2024-03-31
DEUTSCHE DWS STATE TAX-FREE INCOME SERIES
0000714287
false
2024-07-25
2024-08-01
2024-08-01
N-1A
485BPOS
0.0991
0.0272
0.0024
0.0470
0.0007
0.0711
0.0439
0.0098
0.1073
0.0572
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:C000102799Member
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:C000102801Member
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:C000223772Member
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:C000102802Member
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
rr:RiskLoseMoneyMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
rr:RiskNotInsuredDepositoryInstitutionMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:RiskInterestRateMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:RiskCreditMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:RiskMunicipalSecuritiesMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:RiskMarketMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:RiskMarketDisruptionMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:RiskInflationMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:RiskTaxMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:RiskPrivateActivityIDBsMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
rr:RiskNondiversifiedStatusMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:RiskSecuritySelectionMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:RiskForwardCommitmentMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:RiskCounterpartyMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:RiskLiquidityMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:RiskPrepaymentMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:RiskPricingMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:RiskOperationalAndTechnologyMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:C000102799Member
ddstfis:beforetaxMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:C000102799Member
ddstfis:AftertaxondistributionsMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:C000102799Member
ddstfis:AftertaxondistributionsandsaleoffundsharesMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:C000102801Member
ddstfis:beforetaxMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:C000102802Member
ddstfis:beforetaxMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:BloombergMunicipalBondIndexMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:BloombergMassachusettsExemptMunicipalBondIndexMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:C000223772Member
ddstfis:beforetaxMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:C000223772Member
ddstfis:BloombergMunicipalBondIndexMember
2024-08-01
2024-08-01
0000714287
ddstfis:ClassesACSMember
ddstfis:S000033433Member
ddstfis:C000223772Member
ddstfis:BloombergMassachusettsExemptMunicipalBondIndexMember
2024-08-01
2024-08-01
0000714287
2024-08-01
2024-08-01
xbrli:pure
iso4217:USD
Filed electronically with the Securities and Exchange
Commission on July 25, 2024
1933 Act File No. 002-81549
1940 Act File No. 811-03657
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-1A
REGISTRATION STATEMENT UNDER THE
SECURITIES |
|
ACT OF 1933 |
|X|
|
Pre-Effective Amendment No. |
|__| |
Post-Effective Amendment No. 100 |
|X| |
and/or |
|
REGISTRATION STATEMENT UNDER THE |
|
INVESTMENT COMPANY ACT OF 1940 |
|X| |
|
|
Amendment No. 100 |
|
Deutsche
DWS State Tax-Free Income Series
(Exact Name of Registrant as Specified in Charter)
875 Third
Avenue, New York, NY 10022-6225
(Address of Principal Executive Offices)
Registrant's Telephone Number, including Area
Code: (212) 454-4500
John Millette
Vice President and Secretary
Deutsche DWS State Tax-Free Income Series
100 Summer
Street, Boston, MA 02110-2146
(Name and Address of Agent for Service)
Copy to:
John S. Marten
Vedder Price P.C.
222 N. LaSalle Street, Chicago, Illinois 60601-1104
It is proposed that this filing will become effective (check appropriate
box):
|__| |
Immediately upon filing pursuant to paragraph (b) |
|X | |
On August 1, 2024 pursuant to paragraph (b) |
|__| |
60 days after filing pursuant to paragraph (a) |
|__| |
On ________________ pursuant to paragraph (a) |
|__| |
75 days after filing pursuant to paragraph (a)(2) |
|__| |
On ________________ pursuant to paragraph (a)(2) of Rule 485 |
If appropriate, check the following box:
|__| |
This post-effective amendment designates a new effective
date for a previously filed post-effective amendment. |
EXPLANATORY
NOTE
This Post-Effective Amendment contains the Prospectus and Statement
of Additional Information relating to the following series and classes of shares of the Registrant:
- DWS Massachusetts Tax-Free Fund – Class A, Class C, Institutional
Class, and Class S
This Post-Effective Amendment is not intended to update or amend any other
Prospectuses or Statements of Additional Information of the Registrant’s other series or classes.
DWS Massachusetts Tax-Free Fund |
|
|
|
|
|
|
|
|
|
As with all mutual funds, the Securities and Exchange Commission (SEC) does not approve or disapprove these shares or determine whether the information in this prospectus is truthful or complete. It is a criminal offense for anyone to inform you otherwise.
Your investment in the fund is not a bank deposit and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other government agency, entity or person.
DWS Massachusetts Tax-Free Fund
Investment Objective
The fund seeks income that is exempt from Massachusetts personal and federal income taxes.
These are the fees and expenses you may pay when you buy, hold and sell shares. You may pay other fees, such as brokerage commissions and other fees to financial intermediaries, which are not reflected in the tables and examples below.You may qualify for sales charge discounts in Class A shares if you and your immediate family invest, or agree to invest in the future, at least $100,000 in DWS funds. More information about these and other discounts and waivers is available from your financial representative and in Choosing a Share Class (p. 16), Sales Charge Waivers and Discounts Available Through Intermediaries (Appendix B, p. 42) and Purchase and Redemption of Shares in the fund’s Statement of Additional Information (SAI) (p. II-15).
SHAREHOLDER FEES (paid directly from your investment)
|
|
|
|
|
Maximum sales charge (load) imposed on
purchases, as % of offering price |
|
|
|
|
Maximum deferred sales charge (load), as
% of redemption proceeds1
|
|
|
|
|
Account Maintenance Fee (annually, for
fund account balances below $10,000 and
subject to certain exceptions) |
|
|
|
|
ANNUAL FUND OPERATING EXPENSES
(expenses that you pay each year as a % of the value of your investment)
|
|
|
|
|
|
|
|
|
|
Distribution/service (12b-1) fees |
|
|
|
|
|
|
|
|
|
Total annual fund operating expenses |
|
|
|
|
Fee waiver/expense reimbursement |
|
|
|
|
Total annual fund operating expenses
after fee waiver/expense reimbursement |
|
|
|
|
1Investments of $250,000 or more may be eligible to buy Class A shares without a sales charge (load), but may be subject to a contingent deferred sales charge of 1.00% if redeemed within 12 months of the original purchase date.
The Advisor has contractually agreed through July 31, 2025 to waive its fees and/or reimburse fund expenses to the extent necessary to maintain the fund’s total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest expense and acquired fund fees and expenses) at ratios no higher than 0.85%, 1.60%, 0.60% and 0.60% for Class A, Class C, Institutional Class and Class S, respectively. The agreement may only be terminated with the consent of the fund’s Board.
This Example is intended to help you compare the cost of investing in the fund with the cost of investing in other mutual funds. The Example assumes that you invest $10,000 in the fund for the time periods indicated and then redeem all of your shares at the end of those periods. The Example also assumes that your investment has a 5% return each year and that the fund's operating expenses (including one year of capped expenses in each period)
remain the same. Class C shares generally convert automatically to Class A shares after 8 years. The information presented in the Example for Class C reflects the conversion of Class C shares to Class A shares after 8 years. See “Class C Shares” in the “Choosing a Share Class” section
Prospectus August 1, 2024 | 1 | DWS Massachusetts Tax-Free Fund |
of the prospectus for more information. Although your actual costs may be higher or lower, based on these assumptions your costs would be:
You would pay the following expenses if you did not redeem your shares:
The fund pays transaction costs, such as commissions, when it buys and sells securities (or “turns over” its portfolio). A higher portfolio turnover may indicate higher transaction costs and may mean higher taxes if you are investing in a taxable account. These costs are not reflected in annual fund operating expenses or in the expense example, and can affect the fund's performance. During the most recent fiscal year, the fund’s portfolio turnover rate was 52% of the average value of its portfolio.
Principal Investment Strategies
Main investments. Under normal circumstances, the fund invests at least 80% of net assets, plus the amount of any borrowings for investment purposes, in Massachusetts municipal securities. For purposes of this 80% requirement, Massachusetts municipal securities are securities whose income is exempt from regular federal and Massachusetts state income taxes. The fund can also invest in obligations of US territories and Commonwealths (such as Puerto Rico, the US Virgin Islands and Guam) and their agencies and authorities, whose income is free from regular federal and Massachusetts state income tax. The fund may invest up to 20% of net assets in securities whose income is subject to the federal alternative minimum tax (AMT).
The fund can buy many types of municipal securities with no maturity restrictions. These may include, without limitation, revenue bonds (which are backed by revenues from a particular source) and general obligation bonds (which are typically backed by the issuer’s ability to levy taxes). They may also include private activity and industrial development bonds, pre-refunded bonds, municipal lease obligations and investments representing an interest therein.
The fund normally invests at least 80% of total assets in municipal securities of the top four grades of credit quality or, if unrated, determined by the fund’s investment advisor to be of similar quality. The fund could invest up to 20% of total assets in high yield, below investment-grade bonds (commonly referred to as “junk” bonds), which are those rated below the fourth highest rating category (i.e., grade BB/Ba and below). Compared to investment-grade bonds, junk bonds generally pay higher yields but have higher volatility and higher risk of default on payments.
The fund may use forward delivery bonds, which are bonds priced on a determined date but that are not issued and settled until a later period (ranging from several weeks to more than a year). Forward delivery bonds with settlement dates greater than 35 days are treated as derivatives by the fund and are subject to the fund's policies and procedures with respect to derivatives. Forward delivery bonds with settlement dates greater than 35 days generally are used for non-hedging purposes to seek to enhance potential gains.
Management process. Portfolio management looks for securities that appear to offer the best total return potential. In making buy and sell decisions, portfolio management typically weighs a number of factors, including economic outlooks, possible interest rate movements, yield levels across varying maturities, and changes in supply and demand within the municipal bond market. When evaluating any individual security and its issuer, portfolio management may consider a number of factors including the security's credit quality and terms, such as coupon, maturity date and call date, as well as the issuer's capital structure, leverage and ability to meet its current obligations. Portfolio management may also consider financially material environmental, social, and governance (ESG) factors. Such factors may include, but are not limited to, exposure to climate change risks, income levels and unemployment data, and an issuer’s governance structure and practices.
Although portfolio management may adjust the fund’s duration (a measure of sensitivity to interest rates) over a wider range, they generally intend to keep it similar to that of the Bloomberg Municipal Bond Index, which is generally between five and nine years.
There are several risk factors that could hurt the fund’s performance, cause you to lose money or cause the fund’s performance to trail that of other investments. The fund may not achieve its investment objective, and is not intended to be a complete investment program. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency.
Interest rate risk. When interest rates rise, prices of debt securities generally decline. The longer the duration of the fund’s debt securities, the more sensitive the fund will
Prospectus August 1, 2024
2
DWS Massachusetts Tax-Free Fund
be to interest rate changes. (As a general rule, a 1% rise in interest rates means a 1% fall in value for every year of duration.) When interest rates change, the values of longer-duration municipal bonds usually change more than the values of shorter-duration municipal bonds. Conversely, municipal bonds with shorter durations or maturities will be less volatile but may provide lower returns than municipal bonds with longer durations or maturities. Rising interest rates also may lengthen the duration of municipal bonds with call features, since exercise of the call becomes less likely as interest rates rise, which in turn will make the securities more sensitive to changes in interest rates and result in even steeper price declines in the event of further interest rate increases. Interest rates can change in response to the supply and demand for credit, government and/or central bank monetary policy and action, inflation rates, and other factors. Recent and potential future changes in monetary policy made by central banks or governments are likely to affect the level of interest rates. Changing interest rates may have unpredictable effects on markets, may result in heightened market volatility and potential illiquidity and may detract from fund performance to the extent the fund is exposed to such interest rates and/or volatility. Rising interest rates could cause the value of the fund’s investments — and therefore its share price as well — to decline. A rising interest rate environment may cause investors to move out of fixed-income securities and related markets on a large scale, which could adversely affect the price and liquidity of such securities and could also result in increased redemptions from the fund. Increased redemptions from the fund may force the fund to sell investments at a time when it is not advantageous to do so, which could result in losses. Beginning in 2022, the US Federal Reserve (“Fed”) raised interest rates significantly in response to increased inflation. It is unclear if and when the Fed may begin to implement interest rate cuts, if rates will remain at current levels for a prolonged period or, if the Fed deems necessary in response to certain economic developments such as a turnaround in the decline of inflation, the Fed may consider additional rate increases. As a result, fixed-income and related markets may experience heightened levels of volatility and liquidity risk.
Credit risk. The fund's performance could be hurt if an issuer of a debt security suffers an adverse change in financial condition that results in the issuer not making timely payments of interest or principal, a security downgrade or an inability to meet a financial obligation. Credit risk is greater for lower-rated securities.
Because the issuers of high yield debt securities, or junk bonds (debt securities rated below the fourth highest credit rating category), may be in uncertain financial health, the prices of their debt securities can be more vulnerable to bad economic news, or even the expectation of bad news, than investment-grade debt securities. Credit risk for high yield securities is greater than for higher-rated securities.
Because securities in default generally have missed one or more payments of interest and/or principal, an investment in such securities has an increased risk of loss. Issuers of securities in default have an increased likelihood of entering bankruptcy or beginning liquidation procedures which could impact the fund's ability to recoup its investment. Securities in default may be illiquid or trade in low volumes and thus may be difficult to value.
For securities that rely on third-party guarantors to support their credit quality, the same risks may apply if the financial condition of the guarantor deteriorates or the guarantor ceases to insure securities. Because guarantors may insure many types of securities, including subprime mortgage bonds and other high-risk bonds, their financial condition could deteriorate as a result of events that have little or no connection to securities owned by the fund.
Focus risk – Massachusetts municipal securities. The municipal securities market in general can be susceptible to increases in volatility and decreases in liquidity. Liquidity can decline unpredictably in response to overall economic conditions or credit tightening. Increases in volatility and decreases in liquidity may be caused by a rise in interest rates (or the expectation of a rise in interest rates). Because the fund focuses its investments in Massachusetts municipal securities, its performance can be more volatile than that of a fund that invests more broadly, and it has a relatively large exposure to financial stresses affecting Massachusetts. For example, industries significant to the state’s economy, such as the technology, biotech, financial services or healthcare industries could experience downturns or fail to develop as expected, hurting the local economy. Fluctuations in unemployment levels or in the state or national economy could result in decreased tax revenues, including decreases in personal income tax, corporate business tax, or sales and use tax revenues, and other sources of revenue. Massachusetts could also face severe fiscal difficulties, for example, an economic downturn, increased expenditures on domestic security, reduced monetary support from the federal government or costs and disruption caused by natural disasters. A default or credit rating downgrade of a small number of municipal security issuers could affect the market values and marketability of all Massachusetts municipal securities and hurt the fund’s performance.
Over time, these issues may impair the ability of the state, municipalities, or other authorities to repay their obligations or to pay debt service on those obligations and could result in a downgrade of Massachusetts' credit rating or the ratings of authorities or political subdivisions of Massachusetts, which may negatively impact the value of bonds issued by those entities.
Market risk. Deteriorating market conditions might cause a general weakness in the market that reduces the prices of securities in that market. Developments in a particular
Prospectus August 1, 2024
3
DWS Massachusetts Tax-Free Fund
class of debt securities or the stock market could also adversely affect the fund by reducing the relative attractiveness of debt securities as an investment.
Market disruption risk. Economies and financial markets throughout the world have become increasingly interconnected, which has increased the likelihood that events or conditions in one country or region will adversely impact markets or issuers in other countries or regions. This includes reliance on global supply chains that are susceptible to disruptions resulting from, among other things, war and other armed conflicts, extreme weather events, and natural disasters. Such supply chain disruptions can lead to, and have led to, economic and market disruptions that have far-reaching effects on financial markets worldwide. The value of the fund’s investments may be negatively affected by adverse changes in overall economic or market conditions, such as the level of economic activity and productivity, unemployment and labor force participation rates, inflation or deflation (and expectations for inflation or deflation), interest rates, demand and supply for particular products or resources including labor, and debt levels and credit ratings, among other factors. Such adverse conditions may contribute to an overall economic contraction across entire economies or markets, which may negatively impact the profitability of issuers operating in those economies or markets. In addition, geopolitical and other globally interconnected occurrences, including war, terrorism, economic uncertainty or financial crises, contagion, trade disputes, government debt crises (including defaults or downgrades) or uncertainty about government debt payments, government shutdowns, public health crises, natural disasters, supply chain disruptions, climate change and related events or conditions, have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Adverse market conditions or disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by adverse market conditions or a particular market disruption, the duration and effects may not be the same for all types of assets.
Current military and other armed conflicts in various geographic regions, including those in Europe and the Middle East, can lead to, and have led to, economic and market disruptions, which may not be limited to the geographic region in which the conflict is occurring. Such conflicts can also result, and have resulted in some cases, in sanctions being levied by the United States, the European Union and/or other countries against countries or other actors involved in the conflict. In addition, such conflicts and related sanctions can adversely affect regional and global energy, commodities, financial and other markets and thus could affect the value of the fund's investments. The extent and duration of any military
conflict, related sanctions and resulting economic and market disruptions are impossible to predict, but could be substantial.
Other market disruption events include pandemic spread of viruses, such as the novel coronavirus known as COVID-19, which have caused significant uncertainty, market volatility, decreased economic and other activity, increased government activity, including economic stimulus measures, and supply chain disruptions. While COVID-19 is no longer considered to be a public health emergency, the fund and its investments may be adversely affected by lingering effects of this virus or future pandemic spread of viruses.
In addition, markets are becoming increasingly susceptible to disruption events resulting from the use of new and emerging technologies to engage in cyber-attacks or to take over the websites and/or social media accounts of companies, governmental entities or public officials, or to otherwise pose as or impersonate such, which then may be used to disseminate false or misleading information that can cause volatility in financial markets or for the stock of a particular company, group of companies, industry or other class of assets.
Adverse market conditions or particular market disruptions, such as those discussed above, may magnify the impact of each of the other risks described in this “MAIN RISKS” section and may increase volatility in one or more markets in which the fund invests leading to the potential for greater losses for the fund.
Inflation risk. Inflation risk is the risk that the real value of certain assets or real income from investments (the value of such assets or income after accounting for inflation) will be less in the future as inflation decreases the value of money. Inflation, and investors’ expectation of future inflation, can impact the current value of the fund's portfolio, resulting in lower asset values and losses to shareholders. This risk may be elevated compared to historical market conditions and could be impacted by monetary policy measures and the current interest rate environment.
Tax risk. Income from municipal securities held by the fund could be declared taxable because of unfavorable changes in tax laws, adverse interpretations by the Internal Revenue Service or state tax authorities, or noncompliant conduct of a securities issuer. In such event, the value of such securities would likely fall, hurting fund performance and shareholders may be required to pay additional taxes. In addition, a portion of the fund’s otherwise exempt-interest distributions may be taxable to those shareholders subject to the federal AMT.
Private activity and industrial development bond risk. The payment of principal and interest on these bonds is generally dependent solely on the ability of the facility’s user to meet its financial obligations and the pledge, if any, of property financed as security for such payment.
Prospectus August 1, 2024
4
DWS Massachusetts Tax-Free Fund
Non-diversification risk. The fund is classified as non-diversified under the Investment Company Act of 1940, as amended. This means that the fund may invest in securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.
Security selection risk. The securities in the fund’s portfolio may decline in value. Portfolio management could be wrong in its analysis of municipalities, industries, companies, economic trends, ESG factors, the relative attractiveness of different securities or other matters.
Forward commitment risk. When the fund engages in forward or delayed delivery transactions, the fund relies on the counterparty to consummate the transaction. Failure to do so may result in the fund missing the opportunity to obtain a price or yield considered to be advantageous. Such transactions may also have the effect of leverage on the fund and may cause the fund to be more volatile.
Counterparty risk. A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.
Liquidity risk. In certain situations, it may be difficult or impossible to sell an investment and/or the fund may sell certain investments at a price or time that is not advantageous in order to meet redemption requests or other cash needs. Unusual market conditions, such as an unusually high volume of redemptions or other similar conditions could increase liquidity risk for the fund, and in extreme conditions, the fund could have difficulty meeting redemption requests.
Prepayment and extension risk. When interest rates fall, issuers of high interest debt obligations may pay off the debts earlier than expected (prepayment risk), and the fund may have to reinvest the proceeds at lower yields. When interest rates rise, issuers of lower interest debt obligations may pay off the debts later than expected (extension risk), thus keeping the fund’s assets tied up in lower interest debt obligations. Ultimately, any unexpected behavior in interest rates could increase the volatility of the fund’s share price and yield and could hurt fund performance. Prepayments could also create capital gains tax liability in some instances.
Pricing risk. If market conditions make it difficult to value some investments, the fund may value these investments using more subjective methods, such as fair value pricing. In such cases, the value determined for an investment could be different from the value realized upon such investment’s sale. As a result, you could pay more than the market value when buying fund shares or receive less than the market value when selling fund shares.
Operational and technology risk. Cyber-attacks, disruptions or failures that affect the fund’s service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund’s or its service providers’ assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund’s net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund’s operations.
While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund’s service providers could impact the ability to conduct the fund’s operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.
How a fund's returns vary from year to year can give an idea of its risk; so can comparing fund performance to overall market performance (as measured by an appropriate broad-based securities market index).Past performance may not indicate future results. All performance figures below assume that dividends and distributions were reinvested. For more recent performance figures, go to dws.com (the Web site does not form a part of this prospectus) or call the telephone number included in this prospectus.
Prospectus August 1, 2024
5
DWS Massachusetts Tax-Free Fund
CALENDAR YEAR TOTAL RETURNS (%) (Class A)
These year-by-year returns do not include sales charges, if any, and would be lower if they did. Returns for other classes were different and are not shown here.
Average Annual Total Returns
(For periods ended 12/31/2023 expressed as a %)
After-tax returns (which are shown only for Class A and would be different for other classes) reflect the historical highest individual federal income tax rates, but do not reflect any state or local taxes. Your actual after-tax returns may be different. After-tax returns are not relevant to shares held in an IRA, 401(k) or other tax-advantaged investment plan.
|
|
|
|
|
|
|
|
|
|
After tax on distribu-
tions |
|
|
|
|
After tax on distribu-
tions and sale of fund
shares |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bloomberg Municipal
Bond Index (reflects no
deduction for fees,
expenses or taxes) |
|
|
|
|
Bloomberg Massachu-
setts Exempt Municipal
Bond Index (reflects no
deduction for fees,
expenses or taxes) |
|
|
|
|
|
|
|
|
|
|
|
|
Bloomberg Municipal
Bond Index (reflects no
deduction for fees,
expenses or taxes) |
|
|
|
Bloomberg Massachu-
setts Exempt Municipal
Bond Index (reflects no
deduction for fees,
expenses or taxes) |
|
|
|
The Advisor believes the additional Bloomberg Massachusetts Exempt Municipal Bond Index reasonably represents the fund's investment objective and strategies.
