potential tax liability for capital gains, the Adviser reserves the right to provide for withholding tax (WHT) on such gains or income and withhold the tax for the account of the Fund. The Adviser will at
present make a provision of 10% for the account of the Fund in respect of any potential WHT on capital gains. The amount of actual provision will be disclosed in the Funds annual and semi-annual reports to shareholders. Investors should note
that such provision may be excessive or inadequate to meet actual PRC tax liabilities on investments made by the Fund. As a result, investors may be advantaged or disadvantaged depending on the final rules of the relevant PRC tax authorities. In
addition, the Adviser intends to make relevant provision on dividend and interest from PRC securities if the WHT is not withheld at source at the time when such income is received. It should also be noted that the actual applicable tax rates imposed
by SAT may be different and may change from time to time. There is a possibility of the rules being changed and taxes being applied retrospectively. As such, any provision for taxation made by the Adviser may be excessive or inadequate to meet final
PRC tax liabilities. Consequently, Shareholders may be advantaged or disadvantaged depending upon the final tax liabilities, the level of provision and when they purchased and/or redeemed their Shares. If the actual applicable tax rate levied by SAT
is higher than that provided for by the Adviser so that there is a shortfall in the tax provision amount, investors should note that the NAV of the Fund may suffer more than the tax provision amount as the Fund will ultimately have to bear the
additional tax liabilities. In this case, the then existing and new Shareholders will be disadvantaged. On the other hand, if the actual applicable tax rate levied by SAT is lower than that provided for by the Adviser so that there is an excess in
the tax provision amount, Shareholders who have redeemed their Shares before SATs ruling, decision or guidance in this respect will be disadvantaged as they would have borne the loss from the Advisers overprovision. In this case, the
then existing and new Shareholders may benefit if the difference between the tax provision and the actual taxation liability under that lower tax rate can be returned to the account of the Fund as assets thereof. Notwithstanding the above
provisions, Shareholders who have already redeemed their Units in the Fund before the return of any overprovision to the account of the Fund will not be entitled or have any right to claim any part of such overprovision.
Government Intervention and Restriction Risk.
Governments and regulators may intervene in the financial markets, such as by the imposition of
trading restrictions, a ban on naked short selling or the suspension of short selling for certain stocks. This may affect the operation and market making activities of the Fund, and may have an unpredictable impact on the Fund.
Furthermore, such market interventions may have a negative impact on the market sentiment which may in turn affect the performance of the Underlying Index and as a result the performance of the Fund.
RMB is not freely convertible and subject to exchange controls and restrictions risk.
It should be noted that the RMB is currently not a freely
convertible currency as it is subject to foreign exchange control policies and repatriation restrictions imposed by the PRC government. Since 1994, the conversion of RMB into U.S. dollars has been based on rates set by the PBOC, which are set daily
based on the previous days PRC interbank foreign exchange market rate. On July 21, 2005, the PRC Government introduced a managed floating exchange rate system to allow the value of RMB to fluctuate within a regulated band based on market
supply and demand and
9
by reference to a basket of currencies. In addition, a market maker system was introduced to the interbank spot foreign exchange market. In July 2008, China announced that its exchange rate
regime was further transformed into a managed floating mechanism based on market supply and demand. Given the domestic and overseas economic developments, the PBOC decided to further improve the RMB exchange rate regime in June 2010 to enhance the
flexibility of the RMB exchange rate. In April 2012, the PBOC decided to take a further step to increase the flexibility of the RMB exchange rate by expanding the daily trading band from +/-0.5% to +/ -1%.
However it should be noted that the PRC Governments policies on exchange control and repatriation restrictions are subject to change, and any such
change may adversely impact the Fund. There can be no assurance that the RMB exchange rate will not fluctuate widely against the U.S. dollar or any other foreign currency in the future. Foreign exchange transactions under the capital account,
including principal payments in respect of foreign currency-denominated obligations, currently continue to be subject to significant foreign exchange controls and require the approval of the SAFE. On the other hand, the existing PRC foreign exchange
regulations have significantly reduced government foreign exchange controls for transactions under the current account, including trade and service related foreign exchange transactions and payment of dividends. Nevertheless, the Manager cannot
predict whether the PRC Government will continue its existing foreign exchange policy or when the PRC Government will allow free conversion of the RMB to foreign currency.
RMB Trading and Settlement Risk.
The trading and settlement of RMB-denominated securities are recent developments in Hong Kong and there is no assurance that problems will not be encountered with
the systems or that other logistical problems will not arise.
RQFII Late Settlement Risk.
The Fund will be required to remit RMB from
Hong Kong to the PRC to settle the purchase of A shares by the Fund from time to time. In the event such remittance is disrupted, the Fund will not be able to fully replicate the Underlying Index by investing in the relevant A shares, which may lead
to increased tracking error.
Future Movements in RMB Exchange Rates Risk.
The exchange rate of RMB ceased to be pegged to U.S. dollars
on July 21, 2005, resulting in a more flexible RMB exchange rate system. China Foreign Exchange Trading System, authorized by the PBOC, promulgates the central parity rate of RMB against U.S. dollars, Euro, Yen, pound sterling and Hong Kong
dollar at 9:15 a.m. on each business day, which will be the daily central parity rate for transactions on the Inter-bank Spot Foreign Exchange Market and OTC transactions of banks. The exchange rate of RMB against the above-mentioned currencies
fluctuates within a range above or below such central parity rate. As the exchange rates are based primarily on market forces, the exchange rates for RMB against other currencies, including U.S. dollars and Hong Kong dollars, are susceptible to
movements based on external factors. There can be no assurance that such exchange rates will not fluctuate widely against U.S. dollars, Hong Kong dollars or any other foreign currency in the future. From 1994 to July 2005, the exchange rate for RMB
against U.S. dollar and the Hong Kong dollar was relatively stable. Since July 2005, the appreciation of RMB has begun to accelerate. Although the PRC government has constantly reiterated its intention to maintain the stability of RMB, it may
introduce measures (such as a reduction in the rate of export tax refund) to address the concerns of the PRCs trading partners. Therefore, the possibility that the appreciation of RMB will be further accelerated cannot be excluded. On the
other hand, there can be no assurance that RMB will not be subject to devaluation.
Offshore RMB (CNH) Market Risk.
The
onshore RMB (CNY) is the only official currency of the PRC and is used in all financial transactions between individuals, state and corporations in the PRC. Hong Kong is the first jurisdiction to allow accumulation of RMB deposits
outside the PRC. Since June 2010, the offshore RMB (CNH) is traded officially, regulated jointly by the Hong Kong Monetary Authority and the PBOC. While both CNY and CNH represent RMB, they are traded in different and separated markets.
The two RMB markets operate independently where the flow between them is highly restricted. Though the CNH is a proxys of the CNY, they do not necessarily have the same exchange rate and their movement may not be in the same direction. This is
because these currencies act in separate jurisdictions, which leads to separate supply and demand conditions for each, and therefore separate but related currency markets.