DWS Investment Management Americas, Inc.
Michael J. Generazo, Senior Portfolio Manager Fixed Income. Portfolio Manager of the fund. Began managing the fund in 2018.
Matthew J. Caggiano, CFA, Head of Investment Strategy Fixed Income. Portfolio Manager of the fund. Began managing the fund in 2021.
Purchase and Sale of Fund Shares
Minimum Initial Investment ($)
|
|
|
|
Automatic
Investment
Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For participants in all group retirement plans, and in certain fee-based and wrap programs approved by the Advisor, there is no minimum initial investment and no minimum additional investment for Class A, C and S shares. For Section 529 college savings plans, there is no minimum initial investment and no minimum additional investment for Class S shares. The minimum initial investment for Class S shares may be waived for eligible intermediaries that have agreements with DDI to offer Class S shares in their brokerage platforms when such Class S shares are held in omnibus accounts on such brokerage platforms. In certain instances, the minimum initial investment may be waived for Institutional Class shares. For more information regarding available Institutional Class investment minimum waivers, see “Institutional Class Shares – Investment Minimum” in the “Choosing a Share Class” section of the prospectus. There is no minimum additional investment for Institutional Class shares. The minimum additional investment in all other instances is $50.
Prospectus August 1, 2024
6
DWS Massachusetts Tax-Free Fund
To Place Orders
|
|
DWS
PO Box 219151
Kansas City, MO 64121-9151 |
|
DWS
430 West 7th Street
Suite 219151
Kansas City, MO 64105-1407 |
|
|
|
(800) 728-3337, M – F 8 a.m. – 7 p.m. ET |
|
For hearing impaired assistance, please
call us using a relay service |
The fund is generally open on days when the New York Stock Exchange is open for regular trading. If you invest with the fund directly through the transfer agent, you can open a new fund account (Class S shares only) and make an initial investment on the Internet at dws.com, by using the mobile app or by mail. You can make additional investments or sell shares of the fund on any business day by visiting the fund’s Web site, by using the mobile app, by mail, or by telephone; however you may have to elect certain privileges on your initial account application. The ability to open new fund accounts and to transact online or using the mobile app varies depending on share class and account type. If you are working with a financial representative, contact your financial representative for assistance with buying or selling fund shares. A financial representative separately may impose its own policies and procedures for buying and selling fund shares.
Institutional Class shares are generally available only to qualified institutions. Class S shares are available through certain intermediary relationships with financial services firms, or can be purchased by establishing an account directly with the fund’s transfer agent.
The fund's distributions are generally exempt from regular federal and Massachusetts state income tax. All or a portion of the fund's dividends may be subject to the federal alternative minimum tax.
Payments to Broker-Dealers and
Other Financial Intermediaries
If you purchase shares of the fund through a broker-dealer or other financial intermediary (such as a bank), the fund, the Advisor, and/or the Advisor’s affiliates may pay the intermediary for the sale of fund shares and related services. These payments may create a conflict of interest by influencing the broker-dealer or other intermediary and your salesperson to recommend the fund over another investment. Ask your salesperson or visit your financial intermediary’s Web site for more information.
Prospectus August 1, 2024
7
DWS Massachusetts Tax-Free Fund
Additional Information About Fund Strategies and Risks
The fund seeks income that is exempt from Massachusetts personal and federal income taxes.
Principal Investment Strategies
Main investments. Under normal circumstances, the fund invests at least 80% of net assets, plus the amount of any borrowings for investment purposes, in Massachusetts municipal securities. For purposes of this 80% requirement, Massachusetts municipal securities are securities whose income is exempt from regular federal and Massachusetts state income taxes. The fund can also invest in obligations of US territories and Commonwealths (such as Puerto Rico, the US Virgin Islands and Guam) and their agencies and authorities, whose income is free from regular federal and Massachusetts state income tax. The fund may invest up to 20% of net assets in securities whose income is subject to the federal alternative minimum tax (AMT).
The fund can buy many types of municipal securities with no maturity restrictions. These may include, without limitation, revenue bonds (which are backed by revenues from a particular source) and general obligation bonds (which are typically backed by the issuer’s ability to levy taxes). They may also include private activity and industrial development bonds, pre-refunded bonds, municipal lease obligations and investments representing an interest therein.
The fund normally invests at least 80% of total assets in municipal securities of the top four grades of credit quality or, if unrated, determined by the fund’s investment advisor to be of similar quality. The fund could invest up to 20% of total assets in high yield, below investment-grade bonds (commonly referred to as “junk” bonds), which are those rated below the fourth highest rating category (i.e., grade BB/Ba and below). Compared to investment-grade bonds, junk bonds generally pay higher yields but have higher volatility and higher risk of default on payments.
The fund may use forward delivery bonds, which are bonds priced on a determined date but that are not issued and settled until a later period (ranging from several weeks to more than a year). Forward delivery bonds with settlement dates greater than 35 days are treated as derivatives by the fund and are subject to the fund's policies and procedures with respect to derivatives. Forward delivery bonds with settlement dates greater than 35 days generally are used for non-hedging purposes to seek to enhance potential gains.
If a fixed income security is rated differently among the three major ratings agencies (i.e., Moody’s Investor Services, Inc., Fitch Investors Services, Inc., and Standard & Poor’s Ratings Group), portfolio management would rely on the highest credit rating for purposes of the fund’s investment policies.
The fund may also invest in exchange-traded funds (ETFs). The fund’s investments in ETFs will be limited to 5% of total assets in any one ETF and 10% of total assets in the aggregate in ETFs.
Management process. Portfolio management looks for securities that appear to offer the best total return potential. In making buy and sell decisions, portfolio management typically weighs a number of factors, including economic outlooks, possible interest rate movements, yield levels across varying maturities, and changes in supply and demand within the municipal bond market. When evaluating any individual security and its issuer, portfolio management may consider a number of factors including the security's credit quality and terms, such as coupon, maturity date and call date, as well as the issuer's capital structure, leverage and ability to meet its current obligations. Portfolio management may also consider financially material environmental, social, and governance (ESG) factors. Such factors may include, but are not limited to, exposure to climate change risks, income levels and unemployment data, and an issuer’s governance structure and practices.
Although portfolio management may adjust the fund’s duration (a measure of sensitivity to interest rates) over a wider range, they generally intend to keep it similar to that of the Bloomberg Municipal Bond Index, which is generally between five and nine years.
Prospectus August 1, 2024 | 8 | Fund Details |
Portfolio management may consider information about Environmental, Social and Governance (ESG) issues in its fundamental research process.
Other Investment Strategies
Tender option bonds. The fund may engage in tender option bond transactions. In a tender option bond transaction, the fund transfers fixed-rate long-term municipal bonds into a special purpose entity (a “TOB Trust”), which then typically issues two classes of beneficial interests: short-term floating rate interests (“TOB Floaters”), which are sold to third party investors, and residual inverse floating rate interests (“TOB Inverse Floater Residual Interests”), which are generally held by the fund. Tender option bond transactions are treated as derivatives by the fund and are subject to the fund's policies and procedures with respect to derivatives. The fund may leverage its assets and seek to enhance potential gains through the use of proceeds received from TOB Floaters.
Derivatives. The fund may invest in derivatives, which are financial instruments whose performance is derived, at least in part, from the performance of an underlying asset, security or index. The fund may use various types of derivatives (i) for hedging purposes; (ii) for risk management; (iii) for non-hedging purposes to seek to enhance potential gains; or (iv) as a substitute for direct investment in a particular asset class or to keep cash on hand to meet shareholder redemptions.
There are several risk factors that could hurt the fund’s performance, cause you to lose money or cause the fund’s performance to trail that of other investments. The fund may not achieve its investment objective, and is not intended to be a complete investment program. An investment in the fund is not a deposit of a bank and is not insured or guaranteed by the Federal Deposit Insurance Corporation or any other governmental agency.
Interest rate risk. When interest rates rise, prices of debt securities generally decline. The longer the duration of the fund’s debt securities, the more sensitive the fund will be to interest rate changes. (As a general rule, a 1% rise in interest rates means a 1% fall in value for every year of duration.) When interest rates change, the values of longer-duration municipal bonds usually change more than the values of shorter-duration municipal bonds. Conversely, municipal bonds with shorter durations or maturities will be less volatile but may provide lower returns than municipal bonds with longer durations or maturities. Rising interest rates also may lengthen the duration of municipal bonds with call features, since exercise of the call becomes less likely as interest rates rise, which in turn will make the securities more sensitive to changes in interest rates and result in even steeper price declines in the event of further interest rate increases. Interest rates can change in response to the supply and demand for credit,
government and/or central bank monetary policy and action, inflation rates, and other factors. Recent and potential future changes in monetary policy made by central banks or governments are likely to affect the level of interest rates. Changing interest rates may have unpredictable effects on markets, may result in heightened market volatility and potential illiquidity and may detract from fund performance to the extent the fund is exposed to such interest rates and/or volatility. Rising interest rates could cause the value of the fund’s investments — and therefore its share price as well — to decline. A rising interest rate environment may cause investors to move out of fixed-income securities and related markets on a large scale, which could adversely affect the price and liquidity of such securities and could also result in increased redemptions from the fund. Increased redemptions from the fund may force the fund to sell investments at a time when it is not advantageous to do so, which could result in losses. Beginning in 2022, the US Federal Reserve (“Fed”) raised interest rates significantly in response to increased inflation. It is unclear if and when the Fed may begin to implement interest rate cuts, if rates will remain at current levels for a prolonged period or, if the Fed deems necessary in response to certain economic developments such as a turnaround in the decline of inflation, the Fed may consider additional rate increases. As a result, fixed-income and related markets may experience heightened levels of volatility and liquidity risk.
Credit risk. The fund's performance could be hurt if an issuer of a debt security suffers an adverse change in financial condition that results in the issuer not making timely payments of interest or principal, a security downgrade or an inability to meet a financial obligation. Credit risk is greater for lower-rated securities.
Because the issuers of high yield debt securities, or junk bonds (debt securities rated below the fourth highest credit rating category), may be in uncertain financial health, the prices of their debt securities can be more vulnerable to bad economic news, or even the expectation of bad news, than investment-grade debt securities. Credit risk for high yield securities is greater than for higher-rated securities.
Because securities in default generally have missed one or more payments of interest and/or principal, an investment in such securities has an increased risk of loss. Issuers of securities in default have an increased likelihood of entering bankruptcy or beginning liquidation procedures which could impact the fund's ability to recoup its investment. Securities in default may be illiquid or trade in low volumes and thus may be difficult to value.
For securities that rely on third-party guarantors to support their credit quality, the same risks may apply if the financial condition of the guarantor deteriorates or the guarantor ceases to insure securities. Because guarantors may
Prospectus August 1, 2024
9
Fund Details
insure many types of securities, including subprime mortgage bonds and other high-risk bonds, their financial condition could deteriorate as a result of events that have little or no connection to securities owned by the fund.
Focus risk – Massachusetts municipal securities. The municipal securities market in general can be susceptible to increases in volatility and decreases in liquidity. Liquidity can decline unpredictably in response to overall economic conditions or credit tightening. Increases in volatility and decreases in liquidity may be caused by a rise in interest rates (or the expectation of a rise in interest rates). Because the fund focuses its investments in Massachusetts municipal securities, its performance can be more volatile than that of a fund that invests more broadly, and it has a relatively large exposure to financial stresses affecting Massachusetts. For example, industries significant to the state’s economy, such as the technology, biotech, financial services or healthcare industries could experience downturns or fail to develop as expected, hurting the local economy. Fluctuations in unemployment levels or in the state or national economy could result in decreased tax revenues, including decreases in personal income tax, corporate business tax, or sales and use tax revenues, and other sources of revenue. Massachusetts could also face severe fiscal difficulties, for example, an economic downturn, increased expenditures on domestic security, reduced monetary support from the federal government or costs and disruption caused by natural disasters. A default or credit rating downgrade of a small number of municipal security issuers could affect the market values and marketability of all Massachusetts municipal securities and hurt the fund’s performance.
Over time, these issues may impair the ability of the state, municipalities, or other authorities to repay their obligations or to pay debt service on those obligations and could result in a downgrade of Massachusetts' credit rating or the ratings of authorities or political subdivisions of Massachusetts, which may negatively impact the value of bonds issued by those entities.
Massachusetts municipal securities may also have exposure to potential physical risks resulting from climate change, including extreme weather, flooding and fires. Climate risks, if they materialize, can adversely impact a Massachusetts municipal issuer’s financial plans in current or future years or may impair a facility or other source generating revenues backing a Massachusetts municipal issuer’s revenue bonds. As a result, the impact of climate risks may adversely impact the value of the Fund’s shares.
Market risk. Deteriorating market conditions might cause a general weakness in the market that reduces the prices of securities in that market. Developments in a particular class of debt securities or the stock market could also adversely affect the fund by reducing the relative attractiveness of debt securities as an investment.
Market disruption risk. Economies and financial markets throughout the world have become increasingly interconnected, which has increased the likelihood that events or conditions in one country or region will adversely impact markets or issuers in other countries or regions. This includes reliance on global supply chains that are susceptible to disruptions resulting from, among other things, war and other armed conflicts, extreme weather events, and natural disasters. Such supply chain disruptions can lead to, and have led to, economic and market disruptions that have far-reaching effects on financial markets worldwide. The value of the fund’s investments may be negatively affected by adverse changes in overall economic or market conditions, such as the level of economic activity and productivity, unemployment and labor force participation rates, inflation or deflation (and expectations for inflation or deflation), interest rates, demand and supply for particular products or resources including labor, and debt levels and credit ratings, among other factors. Such adverse conditions may contribute to an overall economic contraction across entire economies or markets, which may negatively impact the profitability of issuers operating in those economies or markets. In addition, geopolitical and other globally interconnected occurrences, including war, terrorism, economic uncertainty or financial crises, contagion, trade disputes, government debt crises (including defaults or downgrades) or uncertainty about government debt payments, government shutdowns, public health crises, natural disasters, supply chain disruptions, climate change and related events or conditions, have led, and in the future may lead, to disruptions in the US and world economies and markets, which may increase financial market volatility and have significant adverse direct or indirect effects on the fund and its investments. Adverse market conditions or disruptions could cause the fund to lose money, experience significant redemptions, and encounter operational difficulties. Although multiple asset classes may be affected by adverse market conditions or a particular market disruption, the duration and effects may not be the same for all types of assets.
Current military and other armed conflicts in various geographic regions, including those in Europe and the Middle East, can lead to, and have led to, economic and market disruptions, which may not be limited to the geographic region in which the conflict is occurring. Such conflicts can also result, and have resulted in some cases, in sanctions being levied by the United States, the European Union and/or other countries against countries or other actors involved in the conflict. In addition, such conflicts and related sanctions can adversely affect regional and global energy, commodities, financial and other markets and thus could affect the value of the fund's investments. The extent and duration of any military conflict, related sanctions and resulting economic and market disruptions are impossible to predict, but could be substantial.
Prospectus August 1, 2024
10
Fund Details
Other market disruption events include pandemic spread of viruses, such as the novel coronavirus known as COVID-19, which have caused significant uncertainty, market volatility, decreased economic and other activity, increased government activity, including economic stimulus measures, and supply chain disruptions. While COVID-19 is no longer considered to be a public health emergency, the fund and its investments may be adversely affected by lingering effects of this virus or future pandemic spread of viruses.
In addition, markets are becoming increasingly susceptible to disruption events resulting from the use of new and emerging technologies to engage in cyber-attacks or to take over the websites and/or social media accounts of companies, governmental entities or public officials, or to otherwise pose as or impersonate such, which then may be used to disseminate false or misleading information that can cause volatility in financial markets or for the stock of a particular company, group of companies, industry or other class of assets.
Adverse market conditions or particular market disruptions, such as those discussed above, may magnify the impact of each of the other risks described in this “MAIN RISKS” section and may increase volatility in one or more markets in which the fund invests leading to the potential for greater losses for the fund.
Inflation risk. Inflation risk is the risk that the real value of certain assets or real income from investments (the value of such assets or income after accounting for inflation) will be less in the future as inflation decreases the value of money. Inflation, and investors’ expectation of future inflation, can impact the current value of the fund's portfolio, resulting in lower asset values and losses to shareholders. This risk may be elevated compared to historical market conditions and could be impacted by monetary policy measures and the current interest rate environment.
Tax risk. Income from municipal securities held by the fund could be declared taxable because of unfavorable changes in tax laws, adverse interpretations by the Internal Revenue Service or state tax authorities, or noncompliant conduct of a securities issuer. In such event, the value of such securities would likely fall, hurting fund performance and shareholders may be required to pay additional taxes. In addition, a portion of the fund’s otherwise exempt-interest distributions may be taxable to those shareholders subject to the federal AMT.
Private activity and industrial development bond risk. The payment of principal and interest on these bonds is generally dependent solely on the ability of the facility’s user to meet its financial obligations and the pledge, if any, of property financed as security for such payment.
Non-diversification risk. The fund is classified as non-diversified under the Investment Company Act of 1940, as amended. This means that the fund may invest in
securities of relatively few issuers. Thus, the performance of one or a small number of portfolio holdings can affect overall performance.
Security selection risk. The securities in the fund’s portfolio may decline in value. Portfolio management could be wrong in its analysis of municipalities, industries, companies, economic trends, ESG factors, the relative attractiveness of different securities or other matters.
US territory and Commonwealth obligations risk. Adverse political and economic conditions and developments affecting any territory or Commonwealth of the US may, in turn, negatively affect the value of the fund’s holdings in such obligations. For example, Puerto Rico has experienced a recession and difficult economic conditions, along with a severe natural disaster, which may negatively affect the value of any holdings the fund may have in Puerto Rico municipal obligations.
Forward commitment risk. When the fund engages in forward or delayed delivery transactions, the fund relies on the counterparty to consummate the transaction. Failure to do so may result in the fund missing the opportunity to obtain a price or yield considered to be advantageous. Such transactions may also have the effect of leverage on the fund and may cause the fund to be more volatile.
Counterparty risk. A financial institution or other counterparty with whom the fund does business, or that underwrites, distributes or guarantees any investments or contracts that the fund owns or is otherwise exposed to, may decline in financial health and become unable to honor its commitments. This could cause losses for the fund or could delay the return or delivery of collateral or other assets to the fund.
Liquidity risk. In certain situations, it may be difficult or impossible to sell an investment and/or the fund may sell certain investments at a price or time that is not advantageous in order to meet redemption requests or other cash needs. Unusual market conditions, such as an unusually high volume of redemptions or other similar conditions could increase liquidity risk for the fund, and in extreme conditions, the fund could have difficulty meeting redemption requests.
This risk can be ongoing for any security that does not trade actively or in large volumes, for any security that trades primarily on smaller markets, and for investments that typically trade only among a limited number of large investors (such as certain types of derivatives or restricted securities). In unusual market conditions, even normally liquid securities may be affected by a degree of liquidity risk (i.e., if the number and capacity of traditional market participants is reduced). This may affect only certain securities or an overall securities market.
The potential for liquidity risk may be magnified by a rising interest rate environment or other circumstances where investor redemptions from fixed-income mutual funds may be higher than normal, potentially causing increased
Prospectus August 1, 2024
11
Fund Details
supply in the market due to selling activity. If dealer capacity in fixed-income markets is insufficient for market conditions, it may further inhibit liquidity and increase volatility in the fixed-income markets. Additionally, market participants, other than the fund, may attempt to sell fixed income holdings at the same time as the fund, which could cause downward pricing pressure and contribute to illiquidity.
Prepayment and extension risk. When interest rates fall, issuers of high interest debt obligations may pay off the debts earlier than expected (prepayment risk), and the fund may have to reinvest the proceeds at lower yields. When interest rates rise, issuers of lower interest debt obligations may pay off the debts later than expected (extension risk), thus keeping the fund’s assets tied up in lower interest debt obligations. Ultimately, any unexpected behavior in interest rates could increase the volatility of the fund’s share price and yield and could hurt fund performance. Prepayments could also create capital gains tax liability in some instances.
Pricing risk. If market conditions make it difficult to value some investments, the fund may value these investments using more subjective methods, such as fair value pricing. In such cases, the value determined for an investment could be different from the value realized upon such investment’s sale. As a result, you could pay more than the market value when buying fund shares or receive less than the market value when selling fund shares.
Secondary markets may be subject to irregular trading activity, wide bid/ask spreads and extended trade settlement periods, which may prevent the fund from being able to realize full value and thus sell a security for its full valuation. This could cause a material decline in the fund’s net asset value.
Tender option bonds risk. The fund’s participation in tender option bond transactions may reduce the fund’s returns or increase volatility. Tender option bond transactions create leverage. Leverage magnifies returns, both positive and negative, and risk by magnifying the volatility of returns. An investment in TOB Inverse Floater Residual Interests will typically involve more risk than an investment in the underlying municipal bonds. The interest payment on TOB Inverse Floater Residual Interests generally will decrease when short-term interest rates increase. There are also risks associated with the tender option bond structure, which could result in terminating the trust. If a TOB Trust is terminated, the fund must sell other assets to buy back the TOB Floaters, which could negatively impact performance. Events that could cause a termination of the TOB Trust include a deterioration in the financial condition of the liquidity provider, a deterioration in the credit quality of underlying municipal bonds, or a decrease in the value of the underlying bonds due to rising interest rates.
The fund may invest in TOB Inverse Floater Residual Interests on a non-recourse or recourse basis. If the fund invests in TOB Inverse Floater Residual Interests on a recourse basis, the fund could suffer losses in excess of the value of the TOB Inverse Floater Residual Interests.
Changes to the structure of TOBs to address the Volcker Rule could make early unwinds of TOB Trusts more likely, may make the use of TOB Trusts more expensive, and may make it more difficult to use TOB Trusts in general.
Derivatives risk. Derivatives involve risks different from, and possibly greater than, the risks associated with investing directly in securities and other more traditional investments. Risks associated with derivatives may include the risk that the derivative is not well correlated with the underlying asset, security or index to which it relates; the risk that derivatives may result in losses or missed opportunities; the risk that the fund will be unable to sell the derivative because of an illiquid secondary market; the risk that a counterparty is unwilling or unable to meet its obligation, which risk may be heightened in derivative transactions entered into “over-the-counter” (i.e., not on an exchange or contract market); and the risk that the derivative transaction could expose the fund to the effects of leverage, which could increase the fund's exposure to the market and magnify potential losses.
There is no guarantee that derivatives, to the extent employed, will have the intended effect, and their use could cause lower returns or even losses to the fund. The use of derivatives by the fund to hedge risk may reduce the opportunity for gain by offsetting the positive effect of favorable price movements.