However, the current size of RMB-denominated financial assets outside the PRC is limited. As at 29 February 2012, the total amount of RMB (CNH) deposits held by institutions authorized to engage in
RMB banking business in Hong Kong amounted to approximately RMB566 billion. In addition, participating authorized institutions are also required by the Hong Kong Monetary Authority to maintain a total amount of RMB (in the form of cash and its
settlement account balance with the Renminbi Clearing Bank) of no less than 25% of their RMB deposits, which further limits the availability of RMB that participating authorized institutions can utilize for conversion services for their customers.
RMB business participating banks do not have direct RMB liquidity support from PBOC. The Renminbi Clearing Bank only has access to onshore liquidity support from PBOC (subject to annual and quarterly quotas imposed by PBOC) to square open positions
of participating banks for limited types of transactions, including open positions resulting from conversion services for corporations relating to cross-border trade settlement and for individual customers of up to RMB20,000 per Hong Kong resident
person per day. The Renminbi Clearing Bank is not obliged to square for participating banks any open
10
positions resulting from other foreign exchange transactions or conversion services and the participating banks will need to source RMB from the offshore market to square such open positions.
Although it is expected that the offshore RMB market will continue to grow in depth and size, its growth is subject to many constraints as a result of PRC laws and regulations on foreign exchange. There is no assurance that new PRC regulations will
not be promulgated or the Settlement Agreement will not be terminated or amended in the future which will have the effect of restricting availability of RMB offshore. The limited availability of RMB outside the PRC may affect the ability of
investors to acquire Shares or to sell Shares of the Fund affecting the liquidity and therefore the trading price of the Shares. To the extent the Adviser is required to source RMB in the offshore market, there is no assurance that it will be able
to source such RMB on satisfactory terms, if at all.
Risks of Investing in Non-U.S. Equity Securities.
An investment in the 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 the 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.
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. The 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 Swap Agreements.
The risk of loss with respect
to swaps generally is limited to the net amount of payments that the Fund is contractually obligated to make. Swap agreements are subject to the risk that the swap counterparty will default on its obligations. If such a default occurs, the Fund will
have contractual remedies pursuant to the agreements related to the transaction. However, such remedies may be subject to bankruptcy and insolvency laws which could affect the Funds rights as a creditor (e.g., the Fund may not receive the net
amount of payments that it contractually is entitled to receive).
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 the 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, the Fund would continue to be required to make daily cash payments to maintain its required margin. In such situations, if the 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, the 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 Fund does not plan to
invest in futures and options to a significant extent or use futures and options contracts in this way. The risk of a futures position may still be large as traditionally measured due to the low margin deposits required. In many cases, a relatively
small price movement in a futures contract may result in immediate and substantial loss or gain to the investor relative to the size of a required margin deposit. The Fund, however, may utilize futures and options contracts in a manner designed to
limit their risk exposure to levels comparable to a direct investment in the types of stocks in which they invest.
The Funds use of
futures and options on futures involves the risk of imperfect or even negative correlation to the Underlying Index if the index underlying the futures contract differs from the Underlying Index. There is also the risk of loss by the Fund of margin
deposits in the event of bankruptcy of a broker with whom the 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.
11
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 the Fund to substantial losses. In the event of adverse price movements, the Fund would be required to make daily cash payments of variation margin.
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 the Fund utilizes foreign currency transactions at an inappropriate time, such transactions may not serve their intended purpose of improving the correlation of the Funds return with the performance of its
underlying Index and may lower the Funds return. The 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, the Fund will incur transaction costs, including trading commissions, in connection with certain foreign currency
transactions.
Dividend Risk.
There is no guarantee that the issuer of the stocks held by the 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 the 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 the Funds proxy voting record.
Information with respect to how the Sub-Adviser voted proxies relating to the Fund 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 Fund is open for business through financial reporting and news services,
including publicly accessible Internet web sites. In addition, a basket composition file, which includes the security names and share quantities to deliver in exchange for Fund Shares, together with estimates and actual cash components, is publicly
disseminated daily prior to the opening of the Exchanges via the National Securities Clearing Corporation (NSCC). The basket represents one Creation Unit of the Fund. The Trust, the Adviser and the Administrator will not disseminate
non-public information concerning the Trust.
12
Construction and Maintenance of the Underlying Index
A description of the Underlying Index is provided below.
Defining the Equity Universe.
The CSI 300 Index consists of 300 stocks with the largest market capitalization and liquidity from the entire universe of listed A share companies in China. Launched
on April 8, 2005, the Underlying Index aims to measure the performance of all the A shares traded on the Shanghai and Shenzhen stock exchanges.
The Underlying Index universe includes all the A shares listed on the two exchanges that satisfy the following conditions: (i) the listing time of a stock is more than three months unless the daily
average total market value of a stock since its initial listing is ranked top 30 in all the A shares, and (ii) non-ST or *ST stocks; non-temporary suspension stocks from trading.
The Underlying Index constituents must demonstrate positive performance, financial stability, and limited price volatility without any signs of manipulation. The constituents are selected as follows:
(i) calculate the A shares daily average trading value and A share daily average total market value during the most recent year for stocks in the index universe, or in case of a new issue, during the 4th trading day that it was a public
company; (ii) rank the stocks in the universe by A share daily average trading value of the most recent year in descending order and delete the bottom ranked 50% stocks; and rank the remaining stocks by A share daily average market value of the
most recent year in descending order, those who rank in the top 300 are selected.
Maintaining the CSI 300 Index.
When the constituent
list or share structure changes, or the constituents market value changes due to non-trading factors, the divisor is adjusted to keep the Underlying Index comparable overtime. The Underlying Index will be reviewed in response to corporate
actions that may affect the price of constituents, share changes caused by corporate actions, e.g., re-issuance, listing of right issue, share changes caused by shareholders behavior, and after each adjustment. Underlying Index constituents
are reviewed every six months. Meetings of the Underlying Index Advisory Committee are usually held early in June and December of each year and constituent adjustments are implemented on the first trading day of July and January of each year. The
number of constituents adjusted at each periodic review will not exceed 10%. Adjustments to the Underlying Index methodology will be publicized in advance of their implementation.
Calculating the CSI 300 Index.
The Underlying Index is calculated using a Paasche weighted composite price index formula. Hence, the calculation depends on two factors, namely free float and
category-weighted method. The Underlying Index is calculated each second and quotes are updated and disseminated every five seconds.
Investment Limitations
The Board has adopted as non-fundamental policies the investment objectives of the Fund discussed in this SAI.
Therefore, the Fund may change its investment objective and its Underlying Index without a Shareholder vote. The Board has adopted as fundamental policies for the Fund set forth below investment restrictions numbered 1 through 6 below. The
restrictions for the Fund cannot be changed without the approval of the holders of a majority of the 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.
The 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 the Fund will concentrate to the extent that its underlying index concentrates in the
securities of such particular industry or group of industries. For purposes of this limitation, securities of the U.S. government (including its agencies and instrumentalities), repurchase agreements collateralized by U.S. government securities, and
securities of state or municipal governments and their political subdivisions are not considered to be issued by members of any industry;
2.
Borrow money, except that (i) the Fund may borrow from banks for temporary or emergency (not leveraging) purposes, including the meeting of redemption requests which might otherwise require the untimely disposition of securities, and
(ii) the Fund may, to the extent consistent with its investment policies, enter into repurchase agreements, reverse repurchase agreements, forward roll transactions and similar investment strategies and techniques; to the extent that it engages
in transactions described in (i) and (ii), the Fund will be limited so that no more than 33 1/3% of the value of its total assets (including the amount borrowed) is derived from such transactions. Any borrowings which come to exceed this amount
will be reduced in accordance with applicable law;
3. Issue any senior security, except as permitted under the 1940 Act, as amended, and as
interpreted, modified or otherwise permitted by regulatory authority having jurisdiction, from time to time;
13
4. Make loans, except as permitted under the 1940 Act, as interpreted, modified or otherwise permitted by
regulatory authority having jurisdiction, from time to time;
5. Purchase or sell real estate unless acquired as a result of ownership of
securities or other investments (but this restriction shall not prevent the Fund from investing in securities of companies engaged in the real estate business or securities or other instruments backed by real estate or mortgages), or commodities or
commodity contracts (but this restriction shall not prevent the Fund from trading in futures contracts and options on futures contracts, including options on currencies to the extent consistent with the Funds investment objectives and
policies); or
6. Engage in the business of underwriting securities issued by other persons, except to the extent that the Fund may
technically be deemed to be an underwriter under the 1933 Act, the disposing of portfolio securities.
In addition to the investment
limitations adopted as fundamental as set forth above, the Fund observes the following restrictions, which may be changed by the Board without a Shareholder vote. The 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 to 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.
The Fund has adopted a non-fundamental investment policy such that the Fund may invest in shares of other
open-end management investment companies or unit investment trusts subject to the limitations of Section 12(d)(1) of the 1940 Act, including the rules, regulations and exemptive orders obtained thereunder; provided, however, that if the Fund
has knowledge that its Shares are purchased by another investment company investor in reliance on the provisions of subparagraphs (F) or (G) of Section 12(d)(1) of the 1940 Act, the Fund will not acquire any securities of other
open-end management investment companies or unit investment trusts in reliance on the provisions of subparagraphs (F) or (G) of Section 12(d)(1) of the 1940 Act.
Management
Trustees and Officers.
The Board has
responsibility for the overall management and operations of the Fund, 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) are affiliated with the Adviser.
14
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 five exchange-traded funds advised by DBX Strategic Advisors LLC, an affiliate of the Adviser.
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
|
J. David Officer
Age:
63
60 Wall Street New York,
New York 10005
|
|
Trustee, Member of the Audit and Nominating Committees
|
|
Since 2011
|
|
Consultant, Pershing LLC (2010-Present); Executive Vice President, The Bank of New York Mellon (2008-Present); Executive Vice President, BNY Mellon, N.A. (2008-Present); Chief
Executive Officer and Chairman, Laurel Capital Advisors (2005-Present). Formerly, Vice President, The Dreyfus Family of Funds (2010); Vice President, Dreyfus Funds, Inc. (2010); President, Dreyfus Funds, Inc. (2009); Vice President, BNY Mellon Funds
Trust (2009-2010); President and Chairman, Dreyfus Founders Funds, Inc. (2007-2009); President, Chairman and Chief Executive Officer, Founders Asset Management (2007-2009); Consultant, The Dreyfus Corporation (2006-2009); Chief Operating Officer,
The Dreyfus Corporation (2006-2009); President, MBSC Securities Corporation (2007-2009); President, The Dreyfus Family of Funds (2007-2009); Vice President, Dreyfus Service Organization, Inc. (2004-2009); Vice Chairman, The Dreyfus Corporation
(1998-2009); President, Dreyfus Service Corporation (2000-2007); President, MBSC, LLC (2002-2007); Executive Vice President, Mellon Bank, N.A. (1994-2008).
|
|
5
|
|
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..
|
15
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:
58
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).
|
|
5
|
|
The Dreyfus Corporation; Sierra Income Corporation. George O. Elston Age: 47 60 Wall Street New York, New York 10005
|
|
|
|
|
|
|
George O. Elston
Age:
47
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).
|
|
5
|
|
Celldex Therapeutics.
|
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.
|
|
10
|
|
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
45
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
35,
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
44,
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),( 2000-2010.
|
16
Board Leadership, Structure and Oversight Responsibilities.
Board Structure.
As noted above, the Board is responsible for oversight of the Fund, including oversight of the duties performed by the Adviser for
the Fund under the investment advisory agreement (the Investment Advisory Agreement). The Board generally meets in regularly scheduled meetings four times a year, and may meet more often as required.
Mr. 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 Fund is 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 Fund, as well as its 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.
17
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 two times during the fiscal year ended May 31, 2012.
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, 2011:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
$
|
47,000
|
|
|
|
Not Applicable
|
|
|
|
Not Applicable
|
|
|
$
|
47,000
|
|
Stephen R. Byers
|
|
$
|
50,000
|
|
|
|
Not Applicable
|
|
|
|
Not Applicable
|
|
|
$
|
50,000
|
|
George O. Elston
|
|
$
|
47,000
|
|
|
|
Not Applicable
|
|
|
|
Not Applicable
|
|
|
$
|
47,000
|
|
Control Persons and Principal Holders of Securities.
The Fund has not yet commenced operations and, therefore, there were no Beneficial Owners of the Fund as of the date of this SAI.
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.
18
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 the
Funds Board.
Investment Advisory, Sub-Advisory, Administrative and Distribution Services
Investment Adviser and Sub-Adviser.
DBX Advisors LLC serves as investment adviser to the 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. Harvest Global Investments Limited serves as the investment sub-adviser to the 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 the Fund, manages and administers the Trust and
manages the Sub-Adviser and manages or delegates to the Sub-Adviser the duties of the investment and reinvestment of the Funds assets. The Sub-Adviser manages the investment and reinvestment of the Funds assets on an ongoing basis under
the supervision of the Adviser.
For its investment advisory services to the Fund, the Adviser is entitled to receive a management fee from
the Fund based on the Funds average daily net assets at an annual rate of [X.XX%].
The Investment Advisory Agreement with respect to
the 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 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 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 the Fund is terminable without penalty, on 60 days notice, by the Board or
by a vote of the holders of a majority of the 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
[April
, 2014] to waive fees and/or reimburse the Funds expenses in order to limit the Funds net annual operating expenses to [X.XX]% of the Funds average daily net
assets, except for interest expense, taxes, brokerage expenses, distribution fees or expenses, litigation expenses and other extraordinary expenses (the Expense Cap). In accordance with and as required by the Expense Cap, the Adviser
will reimburse the Fund for the Independent Trustee Fees. The Expense Cap will remain in effect until at least [April
, 2014] 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 the Sub-Advisory Agreement, the Sub-Adviser will not be liable for
any error of judgment or mistake of law or for any loss suffered by the Fund in connection with the performance of the Sub-Advisory Agreement, except a loss resulting from willful misfeasance, bad faith or gross negligence on the part of the
Sub-Adviser in the performance of its duties or from reckless disregard of its duties and obligations thereunder. The Sub-Advisory Agreement continue 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.