ETF risk. Because ETFs trade on a securities exchange, their shares may trade at a premium or discount to their net asset value. An ETF is subject to the risks of the assets in which it invests as well as those of the investment strategy it follows. The fund may incur brokerage costs when it buys and sells shares of an ETF and also bears its proportionate share of the ETF’s fees and expenses, which are passed through to ETF shareholders.
Fees and expenses incurred by an ETF may include trading costs, operating expenses, licensing fees, trustee fees and marketing expenses. With an index ETF, these costs may contribute to the ETF not fully matching the performance of the index it is designed to track.
Operational and technology risk. Cyber-attacks, disruptions or failures that affect the fund’s service providers or counterparties, issuers of securities held by the fund, or other market participants may adversely affect the fund and its shareholders, including by causing losses for the fund or impairing fund operations. For example, the fund’s or its service providers’ assets or sensitive or confidential information may be misappropriated, data may be corrupted and operations may be disrupted (e.g., cyber-attacks, operational failures or broader disruptions may cause the release of private shareholder information or
Prospectus August 1, 2024
12
Fund Details
confidential fund information, interfere with the processing of shareholder transactions, impact the ability to calculate the fund’s net asset value and impede trading). Market events and disruptions also may trigger a volume of transactions that overloads current information technology and communication systems and processes, impacting the ability to conduct the fund’s operations.
While the fund and its service providers may establish business continuity and other plans and processes that seek to address the possibility of and fallout from cyber-attacks, disruptions or failures, there are inherent limitations in such plans and systems, including that they do not apply to third parties, such as fund counterparties, issuers of securities held by the fund or other market participants, as well as the possibility that certain risks have not been identified or that unknown threats may emerge in the future and there is no assurance that such plans and processes will be effective. Among other situations, disruptions (for example, pandemics or health crises) that cause prolonged periods of remote work or significant employee absences at the fund’s service providers could impact the ability to conduct the fund’s operations. In addition, the fund cannot directly control any cybersecurity plans and systems put in place by its service providers, fund counterparties, issuers of securities held by the fund or other market participants.
Cyber-attacks may include unauthorized attempts by third parties to improperly access, modify, disrupt the operations of, or prevent access to the systems of the fund’s service providers or counterparties, issuers of securities held by the fund or other market participants or data within them. In addition, power or communications outages, acts of god, information technology equipment malfunctions, operational errors, and inaccuracies within software or data processing systems may also disrupt business operations or impact critical data.
Cyber-attacks, disruptions, or failures may adversely affect the fund and its shareholders or cause reputational damage and subject the fund to regulatory fines, litigation costs, penalties or financial losses, reimbursement or other compensation costs, and/or additional compliance costs. In addition, cyber-attacks, disruptions, or failures involving a fund counterparty could affect such counterparty’s ability to meet its obligations to the fund, which may result in losses to the fund and its shareholders. Similar types of operational and technology risks are also present for issuers of securities held by the fund, which could have material adverse consequences for such issuers, and may cause the fund’s investments to lose value. Furthermore, as a result of cyber-attacks, disruptions, or failures, an exchange or market may close or issue trading halts on specific securities or the entire market, which may result in the fund being, among other things, unable to buy or sell certain securities or financial instruments or unable to accurately price its investments.
For example, the fund relies on various sources to calculate its NAV. Therefore, the fund is subject to certain operational risks associated with reliance on third party service providers and data sources. NAV calculation may be impacted by operational risks arising from factors such as failures in systems and technology. Such failures may result in delays in the calculation of the fund’s NAV and/or the inability to calculate NAV over extended time periods. The fund may be unable to recover any losses associated with such failures.
While the previous pages describe the main points of the fund’s strategy and risks, there are a few other matters to know about:
■
Although major changes tend to be infrequent, the fund’s Board could change the fund's investment objective without seeking shareholder approval. However, the fund's policy of investing at least 80% of net assets, plus the amount of any borrowings for investment purposes, in Massachusetts municipal securities whose income is exempt from federal and Massachusetts personal income taxes cannot be changed without shareholder approval.
■
When, in the Advisor's opinion, (1) it is advisable to adopt a temporary defensive position because of unusual and adverse or other market conditions or (2) an unusual disparity between after-tax income on taxable and municipal securities makes it advisable, up to 100% of the fund's assets may be held in cash or invested in taxable money market securities or other short-term investments, which may produce taxable income. Short-term investments consist of (1) foreign and domestic obligations of sovereign governments and their agencies and instrumentalities, authorities and political subdivisions; (2) other short-term high quality rated debt securities or, if unrated, determined to be of comparable quality in the opinion of the Advisor; (3) commercial paper; (4) bank obligations, including negotiable certificates of deposit, time deposits and bankers' acceptances; and (5) repurchase agreements. Short-term investments may also include shares of money market mutual funds. To the extent the fund invests in such instruments, the fund will not be pursuing its investment objective. However, portfolio management may choose to not use these strategies for various reasons, even in volatile market conditions.
■
Portfolio management measures credit quality at the time it buys securities, using independent rating agencies or, for unrated securities, its own judgment. All securities must meet the credit quality standards applied by portfolio management at the time they are purchased. If a security’s credit quality changes, portfolio management will decide what to do with the security, based on its assessment of what would most benefit the fund.
Prospectus August 1, 2024
13
Fund Details
■
From time to time, the fund may have a concentration of shareholder accounts holding a significant percentage of shares outstanding. Investment activities of these shareholders could have a material impact on the fund.
■
Your fund assets may be at risk of being transferred to the appropriate state if you fail to maintain a valid address and/or if certain activity does not occur in your account within the time specified by state abandoned property law. Contact your financial representative or the transfer agent for additional information.
■
Shareholders of the fund (which may include affiliated and/or non-affiliated registered investment companies that invest in the fund) may make relatively large redemptions or purchases of fund shares. These transactions may cause the fund to have to sell securities or invest additional cash, as the case may be. While it is impossible to predict the overall impact of these transactions over time, there could be adverse effects on the fund’s performance to the extent that the fund may be required to sell securities or invest cash at times when it would not otherwise do so. These transactions could adversely impact the fund’s liquidity, accelerate the recognition of taxable income if sales of securities resulted in capital gains or other income and increase transaction costs, which may adversely affect the fund’s performance. These transactions could also adversely impact the fund’s ability to implement its investment strategies and pursue its investment objective, and, as a result, a larger portion of the fund’s assets may be held in cash or cash equivalents. In addition, large redemptions could significantly reduce the fund’s assets, which may result in an increase in the fund’s expense ratio on account of expenses being spread over a smaller asset base and/or the loss of fee breakpoints.
This prospectus doesn’t tell you about every policy or risk of investing in the fund. If you want more information on the fund’s allowable securities and investment practices and the characteristics and risks of each one, you may want to request a copy of the Statement of Additional Information (the back cover tells you how to do this).
Keep in mind that there is no assurance that the fund will achieve its investment objective.
A complete list of the fund’s portfolio holdings as of the month-end is posted on dws.com on or after the last day of the following month. More frequent posting of portfolio holdings information may be made from time to time on dws.com. The posted portfolio holdings information is available by fund and generally remains accessible at least until the date on which the fund files its Form N-CSR or publicly available Form N-PORT with the SEC for the period that includes the date as of which the posted information is current. The fund’s Statement of Additional Information includes a description of the fund’s policies and procedures with respect to the disclosure of the fund’s portfolio holdings.
Who Manages and Oversees the Fund
DWS Investment Management Americas, Inc. (“DIMA” or the “Advisor”), with headquarters at 875 Third Avenue, New York, NY 10022, is the investment advisor for the fund. Under the oversight of the Board, the Advisor makes investment decisions, buys and sells securities for the fund and conducts research that leads to these purchase and sale decisions. The Advisor is an indirect, wholly-owned subsidiary of DWS Group GmbH & Co. KGaA (“DWS Group”), a separate, publicly-listed financial services firm that is an indirect, majority-owned subsidiary of Deutsche Bank AG. The Advisor and its predecessors have more than 95 years of experience managing mutual funds and provide a full range of global investment advisory services to institutional and retail clients.
DWS represents the asset management activities conducted by DWS Group or any of its subsidiaries, including DIMA, other affiliated investment advisors and DWS Distributors, Inc. (“DDI” or the “Distributor”). DWS is a global organization that offers a wide range of investing expertise and resources, including hundreds of portfolio managers and analysts and an office network that reaches the world’s major investment centers. This well-resourced global investment platform brings together a wide variety of experience and investment insight across industries, regions, asset classes and investing styles.
The Advisor may utilize the resources of its global investment platform to provide investment management services through branch offices or affiliates located outside the US. In some cases, the Advisor may also utilize its branch offices or affiliates located in the US or outside the US to perform certain services, such as trade execution, trade matching and settlement, or various administrative, back-office or other services. To the extent services are performed outside the US, such activity may be subject to both US and foreign regulation. It is possible that the jurisdiction in which the Advisor or its affiliate performs such services may impose restrictions or limitations on portfolio transactions that are different from, and in addition to, those that apply in the US.
Management Fee. The Advisor receives a management fee from the fund. Below is the actual rate paid by the fund for the most recent fiscal year, as a percentage of the fund’s average daily net assets.
|
|
DWS Massachusetts Tax-Free
Fund |
|
The following waivers are currently in effect:
The Advisor has contractually agreed through July 31, 2025 to waive its fees and/or reimburse fund expenses to the extent necessary to maintain the fund’s total annual operating expenses (excluding certain expenses such as extraordinary expenses, taxes, brokerage, interest
Prospectus August 1, 2024
14
Fund Details
expense and acquired fund fees and expenses) at ratios no higher than 0.85%, 1.60%, 0.60% and 0.60% for Class A, Class C, Institutional Class and Class S, respectively. The agreement may only be terminated with the consent of the fund’s Board.
A discussion regarding the basis for the Board's approval of the fund’s investment management agreement is contained in the most recent shareholder report for the annual period ended March 31 and the semi-annual period ended September 30 (see “Shareholder reports” on the back cover).
Under a separate administrative services agreement between the fund and the Advisor, the fund pays the Advisor a fee of 0.097% of the fund’s average daily net assets for providing most of the fund's administrative services. The administrative services fee discussed above is included in the fees and expenses table under “Other expenses.”
Multi-Manager Structure. The Advisor, subject to the approval of the Board, has ultimate responsibility to oversee any subadvisor to the fund and to recommend the hiring, termination and replacement of subadvisors. The fund and the Advisor have received an order from the SEC that permits the Advisor to appoint or replace certain subadvisors, to manage all or a portion of the fund’s assets and enter into, amend or terminate a subadvisory agreement with certain subadvisors, in each case subject to the approval of the fund’s Board but without obtaining shareholder approval (“multi-manager structure”). The multi-manager structure applies to subadvisors that are not affiliated with the fund or the Advisor (“nonaffiliated subadvisors”), as well as subadvisors that are indirect or direct, wholly-owned subsidiaries of the Advisor or that are indirect or direct, wholly-owned subsidiaries of the same company that, indirectly or directly, wholly owns the Advisor (“wholly-owned subadvisors”). Pursuant to the SEC order, the Advisor, with the approval of the fund’s Board, has the discretion to terminate any subadvisor and allocate and reallocate the fund’s assets among any other nonaffiliated subadvisors or wholly-owned subadvisors (including terminating a nonaffiliated subadvisor and replacing it with a wholly-owned subadvisor). The fund and the Advisor are subject to the conditions imposed by the SEC order, including the condition that within 90 days of hiring a new subadvisor pursuant to the multi-manager structure, the fund will provide shareholders with an information statement containing information about the new subadvisor. The shareholders of the fund have approved the multi-manager structure described herein.
The following Portfolio Managers are jointly and primarily responsible for the day-to-day management of the fund.
Michael J. Generazo, Senior Portfolio Manager Fixed Income. Portfolio Manager of the fund. Began managing the fund in 2018.
■
BS, Bryant College; MBA, Suffolk University.
Matthew J. Caggiano, CFA, Head of Investment Strategy Fixed Income. Portfolio Manager of the fund. Began managing the fund in 2021.
■
Co-Head of Municipal Bond Department.
■
BS, Pennsylvania State University; MS, Boston College.
The fund’s Statement of Additional Information provides additional information about a portfolio manager’s investments in the fund, a description of the portfolio management compensation structure and information regarding other accounts managed.
Prospectus August 1, 2024
15
Fund Details
This prospectus offers the share classes noted on the front cover. All classes of the fund have the same investment objective and investments, but each class has its own fees and expenses, offering you a choice of cost structures:
■
Class A shares and Class C shares are intended for investors seeking the advice and assistance of a financial representative, who will typically receive compensation for those services.
■
Institutional Class shares are only available to particular investors or through certain programs, as described below.
■
Class S shares are available through certain intermediary relationships with financial services firms, or can be purchased by establishing an account directly with the fund’s transfer agent.
Your financial representative may also charge you additional fees, commissions or other charges.
The following pages tell you how to invest in the fund and what to expect as a shareholder. The following pages also tell you about many of the services, choices and benefits of being a shareholder. You’ll also find information on how to check the status of your account.
If you’re investing directly with the fund’s transfer agent, all of this information applies to you. If you’re investing through a “third party provider” — for example, a workplace retirement plan, financial supermarket or financial representative — your provider may have its own policies or instructions and you should follow those. Refer to Appendix B “Sales Charge Waivers and Discounts Available Through Intermediaries” for information about available sales charge waivers and discounts through certain intermediaries.
You can find out more about the topics covered here by speaking with your financial representative or a representative of your workplace retirement plan or other investment provider. For an analysis of the fees associated with an investment in the fund or similar funds, please refer to tools.finra.org/fund_analyzer/ (this Web site does not form a part of this prospectus).
The fund, the Distributor and the transfer agent do not provide investment advice or recommendations to existing or potential shareholders with respect to investing in the fund, including which class may be appropriate for you.
Choosing a Share Class
Before you invest, take a moment to look over the characteristics of each share class, so that you can be sure to choose the class that’s right for you.
We describe each share class in detail on the following pages. But first, you may want to look at the following table, which gives you a brief description and comparison of the main features of each class. You should consult with your financial representative to determine which class of shares is appropriate for you.
Prospectus August 1, 2024 | 16 | Investing in the Fund |
|
Points to help you compare |
|
|
■Sales charge of up to 2.75%
charged when you buy shares
■In most cases, no charge when
you sell shares
■Up to 0.25% annual share-
holder servicing fee |
■Some investors may be able to
reduce or eliminate their sales
charge; see “Class A Shares”
and Appendix B
■Total annual expenses are
lower than those for Class C
■Distributions are generally
higher than Class C |
|
|
■No sales charge when you buy
shares
■Deferred sales charge of
1.00%, charged when you sell
shares you bought within the
last year
■0.75% annual distribution fee
and up to 0.25% annual share-
holder servicing fee |
■Unlike Class A, Class C does
not have a sales charge when
buying shares, but has higher
annual expenses and a one
year deferred sales charge
■Distributions are generally
lower than Class A
■Maximum investment applies
■Class C automatically converts
to Class A after 8 years,
provided that records held by
the fund or your financial inter-
mediary verify Class C shares
have been held for at least
8 years |
|
|
■No sales charge when you buy
shares and no deferred sales
charge when you sell shares |
■Only available to certain institu-
tional investors; typically
$1,000,000 minimum initial
investment
■Distributions are generally
higher than Class A and
Class C, and may be higher
than Class S, depending on
relative expenses |
|
|
■No sales charge when you buy
shares and no deferred sales
charge when you sell shares |
■Total annual expenses are
lower than those for Class A
and Class C
■Distributions are generally
higher than Class A and
Class C, and may be higher
than Institutional Class,
depending on relative expenses |
The sales charge on purchases of Class A shares and the contingent deferred sales charge (CDSC) on redemptions of Class A and Class C shares are paid to the fund’s distributor, DDI, who may distribute all or a portion of the sales charge to your financial representative. In certain instances described below, a sales charge may be waived by DDI or your financial representative. If your financial representative agrees to waive any sales charge due to it from DDI, DDI will not collect the sales charge on your investment or redemption.
The availability of certain sales charge waivers and discounts may depend on whether you purchase your shares directly from the fund or through a financial intermediary. Intermediaries may have different policies and procedures regarding the availability of front-end sales charge waivers or CDSC waivers (see Appendix B). For waivers and discounts not available through a particular intermediary, you will have to purchase fund shares directly from the fund or through another intermediary. In all instances, it is your responsibility to notify the fund or
your financial intermediary at the time of purchase of any relationship or other facts qualifying you for sales charge waivers or discounts.
Class A shares may make sense for long-term investors, especially those who are eligible for a reduced or eliminated sales charge.
Class A shares have a 12b-1 plan, under which a shareholder servicing fee of up to 0.25% is deducted from class assets each year. Because the shareholder servicing fee is continuous in nature, it may, over time, increase the cost of your investment and may cost you more than paying other types of sales charges.
Class A shares have an up-front sales charge that varies with the amount you invest:
|
Front-end sales
charge as a %
|
Front-end sales
charge as a % of your
|
|
|
|
|
|
|
|
|
|
1
The “offering price”, the price you pay to buy shares, includes the sales charge which will be deducted directly from your investment.
2
Because of rounding in the calculation of the offering price, the actual front-end sales charge paid by an investor may be higher or lower than the percentages noted.
3
Refer to “Class A NAV Sales” below for additional details.
You may be able to lower your Class A sales charge if:
■
you indicate your intent in writing to invest at least $100,000 in any share class of any retail DWS fund (excluding direct purchase of DWS money market funds) over the next 24 months (Letter of Intent);
■
your holdings in all share classes of any retail DWS fund (excluding shares in DWS money market funds for which a sales charge has not previously been paid and computed at the maximum offering price at the time of the purchase for which the discount is applicable for Class A shares) you already own plus the amount you’re investing now in Class A shares is at least $100,000 (Cumulative Discount); or
■
you are investing a total of $100,000 or more in any share class of two or more retail DWS funds (excluding direct purchases of DWS money market funds) on the same day (Combined Purchases).
The point of these three features is to let you count investments made at other times or in certain other funds for purposes of calculating your present sales charge. Any time you can use the privileges to “move” your investment into a lower sales charge category, it’s generally beneficial for you to do so.
For purposes of determining whether you are eligible for a reduced Class A sales charge, you and your immediate family (i.e., your spouse or life partner and your children or
Prospectus August 1, 2024
17
Investing in the Fund
stepchildren age 21 or younger) may aggregate your investments in the DWS funds. This includes, for example, investments held in a retirement account, an employee benefit plan or with a financial representative other than the one handling your current purchase. These combined investments will be valued at their current offering price to determine whether your current investment qualifies for a reduced sales charge.
To receive a reduction in your Class A initial sales charge, you must let your financial representative or Shareholder Services know at the time you purchase shares that you qualify for such a reduction. You may be asked by your financial representative or Shareholder Services to provide account statements or other information regarding related accounts of you or your immediate family in order to verify your eligibility for a reduced sales charge.
Information about sales charge discounts is available free of charge. Please visit dws.com, refer to the section entitled “Purchase and Redemption of Shares” in the fund’s Statement of Additional Information or consult with your financial representative. Certain intermediaries may provide different sales charge discounts which are described under “Sales Charge Waivers and Discounts Available Through Intermediaries” in Appendix B to this prospectus.
In certain circumstances listed below, you may be able to buy Class A shares without a sales charge.In addition, certain intermediaries may provide different sales charge waivers. These waivers and the applicable intermediaries are described under “Sales Charge Waivers and Discounts Available Through Intermediaries” in Appendix B to this prospectus.Your financial representative or Shareholder Services can answer questions and help you determine if you are eligible for any of the sales charge waivers.
Class A NAV Sales. Class A shares may be sold at net asset value without a sales charge to:
(1)
investors investing $250,000 or more, either as a lump sum or through the sales charge reduction features referred to above (collectively, the Large Order NAV Purchase Privilege). The Large Order NAV Purchase Privilege is not available if another net asset value purchase privilege is available. Purchases pursuant to the Large Order NAV Purchase Privilege may be subject to a CDSC of 1.00% if redeemed within 12 months of the original purchase date. The CDSC is waived under certain circumstances (see below);
(2)
a current or former director or trustee of DWS mutual funds;
(3)
an employee (including the employee’s spouse or life partner and children or stepchildren age 21 or younger) of Deutsche Bank AG or its affiliates or of a
subadvisor to any fund in the DWS funds or of a broker-dealer authorized to sell shares of a fund or service agents of a fund;
(4)
certain professionals who assist in the promotion of DWS funds pursuant to personal services contracts with DDI, for themselves or immediate members of their families;
(5)
any trust, pension, profit-sharing or other benefit plan for only such persons listed under the preceding paragraphs (2) and (3);
(6)
persons who purchase such shares through bank trust departments that process such trades through an automated, integrated mutual fund clearing program provided by a third party clearing firm;
(7)
selected employees (including their spouses or life partners and children or stepchildren age 21 or younger) of banks and other financial services firms that provide administrative services related to order placement and payment to facilitate transactions in shares of a DWS fund for their clients pursuant to an agreement with DDI or one of its affiliates. Only those employees of such banks and other firms who as part of their usual duties provide services related to transactions in fund shares qualify;
(8)
unit investment trusts sponsored by Ranson & Associates, Inc. and unitholders of unit investment trusts sponsored by Ranson & Associates, Inc. or its predecessors through reinvestment programs described in the prospectuses of such trusts that have such programs;
(9)
persons who purchase such shares through certain investment advisors registered under the Investment Advisers Act of 1940 and other financial services firms acting solely as agent for their clients, that adhere to certain standards established by DDI, including a requirement that such shares be sold for the benefit of their clients participating in an investment advisory program or agency commission program under which such clients pay a fee to the investment advisor or other firm for portfolio management or agency brokerage services. Such shares are sold for investment purposes and on the condition that they will not be resold except through redemption or repurchase by a fund;
(10)
financial service firms that have entered into an agreement with DDI to offer Class A shares through a no-load network, platform or self-directed brokerage account that may or may not charge transaction fees to their clients. Refer to the section entitled “Sales Charge Waivers and Discounts Available Through Intermediaries” in Appendix B to this prospectus for information about available sales charge waivers through certain intermediaries;
Prospectus August 1, 2024
18
Investing in the Fund
(11)
DWS/Ascensus 403(b) Plans established prior to October 1, 2003, provided that the DWS/Ascensus 403(b) Plan is a participant-directed plan that has not less than 200 eligible employees;
(12)
Employer-sponsored retirement plans that are maintained by a fund at an omnibus level or are part of retirement plans or platforms offered by banks, broker-dealers, financial representatives or insurance companies or serviced by retirement recordkeepers (each, an “Employer-Sponsored Retirement Plan”). For purposes of this sales charge waiver, the term “Employer-Sponsored Retirement Plan” includes 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans, defined benefit plans, and non-qualified deferred compensation plans, but does not include SEP IRAs, SIMPLE IRAs, or Salary Reduction Simplified Employee Pension Plans (SARSEPs) (each, an “Employer-Sponsored IRA”);
In addition, Class A shares may be sold at net asset value without a sales charge in connection with:
(13)
the acquisition of assets or merger or consolidation with another investment company, and under other circumstances deemed appropriate by DDI and consistent with regulatory requirements;
(14)
a direct “roll over” of a distribution from a DWS/Ascensus 403(b) Plan or from participants in employer sponsored employee benefit plans maintained on the OmniPlus subaccount recordkeeping system made available through ADP, Inc. under an alliance between ADP, Inc. and DDI and its affiliates into a DWS IRA;
(15)
reinvestment of fund dividends and distributions;
(16)
exchanging an investment in Class A shares of another fund in the DWS funds for an investment in the fund; and
(17)
exchanging an investment in Class C, Class S or Institutional Class shares of the fund for an investment in Class A shares of the same fund pursuant to one of the exchange privileges described in the prospectus.
Class A shares also may be purchased at net asset value without a sales charge in any amount by members of the plaintiff class in the proceeding known as Howard and Audrey Tabankin, et al. v. Kemper Short-Term Global Income Fund, et al., Case No. 93 C 5231 (N.D. IL). This privilege is generally non-transferable and continues for the lifetime of individual class members and has expired for non-individual class members. To make a purchase at net asset value under this privilege, the investor must, at the time of purchase, submit a written request that the purchase be processed at net asset value pursuant to this privilege specifically identifying the purchaser as a member of the “Tabankin Class.” Shares purchased under this privilege will be maintained in a separate account that
includes only shares purchased under this privilege. For more details concerning this privilege, class members should refer to the Notice of (i) Proposed Settlement with Defendants; and (ii) Hearing to Determine Fairness of Proposed Settlement, dated August 31, 1995, issued in connection with the aforementioned court proceeding. For sales of fund shares at net asset value pursuant to this privilege, DDI may in its discretion pay dealers and other financial services firms a concession, payable quarterly, at an annual rate of up to 0.25% of net assets attributable to such shares maintained and serviced by the firm. A firm becomes eligible for the concession based upon assets in accounts attributable to shares purchased under this privilege in the month after the month of purchase and the concession continues until terminated by DDI. The privilege of purchasing Class A shares of a fund at net asset value under this privilege is not available if another net asset value purchase privilege also applies.
The Class A CDSC for shares purchased through the Large Order NAV Purchase Privilege will be waived in the event of:
(1)
redemptions by a participant-directed qualified retirement plan described in Internal Revenue Code of 1986, as amended (Internal Revenue Code) Section 401(a), a participant-directed non-qualified deferred compensation plan described in Internal Revenue Code Section 457 or a participant-directed qualified retirement plan described in Internal Revenue Code Section 403(b)(7) which is not sponsored by a K-12 school district;
(2)
redemptions by (i) employer-sponsored employee benefit plans using the subaccount recordkeeping system made available through ADP, Inc. under an alliance between ADP, Inc. and DDI and its affiliates; or (ii) DWS/Ascensus 403(b) Plans;
(3)
redemption of shares of a shareholder (including a registered joint owner) who has died;
(4)
redemption of shares of a shareholder (including a registered joint owner) who after purchase of the shares being redeemed becomes totally disabled (as evidenced by a determination by the federal Social Security Administration);
(5)
redemptions under a fund’s Systematic Withdrawal Plan at a maximum of 12% per year of the net asset value of the account; and
(6)
redemptions for certain loan advances, hardship provisions or returns of excess contributions from retirement plans.
In addition, certain intermediaries may provide different CDSC waivers. These waivers and the applicable intermediaries are described under “Sales Charge Waivers and Discounts Available Through Intermediaries” in Appendix B to this prospectus.
Prospectus August 1, 2024
19
Investing in the Fund
Class C Shares
Class C shares may appeal to investors who aren’t certain of their investment time horizon.
With Class C shares, you pay no up-front sales charge to the fund. Class C shares have a 12b-1 plan, under which a distribution fee of 0.75% and a shareholder servicing fee of up to 0.25% are deducted from class assets each year. Because of the distribution fee, the annual expenses for Class C shares are higher than those for Class A shares (and the performance of Class C shares is correspondingly lower than that of Class A shares).
Class C shares have a CDSC, but only on shares you sell within one year of buying them:
Year after you bought shares |
|
|
|
|
|
This CDSC is waived under certain circumstances described below.
(1)
redemptions by (i) employer-sponsored employee benefit plans using the subaccount recordkeeping system made available through ADP, Inc. under an alliance between ADP, Inc. and DDI and its affiliates; or (ii) DWS/Ascensus 403(b) Plans;
(2)
redemption of shares of a shareholder (including a registered joint owner) who has died;
(3)
redemption of shares of a shareholder (including a registered joint owner) who after purchase of the shares being redeemed becomes totally disabled (as evidenced by a determination by the federal Social Security Administration);
(4)
redemptions under a fund’s Systematic Withdrawal Plan at a maximum of 12% per year of the net asset value of the account;
(5)
redemption of shares by an employer-sponsored employee benefit plan that offers funds in addition to DWS funds and whose dealer of record has waived the advance of the first year administrative service and distribution fees applicable to such shares and agrees to receive such fees quarterly;
(6)
redemption of shares purchased through a dealer-sponsored asset allocation program maintained on an omnibus recordkeeping system provided the dealer of record had waived the advance of the first year administrative services and distribution fees applicable to such shares and has agreed to receive such fees quarterly;
(7)
redemptions made pursuant to any IRA systematic withdrawal based on the shareholder’s life expectancy including, but not limited to, substantially equal periodic payments described in Internal Revenue Code Section 72(t)(2)(A)(iv) prior to age 59 1/2; and
(8)
redemptions to satisfy required minimum distributions from an IRA account (with the maximum amount subject to this waiver being based only upon the shareholder’s DWS IRA accounts).
Your financial representative or Shareholder Services can answer your questions and help you determine if you’re eligible for a CDSC waiver. In addition, certain intermediaries may provide different CDSC waivers. These waivers and the applicable intermediaries are described under “Sales Charge Waivers and Discounts Available Through Intermediaries” in Appendix B to this prospectus.
While Class C shares do not have an up-front sales charge, their higher annual expenses because of the ongoing 12b-1 fees paid out of fund assets mean that, over the years, you could end up paying more than the equivalent of the maximum allowable up-front sales charge.
Orders to purchase Class C shares in excess of $250,000 will be declined with the exception of orders received from financial representatives acting for clients whose shares are held in an omnibus account and certain employer-sponsored employee benefit plans.
Class C shares automatically convert to Class A shares in the same fund after 8 years, provided that the fund or the financial intermediary through which the shareholder purchased the Class C shares has records verifying that the Class C shares have been held for at least 8 years. Due to operational limitations at your financial intermediary, your ability to have your Class C shares automatically converted to Class A shares may be limited. (For example, automatic conversion of Class C shares to Class A shares will not apply to fund shares held through group retirement plan recordkeeping platforms of certain broker-dealer intermediaries who hold such shares in an omnibus account and do not track participant level share lot aging. Such Class C shares would not satisfy the conditions for the automatic conversion.) Please consult your financial representative for more information. The automatic conversion of Class C shares to Class A shares would occur on the basis of the relative net asset values of the two classes without the imposition of any sales charges or other charges. Shareholders generally will not recognize a gain or loss for federal income tax purposes upon the conversion of Class C shares to Class A shares in the same fund.
Institutional Class Shares
Institutional Class shares have no initial sales charge, deferred sales charge or 12b-1 fees.
You may buy Institutional Class shares through your securities dealer or through any financial institution that is authorized to act as a shareholder servicing agent (“financial representative”). Contact them for details on how to place and pay for your order.
Eligibility Requirements. You may buy Institutional Class shares if you are any of the following (subject to the applicable investment minimum):
Prospectus August 1, 2024
20
Investing in the Fund
■
An eligible institution (e.g., a financial institution, corporation, trust, estate or educational, religious or charitable institution).
■
An employee benefit plan.
■
A plan administered as a college savings plan under Section 529 of the Internal Revenue Code.
■
A registered investment advisor or financial planner purchasing on behalf of clients and charging an asset-based or hourly fee.
■
A client of the private banking division of Deutsche Bank AG.
■
A current or former director or trustee of the DWS mutual funds.
■
An employee, the employee’s spouse or life partner and children or stepchildren age 21 or younger of Deutsche Bank AG or its affiliates or a subadvisor to any fund in the DWS funds or a broker-dealer authorized to sell shares in the fund.
The minimum initial investment is waived for:
■
Investment advisory affiliates of Deutsche Bank Securities, Inc. or DWS funds purchasing shares for the accounts of their investment advisory clients.
■
Employee benefit plans that transact through omnibus recordkeepers or that have assets of at least $50 million.
■
Clients of the private banking division of Deutsche Bank AG.
■
Institutional clients and qualified purchasers that are clients of a division of Deutsche Bank AG.
■
A current or former director or trustee of the DWS funds.
■
An employee, the employee’s spouse or life partner and children or stepchildren age 21 or younger of Deutsche Bank AG or its affiliates or a subadvisor to any fund in the DWS funds or a broker-dealer authorized to sell shares of the fund.
■
Financial intermediaries approved by the Advisor that invest client assets in a fund through an omnibus account on a trading platform meeting criteria specified by the Advisor.
■
Clients of financial intermediaries that charge a fee for advisory, investment consulting or similar services.
■
Employee benefit plan platforms approved by the Advisor that invest in the fund through an omnibus account that meets or, in the Advisor’s judgment, will meet within a reasonable period of time, the $1,000,000 minimum investment.
■
Shareholders with existing accounts prior to August 13, 2004 who met the previous minimum investment eligibility requirement.
In addition, the Advisor may, in its sole discretion, waive the investment minimum in certain circumstances.
The fund reserves the right to modify the above eligibility requirements and investment minimum requirements at any time. In addition, the fund, in its discretion, may waive the minimum initial investment for a specific employee
benefit plan (or family of plans) whose aggregate investment in Institutional Class shares of the fund equals or exceeds the minimum initial investment amount but where an individual plan account or program may not on its own meet such minimum amount.
Class S shares have no initial sales charge, deferred sales charge or 12b-1 fees.
Class S shares are available through (i) fee-based programs of investment dealers that have special agreements with DDI, (ii) certain group retirement plans, and (iii) certain registered investment advisors, or (iv) by establishing an account directly with the fund’s transfer agent.
Investors who purchase shares through a financial intermediary may be charged ongoing fees for services they provide. This includes investors who purchase Class S shares in connection with certain programs or plans, such as:
■
Broker-dealers, banks and registered investment advisors (“RIAs”) in connection with a comprehensive or “wrap” fee program or other fee-based program.
■
Any group retirement, employee stock, bonus, pension or profit-sharing plans.
■
Plans administered as college savings plans under Section 529 of the Internal Revenue Code.
■
Persons who purchase shares through a Health Savings Account or a Voluntary Employees’ Benefit Association (“VEBA”) Trust.
Class S shares may also be available on brokerage platforms of firms that have agreements with DDI to offer such shares when acting solely on an agency basis for its customers for the purchase or sale of such shares. If you transact in Class S shares through one of these programs, you may be required to pay a commission and/or other forms of compensation to your broker. Shares of the fund are available in other share classes that have different fees and expenses.
Class S shares are also available to accounts managed by the Advisor, any advisory products offered by the Advisor or DDI and to funds-of-funds managed by the Advisor or its affiliates.
The minimum initial investment may be waived for:
■
Eligible intermediaries that have agreements with DDI to offer Class S shares in their brokerage platforms when such Class S shares are held in omnibus accounts on such brokerage platforms.
Prospectus August 1, 2024
21
Investing in the Fund
Buying, Exchanging and Selling Class A, Class C, Institutional Class and Class S Shares
|
|
|
|
|
DWS
430 West 7th Street
Suite 219151
Kansas City, MO 64105-1407 |
|
|
|
DWS
P.O. Box 219151
Kansas City, MO 64121-9151 |
Please note that your account cannot be opened until we receive a completed account application. Eligibility to open new accounts and to process transactions on the Internet or using the mobile app varies by account type and share class.
Minimum Initial Investment ($)
|
|
|
|
Automatic
Investment
Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For participants in all group retirement plans, and in certain fee-based and wrap programs approved by the Advisor, there is no minimum initial investment and no minimum additional investment for Class A, C and S shares. For Section 529 college savings plans, there is no minimum initial investment and no minimum additional investment for Class S shares. The minimum initial investment for Class S shares may be waived for eligible intermediaries that have agreements with DDI to offer Class S shares in their brokerage platforms when such Class S shares are held in omnibus accounts on such brokerage platforms. In certain instances, the minimum initial investment may be waived for Institutional Class shares. For more information regarding available Institutional Class investment minimum waivers, see “Institutional Class Shares – Investment Minimum” in the “Choosing a Share Class” section of the prospectus. There is no minimum additional investment for Institutional Class shares. The minimum additional investment in all other instances is $50.
Minimum initial investment requirements apply no matter which method you use to make your purchase request.
Through a Financial Representative
Contact your financial representative to obtain a new account application or for instructions about how to set up a new account. Your financial representative can also assist with making additional investments into an existing account.
Register at dws.com to establish a new account (Class S shares only) or to set up online access to your existing account(s), or log in to the Web site if you have previously registered. Follow the instructions on the Web site to request a purchase with money from the bank account you established on your DWS fund account(s). Electronic purchases via the Automated Clearing House system (ACH) generally take two to three days to be completed and there is a $250,000 maximum. If establishing a new account online, you can also elect to make your initial investment by mailing a check to the address provided in the new account application process.
Download the mobile app (available for both iOS and Android) and register to establish a new account (Class S shares only) or to set up mobile access to your existing account(s), or log in using the mobile app if you have previously registered. Follow the instructions on the mobile app to request a purchase with money from the bank account you established on your DWS fund account(s). Electronic purchases via ACH generally take two to three days to be completed and there is a $250,000 maximum. If establishing a new account using the mobile app, you can also elect to make your initial investment by mailing a check to the address provided in the new account application process.
By Mail or Expedited Mail
To establish an account, simply complete the appropriate account application and mail it to the address provided on the form. With your application, include your check made payable to “DWS Funds” for the required initial minimum investment for the share class you have selected.
Once your account is established, to make additional investments, send a check made payable to “DWS Funds” and an investment slip to the appropriate address. If you do not have an investment slip, include a letter with your name, address, account number, the full fund name and share class, and your investment instructions. If your check fails to clear, the fund has the right to cancel your order, hold you liable or charge you or your account for any losses or fees the fund or its agents have incurred.
By Automatic Investment Plan (not available for Institutional Class)
If you wish to take advantage of the lower initial investment minimums by establishing an Automatic Investment Plan, make sure to complete that section on the new
Prospectus August 1, 2024
22
Investing in the Fund
account application. If you are establishing an account by mail you will need to attach a voided check for the bank account from which the funds will be drawn. Subsequent investments are made automatically from the shareholder’s account at a bank, savings and loan or credit union into the shareholder’s DWS fund account. The maximum Automatic Investment Plan investment is $250,000. Termination by a shareholder will become effective within thirty days after DWS has received the request. The fund may immediately terminate a shareholder’s Automatic Investment Plan in the event that any item is unpaid by the shareholder’s financial institution.
Other Ways to Buy Additional Shares
The following privileges must be established on your account before a request can be made to purchase additional shares. This can either be done by completing the applicable section(s) on the account application when you establish your account or by contacting a customer service representative for instructions.
By Telephone. Call DWS and either use our automated system to request a purchase via the Automated Clearing House system (ACH) or choose to be transferred to a customer service representative to complete your request. Transactions via ACH generally take two to three days to be completed and there is a $50 minimum and a $250,000 maximum.
By Wire (available only for Institutional Class). You may buy additional shares by wire only if your account is authorized to do so. Please note that you or your financial representative must call us in advance of a wire transfer purchase. After you inform us of the amount of your purchase, you will receive a trade confirmation number. Instruct your bank to send payment by wire using the wire instructions noted below. All wires must be received the next business day after your order is processed. If your wire is not received the next business day, your transaction will be canceled at your expense and risk.
|
|
|
|
|
|
|
|
|
(Account name) (Account number) |
|
(Fund name, Fund number and, if
applicable, class name) |
Refer to your account statement for the account name and number. Wire transfers normally take two or more hours to complete. Wire transfers may be restricted on holidays and at certain other times.
|
Exchanging into Another Fund ($) |
|
1,000 minimum into new non-IRA accounts per
fund
500 minimum into new IRA accounts per fund
50 minimum into all existing accounts per fund |
|
1,000,000 minimum into new accounts per fund |
|
2,500 minimum into new non-IRA accounts per
fund
1,000 minimum into new IRA and UTMA/UGMA
accounts per fund
50 minimum into all existing accounts per fund |
Requirements and limits with respect to exchanges apply no matter which method you use to make your exchange request. Not all exchange transactions can be processed on the Internet or using the mobile app.
Exchanges between funds are allowed between like share classes. Class A shares may also be exchanged with the following money market fund shares as described in each applicable prospectus: DWS Government & Agency Securities Portfolio – DWS Government & Agency Money Fund shares, DWS Tax-Exempt Portfolio – DWS Tax-Exempt Money Fund shares or DWS Money Market Prime Series – DWS Money Market Fund shares.
Through a Financial Representative
In addition to what is detailed below, your financial representative can assist you with exchanging shares. Please contact your financial representative using the method that is most convenient for you.
Register at dws.com to set up online access to your existing account(s), or log in to the Web site if you have previously registered. Follow the instructions on the Web site to request an exchange to another DWS fund.
Download the mobile app and register to set up mobile access to your existing account(s), or log in using the mobile app if you have previously registered. Follow the instructions on the mobile app to request an exchange to another DWS fund.
Call DWS and either use our automated system to request an exchange or choose to be transferred to a customer service representative to complete your request. For accounts with $5,000 or more, you may also establish a Systematic Exchange Plan for a minimum of $50 to another DWS fund on a regular basis. A representative can assist you with establishing this privilege.
Prospectus August 1, 2024
23
Investing in the Fund
By Mail or Expedited Mail
Write a letter to request an exchange that includes the following information: the name(s) of all owners and address as they appear on your account, the full fund name and share class, the account number from which you want to exchange shares, the dollar amount or number of shares you wish to exchange, and the full name of the fund into which you want to exchange. Also include a daytime telephone number in case we have any questions. All owners should sign the letter and it should be mailed to DWS at the appropriate address.
|
|
|
Check redemption:Up to 100,000. More than
100,000 see “Signature Guarantee”
Automated Clearing House (ACH) to your bank:
Minimum 50, maximum 250,000
Wire redemption to your bank: Minimum 1,000 |
|
|
|
|
Requirements and limits with respect to redemptions apply no matter which method you use to make your redemption request. Not all redemption transactions can be processed on the Internet or using the mobile app.
Through a Financial Representative
In addition to what is detailed below, your financial representative can assist you with selling shares. Please contact your financial representative using the method that is most convenient for you.
Register at dws.com to set up online access to your existing account(s), or log in to the Web site if you have previously registered. Follow the instructions on the Web site to request a redemption from your account using the desired method from your available options.
Download the mobile app and register to set up mobile access to your existing account(s), or log in using the mobile app if you have previously registered. Follow the instructions on the mobile app to request a redemption from your account using the desired method from your available options.
Call DWS and either use our automated system to request a redemption or choose to be transferred to a customer service representative to complete your request. You may request that a check be sent to the address on the account, or, if you have established the privilege on your account, you may request that your redemption proceeds
be sent via the Automated Clearing House system (ACH) to your bank. You may elect overnight delivery of your check for a $20 fee ($25 for Saturday delivery), which will be paid by redeeming a portion of your shares equal to the amount of the fee. Overnight delivery is not available to a P.O. Box. To establish the ability to request redemptions via ACH, you can either complete the applicable section(s) on the account application when you establish your account or contact a customer service representative for instructions. Transactions via ACH generally take two to three days to be completed. For accounts with $5,000 or more, you may also establish a Systematic Withdrawal Plan for a minimum of $50 to be sent on a regular basis as you direct. The $5,000 account minimum requirement does not apply to IRA accounts.
By Mail or Expedited Mail
Write a letter to request a redemption that includes the following information: the name(s) of all owners and address as they appear on your account, the full fund name and share class, the account number from which you want to sell shares, the dollar amount or number of shares you wish to sell, and a daytime telephone number in case we have any questions. All owners should sign the letter and it should be mailed to DWS at the appropriate address. You may elect overnight delivery of your check for a $20 fee ($25 for Saturday delivery), which will be paid by redeeming a portion of your shares equal to the amount of the fee. Overnight delivery is not available to a P.O. Box.
Some redemptions can only be requested in writing with a Medallion Signature Guarantee. For more information, please contact DWS (see the telephone number on the back cover).
By Wire. You may sell shares by wire only if your account is authorized to do so. This privilege must be established on your account before a redemption request can be made. This can either be done by completing the applicable section(s) on the account application when you establish your account or by contacting a customer service representative for instructions. To sell shares by wire, call DWS and either use our automated system to request a redemption or choose to be transferred to a customer service representative to complete your request. We must receive your request by the time the fund calculates its share price on any given business day in order to wire the redemption proceeds to your account the next business day. You will be paid for redeemed shares by wire transfer of funds to your bank upon receipt of a duly authorized redemption request. For your protection, you may not change the destination bank account over the telephone.
Policies You Should Know About
Along with the information on the previous pages, the policies below may affect you as a shareholder. Some of this information, such as the section on distributions and taxes, applies to all investors, including those investing through a financial representative.
Prospectus August 1, 2024
24
Investing in the Fund
If you are investing through a financial representative or through a retirement plan, check the materials you received from them about how to buy and sell shares because particular financial representatives or other intermediaries may adopt policies, procedures or limitations that are separate from those described in this prospectus. Please note that a financial representative or other intermediary may charge fees separate from those charged by the fund and may be compensated by the fund.
Policies About Transactions
The fund is open for business each day the New York Stock Exchange is open. The fund calculates its share price for each class every business day, as of the close of regular trading on the New York Stock Exchange (typically 4:00 p.m. Eastern time, but sometimes earlier, as in the case of scheduled half-day trading, shortened trading hours due to emergency circumstances or unscheduled suspensions of trading). You can place an order to buy or sell shares at any time. All transactions are processed at the share price next calculated after the order or instruction is received in “good order.” (See “How the Fund Calculates Share Price.”)