The 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 the 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. Pursuant to the Sub-Advisory Agreement, the Adviser pays the Sub-Adviser on a monthly
basis a portion of the net advisory fees it receives from the Fund at the annual rate of [X.XX]%.
19
The Sub-Adviser is located at 31/F One Exchange Square, Connaught Place, Central, Hong Kong, Hong Kong.
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 Fund (Portfolio Managers).
HGI supervises and manages the investment portfolio of the Fund and directs the purchase and sale of the Funds investment securities. HGI utilizes
teams of investment professionals acting together to manage the assets of the Fund. The HGI Portfolio Managers that have direct oversight responsibility and are primarily responsible for the day-to-day management of the Fund are: Andy Yang and Jerry
Wang.
Mr. Yang was transferred to the Sub-Adviser in 2012 and is a portfolio manager for passive strategies. Prior to joining the
Sub-Adviser, Mr. Yang was a portfolio manager at Harvest Fund Management (the Sub-Advisers corporate parent) from 2008. Before Harvest Fund Management, Mr. Yang worked for Goldman Sachs New York Office where he was a senior credit
derivatives analyst within their FICC department. He also worked as an analyst in Bear Stearns from 2000 and subsequently as a quantitative portfolio manager and analyst in HBK Investment Co. where he created HBKs high frequency future trading
desk. Prior to that, he has worked for Citadel Investment Co. for 4 years and was a key member in extending Citadels option market business in Europe and Asia. Mr. Yang holds a Master Degree of Science from Pennsylvania State University.
Mr. Wang was transferred to the Sub-Adviser in April 2011 and is a portfolio manager for China equities. Prior to joining the
Sub-Adviser, Mr. Wang was a portfolio manager at Harvest Fund Management (the Sub-Advisers corporate parent) from September 2009. Before Harvest Fund Management, Mr. Wang was Vice President at CDHCephei Capital for 3 years and
was involved in the portfolio management of offshore hedge fund products and QFII account. He has also spent 3 years with CLSA Asia-Pacific Markets in Singapore, Hong Kong and Shanghai where he was an investment analyst covering consumer sector
and small-cap companies listed in the Great China region. In his previous roles at CLSA, CDH and HFM, Mr. Wang has accumulated experience investing in ETFs as well as closed-end funds in both China domestic A-share and offshore Hong Kong
market. He has also been responsible for providing in-depth research reports about closed-end funds, ETF listed and traded in Hong Kong and China. Mr. Wang received a BE (First Class Honors) and a Master in Engineering from National University
of Singapore.
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 December 31, 2012, Mr. Yang was responsible for the day-to-day portfolio management of
registered investment companies,
other pooled investment companies and
other accounts managed by HGI.
As of December 31, 2012, Mr. Wang was responsible for the day-to-day management of
pooled investment companies and
other accounts managed by HGI.
The table below shows the number of other accounts
managed by each Portfolio Manager and the total assets in the accounts, as of December 31, 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.
20
The following table provides information relating to other accounts managed by Mr. Yang:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered
Investment
Companies
|
|
|
Other
Pooled
Investment
Companies
|
|
|
Other
Accounts
|
|
Number of Accounts Managed
|
|
|
X
|
|
|
|
X
|
|
|
|
X
|
|
Number of Accounts Managed with Performance-Based Fees
|
|
|
X
|
|
|
|
X
|
|
|
|
X
|
|
Assets Managed (assets in millions)
|
|
$
|
X
|
|
|
$
|
X
|
|
|
$
|
X
|
|
Assets Managed with Performance-Based Fees
|
|
$
|
X
|
|
|
$
|
X
|
|
|
$
|
X
|
|
The following table provides information relating to other accounts managed by Mr. Wang:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Registered
Investment
Companies
|
|
|
Other
Pooled
Investment
Companies
|
|
|
Other
Accounts
|
|
Number of Accounts Managed
|
|
|
X
|
|
|
|
X
|
|
|
|
X
|
|
Number of Accounts Managed with Performance-Based Fees
|
|
|
X
|
|
|
|
X
|
|
|
|
X
|
|
Assets Managed (assets in millions)
|
|
$
|
X
|
|
|
$
|
X
|
|
|
$
|
X
|
|
Assets Managed with Performance-Based Fees
|
|
$
|
X
|
|
|
$
|
X
|
|
|
$
|
X
|
|
Portfolio Manager Compensation
[HGIs portfolio manager compensation program includes the following components:
.]
HGI maintains competitive salaries for all employees, based on independent research of the investment management industry.
Portfolio Manager Ownership of Fund Shares
As of December 31, 2012, none of the Portfolio Managers beneficially owned any Shares of the Fund.
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 Fund. However, the portfolios managed by a Portfolio Manager may not have
portfolio compositions identical to those of the Fund 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 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 HGI 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 Fund is 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, the
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
21
requirements of the Patriot Act. The Fund reserves the right to reject purchase orders from persons who have not submitted information sufficient to allow the Fund to verify their identity. The
Fund also reserves the right to redeem any amounts in the 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 Fund. 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 the 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 the 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 the 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 the 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.
All of the Funds assets in the PRC (including onshore PRC cash deposits and its onshore A-Shares portfolio) will be held by the
Custodian (through the PRC Custodian) in accordance with the terms of a PRC Custody Agreement and PRC Participation Agreement. A Securities account shall be opened with CSDCC in the joint names of the Sub-Adviser (as the RQFII holder) and the Fund.
A RMB cash account will also be established and maintained with the PRC Custodian in the joint names of the Sub-Adviser (as the RQFII holder) and the Fund. The PRC Custodian will, in turn, have a cash clearing account with CSDCC for trade settlement
according to applicable regulations.
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 the 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 Funds 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 Funds 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 the 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.
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 the Fund. Although a portion of db-X Entities revenue comes directly or indirectly in part from fees paid by the Fund 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, the 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 Fund or for other activities, such as participation in marketing activities and presentations, educational training programs, the support of technology
platforms and/or reporting systems (Education Costs). db-X Entities may also make Payments to Intermediaries for certain printing,
22
publishing and mailing costs associated with the 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 Fund and certain other db-X Funds available to their clients or for otherwise promoting the Fund 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 Fund 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
September 28, 2012, 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 certain of the db-X Funds to
E*Trades customers and not to charge certain of its customers any commissions when those customers purchase or sell shares of the 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 db-X 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 Fund or other db-X Funds.