An order to buy or sell shares received in good order prior to the close of regular trading on the New York Stock Exchange, on a day the fund is open for business, will generally be effected at the share price calculated that day. An order received in good order after such time will generally be effected at the share price calculated on the next business day. A temporary intraday suspension or disruption of regular trading on the New York Stock Exchange will not be treated as the close of regular trading for that day if trading resumes and therefore will not impact the time at which the fund calculates its share price on that day. In the event of an early close of regular trading on the New York Stock Exchange, such as in the case of scheduled half-day trading, shortened trading hours due to emergency circumstances or unscheduled suspensions of trading, the fund will calculate its share price as of the early close on that day. In such event, an order received in good order before the early close will generally be effected at the share price calculated that day and an order received in good order after the early close will generally be effected at the share price calculated on the next business day.
In accordance with requirements under anti-money laundering regulations, we may request additional information and/or documents to verify your identity. This information includes, but is not limited to, your name, address, date of birth and other identifying documentation. If after reasonable effort we are unable to obtain this information to verify your identity, in accordance with federal regulations, within the time frames established by the fund, we will provide you with written notification and we may reject your application and order.
Because orders placed through a financial representative must be forwarded to the transfer agent, you’ll need to allow extra time for your order to be processed. Your financial representative should be able to tell you approximately when your order will be processed. It is the responsibility of your financial representative to forward your order to the transfer agent in a timely manner.
In the exercise of its sole discretion, the fund at any time may, without prior notice, refuse, cancel, limit or rescind any purchase; cancel or rescind any purchase order placed through a financial intermediary no later than the business day after the order is received by the financial intermediary; freeze account activity; suspend account services; and/or involuntarily redeem and close an existing account. Specifically, the fund reserves the right to involuntarily redeem an account (i) in case of actual or suspected fraudulent, illegal or suspicious activity by the account owner or any other individual associated with the account; or (ii) if the account owner fails to provide legally required information, including information and/or documentation related to identity verification, to the fund. The fund is not required to provide justification to a potential or existing shareholder for taking any such action. Please be advised that if the fund involuntarily redeems and closes your account, under tax laws, you may be required to recognize a gain or a loss or otherwise incur tax consequences.
With certain limited exceptions, only US residents may invest in the fund.
Good order. We reserve the right to reject any order or instruction that is not in “good order.” Good order generally means that the order or instruction:
■
is complete and accurate (e.g., includes the account number, fund name, and amount of the transaction);
■
is provided by a person authorized to act for your account;
■
is accompanied by any required signatures, including signature guarantees or notarized signatures; and
■
is accompanied by any required supporting documentation.
Good order requirements are established by the fund or the transfer agent, depend on the type of account or transaction, and may be changed or waived at any time. Contact DWS if you have any questions.
Sub-Minimum Balances for Class A and C. The fund may close your account and send you the proceeds if your balance falls below $1,000 ($500 for accounts with an Automatic Investment Plan funded with $50 or more per month in subsequent investments), or below $250 for retirement accounts. We will give you 60 days’ notice (90 days for retirement accounts) so you can either increase your balance or close your account (these policies don’t apply to investors with $100,000 or more in DWS fund shares, investors in certain fee-based and wrap programs offered through certain financial intermediaries
Prospectus August 1, 2024
25
Investing in the Fund
approved by the Advisor, or group retirement plans and certain other accounts having lower minimum share balance requirements).
Sub-Minimum Balances for Institutional Class. The fund may redeem your shares and close your account on 60 days’ notice if it fails to meet the minimum account balance requirement of $1,000,000 for any reason.
Sub-Minimum Balances for Class S. The fund may close your account and send you the proceeds if your balance falls below $2,500 ($1,000 with an Automatic Investment Plan funded with $50 or more per month in subsequent investments); or below $250 for retirement accounts. We will give you 60 days’ notice (90 days for retirement accounts) so you can either increase your balance or close your account (these policies don’t apply to investors with $100,000 or more in DWS fund shares, investors in certain fee-based and wrap programs offered through certain financial intermediaries approved by the Advisor, or group retirement plans and certain other accounts having lower minimum share balance requirements).
Account Maintenance Fee for Classes A, C and S. The fund charges a $20 account maintenance fee for each fund account that has a balance below $10,000. Except as otherwise noted below, fund accounts are not aggregated by share class or fund. The assessment will occur once per calendar year and may be assessed through the automatic redemption of fund shares in your account. The fee will be assessed on each fund account that falls below the minimum for any reason, including market value fluctuations, redemptions or exchanges.
The account maintenance fee will not apply to: (i) accounts with an automatic investment plan; (ii) accounts held in an omnibus account through a financial intermediary; (iii) accounts maintained on behalf of participants in certain fee-based and wrap programs offered through certain financial intermediaries approved by the Advisor; (iv) participant level accounts in group retirement plans held on the records of a retirement plan record keeper; (v) accounts held by shareholders who maintain $50,000 or more in aggregate assets in DWS fund shares; (vi) shareholders who consent to electronic delivery for all documents (which include statements, prospectuses, annual and semi-annual reports, and other materials), except for tax forms; (vii) Uniform Gift to Minors (UGMA) and Uniform Transfer to Minors (UTMA) accounts; (viii) Coverdell Education Savings Account (ESA) accounts; and (ix) IRA accounts for shareholders beginning in the year in which they reach the applicable age for required minimum distributions under the Internal Revenue Code. You may elect to receive electronic delivery of DWS fund materials by registering on dws.com, by using the mobile app or by calling the telephone number on the back cover.
Overnight delivery of DWS fund materials. You may request to receive a paper copy of any DWS fund materials via overnight delivery by calling the telephone number on the back cover. If you request an overnight delivery
you will be charged a $20 fee ($25 for Saturday delivery) for each request, which will be paid by redeeming a portion of your shares equal to the amount of the fee. Overnight delivery is not available to a P.O. Box.
Market timing policies and procedures. Short-term and excessive trading of fund shares may present risks to long-term shareholders, including potential dilution in the value of fund shares, interference with the efficient management of the fund’s portfolio (including losses on the sale of investments), taxable gains to remaining shareholders and increased brokerage and administrative costs. These risks may be more pronounced if the fund invests in certain securities, such as those that trade in foreign markets, are illiquid or do not otherwise have “readily available market quotations.” Certain investors may seek to employ short-term trading strategies aimed at exploiting variations in portfolio valuation that arise from the nature of the securities held by the fund (e.g., “time zone arbitrage”). The fund discourages short-term and excessive trading and has adopted policies and procedures that are intended to detect and deter short-term and excessive trading.
The fund also reserves the right to reject or cancel a purchase or exchange order for any reason without prior notice. For example, the fund may in its discretion reject or cancel a purchase or an exchange order even if the transaction is not subject to the transaction limitation described below if the Advisor believes that there appears to be a pattern of short-term or excessive trading activity by a shareholder or deems any other trading activity harmful or disruptive to the fund. The fund, through its Advisor and transfer agent, will monitor changes in investment direction (CID) transactions that exceed a certain dollar amount by a shareholder within a fund within a specified time period. A CID transaction is a transaction opposite to the prior transaction, which can be a purchase, redemption or exchange of the same fund. The fund may take other trading activity into account if the fund believes such activity is of an amount or frequency that may be harmful to long-term shareholders or disruptive to portfolio management. The Advisor’s practices for identifying excessive short-term trading activity (e.g., the number of CID transactions, the dollar threshold and the time period) may change from time to time. If the Advisor determines that an investor has engaged in excessive short-term trading, the Advisor may issue the shareholder and/or the shareholder’s financial intermediary, if any, a written warning and/or may block the shareholder from further purchases of or exchanges into the fund’s shares.
The fund reserves the right to maintain a block indefinitely if it deems that the shareholder’s activity was harmful to the fund, or that the pattern of activity suggests a pattern of abuse. The rights of a shareholder to redeem shares of a DWS fund are not affected by a block on purchases and exchanges.
Prospectus August 1, 2024
26
Investing in the Fund
The fund may make exceptions to the transaction policy for certain types of transactions if, in the opinion of the Advisor, the transactions do not represent short-term or excessive trading or are not abusive or harmful to the fund, such as, but not limited to, systematic transactions, required minimum retirement distributions, transactions initiated by the fund or administrator and transactions by certain qualified funds-of-funds.
In certain circumstances where shareholders hold shares of the fund through a financial intermediary, the fund may rely upon the financial intermediary’s policy to deter short-term or excessive trading if the Advisor believes that the financial intermediary’s policy is reasonably designed to detect and deter transactions that are not in the best interests of the fund. A financial intermediary’s policy relating to short-term or excessive trading may be more or less restrictive than the DWS funds’ policy, may permit certain transactions not permitted by the DWS funds’ policies, or prohibit transactions not subject to the DWS funds’ policies.
The Advisor may also accept undertakings from a financial intermediary to enforce short-term or excessive trading policies on behalf of the fund that provide a substantially similar level of protection for the fund against such transactions. For example, certain financial intermediaries may have contractual, legal or operational restrictions that prevent them from blocking an account. In such instances, the financial intermediary may use alternate techniques that the Advisor considers to be a reasonable substitute for such a block.
In addition, if the fund invests some portion of its assets in foreign securities, it has adopted certain fair valuation practices intended to protect the fund from “time zone arbitrage” with respect to its foreign securities holdings and other trading practices that seek to exploit variations in portfolio valuation that arise from the nature of the securities held by the fund. (See “How the Fund Calculates Share Price.”)
There is no assurance that these policies and procedures will be effective in limiting short-term and excessive trading in all cases. For example, the Advisor may not be able to effectively monitor, detect or limit short-term or excessive trading by underlying shareholders that occurs through omnibus accounts maintained by broker-dealers or other financial intermediaries. The Advisor reviews trading activity at the omnibus level to detect short-term or excessive trading. If the Advisor has reason to suspect that short-term or excessive trading is occurring at the omnibus level, the Advisor will contact the financial intermediary to request underlying shareholder level activity. Depending on the amount of fund shares held in such omnibus accounts (which may represent most of the fund’s shares), short-term and/or excessive trading of fund shares could adversely affect long-term shareholders in the fund. If short-term or excessive trading is identified, the Advisor will take appropriate action.
The fund’s market timing policies and procedures may be modified or terminated at any time.
The automated information line is available 24 hours a day by calling DWS at the telephone number on the back cover. You can use our automated telephone service to get information on DWS funds generally and on accounts held directly at DWS. You can also use this service to request share transactions.
24 hour access via Internet and mobile. By registering your fund accounts online at dws.com or by downloading and registering on the mobile app, you can:
■
access account information 24 hours a day, 7 days a week,
■
view your account balances,
■
buy, exchange and sell fund shares,
■
access transaction history, statements and tax forms,
■
update personal information, and
■
make certain account elections including delivery preferences.
Purchase and redemption orders may be placed at any time, but will only be processed during normal business hours on business days, as detailed in this prospectus. Not all transactions are eligible for processing online or through the mobile app. The ability to open new accounts online or through the mobile app is available only to accounts that are established directly with the fund’s transfer agent, and is limited to certain account types and share classes. Processing certain transactions or opening certain types of accounts may require you to obtain, complete and mail the appropriate form.
When registering online at dws.com or through the mobile app, you will be asked to accept certain terms and conditions, create a user profile and establish a password. The same user profile and password will provide both online and mobile app access. Accessing your fund account and transacting online or through the mobile app requires the transmission of personal financial information over the Internet and/or a mobile data network, and is not without risk. Digital communication channels such as those described above are not necessarily secure and are subject to the risk, among others, that any confidential or sensitive information that you send or view may be intercepted or accessed by a third party and subsequently sold or used, including for instance, to gain access to your fund account and redeem shares. We recommend that you take steps to protect your account information, including the use of a secure Internet browser, keeping user IDs and passwords confidential, and taking steps to restrict access to your computer and mobile devices. As long as we follow reasonable security procedures and act on instructions that we reasonably believe are genuine, we will not be responsible for any losses that may occur from unauthorized requests. The fund may modify, suspend, or terminate online or mobile account access or services at any time.
Prospectus August 1, 2024
27
Investing in the Fund
During periods of extreme volume that may result from dramatic economic or stock market events, it is possible that you may have difficulty accessing your account online or using the mobile app. Your online account and/or the mobile app may be unavailable during certain periods due to unforeseen technology issues or for other reasons such as routine maintenance or updates. If you are unable to access your account online or using the mobile app you can reach DWS by mail or by telephone (see contact information on the back cover).
Telephone transactions. Generally, you are automatically entitled to telephone redemption and exchange privileges, but you may elect not to have them when you open your account (paper applications only) or by calling the appropriate telephone number on the back cover.
Transactions by telephone are not without risk. We recommend that you take steps to protect your account information. As long as we follow reasonable security procedures and act on instructions received over the telephone that we reasonably believe are genuine, we will not be responsible for any losses that may occur from unauthorized requests.
During periods of extreme volume that may result from dramatic economic or stock market events or due to unforeseen technology issues, it is possible that you may have difficulty reaching DWS by phone. If you are unable to reach us by phone you may be able to view account information or request transactions online or using the mobile app, or you can mail inquiries to DWS at the address on the back cover.
Responsibility for fraud. The fund and its service providers, including DWS, shall not be liable for any loss incurred by reason of the fund accepting unauthorized transaction requests for your account if the fund reasonably believes the instructions to be genuine. In order to safeguard your account, you should keep all account information private and review all confirmation statements and other account-related communications as soon as you receive them. We will consider all transactions to be properly processed if discrepancies are not reported promptly. Contact us immediately if you suspect that someone has gained unauthorized access to your account. The DWS Account Security Program provides further information on how you can protect your account. Visit the Investor Resource Center at dws.com for more information.
The fund does not issue share certificates. However, if you currently have shares in certificated form, you must include the share certificates properly endorsed or accompanied by a duly executed stock power when exchanging or redeeming shares. You may not exchange or redeem shares in certificate form by telephone, via the Internet or using the mobile app.
When you ask us to send or receive a wire, please note that while we don’t charge a fee to send or receive wires, it’s possible that your bank may do so. Wire transactions are generally completed within 24 hours. The fund can only send wires of $1,000 or more and accept wires of $50 or more.
The fund accepts payment for shares only in US dollars by a check drawn on a US bank, a bank or Federal Funds wire transfer or an electronic bank transfer. The fund does not accept third party checks. A third party check is a check made payable to one or more parties and offered as payment to one or more other parties (e.g., a check made payable to you that you offer as payment to someone else). Checks should be payable to “DWS Funds” and drawn by you or a financial institution on your behalf with your name or account number included with the check. If you pay for shares by check and the check fails to clear, we have the right to cancel your order, hold you liable or charge you or your account for any losses or fees the fund or its agents have incurred.
Signature Guarantee. When you want to sell more than $100,000 worth of shares or send proceeds to a third party or to a new address, you’ll usually need to place your order in writing and have your signature guaranteed. However, if you want money transferred electronically to a bank account that is already on file with us, you don’t need a signature guarantee (but other limits may apply). Also, generally you don’t need a signature guarantee for an exchange, although we may require one in certain other circumstances.
A signature guarantee is a certification of your signature — a valuable safeguard against fraud. The fund accepts Medallion Signature Guarantees, which can be obtained from an eligible guarantor. Eligible guarantor institutions include commercial banks, savings and loans, trust companies, credit unions, member firms of a national stock exchange or any member or participant of an approved signature guarantor program. A signature guarantee cannot be provided by a notary public.
Selling shares of trust accounts and business or organization accounts may require additional documentation. Please call DWS (see the telephone number on the back cover) or contact your financial representative for more information.
When you sell shares that have a CDSC, the CDSC is based on the original purchase cost or current market value of the shares sold, whichever is less. In processing orders to sell shares, the shares with the lowest CDSC are sold first. For each investment you make, we use the first day of the month in which you bought shares to calculate a CDSC on that particular investment. A CDSC is not imposed when you exchange from one fund into another, however, shares of the fund acquired in an exchange that were subject to a CDSC at the time of the exchange will continue to be subject to the CDSC schedule of the shares of the fund you originally purchased.
Prospectus August 1, 2024
28
Investing in the Fund
If you sell shares in a DWS fund for which you paid a sales charge and then decide to invest with DWS again within six months, you may be able to take advantage of the “reinstatement feature.” With this feature, you can put your money back into the same class of a DWS fund at its current net asset value and, for purposes of a sales charge, it will be treated as if it had never left DWS (this may result in a tax liability for federal income tax purposes). You'll be reimbursed (in the form of fund shares by the Distributor) for any CDSC you paid when you sold shares in a DWS fund. Future CDSC calculations will be based on your original investment date, rather than your reinstatement date.
You can only use the reinstatement feature once for any given group of shares. To take advantage of this feature, contact Shareholder Services or your financial representative.
Class A to Institutional Class in the Same Fund Exchange Privilege. Investors who have invested in Class A shares through a comprehensive or “wrap” fee program or other fee-based program sponsored by a broker-dealer, bank or registered investment adviser or who are transferring to such a program may potentially become eligible to invest in Institutional Class shares by reason of their participation in such a program. In such event, subject to the discretion of the Distributor and the limitations noted below, such shareholders may exchange their Class A shares for Institutional Class shares of equal aggregate value of the same fund. No sales charges or other charges will apply to any such exchange. Exchanges under this privilege will generally be processed only as part of a pre-arranged, multiple-client transaction through the particular financial services firm offering the comprehensive or wrap program or other fee-based program where the Institutional Class shares are available. DDI may agree with financial intermediaries to allow this exchange privilege outside of pre-arranged, multiple-client transactions. Investors should contact their selling and/or servicing agents to learn more about the details of this exchange feature. Shareholders generally will not recognize a gain or loss for federal income tax purposes upon the exchange of Class A shares of a fund for Institutional Class shares of the same fund.
Class A to Class S in the Same Fund Exchange Privilege. Investors who have invested in Class A shares through a comprehensive or “wrap” fee program or other fee-based program sponsored by a broker-dealer, bank or registered investment adviser or who are transferring to such a program may become eligible to invest in Class S shares. Subject to the discretion of the Distributor, such shareholders may exchange their Class A shares for Class S shares of equal aggregate value of the same fund. No sales charges or other charges will apply to any such exchanges. Investors should contact their selling and/or servicing agents to learn more about the details of this
exchange feature. Shareholders generally will not recognize a gain or loss for federal income tax purposes upon the exchange of Class A shares of a fund for Class S shares of the same fund.
Class C to Class A, Class S or Institutional Class in the Same Fund Exchange Privilege. Investors who either (i) have invested in Class C shares through a comprehensive or “wrap” fee program or other fee-based program sponsored by a broker-dealer, bank or registered investment adviser or (ii) have invested in Class C shares and are in the process of transferring their shares to such a program may potentially become eligible to invest in either Class A shares, Class S shares or Institutional Class shares by reason of their participation in such a program. In addition, investors who have invested in Class C shares as part of an Employer-Sponsored Retirement Plan or an Employer-Sponsored IRA may potentially become eligible to invest in Class A shares by reason of their investment in such Employer-Sponsored Retirement Plan or Employer-Sponsored IRA. In such event, subject to the discretion of the Distributor and the limitations noted below, such shareholders may exchange their Class C shares for Class A shares, Class S shares or Institutional Class shares (as applicable) of equal aggregate value of the same fund. No sales charges or other charges will apply to any such exchange. Exchanges under this privilege will generally be processed only in instances where the accounts are not currently subject to a CDSC and only as part of a pre-arranged, multiple-client transaction through the particular financial services firm offering the comprehensive or wrap program or other fee-based program or involving the Employer-Sponsored Retirement Plan or Employer-Sponsored IRA where the Class A shares, Class S shares or Institutional Class shares (as applicable) are available. DDI may agree with financial intermediaries to allow this exchange privilege for accounts currently subject to a CDSC and outside of pre-arranged, multiple-client transactions. In such situations, the financial intermediary may reimburse DDI for a portion of any CDSC that DDI would have otherwise collected on the transaction or a portion of the distribution fees previously advanced by DDI to the financial intermediary in connection with the initial sale of the Class C shares. Investors should contact their selling and/or servicing agents to learn more about the details of this exchange feature. Shareholders generally will not recognize a gain or loss for federal income tax purposes upon the exchange of Class C shares of a fund for Class A shares, Class S shares or Institutional Class shares of the same fund.
Class S to Institutional Class in the Same Fund Exchange Privilege. Investors who have invested in Class S shares through a comprehensive or “wrap” fee program or other fee-based program sponsored by a broker-dealer, bank or registered investment adviser or who are transferring to such a program may potentially become eligible to invest in Institutional Class shares by reason of their participation in such a program. In such event, subject
Prospectus August 1, 2024
29
Investing in the Fund
to the discretion of the Distributor and the limitations noted below, such shareholders may exchange their Class S shares for Institutional Class shares of equal aggregate value of the same fund. No sales charges or other charges will apply to any such exchange. Exchanges under this privilege will generally be processed only as part of a pre-arranged, multiple-client transaction through the particular financial services firm offering the comprehensive or wrap program or other fee-based program where the Institutional Class shares are available. DDI may agree with financial intermediaries to allow this exchange privilege outside of pre-arranged, multiple-client transactions. Investors should contact their selling and/or servicing agents to learn more about the details of this exchange feature. Shareholders generally will not recognize a gain or loss for federal income tax purposes upon the exchange of Class S shares of a fund for Institutional Class shares of the same fund.
Class S or Institutional Class to Class A in the Same Fund Exchange Privilege. Exchanges by a financial intermediary of Class S or Institutional Class shares for Class A shares of the same fund are allowed without the imposition of a sales charge in connection with a change in account type or otherwise in accordance with the intermediary’s policies and procedures that renders a shareholder ineligible for Class S or Institutional Class shares. The availability of this exchange privilege and sales charge waiver depends on the policies, procedures and trading platforms of the intermediary. Investors should contact their financial intermediary to learn more about the details of this exchange feature. Shareholders generally will not recognize a gain or loss for federal income tax purposes upon the exchange of Class S or Institutional Class shares of a fund for Class A shares of the same fund.
Institutional Class Exchange Privilege. The following persons may, subject to certain limitations, exchange Institutional Class shares for DWS Money Market Fund shares of DWS Money Market Prime Series: (1) a current or former director or trustee of DWS mutual funds; and (2) an employee, the employee’s spouse or life partner and children or stepchildren age 21 or younger of Deutsche Bank AG or its affiliates or a subadvisor to any fund in the DWS mutual fund family or a broker-dealer authorized to sell shares of the DWS mutual funds.
Money from shares you sell is normally sent out within one business day of when your request is received in good order, regardless of the method of payment (e.g., check, wire, ACH) although it could be delayed for up to seven days. There are circumstances when it could be longer, including, but not limited to, when you are selling shares you bought recently by check or ACH (the funds will be placed under a 10 calendar day hold to ensure good funds) or when unusual circumstances prompt the SEC to allow further delays. Certain expedited redemption processes (e.g., redemption proceeds by wire) may also
be delayed or unavailable when you are selling shares recently purchased or in the event of the closing of the Federal Reserve wire payment system.
Redemptions will generally be in the form of cash, though the fund reserves the right to redeem in kind (as described under “Other Rights We Reserve”). The fund typically expects to satisfy redemption requests by using available cash or by selling portfolio securities if available cash is not sufficient to meet redemptions. The fund may utilize an existing line of credit for temporary coverage in the event of a cash shortfall. The fund may also utilize inter-fund lending, though such use is expected to be rare. The fund may use any of these methods of satisfying redemption requests under normal or stressed market conditions. During periods of distressed market conditions, when a significant portion of the fund’s portfolio may be comprised of less-liquid and/or illiquid investments, the fund may be more likely to pay redemption proceeds by giving you securities.
The fund reserves the right to suspend or postpone redemptions as permitted pursuant to Section 22(e) of the Investment Company Act of 1940 (the “1940 Act”). Generally, those circumstances are when 1) the New York Stock Exchange is closed other than customary weekend or holiday closings; 2) the SEC determines that trading on the New York Stock Exchange is restricted; 3) the SEC determines that an emergency exists which makes the disposal of securities owned by the fund or the fair determination of the value of the fund’s net assets not reasonably practicable; or 4) the SEC, by order, permits the suspension of the right of redemption. Redemption payments by wire may also be delayed in the event of a non-routine closure of the Federal Reserve wire payment system. For additional rights reserved by the fund, please see “Other Rights We Reserve.”
How the Fund Calculates Share Price
To calculate net asset value, or NAV, each share class uses the following equation:
|
|
|
|
|
|
Total Number of
Shares Outstanding |
|
|
The price at which you buy shares is based on the NAV per share calculated after the order is received and accepted by the transfer agent, although for Class A shares it will be adjusted to allow for any applicable sales charge (see “Choosing a Share Class”). The price at which you sell shares is also based on the NAV per share calculated after the order is received and accepted by the transfer agent, although a CDSC may be taken out of the proceeds (see “Choosing a Share Class”). To obtain the fund's most recent share price, go to dws.com (the Web site does not form a part of this prospectus) or call the telephone number included in this prospectus.
Prospectus August 1, 2024
30
Investing in the Fund
The Board has designated the Advisor as the valuation designee for the fund pursuant to Rule 2a-5 under the 1940 Act. The Advisor’s Pricing Committee typically values securities using readily available market quotations or prices supplied by independent pricing services (which are considered fair values under Rule 2a-5). The Advisor has adopted fair valuation procedures that provide methodologies for fair valuing securities when pricing service prices or market quotations are not readily available, including when a security’s value or a meaningful portion of the value of the fund's portfolio is believed to have been materially affected by a significant event, such as a natural disaster, an economic event like a bankruptcy filing, or a substantial fluctuation in domestic or foreign markets that has occurred between the close of the exchange or market on which the security is principally traded (for example, a foreign exchange or market) and the close of the New York Stock Exchange. In such a case, the fund’s value for a security is likely to be different from the last quoted market price or pricing service prices. In addition, due to the subjective and variable nature of fair value pricing, it is possible that the value determined for a particular asset may be materially different from the value realized upon such asset’s sale.
You should be aware that we may do any of the following:
■
withdraw or suspend the offering of shares at any time
■
withhold a portion of your distributions and redemption proceeds if we have been notified by the Internal Revenue Service that you are subject to backup withholding, if you fail to provide us with the correct taxpayer ID number and certain certifications, including certification that you are not subject to backup withholding, or if you are otherwise subject to withholding
■
reject an account application if you don’t provide any required or requested identifying information, or for any other reason
■
without prior notice, refuse, cancel, limit or rescind any purchase or exchange order; freeze any account (meaning you will not be able to purchase fund shares in your account); suspend account services; and/or involuntarily redeem and close your account if we think that the account is being used for fraudulent or illegal purposes; one or more of these actions will be taken when, at our sole discretion, they are deemed to be in the fund’s best interests or when the fund is requested or compelled to do so by governmental authority or by applicable law
■
close and liquidate your account if we are unable to verify your identity, or for other reasons; if we decide to close your account, your fund shares will be redeemed at the net asset value per share next calculated after we determine to close your account (less any applicable sales charge or CDSC); you may recognize a gain or loss on the redemption of your fund shares and you may incur a tax liability
■
pay you for shares you sell by “redeeming in kind,” that is, by giving you securities (which are subject to market risk until sold, may incur taxes and typically will involve brokerage costs for you to liquidate) rather than cash, but which will be taxable to the same extent as a redemption for cash; the fund generally won’t make a redemption in kind unless your requests over a 90-day period total more than $250,000 or 1% of the value of the fund’s net assets, whichever is less
■
change, add or withdraw various services, fees and account policies (for example, we may adjust the fund’s investment minimums at any time)
Financial Intermediary Support Payments
The Advisor, the Distributor and/or their affiliates may pay additional compensation, out of their own assets and not as an additional charge to the fund, to selected affiliated and unaffiliated brokers, dealers, participating insurance companies or other financial intermediaries (“financial representatives”) in connection with the sale and/or distribution of fund shares or the retention and/or servicing of fund investors and fund shares (“revenue sharing”). Such revenue sharing payments are in addition to any distribution or service fees payable under any Rule 12b-1 or service plan of the fund, any recordkeeping/sub-transfer agency/networking fees payable by the fund (generally through the Distributor or an affiliate) and/or the Distributor or Advisor to certain financial representatives for performing such services and any sales charges, commissions, non-cash compensation arrangements expressly permitted under applicable rules of the Financial Industry Regulatory Authority or other concessions described in the fee table or elsewhere in this prospectus or the Statement of Additional Information as payable to all financial representatives. For example, the Advisor, the Distributor and/or their affiliates may, using their legitimate profits, compensate financial representatives for providing the fund with “shelf space” or access to a third party platform (including the costs associated with establishing and maintaining the fund on such platform) or fund offering list or other marketing programs, including, without limitation, inclusion of the fund on preferred or recommended sales lists, mutual fund “supermarket” platforms and other formal sales programs; granting the Distributor access to the financial representative’s sales force; granting the Distributor access to the financial representative’s conferences and meetings; assistance in training and educating the financial representative’s personnel; and obtaining other forms of marketing support. In addition, revenue sharing payments may consist of the Distributor’s and/or its affiliates’ payment or reimbursement of ticket charges that would otherwise be assessed by a financial representative on an investor’s fund transactions.
The level of revenue sharing payments made to financial representatives may be a fixed fee or based upon one or more of the following factors: gross sales, current
Prospectus August 1, 2024
31
Investing in the Fund
assets and/or number of accounts of the fund attributable to the financial representative, the particular fund or fund type or other measures as agreed to by the Advisor, the Distributor and/or their affiliates and the financial representatives or any combination thereof. The amount of these payments is determined at the discretion of the Advisor, the Distributor and/or their affiliates from time to time, may be substantial, and may be different for different financial representatives based on, for example, the nature of the services provided by the financial representative.
The Advisor, the Distributor and/or their affiliates currently make revenue sharing payments from their own assets in connection with the sale and/or distribution of DWS fund shares or the retention and/or servicing of investors to financial representatives in amounts that generally range from 0.01% up to 0.52% of assets of the fund serviced and maintained by the financial representative, 0.05% to 0.25% of sales of the fund attributable to the financial representative, a flat fee of up to $95,000, or any combination thereof. These amounts are annual figures typically paid on a quarterly basis and are subject to change at the discretion of the Advisor, the Distributor and/or their affiliates. Receipt of, or the prospect of receiving, this additional compensation may influence your financial representative’s recommendation of the fund or of any particular share class of the fund. You should review your financial representative’s compensation disclosure and/or talk to your financial representative to obtain more information on how this compensation may have influenced your financial representative’s recommendation of the fund. Additional information regarding these revenue sharing payments is included in the fund’s Statement of Additional Information, which is available to you on request at no charge (see the back cover of this prospectus for more information on how to request a copy of the Statement of Additional Information).
The Advisor, the Distributor and/or their affiliates may also make such revenue sharing payments to financial representatives under the terms discussed above in connection with the distribution of both DWS funds and non-DWS funds by financial representatives to retirement plans that obtain recordkeeping services from ADP, Inc. or to 403(b) plans that obtain recordkeeping services from Ascensus, Inc. on the DWS-branded retirement plan platform (the “Platform”). The level of revenue sharing payments is based upon sales of both the DWS funds and the non-DWS funds by the financial representative on the Platform or current assets of both the DWS funds and the non-DWS funds serviced and maintained by the financial representative on the Platform.
It is likely that broker-dealers that execute portfolio transactions for the fund will include firms that also sell shares of the DWS funds to their customers. However, the Advisor will not consider sales of DWS fund shares as a factor in the selection of broker-dealers to execute portfolio transactions for the DWS funds. Accordingly, the Advisor
has implemented policies and procedures reasonably designed to prevent its traders from considering sales of DWS fund shares as a factor in the selection of broker-dealers to execute portfolio transactions for the fund. In addition, the Advisor, the Distributor and/or their affiliates will not use fund brokerage to pay for their obligation to provide additional compensation to financial representatives as described above.
Understanding Distributions and Taxes
The fund intends to distribute to its shareholders virtually all of its net earnings. The fund can earn money in two ways: by receiving interest, dividends or other income from investments it holds and by selling investments for more than it paid for them. (The fund’s earnings are separate from any gains or losses stemming from your own purchase and sale of fund shares.) The fund may not always pay a dividend or other distribution for a given period. As with any investment, you should consider how your investment in shares of the fund will be taxed. The US federal income tax information in this prospectus is provided as general information. You should consult your own tax professional about the federal income tax and other tax consequences of an investment in shares of the fund.
Income dividends are declared daily and paid monthly. Short-term and long-term capital gains are paid in November or December. The fund may distribute at other times as needed.
In general, your distributions are subject to US federal income tax for the year when they are paid. Dividends declared and payable to shareholders of record in the last quarter of a given calendar year are treated for federal income tax purposes as if they were received by shareholders and paid by the fund on December 31 of that year, if such dividends are actually paid in January of the following year.
Income distributions that are properly designated as exempt-interest dividends will not be subject to regular federal income tax, but they may be subject to the federal individual and corporate alternative minimum taxes, and state and local income taxes.
You can choose how to receive your dividends and other distributions. You can have them all automatically reinvested in fund shares (at NAV), all deposited directly to your bank account or all sent to you by check, have one type reinvested and the other sent to you by check or have them invested in a different fund. Tell us your preference on your application. If you don’t indicate a preference, your dividends and distributions will all be reinvested in shares of the fund without a sales charge (if applicable). Dividends and distributions are treated the same for federal income tax purposes whether you receive them in cash or reinvest them in additional shares.
Prospectus August 1, 2024
32
Investing in the Fund
Buying, selling or exchanging fund shares will usually have federal income tax consequences for you (except in employer-sponsored qualified plans, IRAs or other tax-advantaged accounts). Your sale of shares may result in a capital gain or loss. The gain or loss will generally be long-term or short-term depending on how long you owned the shares that were sold. Your ability to deduct capital losses may be limited. For federal income tax purposes, an exchange is treated the same as a sale. In addition, if shares are redeemed to pay any account fees (e.g., an account maintenance fee), you may incur a tax liability.
The fund intends to distribute tax-exempt interest as exempt-interest dividends, which are generally excluded from gross income for regular federal income tax purposes, but may be subject to alternative minimum tax and state and local income taxes. Distributions from other sources, if any, would be taxable as described below.
Dividends from the fund are generally tax-free for most shareholders, meaning that investors who are individuals can receive them without incurring federal and (for some investors) state and local income tax liability. However, there are a few exceptions:
■
a portion of the fund’s dividends may be taxable if it came from investments in taxable securities or tax-exempt market discount bonds;
■
because the fund can invest up to 20% of net assets in securities whose income is subject to the federal alternative minimum tax (AMT), you may owe taxes on a portion of your dividends if you are among those investors who must pay AMT. In addition, if you receive social security or railroad retirement benefits, you should consult your tax advisor to determine what effect, if any, an investment in the fund may have on the federal taxation of your benefits; and
■
capital gains distributions may be taxable.
The federal income tax status of the fund’s earnings you receive and transactions involving your shares generally depends on their type:
Generally taxed at net capital
gain rates: |
Generally taxed at ordinary
income rates: |
|
|
■gains from the sale of securi-
ties held (or treated as held)
by the fund for more than
one year
■qualified dividend income |
■gains from the sale of securi-
ties held (or treated as held)
by the fund for one year or
less
■all other taxable income
(except for tax-exempt
interest income) |
Transactions involving fund
shares |
|
■gains from selling fund
shares held for more than
one year |
■gains from selling fund
shares held for one year or
less |
Any direct investments in foreign securities by the fund may be subject to foreign withholding taxes. In that case, the fund’s yield on those securities would generally be decreased. Shareholders generally will not be entitled to claim a credit or deduction with respect to foreign taxes paid by the fund. In addition, any investments in foreign securities or foreign currencies may increase or accelerate the fund’s recognition of ordinary income and may affect the timing or amount of the fund’s distributions. If you invest in the fund through a taxable account, your after-tax return could be negatively affected.
Investments in certain debt obligations or other securities may cause the fund to recognize income in excess of the cash generated by them. Thus, the fund could be required at times to liquidate other investments in order to satisfy its distribution requirements.
The fund's use of derivatives, if any, may affect the amount, timing and character of distributions to shareholders and, therefore, may increase the amount of taxes payable by shareholders.
Distributions to individuals and other non-corporate shareholders of investment income reported by the fund as derived from qualified dividend income are eligible for taxation for federal income tax purposes at the more favorable net capital gain rates. Qualified dividend income generally includes dividends received by the fund from domestic and some foreign corporations. It does not include income from investments in debt securities or, generally, from real estate investment trusts. In addition, the fund must meet certain holding period and other requirements with respect to the dividend-paying stocks in its portfolio and the shareholder must meet certain holding period and other requirements with respect to the fund’s shares for the lower tax rates to apply. The fund does not expect to make distributions that constitute qualified dividend income.
Your fund will send you detailed federal income tax information early each year. These statements tell you the amount and the federal income tax classification of any dividends or distributions you received. They also have certain details on your purchases and sales of shares.
A 3.8% Medicare contribution tax is imposed on the “net investment income” of individuals, estates and trusts to the extent their income exceeds certain threshold amounts. For this purpose, net investment income generally includes taxable dividends, including any capital gain dividends paid by the fund, and net gains recognized on the sale, redemption or exchange of shares of the fund.
If you invest right before the fund pays a dividend, you’ll be getting some of your investment back as a dividend, which may be taxable to you. You can avoid this by investing after the fund pays a dividend. In tax-advantaged accounts you generally do not need to worry about this.
If the fund’s distributions exceed its current and accumulated earnings and profits, the excess will be treated for federal income tax purposes as a tax-free return of capital
Prospectus August 1, 2024
33
Investing in the Fund
to the extent of your basis in your shares and thereafter as a capital gain. Because a return of capital distribution reduces the basis of your shares, a return of capital distribution may result in a higher capital gain or a lower capital loss when you sell your shares held in a taxable account.
Corporations are taxed at the same rates on ordinary income and capital gains but may be eligible for a dividends received deduction to the extent of the amount of eligible dividends received by the fund from domestic corporations for the taxable year, provided certain holding period and other requirements are met.
The fund does not expect to make distributions eligible for the corporate dividends received deduction.
Because each shareholder's tax situation is unique, ask your tax professional about the tax consequences of your investment, including any state and local tax consequences.
The above discussion summarizes certain federal income tax consequences for shareholders who are US persons. If you are a non-US person, please consult your own tax advisor with respect to the US and foreign tax consequences to you of an investment in the fund. For more information, see “Taxes” in the Statement of Additional Information.
Prospectus August 1, 2024
34
Investing in the Fund
The financial highlights are designed to help you understand recent financial performance. The figures in the first part of each table are for a single share. The total return figures represent the percentage that an investor in the fund would have earned (or lost), assuming all dividends and distributions were reinvested. This information has
been audited by Ernst & Young LLP, an independent registered public accounting firm, whose report, along with the fund’s financial statements, is included in the fund’s annual report (see “Shareholder reports” on the back cover).
DWS Massachusetts Tax-Free Fund — Class A |
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period |
|
|
|
|
|
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized gain (loss) |
|
|
|
|
|
Total from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period |
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions) |
|
|
|
|
|
Ratio of expenses before expense reductions (including interest expense) (%) |
|
|
|
|
|
Ratio of expenses after expense reductions (including interest expense) (%) |
|
|
|
|
|
Ratio of expenses after expense reductions (excluding interest expense) (%) |
|
|
|
|
|
Ratio of net investment income (%) |
|
|
|
|
|
Portfolio turnover rate (%) |
|
|
|
|
|
|
Total return does not reflect the effect of any sales charges. |
|
Total return would have been lower had certain expenses not been reduced. |
|
Interest expense represents interest and fees on short-term floating rate notes issued in conjunction with inverse floating rate securities. Interest
income from such transactions is included in income from investment operations. |
|
Amount is less than $.005. |
Prospectus August 1, 2024 | 35 | Financial Highlights |
DWS Massachusetts Tax-Free Fund — Class C |
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period |
|
|
|
|
|
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized gain (loss) |
|
|
|
|
|
Total from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period |
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions) |
|
|
|
|
|
Ratio of expenses before expense reductions (including interest expense) (%) |
|
|
|
|
|
Ratio of expenses after expense reductions (including interest expense) (%) |
|
|
|
|
|
Ratio of expenses after expense reductions (excluding interest expense) (%) |
|
|
|
|
|
Ratio of net investment income (%) |
|
|
|
|
|
Portfolio turnover rate (%) |
|
|
|
|
|
|
Total return does not reflect the effect of any sales charges. |
|
Total return would have been lower had certain expenses not been reduced. |
|
Interest expense represents interest and fees on short-term floating rate notes issued in conjunction with inverse floating rate securities. Interest
income from such transactions is included in income from investment operations. |
|
Amount is less than $.005. |
Prospectus August 1, 2024 | 36 | Financial Highlights |
DWS Massachusetts Tax-Free Fund — Institutional Class |
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period |
|
|
|
|
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
Net realized and unrealized gain (loss) |
|
|
|
|
Total from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period |
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions) |
|
|
|
|
Ratio of expenses before expense reductions (%) |
|
|
|
|
Ratio of expenses after expense reductions (%) |
|
|
|
|
Ratio of net investment income (%) |
|
|
|
|
Portfolio turnover rate (%) |
|
|
|
|
|
For the period from December 1, 2020 (commencement of operations) to March 31, 2021. |
|
Total return would have been lower had certain expenses not been reduced. |
|
Represents the Fund’s portfolio turnover rate for the year ended March 31, 2021. |
|
|
|
|
Prospectus August 1, 2024 | 37 | Financial Highlights |
DWS Massachusetts Tax-Free Fund — Class S |
|
|
|
|
|
|
|
|
|
Net asset value, beginning of period |
|
|
|
|
|
Income (loss) from investment operations: |
|
|
|
|
|
|
|
|
|
|
|
Net realized and unrealized gain (loss) |
|
|
|
|
|
Total from investment operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net asset value, end of period |
|
|
|
|
|
|
|
|
|
|
|
Ratios to Average Net Assets and Supplemental Data |
Net assets, end of period ($ millions) |
|
|
|
|
|
Ratio of expenses before expense reductions (including interest expense) (%) |
|
|
|
|
|
Ratio of expenses after expense reductions (including interest expense) (%) |
|
|
|
|
|
Ratio of expenses after expense reductions (excluding interest expense) (%) |
|
|
|
|
|
Ratio of net investment income (%) |
|
|
|
|
|
Portfolio turnover rate (%) |
|
|
|
|
|
|
Total return would have been lower had certain expenses not been reduced. |
|
Interest expense represents interest and fees on short-term floating rate notes issued in conjunction with inverse floating rate securities. Interest
income from such transactions is included in income from investment operations. |
|
Amount is less than $.005. |
Prospectus August 1, 2024 | 38 | Financial Highlights |
Hypothetical Expense Summary
Using the annual fund operating expense ratios presented in the fee tables in the fund’s prospectus, the Hypothetical Expense Summary shows the estimated fees and expenses, in actual dollars, that would be charged on a hypothetical investment of $10,000 in the fund held for the next 10 years and the impact of such fees and expenses on fund returns for each year and cumulatively, assuming a 5% return for each year. The historical rate of return for the fund may be higher or lower than 5% and, for money market funds, is typically less than 5%. The tables also assume that all dividends and distributions are reinvested. The annual fund expense ratios shown are net of any contractual fee waivers or expense reimbursements, if any, for the period of the contractual commitment. The tables reflect the maximum initial sales charge, if any, but do not reflect any contingent deferred sales charge, if any, which may be payable upon redemption. If contingent deferred sales charges were shown, the “Hypothetical Year-End Balance After Fees and Expenses” amounts
shown would be lower and the “Annual Fees and Expenses” amounts shown would be higher. Also, please note that if you are investing through a third party provider, that provider may have fees and expenses separate from those of the fund that are not reflected here. Mutual fund fees and expenses fluctuate over time and actual expenses may be higher or lower than those shown.
Class C shares generally convert automatically to Class A shares after 8 years. The information presented in the Hypothetical Expense Summary for Class C reflects the conversion of Class C shares to Class A shares after 8 years. See “Class C Shares” in the “Choosing a Share Class” section of the prospectus for more information. The Hypothetical Expense Summary should not be used or construed as an offer to sell, a solicitation of an offer to buy or a recommendation or endorsement of any specific mutual fund. You should carefully review the fund’s prospectus to consider the investment objective, risks, expenses and charges of the fund prior to investing.