Brokerage Transactions
The Adviser and/or Sub-Adviser assume general supervision over placing orders on behalf of the Fund for the purchase and sale of portfolio securities. In selecting brokers or dealers for any transaction
in portfolio securities, the Advisers and/or 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 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 the 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, the Sub-Adviser may cause the 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, the 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. The 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.
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 Sub-Adviser manage or advise and for which they have brokerage placement authority. If purchases or sales of portfolio securities of the Fund and one or more other accounts managed or advised by the Adviser and/or 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
23
volume of the security as far as the Fund is 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 Sub-Adviser may deal, trade and invest for their own account in the types of securities in which the Fund may invest. The Adviser and/or Sub-Adviser may, from time to time, effect trades on behalf
of and for the account of the Fund with brokers or dealers that are affiliated with the Adviser and/or 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 Fund 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 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.
The Fund has not yet commenced operations and, therefore, has not paid any brokerage
commissions as of the date of this SAI.
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. A 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).
Termination of the Trust or the Fund.
The Trust or the 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 the 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 the 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 Fund.
Shares of the 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
24
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 the 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 the Fund as shown on the records of DTC or its nominee.
Payments by DTC Participants to Indirect Participants and Beneficial Owners of Shares held through such DTC Participants will be governed by standing instructions and customary practices, as is now the case with securities held for the accounts of
customers in bearer form or registered in a street name, and will be the responsibility of such DTC Participants.
The Trust has
no responsibility or liability for any aspect of the records relating to or notices to Beneficial Owners, or payments made on account of beneficial ownership interests in such Shares, or for maintaining, supervising or reviewing any records relating
to such beneficial ownership interests, or for any other aspect of the relationship between DTC and the DTC Participants or the relationship between such DTC Participants and the Indirect Participants and Beneficial Owners owning through such DTC
Participants. DTC may decide to discontinue providing its service with respect to Shares of the Trust at any time by giving reasonable notice to the Trust and discharging its responsibilities with respect thereto under applicable law. Under such
circumstances, the Trust shall take action to find a replacement for DTC to perform its functions at a comparable cost.
Creation and Redemption of Creation Units
General.
The Trust issues and sells Shares of the 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 the
Fund that constitute a Creation Unit:
|
|
|
|
|
Fund
|
|
Shares Per
Creation
Unit
|
|
db X-trackers Harvest CSI 300 Index Fund
|
|
|
[50,000
|
]
|
The Board reserves the right to declare a split or a consolidation in the number of Shares outstanding of the 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 the 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.
25
Fund Deposit.
Due to various legal and operational constraints in China, the principal consideration
for the purchase of a Creation Unit is cash. To the extent the Fund permits in-kind consideration for the purchase of a Creation Unit of the Fund, such in-kind consideration generally would consist 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 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 the 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 the Fund. Such Fund Deposit is applicable, subject to any adjustments as described below, in order to effect purchases of Creation Units of Shares of the 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 the 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 Fund, or resulting from stock splits and other corporate actions.
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 the 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. 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.
26
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 the 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.
The Trust reserves the absolute right to reject or revoke a creation order transmitted to it by the Distributor in respect of the 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 the 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.
An 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
To the extent in-kind creations are effected for the Fund, 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
27
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.
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 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.
The following table sets forth the Funds standard maximum creation transaction fees and maximum additional variable charges:
|
|
|
Standard Creation
Transaction Fee
|
|
Maximum Additional
Variable
Charge*
|
$[X,XXX]
|
|
X%
|
*
|
As a percentage of the amount invested.
|
Redemption of Creation Units.
Shares of the 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 principally for cash. 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.
28
Redemption Transaction Fee.
A standard redemption transaction fee is imposed to offset transfer and
other transaction costs that may be incurred by the 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. To the extent the Fund redeems in kind, 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 the Funds standard redemption transaction fees:
|
Standard Redemption
Transaction Fee
|
$[X,XXX]
|
Redemption requests for Creation Units of the 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 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.
Redemption 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).
In the case of in-kind redemptions, 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.
Due to the schedule of holidays in
certain countries, however, the delivery of in-kind redemption proceeds may take longer than seven calendar days after the day on which the redemption request is received in proper form. In such cases, the local market settlement procedures will not
commence until the end of the local holiday periods.
29
The holidays applicable to the Fund are listed below. The proclamation of new holidays, the treatment by
market participants of certain days as informal holidays (e.g., days on which no or limited securities transactions occur, as a result of substantially shortened trading hours), the elimination of existing holidays or changes in local
securities delivery practices, could affect the information set forth herein at some time in the future. The dates in calendar year 2013 in which the regular holidays affect the Chinese securities markets are as follows (the following holiday
schedule is subject to potential changes in the securities market):
2013
|
|
|
|
|
|
|
CHINA
|
|
|
|
|
|
|
January 1
|
|
February 14
|
|
May 7
|
|
October 3
|
January 21
|
|
February 15
|
|
May 27
|
|
October 4
|
February 7
|
|
February 18
|
|
July 4
|
|
October 7
|
February 8
|
|
May 1
|
|
September 2
|
|
October 14
|
February 11
|
|
May 2
|
|
September 30
|
|
November 11
|
February 12
|
|
May 3
|
|
October 1
|
|
November 28
|
February 13
|
|
May 6
|
|
October 2
|
|
December 25
|
The longest redemption cycle for the Fund is a function of the longest redemption cycle in China. In the calendar year
2013, the dates of regular holidays affecting the Chinese securities markets present the worst-case (longest) redemption cycle* for the Fund as follows:
SETTLEMENT PERIODS GREATER THAN
SEVEN DAYS FOR YEAR 2013
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
of
Settlement
Period
|
|
|
End of
Settlement
Period
|
|
|
Number of Days
in
Settlement Period
|
|
China
|
|
|
02/04/13
|
|
|
|
02/19/13
|
|
|
|
15
|
|
|
|
|
02/05/13
|
|
|
|
02/20/13
|
|
|
|
15
|
|
|
|
|
02/06/13
|
|
|
|
02/21/13
|
|
|
|
15
|
|
|
|
|
04/26/13
|
|
|
|
05/08/13
|
|
|
|
12
|
|
|
|
|
04/29/13
|
|
|
|
05/09/13
|
|
|
|
10
|
|
|
|
|
04/30/13
|
|
|
|
05/10/13
|
|
|
|
10
|
|
|
|
|
09/25/13
|
|
|
|
10/08/13
|
|
|
|
13
|
|
|
|
|
09/26/13
|
|
|
|
10/09/13
|
|
|
|
13
|
|
|
|
|
09/27/13
|
|
|
|
10/10/13
|
|
|
|
13
|
|
*
|
These worst-case redemption cycles are based on information regarding regular holidays, which may be out of date. Based on changes in holidays, longer (worse)
redemption cycles are possible.
|
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 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. The right of redemption may be suspended or the date of payment postponed
with respect to the 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.
30
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 the 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.
Taxation on Creation and Redemptions of Creation Units.