DWS Massachusetts Tax-Free Fund — Class A
|
Maximum
Sales Charge:
2.75% |
Initial Hypothetical
Investment:
$10,000 |
Assumed Rate
of Return:
5% |
|
Cumulative
Return Before
Fees &
Expenses |
Annual
Fund
Expense
Ratios |
Cumulative
Return After
Fees &
Expenses |
Hypothetical
Year-End
Balance After
Fees &
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prospectus August 1, 2024 | 39 | Appendix A |
DWS Massachusetts Tax-Free Fund — Class C
|
Maximum
Sales Charge:
0.00% |
Initial Hypothetical
Investment:
$10,000 |
Assumed Rate
of Return:
5% |
|
Cumulative
Return Before
Fees &
Expenses |
Annual
Fund
Expense
Ratios |
Cumulative
Return After
Fees &
Expenses |
Hypothetical
Year-End
Balance After
Fees &
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DWS Massachusetts Tax-Free Fund — Institutional Class
|
Maximum
Sales Charge:
0.00% |
Initial Hypothetical
Investment:
$10,000 |
Assumed Rate
of Return:
5% |
|
Cumulative
Return Before
Fees &
Expenses |
Annual
Fund
Expense
Ratios |
Cumulative
Return After
Fees &
Expenses |
Hypothetical
Year-End
Balance After
Fees &
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prospectus August 1, 2024 | 40 | Appendix A |
DWS Massachusetts Tax-Free Fund — Class S
|
Maximum
Sales Charge:
0.00% |
Initial Hypothetical
Investment:
$10,000 |
Assumed Rate
of Return:
5% |
|
Cumulative
Return Before
Fees &
Expenses |
Annual
Fund
Expense
Ratios |
Cumulative
Return After
Fees &
Expenses |
Hypothetical
Year-End
Balance After
Fees &
Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional Index Information
Bloomberg Municipal Bond Index is a market value-weighted index of investment-grade municipal bonds with maturities of one year or more.
Bloomberg Massachusetts Exempt Municipal Bond Index includes issues in the state of Massachusetts, which are rated investment-grade (Baa3/BBB- or higher) by at least two of the following ratings agencies: Moody's, S&P, Fitch. If only two of the three agencies rate the security, the lower rating is used to determine index eligibility. If only one of the three agencies rates a security, the rating must be investment-grade. They must have an outstanding par value of at least $7 million and be issued as part of a transaction of at least $75 million. The bonds must be fixed rate, have a dated-date after December 31, 1990, and must be at least one year from their maturity date. Remarketed issues, taxable municipal bonds, bonds with floating rates, and derivatives, are excluded from the benchmark. The index has four main sectors: general obligation bonds, revenue bonds, insured bonds (including all insured bonds with a Aaa/AAA rating), and pre-refunded bonds. Most of the index has historical data to January 1980.
Prospectus August 1, 2024 | 41 | Appendix A |
Sales Charge Waivers and Discounts Available Through Intermediaries
The availability of certain sales charge waivers and discounts may depend on whether you purchase your shares directly from the fund or through a financial intermediary. Intermediaries may have different policies and procedures regarding the availability of front-end sales charge waivers or contingent deferred (back-end) sales charge (“CDSC”) waivers. For waivers and discounts not available through a particular intermediary, you will have to purchase fund shares directly from the fund or through another intermediary. The financial intermediary sales charge waivers, discounts and policies disclosed in this Appendix may vary from those disclosed elsewhere in the fund’s prospectus or SAI. In all instances, it is your responsibility to notify the fund or your financial intermediary at the time of purchase of any relationship or other facts qualifying you for sales charge waivers or discounts.
The sales charge waivers, discounts and policies described below are applied by the identified financial intermediaries. Please contact the applicable intermediary with any questions regarding how the intermediary applies its waivers, discounts and policies and to ensure that you understand what steps you must take to qualify for any available waivers or discounts.
MERRILL LYNCH SALES CHARGE WAIVERS AND DISCOUNTS
Purchases or sales of front-end (i.e. Class A) or level-load (i.e. Class C) mutual fund shares through a Merrill platform or account will be eligible only for the following sales load waivers (front-end, contingent deferred, or back-end waivers) and discounts, which differ from those disclosed elsewhere in this Fund’s prospectus. Purchasers will have to buy mutual fund shares directly from the mutual fund company or through another intermediary to be eligible for waivers or discounts not listed below.
It is the client’s responsibility to notify Merrill at the time of purchase or sale of any relationship or other facts that qualify the transaction for a waiver or discount. A Merrill representative may ask for reasonable documentation of such facts and Merrill may condition the granting of a waiver or discount on the timely receipt of such documentation.
Additional information on waivers and discounts is available in the Merrill Sales Load Waiver and Discounts Supplement (the “Merrill SLWD Supplement”) and in the Mutual Fund Investing at Merrill pamphlet at ml.com/funds (the referenced Merrill documents and Web site do not form a part of this prospectus). Clients are encouraged to review these documents and speak with their financial advisor to determine whether a transaction is eligible for a waiver or discount.
Front-end Sales Load Waivers on Class A Shares Available at Merrill
■
Shares of mutual funds available for purchase by employer-sponsored retirement, deferred compensation, and employee benefit plans (including health savings accounts) and trusts used to fund those plans provided the shares are not held in a commission-based brokerage account and shares are held for the benefit of the plan. For purposes of this provision, employer-sponsored retirement plans do not include SEP IRAs, Simple IRAs, SAR-SEPs or Keogh plans.
■
Shares purchased through a Merrill investment advisory program.
■
Brokerage class shares exchanged from advisory class shares due to the holdings moving from a Merrill investment advisory program to a Merrill brokerage account.
■
Shares purchased through the Merrill Edge Self-Directed platform.
■
Shares purchased through the systematic reinvestment of capital gains distributions and dividend reinvestment when purchasing shares of the same mutual fund in the same account.
■
Shares exchanged from level-load shares to front-end load shares of the same mutual fund in accordance with the description in the Merrill SLWD Supplement.
■
Shares purchased by eligible employees of Merrill or its affiliates and their family members who purchase shares in accounts within the employee’s Merrill Household (as defined in the Merrill SLWD Supplement).
Prospectus August 1, 2024 | 42 | Appendix B |
■
Shares purchased by eligible persons associated with the fund as defined in this prospectus (e.g., the fund’s officers or trustees).
■
Shares purchased from the proceeds of a mutual fund redemption in front-end load shares provided (1) the repurchase is in a mutual fund within the same fund family; (2) the repurchase occurs within 90 calendar days from the redemption trade date; and (3) the redemption and purchase occur in the same account (known as Rights of Reinstatement). Automated transactions (i.e., systematic purchases and withdrawals) and purchases made after shares are automatically sold to pay Merrill’s account maintenance fees are not eligible for Rights of Reinstatement.
Contingent Deferred Sales Charge (“CDSC”) Waivers on Class A and C Shares Available at Merrill
■
Shares sold due to the client’s death or disability (as defined by Internal Revenue Code Section 22(e)(3)).
■
Shares sold pursuant to a systematic withdrawal program subject to Merrill’s maximum systematic withdrawal limits as described in the Merrill SLWD Supplement.
■
Shares sold due to return of excess contributions from an IRA account.
■
Shares sold as part of a required minimum distribution for IRA and retirement accounts due to the investor reaching the qualified age based on applicable IRS regulation.
■
Front-end or level-load shares held in commission-based, non-taxable retirement brokerage accounts (e.g. traditional, Roth, rollover, SEP IRAs, Simple IRAs, SAR-SEPs or Keogh plans) that are transferred to fee-based accounts or platforms and exchanged for a lower cost share class of the same mutual fund.
Front-end Load Discounts Available at Merrill: Breakpoints, Rights of Accumulation & Letters of Intent
■
Breakpoint discounts, as described in this prospectus, where the sales load is at or below the maximum sales load that Merrill permits to be assessed to a front-end load purchase, as described in the Merrill SLWD Supplement.
■
Rights of Accumulation (ROA), as described in the Merrill SLWD Supplement, which entitle clients to breakpoint discounts based on the aggregated holdings of mutual fund family assets held in accounts in their Merrill Household.
■
Letters of Intent (LOI), which allow for breakpoint discounts on eligible new purchases based on anticipated future eligible purchases within a fund family at Merrill, in accounts within your Merrill Household, as further described in the Merrill SLWD Supplement.
Class A Waivers Applicable to Purchase Through LPL Financial
For those accounts where LPL Financial is listed as the broker dealer, the Class A sales charge waivers listed under “Class A NAV Sales” in the “Choosing a Share Class” sub-section of the “Investing in the Funds” section of the prospectus apply, except that the Class A sales charge waiver number (12) (relating to purchases of Class A shares by employer-sponsored retirement plans) is replaced with the following waiver:
Class A shares may be purchased without a sales charge by group retirement plans, which are employer-sponsored retirement plans, deferred compensation plans, employee benefit plans (including health savings accounts) and trusts used to fund those plans.
To satisfy eligibility requirements, the plan must be a group retirement plan (more than one participant), the shares cannot be held in a commission-based brokerage account at LPL Financial, and
■
the shares must be held at a plan level or
■
the shares must be held through an omnibus account of a retirement plan record-keeper.
Group retirement plans include group employer-sponsored 401(k) plans, employer-sponsored 457 plans, employer-sponsored 403(b) plans, profit-sharing and money purchase pension plans, defined benefit plans, retiree health benefit plans, and non-qualified deferred compensation plans. Traditional IRAs, Roth IRAs, Coverdell Education Savings Accounts, SEPs, SARSEPs, SIMPLE IRAs, KEOGHs, individual 401(k) or individual 403(b) plans do not qualify under this waiver.
LPL Financial is responsible for the implementation of this waiver on its platform.
Ameriprise Financial Class A Front-End Sales Charge Waivers
The following information applies to Class A shares purchases if you have an account with or otherwise purchase fund shares through Ameriprise Financial:
Effective January 15, 2021, shareholders purchasing fund shares through an Ameriprise Financial brokerage account are eligible for the following Class A front-end sales charge waivers, which may differ from those disclosed elsewhere in this fund’s prospectus or SAI:
■
Employer-sponsored retirement plans (e.g., 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans and defined benefit plans). For purposes of this provision, employer-sponsored retirement plans do not include SEP IRAs, Simple IRAs or SAR-SEPs.
Prospectus August 1, 2024 | 43 | Appendix B |
■
Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing shares of the same fund (but not any other fund within the same fund family).
■
Shares exchanged from Class C shares of the same fund in the month of or following the 7-year anniversary of the purchase date. To the extent that this prospectus elsewhere provides for a waiver with respect to exchanges of Class C shares or conversion of Class C shares following a shorter holding period, that waiver will apply.
■
Employees and registered representatives of Ameriprise Financial or its affiliates and their immediate family members.
■
Shares purchased by or through qualified accounts (including IRAs, Coverdell Education Savings Accounts, 401(k)s, 403(b) TSCAs subject to ERISA and defined benefit plans) that are held by a covered family member, defined as an Ameriprise financial advisor and/or the advisor’s spouse, advisor’s lineal ascendant (mother, father, grandmother, grandfather, great grandmother, great grandfather), advisor’s lineal descendant (son, step-son, daughter, step-daughter, grandson, granddaughter, great grandson, great granddaughter) or any spouse of a covered family member who is a lineal descendant.
■
Shares purchased from the proceeds of redemptions within the same fund family, provided (i) the repurchase occurs within 90 days following the redemption, (ii) the redemption and purchase occur in the same account, and (iii) redeemed shares were subject to a front-end or deferred sales load (i.e., Rights of Reinstatement).
Morgan Stanley Wealth Management Class A Front-End Sales Charge Waivers
Effective July 1, 2018, fund shares purchased through a Morgan Stanley Wealth Management transactional brokerage account will be eligible only for the following front-end sales charge waivers with respect to Class A shares, which may differ from, and may be more limited than, those disclosed elsewhere in this fund’s prospectus or SAI.
■
Shares purchased by employer-sponsored retirement plans (e.g., 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans and defined benefit plans). For purposes of this provision, employer-sponsored retirement plans do not include SEP IRAs, Simple IRAs, SAR-SEPs or Keogh plans.
■
Shares purchased by Morgan Stanley employee and employee-related accounts according to Morgan Stanley’s account linking rules.
■
Shares purchased through reinvestment of dividends and capital gains distributions when purchasing shares of the same fund.
■
Shares purchased through a Morgan Stanley self-directed brokerage account.
■
Class C (i.e., level-load) shares that are no longer subject to a contingent deferred sales charge and are converted to Class A shares of the same fund pursuant to Morgan Stanley Wealth Management’s share class conversion program.
■
Shares purchased from the proceeds of redemptions within the same fund family, provided (i) the repurchase occurs within 90 days following the redemption, (ii) the redemption and purchase occur in the same account, and (iii) redeemed shares were subject to a front-end or deferred sales charge.
Raymond James & Associates, Inc., Raymond James Financial Services, Inc. & Each Entity’s Affiliates (“Raymond James”)
Shareholders purchasing fund shares through a Raymond James platform or account, or through an introducing broker-dealer or independent registered investment adviser for which Raymond James provides trade execution, clearance, and/or custody services, will be eligible only for the following load waivers (front-end sales charge waivers and contingent deferred, or back-end, sales charge waivers) and discounts, which may differ from those disclosed elsewhere in the fund’s prospectus or SAI.
Front-end Sales Load Waivers on Class A Shares Available at Raymond James
■
Shares purchased in an investment advisory program.
■
Shares purchased within the same fund family through a systematic reinvestment of capital gains and dividend distributions.
■
Employees and registered representatives of Raymond James or its affiliates and their family members as designated by Raymond James.
■
Shares purchased from the proceeds of redemptions within the same fund family, provided (i) the repurchase occurs within 90 days following the redemption, (ii) the redemption and purchase occur in the same account, and (iii) redeemed shares were subject to a front-end or deferred sales load (known as Rights of Reinstatement).
■
A shareholder in the fund’s Class C shares will have their shares converted by Raymond James at net asset value to Class A shares (or the appropriate share class) of the fund if the shares are no longer subject to a CDSC and the conversion is in line with the policies and procedures of Raymond James.
CDSC Waivers on Class A and C Shares Available at Raymond James
■
Death or disability of the shareholder.
Prospectus August 1, 2024 | 44 | Appendix B |
■
Shares sold as part of a systematic withdrawal plan as described in the fund’s prospectus.
■
Return of excess contributions from an IRA Account.
■
Shares sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder reaching the qualified age based on applicable IRS regulations as described in the fund’s prospectus.
■
Shares sold to pay Raymond James fees but only if the transaction is initiated by Raymond James.
■
Shares acquired through a right of reinstatement.
Front-end Load Discounts Available at Raymond James: Breakpoints, Rights of Accumulation, and/or Letters of Intent
■
Breakpoints as described in this prospectus.
■
Rights of accumulation which entitle shareholders to breakpoint discounts will be automatically calculated based on the aggregated holding of fund family assets held by accounts within the purchaser’s household at Raymond James. Eligible fund family assets not held at Raymond James may be included in the calculation of rights of accumulation only if the shareholder notifies his or her financial advisor about such assets.
■
Letters of intent which allow for breakpoint discounts based on anticipated purchases within a fund family, over a 13-month time period. Eligible fund family assets not held at Raymond James may be included in the calculation of letters of intent only if the shareholder notifies his or her financial advisor about such assets.
JANNEY MONTGOMERY SCOTT LLC CLASS A AND C SALES CHARGE WAIVERS AND DISCOUNTS
Effective May 1, 2020, if you purchase fund shares through a Janney Montgomery Scott LLC (“Janney”) brokerage account, you will be eligible only for the following load waivers (front-end sales charge waivers and contingent deferred sales charge (“CDSC”), or back-end sales charge, waivers) and discounts, which may differ from those disclosed elsewhere in the fund’s prospectus or SAI.
Front-end sales charge* waivers on Class A shares available at Janney
■
Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing shares of the same fund (but not any other fund within the fund family).
■
Shares purchased by employees and registered representatives of Janney or its affiliates and their family members as designated by Janney.
■
Shares purchased from the proceeds of redemptions within the same fund family, provided (i) the repurchase occurs within ninety (90) days following the redemption, (ii) the redemption and purchase occur in the same account, and (iii) redeemed shares were subject to a front-end or deferred sales load (i.e., right of reinstatement).
■
Employer-sponsored retirement plans (e.g., 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans and defined benefit plans). For purposes of this provision, employer-sponsored retirement plans do not include SEP IRAs, Simple IRAs, SAR-SEPs or Keogh plans.
■
Shares acquired through a right of reinstatement.
■
Class C shares that are no longer subject to a contingent deferred sales charge and are converted by Janney at net asset value to Class A shares of the same fund pursuant to Janney’s policies and procedures.
CDSC waivers on Class A and C shares available at Janney
■
Shares sold upon the death or disability of the shareholder.
■
Shares sold as part of a systematic withdrawal plan as described in the fund’s prospectus.
■
Shares purchased in connection with a return of excess contributions from an IRA account.
■
Shares sold as part of a required minimum distribution for IRA and other retirement accounts if the redemption is taken in or after the year the shareholder reaches qualified age based on applicable IRS regulations.
■
Shares sold to pay Janney fees but only if the transaction is initiated by Janney.
■
Shares acquired through a right of reinstatement.
■
Shares exchanged into the same share class of a different fund.
Front-end sales charge* discounts available at Janney: breakpoints, rights of accumulation, and/or letters of intent
■
Breakpoints as described in the fund’s prospectus.
■
Rights of accumulation (“ROA”), which entitle shareholders to breakpoint discounts, will be automatically calculated based on the aggregated holding of fund family assets held by accounts within the purchaser’s household at Janney. Eligible fund family assets not held at Janney may be included in the ROA calculation only if the shareholder notifies his or her financial advisor about such assets.
■
Letters of intent which allow for breakpoint discounts based on anticipated purchases within a fund family, over a 13-month time period. Eligible fund family assets not held at Janney may be included in the calculation of letters of intent only if the shareholder notifies his or her financial advisor about such assets.
*Also referred to as an “initial sales charge.”
Prospectus August 1, 2024 | 45 | Appendix B |
EDWARD D. JONES & CO., L.P. (“EDWARD JONES”)
POLICIES REGARDING TRANSACTIONS THROUGH EDWARD JONES
The following information supersedes prior information with respect to transactions and positions held in fund shares through an Edward Jones system. Clients of Edward Jones (also referred to as “shareholders”) purchasing fund shares on the Edward Jones commission and fee-based platforms are eligible only for the following sales charge discounts (also referred to as “breakpoints”) and waivers, which can differ from discounts and waivers described elsewhere in the mutual fund prospectus or statement of additional information (“SAI”) or through another broker-dealer. In all instances, it is the shareholder's responsibility to inform Edward Jones at the time of purchase of any relationship, holdings of DWS Funds, or other facts qualifying the purchaser for discounts or waivers. Edward Jones can ask for documentation of such circumstance. Shareholders should contact Edward Jones if they have questions regarding their eligibility for these discounts and waivers.
■
Breakpoint pricing, otherwise known as volume pricing, at dollar thresholds as described in the prospectus.
Rights of Accumulation (“ROA”)
■
The applicable sales charge on a purchase of Class A shares is determined by taking into account all share classes (except certain money market funds and any assets held in group retirement plans) of DWS Funds held by the shareholder or in an account grouped by Edward Jones with other accounts for the purpose of providing certain pricing considerations (“pricing groups”). If grouping assets as a shareholder, this includes all share classes held on the Edward Jones platform and/or held on another platform. The inclusion of eligible fund family assets in the ROA calculation is dependent on the shareholder notifying Edward Jones of such assets at the time of calculation. Money market funds are included only if such shares were sold with a sales charge at the time of purchase or acquired in exchange for shares purchased with a sales charge.
■
The employer maintaining a SEP IRA plan and/or SIMPLE IRA plan may elect to establish or change ROA for the IRA accounts associated with the plan to a plan-level grouping as opposed to including all share classes at a shareholder or pricing group level.
■
ROA is determined by calculating the higher of cost minus redemptions or market value (current shares x NAV).
■
Through a LOI, shareholders can receive the sales charge and breakpoint discounts for purchases shareholders intend to make over a 13-month period from the date Edward Jones receives the LOI. The LOI is determined by calculating the higher of cost or market value of qualifying holdings at LOI initiation in combination with the value that the shareholder intends to buy over a 13-month period to calculate the front-end sales charge and any breakpoint discounts. Each purchase the shareholder makes during that 13-month period will receive the sales charge and breakpoint discount that applies to the total amount. The inclusion of eligible fund family assets in the LOI calculation is dependent on the shareholder notifying Edward Jones of such assets at the time of calculation. Purchases made before the LOI is received by Edward Jones are not adjusted under the LOI and will not reduce the sales charge previously paid. Sales charges will be adjusted if LOI is not met.
■
If the employer maintaining a SEP IRA plan and/or SIMPLE IRA plan has elected to establish or change ROA for the IRA accounts associated with the plan to a plan-level grouping, LOIs will also be at the plan-level and may only be established by the employer.
Front-end Sales Charge Waivers on Class A Shares Available at Edward Jones
Class A front-end sales charges are waived for the following shareholders and in the following situations:
■
Associates of Edward Jones and its affiliates and other accounts in the same pricing group (as determined by Edward Jones under its policies and procedures) as the associate. This waiver will continue for the remainder of the associate's life if the associate retires from Edward Jones in good-standing and remains in good standing pursuant to Edward Jones' policies and procedures.
■
Shares purchased in an Edward Jones fee-based program.
■
Shares purchased through reinvestment of capital gains distributions and dividend reinvestment.
■
Shares purchased from the proceeds of redeemed shares of the same fund family so long as the following conditions are met: (i) the proceeds are from the sale of shares within 60 days of the purchase; (ii) the sale and purchase are made from a share class that charges a front-end load; and (iii) one of the following:
-
The redemption and repurchase occur in the same account.
-
The redemption proceeds are used to process an: IRA contribution, excess contributions, conversion, recharacterizing of contributions, or distribution, and the repurchase is done in an account within the same Edward Jones grouping for ROA.
Prospectus August 1, 2024 | 46 | Appendix B |
■
Shares exchanged into Class A shares from another share class so long as the exchange is into the same fund and was initiated at the discretion of Edward Jones. Edward Jones is responsible for any remaining contingent deferred sales charges due to the fund company, if applicable. Any future purchases are subject to the applicable sales charge as disclosed in the prospectus.
■
Exchanges from Class C shares to Class A shares of the same fund, generally, in the 84th month following the anniversary of the purchase date or earlier by and at the discretion of Edward Jones.
Contingent Deferred Sales Charge (“CDSC”) Waivers on Class A and C Shares Available at Edward Jones
If the shareholder purchases Class A or Class C shares that are subject to a CDSC and those shares are redeemed before the CDSC is expired, the shareholder is responsible to pay the CDSC except in the following conditions:
■
The death or disability of the shareholder.
■
Systematic withdrawals with up to 10% per year of the account value.
■
Return of excess contributions from an Individual Retirement Account (IRA).
■
Shares redeemed as part of a required minimum distribution for IRA and retirement accounts if the redemption is taken in or after the year the shareholder reaches qualified age based on applicable IRS regulations.
■
Shares redeemed to pay Edward Jones fees or costs in such cases where the transaction is initiated by Edward Jones.
■
Shares exchanged in an Edward Jones fee-based program.
■
Shares acquired through NAV reinstatement.