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
The following information also supplements and should be read in conjunction with the section in the Prospectus entitled Shareholder
InformationTaxes, Taxes on Distributions, and Taxes When Shares are Sold. The following summary of certain relevant tax provisions is as of the date of this SAI and is subject to change.
Regulated Investment Company Qualifications.
The Fund intends to qualify for treatment as a separate RIC under Subchapter M of the Code. To
qualify for treatment as a RIC, the 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 the 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 the Funds taxable year, (a) at least 50% of the market value of the 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 the 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. The Funds investments in partnerships, including in qualified publicly-traded partnerships, may result in the Fund being subject to state, local, or
non-U.S. income, franchise or withholding tax liabilities.
Taxation of RICs.
As a RIC, the 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, the 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. The 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 the 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
31
generally should be eligible for the dividends received deduction. Although the Fund intends to distribute substantially all of its net investment income and its capital gains for each taxable
year, the Fund will be subject to U.S. federal income taxation to the extent any such income or gains are not distributed. If the 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 the 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.
Excise Tax.
The 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 the 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. The 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 the 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 the 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.
The 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 the 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 the 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 the 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 the 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.
32
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 the 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, the Fund may be required to pay dividends based on anticipated earnings, and Shareholders may receive dividends in an earlier year than would otherwise be the case.
In certain situations, the 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 the 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 the 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 the Fund. A redemption of Shares by the 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 the 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 the 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, the 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 the 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 the 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 the 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 the 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.
33
Taxation of Certain Derivatives.
The 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 the 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 the Fund to recognize income without receiving cash with which to pay dividends or make distributions in amounts necessary to satisfy the distribution
requirements for avoiding income and excise taxes. The 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.
The 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 the 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, the Fund may make or receive periodic net payments. The 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, the 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 the 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 the Fund of its net short-term capital gains will be taxable as ordinary income. Capital gain distributions consisting of the 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 the 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
34
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 the 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 the 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.
Corporate Dividends Received Deduction.
The 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 Fund
serves to block unrelated business taxable income from being realized by their tax-exempt Shareholders. Notwithstanding the foregoing, a tax-exempt Shareholder could realize unrelated business taxable income by virtue of its investment in the Fund
if Shares in the Fund constitute debt-financed property in the hands of the tax-exempt Shareholder within the meaning of Code Section 514(b). Certain types of income received by the Fund from REITs, real estate mortgage investment conduits,
taxable mortgage pools or other investments may cause the Fund to designate some or all of its distributions as excess inclusion income. To Fund Shareholders, such excess inclusion income may (i) constitute taxable income, as
unrelated business taxable income for those Shareholders who would otherwise be tax-exempt such as individual retirement accounts, 401(k) accounts, Keogh plans, pension plans and certain charitable entities; (ii) not be offset by
otherwise allowable deductions for tax purposes; (iii) not be eligible for reduced 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 the 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.
The
Fund may be subject to non-U.S. income taxes withheld at the source. The 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 the 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.
35
If the 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, the 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 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.
The 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 the 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 the 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 the 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 the 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 the 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.
36
These rules apply to dividends paid by the 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 the 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. The 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.
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 the Funds qualified net interest income (generally, the Funds U.S. source interest income, reduced by
expenses that are allocable to such income), or (b) are paid in connection with the Funds qualified short-term capital gains (generally, the excess of the Funds net short-term capital gain over the Funds long-term
capital loss for such taxable year). However, depending on the circumstances, the 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 the 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 Fund 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 Fund to enable the Fund 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.
Miscellaneous Information
Independent Registered Public Accounting Firm.
Ernst & Young LLP, located at 5 Times Square, New York, New York 10036, serves as the Trusts independent registered public accounting
firm, audits the Funds financial statements, and may perform other services.
Financial Statements
The Fund had not commenced operations as of the date of this SAI and therefore does not yet have financial information.
License Agreement and Disclaimers
The information contained herein regarding CSI 300 Index (the CSI Index) was provided by China Securities Index Co., Ltd. (China Securities).
The Fund is neither sponsored nor promoted, distributed or in any other manner supported by China Securities. CSI Indices are compiled and calculated by
China Securities. China Securities will apply all necessary means to ensure the accuracy of the CSI Index. However, neither China Securities nor the Shanghai Stock Exchange nor the Shenzhen Stock Exchange shall be liable (whether in negligence or
otherwise) to any person for any error in the CSI Index and neither China Securities nor the Shanghai Stock Exchange nor the Shenzhen Stock Exchange shall be under any obligation to advise any person of any error therein. All copyright in CSI Index
37
values and constituent lists vests in China Securities. Neither the publication of the CSI Index by China Securities nor the granting of a license regarding the CSI Index as well as the Index
Trademark for the utilization in connection with the Fund, which derived from the CSI Index, represents a recommendation by China Securities for a capital investment or contains in any manner a warranty or opinion by China Securities with respect to
the attractiveness on an investment in the Fund.
38
APPENDIX A
SUMMARY OF PROXY VOTING POLICIES AND PROCEDURES
[To be filed by
amendment]
39
DBX ETF TRUST (THE REGISTRANT)
PART C OTHER INFORMATION
Item 28. Exhibits.
|
|
|
(a)(1)
|
|
Certificate of Trust of the Registrant dated October 7, 2010, incorporated by reference to the Trusts Registration Statement, filed on October 25,
2010.
|
|
|
(a)(2)
|
|
Agreement and Declaration of Trust, incorporated by reference to Pre-Effective Amendment No. 1 to the Trusts Registration Statement, filed on February 9,
2011.
|
|
|
(b)
|
|
Bylaws of the Trust, incorporated by reference to Pre-Effective Amendment No. 1 to the Trusts Registration Statement, filed on February 9, 2011.
|
|
|
(c)
|
|
Not applicable.
|
|
|
(d)(1)
|
|
Investment Advisory Agreement between the Trust and DBX Advisors LLC, incorporated by reference to Pre-Effective Amendment No. 2, filed on May 11, 2011.
|
|
|
(d)(2)
|
|
Revised Schedule A and Schedule B to the Investment Advisory Agreement between the Trust and DBX Advisors LLC, to be filed by amendment.
|
|
|
(d)(3)
|
|
Investment Sub-Advisory Agreement between DBX Advisors LLC and TDAM USA Inc., incorporated by reference to Pre-Effective Amendment No. 2, filed on May 11, 2011.
|
|
|
(d)(4)
|
|
Investment Sub-Advisory Agreement between DBX Advisors LLC and Deutsche Investment Management Americas Inc., to be filed by amendment.
|
|
|
(d)(5)
|
|
Investment Sub-Advisory Agreement between DBX Advisors LLC and Harvest Global Investments Limited, to be filed by amendment.
|
|
|
(e)(1)
|
|
Distribution Agreement between the Registrant and ALPS Distributors, Inc. dated as of October 11, 2011, incorporated by reference to Post-Effective Amendment No. 2, filed on
September 28, 2012.
|
|
|
(e)(2)
|
|
Revised Appendix A to the Distribution Agreement between the Registrant and ALPS Distributors, Inc. dated as of October 11, 2011, to be filed by amendment.
|
|
|
(f)
|
|
Not applicable.
|
|
|
(g)(1)
|
|
Custody Agreement between the Registrant and The Bank of New York Mellon, incorporated by reference to Pre-Effective Amendment No. 2, filed on May 11, 2011.
|
|
|
(g)(2)
|
|
Revised Schedule II to the Custody Agreement between the Registrant and The Bank of New York Mellon to be filed by amendment.
|
|
|
(g)(3)
|
|
Foreign Custody Manager Agreement between the Registrant and The Bank of New York Mellon, incorporated by reference to Pre-Effective Amendment No. 2, filed on May 11,
2011.
|
|
|
(g)(4)
|
|
Revised Annex I to the Foreign Custody Manager Agreement between the Registrant and The Bank of New York Mellon, to be filed by amendment.
|
|
|
(h)(1)
|
|
Fund Administration and Accounting Agreement between the Registrant and The Bank of New York Mellon, incorporated by reference to Pre-Effective Amendment No. 2, filed on May 11,
2011.
|
|
|
(h)(2)
|
|
Revised Exhibit A to the Fund Administration and Accounting Agreement between the Registrant and The Bank of New York Mellon, 2011, to be filed by amendment.
|
|
|
(h)(3)
|
|
Transfer Agency and Service Agreement between the Registrant and The Bank of New York Mellon, incorporated by reference to Pre-Effective Amendment No. 2, filed on May 11,
2011.
|
1
|
|
|
(h)(4)
|
|
Revised Appendix I to the Transfer Agency and Service Agreement between the Registrant and The Bank of New York Mellon, to be filed by amendment.
|
|
|
(h)(5)
|
|
Form of Participation Agreement, incorporated by reference to Pre-Effective Amendment No. 2, filed on May 11, 2011.
|
|
|
(h)(6)
|
|
Form of Sublicense Agreement between the Registrant and DBX Advisors LLC, incorporated by reference to Pre-Effective Amendment No. 2, filed on May 11, 2011.
|
|
|
(h)(7)
|
|
Expense Limitation Agreement, incorporated by reference to Post-Effective Amendment No. 2, filed on September 28, 2012.
|
|
|
(h)(8)
|
|
Revised Appendix A to the Expense Limitation Agreement, to be filed by amendment.
|
|
|
(i)(1)
|
|
Opinion of Dechert LLP, incorporated by reference to Pre-Effective Amendment No. 2, filed on May 11, 2011.
|
|
|
(i)(2)
|
|
Consent of Counsel, Dechert LLP, to be filed by amendment.
|
|
|
(j)
|
|
Consent of Independent Registered Public Accounting Firm, to be filed by amendment.
|
|
|
(k)
|
|
Not applicable.
|
|
|
(l)
|
|
Initial Share Purchase Agreement between Registrant and DBX Advisors LLC, incorporated by reference to Pre-Effective Amendment No. 2, filed on May 11, 2011.
|
|
|
(m)
|
|
Not applicable.
|
|
|
(n)
|
|
Not applicable.
|
|
|
(o)
|
|
Not applicable.
|
|
|
(p)(1)
|
|
Code of Ethics of the Registrant, incorporated by reference to Pre-Effective Amendment No. 2, filed on May 11, 2011.
|
|
|
(p)(2)
|
|
Code of Ethics of DBX Advisors LLC, incorporated by reference to Post-Effective Amendment No. 2, filed on September 28, 2012.
|
|
|
(p)(3)
|
|
Code of Ethics of TDAM USA Inc. , incorporated by reference to Post-Effective Amendment No. 2, filed on September 28, 2012.
|
|
|
(p)(4)
|
|
Code of Ethics of Deutsche Investment Management Americas Inc., to be filed by amendment.
|
|
|
(p)(5)
|
|
Code of Ethics of Harvest Global Investments Limited to be filed by amendment.
|
|
|
(q)
|
|
Powers of Attorney of Trustees of the Registrant incorporated by reference to Post-Effective Amendment No. 2, filed on September 28, 2012.
|
Item 29. Persons controlled by or Under Common Control with the Fund.
Not applicable.
Item 30. Indemnification.
(a) Pursuant to Article IX of the Registrants Agreement and Declaration of Trust, the Trust has agreed that no person who is or has been a Trustee, officer, or employee of the Trust shall be subject
to any personal liability whatsoever to any person, other than the Trust or its Shareholders, in connection with the affairs of the Trust; and all persons shall look solely to the Trust property or property of a Series for satisfaction of claims of
any nature arising in connection with the affairs of the Trust or such Series.
Every note, bond, contract, instrument,
certificate, Share or undertaking and every other act or thing whatsoever executed or done by or on behalf of the Trust or the Trustees or any of them in connection with the Trust shall be conclusively deemed to have been executed or done only in or
with respect to their or his capacity as Trustees or Trustee and neither such Trustees or Trustee nor the Shareholders shall be personally liable thereon.
2
All Persons extending credit to, contracting with or having any claim against the Trust or a
Series shall look only to the assets of the Trust property or the Trust property of such Series for payment under such credit, contract or claim; and neither the Trustees, nor any of the Trusts officers, employees or agents, whether past,
present or future, shall be personally liable therefor.
No person who is or has been a Trustee, officer or employee of the
Trust shall be liable to the Trust or to any Shareholder for any action or failure to act except for his or her own bad faith, willful misfeasance, gross negligence or reckless disregard of his or her duties involved in the conduct of the
individuals office, and for nothing else, and shall not be liable for errors of judgment or mistakes of fact or law.
Without limiting the foregoing limitations of liability, a Trustee shall not be responsible for or liable in any event for any neglect or
wrongdoing of any officer, employee, investment adviser, sub-adviser, principal underwriter, custodian or other agent of the Trust, nor shall any Trustee be responsible or liable for the act or omission of any other Trustee (or for the failure to
compel in any way any former or acting Trustee to redress any breach of trust), except in the case of such Trustees own willful misfeasance, bad faith, gross negligence or reckless disregard of the duties involved in the conduct of his or her
office.
Item 31. Business and Other Connections of Investment Manager.
With respect to each of DBX Advisors LLC, TDAM USA Inc., and Harvest Global Investments Limited (collectively, the Advisers),
the response to this Item will be incorporated by reference to the Advisers Uniform Applications for Investment Adviser Registration (Form ADV) on file with the SEC. Each Advisers Form ADV may be obtained, free of charge, at
the SECs website at www.adviserinfo.sec.gov.
Item 32. Principal Underwriters.
(a) ALPS Distributors, Inc. acts as the distributor for the Registrant and the following investment companies: ALPS ETF Trust, Ameristock
Mutual Fund, Inc., Arbitrage Funds, AQR Funds, BBH Trust, Bennett Group of Funds, BLDRS Index Funds Trust, BPV Family of Funds, Brown Management Funds, Caldwell & Orkin Funds, Inc., Campbell Multi-Strategy Trust, Century Capital Management
Trust, Columbia ETF Trust, CornerCap Group of Funds, The Cortina Funds, Inc., CRM Mutual Fund Trust, Cullen Funds, Drexel Hamilton Investment Partners LLC, EGA Global Shares Trust, Financial Investors Trust, Financial Investors Variable Insurance
Trust, Firsthand Funds, GLG Investment Series Trust, Heartland Group, Inc., Henssler Funds, Inc., Holland Balanced Fund, IndexIQ Trust, Index IQ ETF Trust, James Advantage Funds, Laudus Trust, Laudus Institutional Trust, Mairs & Power Funds
Trust, Oak Associates Funds, Pax World Series Trust I, Pax World Funds Trust II, PowerShares QQQ 100 Trust Series 1, RiverNorth Funds, Russell Exchange Traded Funds Trust, SPDR Dow Jones Industrial Average ETF Trust, SPDR S&P 500 ETF Trust, SPDR
S&P MidCap 400 ETF Trust, Select Sector SPDR Trust, Stonebridge Funds Trust, Stone Harbor Investment Funds, Tilson Investment Trust, Transparent Value Trust, db-X Exchange-Traded Funds Inc., Trust for Professional Managers, Wakefield Alternative
Series Trust, Wasatch Funds, WesMark Funds, Westcore Trust, Whitebox Mutual Funds, Williams Capital Liquid Assets Fund, and Wilmington Funds.
(b) To the best of Registrants knowledge, the directors and executive officers of ALPS Distributors, Inc., are as follows:
|
|
|
|
|
Name*
|
|
Position with Underwriter
|
|
Positions with Fund
|
Edmund J. Burke
|
|
Director
|
|
None
|
Thomas A. Carter
|
|
President, Director
|
|
None
|
Jeremy O. May
|
|
Executive Vice President, Director
|
|
None
|
John C. Donaldson
|
|
Executive Vice President, Chief Financial Officer
|
|
None
|
Diana M. Adams
|
|
Senior Vice President, Controller, Treasurer
|
|
None
|
Kevin J. Ireland
|
|
Senior Vice President, Director of Institutional Sales
|
|
None
|
3
|
|
|
|
|
Mark R. Kiniry
|
|
Senior Vice President, National Sales Director - Investments
|
|
|
Bradley J. Swenson
|
|
Senior Vice President, Chief Compliance Officer
|
|
None
|
Robert J. Szydlowski
|
|
Senior Vice President, Chief Technology Officer
|
|
None
|
Tané T. Tyler
|
|
Senior Vice President, Secretary, General Counsel
|
|
None
|
Kenneth V. Hager
|
|
Vice President, Treasurer and Assistant Secretary
|
|
None
|
Eric Parsons
|
|
Vice President, Controller and Assistant Treasurer
|
|
None
|
Jeff Brainard
|
|
Vice President, Regional Sales Manager
|
|
None
|
Erin E. Douglas
|
|
Vice President, Senior Associate Counsel
|
|
None
|
JoEllen Legg
|
|
Vice President, Senior Associate Counsel
|
|
None
|
Paul F. Leone
|
|
Vice President, Assistant General Counsel
|
|
None
|
David T. Buhler
|
|
Vice President, Associate Counsel
|
|
None
|
Rhonda A. Mills
|
|
Vice President, Associate Counsel
|
|
None
|
Randall D. Young
|
|
Secretary
|
|
None
|
Gregg Wm. Givens
|
|
Assistant Treasurer
|
|
None
|
Steven Price
|
|
Vice President, Deputy Chief Compliance Officer
|
|
None
|
James Stegall
|
|
Vice President, Institutional Sales Manager
|
|
None
|
*
|
The principal business address for each of the above directors and executive officers is 1290 Broadway, Suite 1100, Denver, Colorado 80203.
|
(c) Not applicable.
Item 33. Location of Accounts and Records.
(a) The Registrant maintains accounts, books and other documents required by Section 31(a) of the Investment Company Act of 1940, as amended, and the rules thereunder (collectively,
Records) at its offices at 60 Wall Street, New York, New York 10005.
(b) DBX Advisors LLC maintains all Records
relating to its services as investment adviser to the Registrant at 60 Wall Street, New York, New York 10005.
(c) TDAM USA
Inc. maintains all Records relating to its services as a sub-adviser to the Registrant at 31 West 52nd Street, New York, NY 10019.
(d) Harvest Global Investments Limited maintains all Records relating to its services as the sub-adviser to the Registrant at 31/F One Exchange Square, Connaught Place, Central, Hong Kong, Hong Kong.
(d) ALPS Distributors, Inc. maintains all Records relating to its services as Distributor of the Registrant at 1290 Broadway,
Suite 1100, Denver, Colorado 80203.
(e) The Bank of New York Mellon maintains all Records relating to its services as
administrator, transfer agent and custodian of the Registrant at One Wall Street, New York, New York 10286.
Item 34. Management
Services.
There are no management related service contracts not discussed in Part A or Part B.
Item 35. Undertakings.
None.
4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant has duly caused this Post-Effective Amendment to the Registration Statement to be signed
on its behalf by the undersigned, thereunto duly authorized, in the city of New York and state of New York on the 31st day of January, 2013.
|
|
|
DBX ETF Trust
|
|
|
By:
|
|
/s/ Alex Depetris
|
|
|
Alex Depetris
|
|
|
President and Chief Executive Officer
|
Pursuant to the requirements of the Securities Act of 1933, this Registration Statement has been
signed by the following persons in the capacities stated and on the dates indicated.
|
|
|
|
|
|
|
SIGNATURE
|
|
|
|
CAPACITY
|
|
DATE
|
|
|
|
|
/s/ Alex Deptris
|
|
|
|
|
|
|
Alex Depetris
|
|
|
|
Trustee and Chairman, President, Chief Executive Officer and Secretary
|
|
January 31, 2013
|
|
|
|
|
/s/ Michael Gilligan
|
|
|
|
|
|
|
Michael Gilligan
|
|
|
|
Treasurer, Chief Financial Officer and Controller
|
|
January 31, 2013
|
|
|
|
|
/s/ J. David Officer*
|
|
|
|
|
|
|
J. David Officer
|
|
|
|
Trustee
|
|
January 31, 2013
|
|
|
|
|
/s/ Stephen R. Byers*
|
|
|
|
|
|
|
Stephen R. Byers
|
|
|
|
Trustee
|
|
January 31, 2013
|
|
|
|
|
/s/ George O. Elston*
|
|
|
|
|
|
|
George O. Elston
|
|
|
|
Trustee
|
|
January 31, 2013
|
|
|
|
*By:
|
|
/s/ Alex Depetris
|
|
|
Alex Depetris (attorney-in-fact)
|
Sono Group NV (NASDAQ:SEV)
Historical Stock Chart
From Jul 2024 to Aug 2024
Sono Group NV (NASDAQ:SEV)
Historical Stock Chart
From Aug 2023 to Aug 2024