■
Shares redeemed at the discretion of Edward Jones for Minimum Balances, as described below.
OTHER IMPORTANT INFORMATION REGARDING TRANSACTIONS THROUGH EDWARD JONES
Minimum Purchase Amounts for Class A and Class C Shares
■
Initial purchase minimum: $250
■
Subsequent purchase minimum: none
■
Edward Jones has the right to redeem at its discretion fund holdings with a balance of $250 or less. The following are examples of accounts that are not included in this policy:
-
A fee-based account held on an Edward Jones platform.
-
A 529 account held on an Edward Jones platform.
-
An account with an active systematic investment plan or LOI.
■
At any time it deems necessary, Edward Jones has the authority to exchange at NAV a shareholder’s holdings in a fund to Class A shares of the same fund.
OPPENHEIMER & CO. INC. CLASS A AND C SALES CHARGE WAIVERS AND DISCOUNTS
Effective on or about June 1, 2020, shareholders purchasing fund shares through an Oppenheimer & Co. Inc. (“OPCO”) platform or account are eligible only for the following load waivers (front-end sales charge waivers and contingent deferred, or back-end, sales charge (“CDSC”) waivers) and discounts, which may differ from those disclosed elsewhere in the fund’s prospectus or SAI.
Front-end Sales Load Waivers on Class A Shares Available at OPCO
■
Employer-sponsored retirement, deferred compensation and employee benefit plans (including health savings accounts) and trusts used to fund those plans, provided that the shares are not held in a commission-based brokerage account and shares are held for the benefit of the plan.
■
Shares purchased by or through a 529 Plan.
■
Shares purchased through an OPCO affiliated investment advisory program.
■
Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing shares of the same fund (but not any other fund within the fund family).
■
Shares purchased from the proceeds of redemptions within the same fund family, provided (i) the repurchase occurs within 90 days following the redemption, (ii) the redemption and purchase occur in the same account, and (iii) redeemed shares were subject to a front-end or deferred sales load (known as Rights of Restatement).
■
A shareholder in the fund’s Class C shares will have their shares converted by OPCO at net asset value to Class A shares (or the appropriate share class) of the same fund if the shares are no longer subject to a CDSC and the conversion is in line with the policies and procedures of OPCO.
■
Employees and registered representatives of OPCO or its affiliates and their family members.
Prospectus August 1, 2024 | 47 | Appendix B |
■
Directors or Trustees of the fund, and employees of the fund’s investment adviser or any of its affiliates, as described in this prospectus.
CDSC Waivers on Class A and C Shares Available at OPCO
■
Death or disability of the shareholder.
■
Shares sold as part of a systematic withdrawal plan as described in the Fund’s prospectus.
■
Return of excess contributions from an IRA Account.
■
Shares sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder reaching the qualified age based on applicable IRS regulations as described in the prospectus.
■
Shares sold to pay OPCO fees but only if the transaction is initiated by OPCO.
■
Shares acquired through a right of reinstatement.
Front-end Load Discounts Available at OPCO: Breakpoints, Rights of Accumulation & Letters of Intent
■
Breakpoints as described in this prospectus.
■
Rights of Accumulation (ROA) which entitle shareholders to breakpoint discounts will be automatically calculated based on the aggregated holding of fund family assets held by accounts within the purchaser’s household at OPCO. Eligible fund family assets not held at OPCO may be included in the ROA calculation only if the shareholder notifies his or her financial advisor about such assets.
■
Letters of Intent as described in this prospectus.
ROBERT W. BAIRD & CO. INC. – CLASS A AND C SALES CHARGE WAIVERS AND DISCOUNTS
Effective June 15, 2020, shareholders purchasing fund shares through a Robert W. Baird & Co. Inc. (“Baird”) platform or account will only be eligible for the following sales charge waivers (front-end sales charge waivers and CDSC waivers) and discounts, which may differ from those disclosed elsewhere in the fund’s prospectus or SAI.
Front-End Sales Charge Waivers on Class A Shares Available at Baird
■
Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing shares of the same fund.
■
Shares purchased by employees and registered representatives of Baird or its affiliates and their family members as designated by Baird.
■
Shares purchased from the proceeds of redemptions from another fund in the same fund family, provided (i) the repurchase occurs within 90 days following the redemption, (ii) the redemption and purchase occur in the same account, and (iii) redeemed shares were subject to a front-end or deferred sales charge (known as rights of reinstatement).
■
Shareholders in a fund’s Class C Shares will have their shares converted by Baird at net asset value to Class A shares of the same fund if the shares are no longer subject to CDSC and the conversion is in line with the policies and procedures of Baird.
■
Employer-sponsored retirement plans or charitable accounts in a transactional brokerage account at Baird, including 401(k) plans, 457 plans, employer-sponsored 403(b) plans, profit sharing and money purchase pension plans and defined benefit plans. For purposes of this provision, employer-sponsored retirement plans do not include SEP IRAs, Simple IRAs or SAR-SEPs.
CDSC Waivers on Class A and C Shares Available at Baird
■
Shares sold due to death or disability of the shareholder.
■
Shares sold as part of a systematic withdrawal plan as described in the fund’s prospectus.
■
Shares bought due to returns of excess contributions from an IRA Account.
■
Shares sold as part of a required minimum distribution for IRA and retirement accounts due to the shareholder reaching the qualified age based on applicable IRS regulations as described in the fund’s prospectus.
■
Shares sold to pay Baird fees but only if the transaction is initiated by Baird.
■
Shares acquired through a right of reinstatement.
Front-End Sales Charge Discounts Available at Baird: Breakpoints, Rights of Accumulations and/or Letters of Intent
■
Breakpoints as described in the fund’s prospectus.
■
Rights of accumulation (ROA), which entitle shareholders to breakpoint discounts, will be automatically calculated based on the aggregated holding of fund family assets held by accounts within the purchaser’s household at Baird. Eligible fund family assets not held at Baird may be included in the rights of accumulation calculation only if the shareholder notifies his or her financial advisor about such assets.
■
Letters of Intent (LOI), which allow for breakpoint discounts based on anticipated purchases through Baird within a fund family, over a 13-month period of time.
Prospectus August 1, 2024 | 48 | Appendix B |
Waivers Specific to Stifel, Nicolaus & Company, Incorporated (“Stifel”)
Effective September 1, 2020, shareholders purchasing fund shares through a Stifel platform or account or who own shares for which Stifel or an affiliate is the broker-dealer of record are eligible for the following additional sales charge waiver.
Front-end Sales Load Waiver on Class A Shares
■
Class C shares that have been held for more than seven (7) years will be converted by Stifel at net asset value to Class A shares of the same fund pursuant to Stifel’s policies and procedures.
All other sales charge waivers and reductions described elsewhere in the fund’s prospectus or SAI still apply.
J.P. MORGAN SECURITIES LLC
Effective September 29, 2023, if you purchase or hold fund shares through an applicable J.P. Morgan Securities LLC brokerage account, you will be eligible for the following sales charge waivers (front-end sales charge waivers and contingent deferred sales charge (“CDSC”), or back-end sales charge, waivers), share class conversion policy and discounts, which may differ from those disclosed elsewhere in the fund’s prospectus or Statement of Additional Information.
Front-end sales charge waivers on Class A shares available at J.P. Morgan Securities LLC
■
Shares exchanged from Class C (i.e. level-load) shares that are no longer subject to a CDSC and are exchanged into Class A shares of the same fund pursuant to J.P. Morgan Securities LLC’s share class exchange policy.
■
Qualified employer-sponsored defined contribution and defined benefit retirement plans, nonqualified deferred compensation plans, other employee benefit plans and trusts used to fund those plans. For purposes of this provision, such plans do not include SEP IRAs, SIMPLE IRAs, SAR-SEPs or 501(c)(3) accounts.
■
Shares of funds purchased through J.P. Morgan Securities LLC Self-Directed Investing accounts.
■
Shares purchased through rights of reinstatement.
■
Shares purchased through reinvestment of capital gains distributions and dividend reinvestment when purchasing shares of the same fund (but not any other fund within the fund family).
■
Shares purchased by employees and registered representatives of J.P. Morgan Securities LLC or its affiliates and their spouse or financial dependent as defined by J.P. Morgan Securities LLC.
Class C to Class A share conversion
■
A shareholder in the fund's Class C shares will have their shares converted by J.P. Morgan Securities LLC to Class A shares (or the appropriate share class) of the same fund if the shares are no longer subject to a CDSC and the conversion is consistent with J.P. Morgan Securities LLC's policies and procedures.
CDSC waivers on Class A and C shares available at J.P. Morgan Securities LLC
■
Shares sold upon the death or disability of the shareholder.
■
Shares sold as part of a systematic withdrawal plan as described in the fund’s prospectus.
■
Shares purchased in connection with a return of excess contributions from an IRA account.
■
Shares sold as part of a required minimum distribution for IRA and retirement accounts pursuant to the Internal Revenue Code.
■
Shares acquired through a right of reinstatement.
Front-end load discounts available at J.P. Morgan Securities LLC: breakpoints, rights of accumulation & letters of intent
■
Breakpoints as described in the fund’s prospectus.
■
Rights of Accumulation (“ROA”), which entitle shareholders to breakpoint discounts as described in the fund’s prospectus, will be automatically calculated based on the aggregated holding of fund family assets held by accounts within the purchaser’s household at J.P. Morgan Securities LLC. Eligible fund family assets not held at J.P. Morgan Securities LLC (including 529 program holdings, where applicable) may be included in the ROA calculation only if the shareholder notifies their financial advisor about such assets.
■
Letters of Intent, which allow for breakpoint discounts based on anticipated purchases within a fund family, through J.P. Morgan Securities LLC, over a 13-month period of time (if applicable).
Prospectus August 1, 2024 | 49 | Appendix B |
To Get More Information
Shareholder reports. Additional information about the fund’s investments is available in the fund’s annual and semi-annual reports to shareholders. In the annual report, you will find a discussion of the market conditions and investment strategies that significantly affected fund performance during its last fiscal year.
Statement of Additional Information (SAI). This tells you more about the fund’s features and policies, including additional risk information. The SAI is incorporated by reference into this document (meaning that it’s legally part of this prospectus).
For a free copy of any of these documents or to request other information about the fund, contact DWS at the telephone number or address listed below. SAIs and shareholder reports are also available through the DWS Web site at dws.com. These documents and other information about the fund are available from the EDGAR Database on the SEC’s Internet site at sec.gov. If you like, you may obtain copies of this information, after paying a duplicating fee, by e-mailing a request to publicinfo@sec.gov.
In order to reduce the amount of mail you receive and to help reduce expenses, we generally send a single copy of any shareholder report and prospectus to each household.
If you do not want the mailing of these documents to be combined with those for other members of your household, please contact your financial representative or call the telephone number provided.
|
PO Box 219151
Kansas City, MO
64121-9151
dws.com |
|
Shareholders:
(800) 728-3337
Investment professionals:
(800) 621-5027 |
|
DWS Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606-5808
(800) 621-1148 |
|
Deutsche DWS State Tax-Free Income
Series
DWS Massachusetts Tax-Free Fund
811-03657 |
Statement of Additional
Information
DEUTSCHE
DWS STATE TAX-FREE INCOME SERIES
DWS
Massachusetts Tax-Free Fund |
|
|
|
|
|
|
|
|
|
This
Statement of Additional Information (“SAI”)
is not a prospectus and should be read in conjunction
with the prospectus for the fund dated August
1, 2024,
as supplemented, a copy of which may be obtained
without charge by calling (800) 728-3337; by
visiting dws.com
(the Web site does not form a part of this SAI);
or from the firm from which this SAI was obtained.
This SAI is incorporated by reference into the prospectus.
Portions
of the Annual Report to Shareholders of the fund
are incorporated herein by reference, and are hereby
deemed to be part of this SAI. Reports to Shareholders
may also be obtained without charge by calling
the number provided in the preceding paragraph.
This SAI is divided into
two Parts—Part
I and Part II. Part I contains information that
is specific to the fund, while Part II contains
information that generally applies to each of the funds in the
DWS funds.
Statement of Additional Information
(SAI)—Part
I
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Detailed
Part II table of contents precedes page II-1 |
|
Definitions
“1933
Act”
– the Securities Act of 1933, as amended
“1934
Act”
– the Securities Exchange Act of 1934, as amended
“1940
Act”
– the Investment Company Act of 1940, as amended
“Code”
– the Internal Revenue Code of 1986, as amended
“SEC”
– the Securities and Exchange Commission
“DIMA”
or “Advisor”
or “Administrator”
– DWS Investment Management Americas,
Inc., 875 Third Avenue, New York, New York 10022
“DDI”
or “Distributor”
– DWS Distributors, Inc., 222 South Riverside Plaza, Chicago,
Illinois 60606
“DSC”
or “Transfer
Agent”
– DWS Service Company, 222 South Riverside Plaza, Chicago,
Illinois 60606
“DWS”
– refers to the asset management activities conducted
by DWS Group GmbH & Co. KGaA or any of its
subsidiaries, including the Advisor and other affiliated investment
advisors
“DWS
funds”
– the US registered investment companies advised by DIMA
“DWS
Group”
– DWS Group GmbH & Co. KGaA, a separate,
publicly-listed financial services firm that is an indirect,
majority-owned subsidiary of Deutsche Bank AG
“Board
Members”
– Members of the Board of Trustees of the Trust
“Board”
– Board of Trustees of the Trust
“Independent
Board Members”–
Board Members who are not interested persons
(as defined in the 1940 Act) of the fund, the investment advisor
or the distributor
“fund”
or “series”
– DWS Massachusetts Tax-Free Fund
“Custodian”
– State Street Bank and Trust Company, One Congress
Street, Suite 1, Boston, Massachusetts 02114-2016
“Fund
Legal Counsel”
– Vedder Price P.C., 222 North LaSalle Street, Chicago,
Illinois 60601
“Trustee/Director
Legal Counsel”
– Ropes & Gray LLP, Prudential Tower,
800 Boylston Street, Boston, Massachusetts 02199
“Trust”
– Deutsche DWS State Tax-Free Income Series
“Business
Day”
– Monday through Friday except holidays
“Independent
Registered Public Accounting Firm”
– Ernst & Young LLP, 200 Clarendon
Street, Boston, Massachusetts 02116
“NRSRO”
– a nationally recognized statistical rating organization
“Moody’s”
– Moody’s Investors Service, Inc., a NRSRO
“Fitch”
– Fitch Ratings, a NRSRO
DWS Massachusetts Tax-Free
Fund is a series of Deutsche DWS State Tax-Free
Income Series, a Massachusetts business trust
organized on October 24, 1985. On August 1,
2011, the predecessor of DWS Massachusetts Tax-Free Fund
(the “Predecessor
Fund”)
transferred all of its assets and liabilities
from DWS State Tax Free Trust, a Massachusetts
business trust, to DWS State Tax-Free Income Series,
while retaining the same fund name. On February 6,
2006, Scudder State Tax Free Trust was renamed DWS State
Tax Free Trust and Scudder Massachusetts Tax-Free Fund
was renamed DWS Massachusetts Tax-Free Fund. On
August 11, 2014, DWS State Tax-Free Income Series was
renamed Deutsche State Tax-Free Income Series and
DWS Massachusetts Tax-Free Fund was renamed Deutsche
Massachusetts Tax-Free Fund. On July 2, 2018, Deutsche
State Tax-Free Income Series was renamed Deutsche
DWS State Tax-Free Income Series and Deutsche
Massachusetts Tax-Free Fund was renamed DWS Massachusetts Tax-Free
Fund.
The Trust is governed
by an Amended and Restated Declaration of Trust
dated June 2, 2008, as may be further amended
from time to time (the “Declaration
of Trust”).
The
Declaration of Trust was last approved by shareholders
in 2006. Additional information about the Trust is set forth
in Part II
under “Fund
Organization.”
Board Members, Advisory Board Members, and Officers’
Identification and Background
The identification and
background of the Board Members and officers are set forth in
Part II—Appendix
II-A.
Board Committees and Compensation
Compensation paid to the
Independent Board Members for certain specified
periods is set forth in Part I—
Appendix I-C.
Information regarding the committees of the Board is set forth
in Part I—Appendix
I-B.
Board Member Share Ownership and Control Persons
Information concerning
the ownership of fund shares by Board Members
and officers, as a group, as well as the dollar
range value of each Board Member’s share ownership
in the fund and, on an aggregate basis, in all DWS
funds overseen, by investors who control the fund, if
any, and by investors who own 5% or more of any class
of fund shares, if any, is set forth in Part I—
Appendix I-A.
Information regarding
the fund’s portfolio manager(s), including
other accounts managed, compensation, ownership
of fund shares and possible conflicts of interest, is
set forth in Part I—Appendix
I-D
and Part II – Appendix
II-B. This section does not apply to money market
funds.
Service Provider Compensation
Compensation paid by the
fund to certain of its service providers for
various services, including investment advisory,
administrative, transfer agency, and, for certain funds,
fund accounting services and subadvisory services, is
set forth in Part I—Appendix
I-E.
For information regarding payments made to DDI,
see Part I—
Appendix I-F.
The service provider compensation and underwriting
and sales commission information is not applicable
to new funds that have not completed a fiscal reporting
period. Fee rates for services of the above-referenced
service providers are included in Part II – Appendix
II-C.
Sales
Charges and Distribution Plan Payments
Initial sales charges
and any contingent deferred sales charges (CDSC)
paid in connection with the purchase and sale
of fund shares for the three most recent fiscal years
are set forth in Part I—Appendix
I-F.
This information is not applicable to funds/classes
that do not impose sales charges, or to new
funds/classes that have not completed a fiscal reporting period.
Distribution Plan Payments
Payments made by the fund
for the most recent fiscal year under the fund’s
Rule 12b-1 Plans are set forth in Part I—Appendix
I-G.
This information is not applicable to funds/classes
that do not incur expenses paid in connection
with Rule 12b-1 Plans, or to new funds/classes that have not
completed a fiscal reporting period.
Portfolio Transactions, Brokerage
Commissions and Securities Lending Activities
The portfolio turnover
rates for the two most recent fiscal years are
set forth in Part I—Appendix
I-H.
This section does not apply to money market
funds or to new funds that have not completed a fiscal reporting
period.
Total brokerage commissions
paid by the fund for the three most recent fiscal
years are set forth in Part I—
Appendix I-H.
This section does not apply to new funds that have not completed
a fiscal reporting period.
The fund's policy with
respect to portfolio transactions and brokerage
is set forth under “Portfolio
Transactions”
in Part II
of this SAI.
Securities Lending Activities
Information regarding
securities lending activities of the fund, if
any, during its most recent fiscal year is set forth in Part
I—Appendix
I-J.
Additional information
regarding securities lending in general is set
forth under “Lending
of Portfolio Securities”
in Part
II of this SAI.
Investments
Investments, Practices and Techniques, and Risks
Part I—Appendix
I-I
includes a list of the investments, practices
and techniques, and risks which the fund may
employ (or be subject to) in pursuing its investment
objective. Part II—Appendix
II-G includes a
description of these investments, practices and techniques,
and risks. Part I—Appendix
I-L
includes additional information on state specific
risk factors and taxes for the fund.
Except as otherwise indicated,
the fund’s investment objective and policies
are not fundamental and may be changed without
a vote of shareholders. There can be no assurance
that the fund’s investment objective will be met.
Any investment restrictions
herein which involve a maximum percentage of
securities or assets shall not be considered
to be violated unless an excess over the percentage
occurs immediately after, and is caused by, an
acquisition or encumbrance of securities or assets of,
or borrowings by, the fund, except as described below with respect
to asset coverage for fund borrowings.
The fund has elected
to be classified as a non-diversified series
of an open-end management investment company. A
non-diversified fund may invest a greater proportion of
its assets in a small number of issuers, and may be subject
to greater risk and substantial losses as a result of
changes in the financial condition or the market’s assessment
of the issuers.
The following fundamental
policies may not be changed without the approval
of a majority of the outstanding voting securities
of the fund which, under the 1940 Act and the
rules thereunder and as used in this SAI, means the lesser
of (1) 67% or more of the voting securities present at
such meeting, if the holders of more than 50% of the outstanding
voting securities of the fund are present or represented
by proxy, or (2) more than 50% of the outstanding voting securities
of the fund.
As a matter of fundamental
policy, the fund may not do any of the following:
(1)
borrow
money, except as permitted under the 1940 Act, as interpreted
or modified by regulatory authority having jurisdiction, from
time to time.
(2)
issue
senior securities, except as permitted under the 1940 Act, as
interpreted or modified by regulatory authority having jurisdiction,
from time to time.
(3)
purchase
or sell commodities, except as permitted by the 1940 Act, as
interpreted or modified by regulatory authority having jurisdiction,
from time to time.
(4)
engage
in the business of underwriting securities issued by others,
except to the extent that the fund may be deemed to be an underwriter
in connection with the disposition of portfolio securities.
(5)
purchase
or sell real estate, which term does not include securities of
companies which deal in real estate or mortgages or investments
secured by real estate or interests therein, except that the
fund reserves freedom of action to hold and to sell real estate
acquired as a result of the fund’s ownership of securities.
(6)
make
loans except as permitted under the 1940 Act, as interpreted
or modified by regulatory authority having jurisdiction, from
time to time.
(7)
concentrate
its investments in a particular industry, as that term is used
in the 1940 Act, as interpreted or modified by regulatory authority
having jurisdiction, from time to time.
As a matter of fundamental
policy, at least 80% of the fund’s net
assets, plus the amount of any borrowings for
investment purposes, will normally be invested in Massachusetts
municipal securities.
For purposes of the fund’s
fundamental concentration policy set forth above,
industrial development or other private activity
bonds ultimately payable by companies within
the same industry will be considered as if they were issued by
issuers in the same industry.
The fund does not consider
private activity bonds to be municipal securities for purposes
of its 80% requirement.
The following is intended
to help investors better understand the meaning
of a fund’s fundamental policies by briefly
describing limitations, if any, imposed by the 1940 Act.
References to the 1940 Act below may encompass rules,
regulations or orders issued by the SEC and, to the
extent deemed appropriate by the fund, interpretations
and guidance provided by the SEC staff. These
descriptions
are intended as brief summaries of such limitations
as of the date of this SAI; they are not comprehensive
and they are qualified in all cases by reference to
the 1940 Act (including any rules, regulations or orders issued
by the SEC and any relevant interpretations and guidance
provided by the SEC staff). These descriptions are
subject to change based on evolving guidance by the
appropriate regulatory authority and are not part of a fund’s
fundamental policies.
The 1940 Act generally
permits a fund to borrow money in amounts of
up to 33 1∕3%
of its total assets from banks for any purpose.
The 1940 Act requires that after any borrowing
from a bank, a fund shall maintain an asset coverage
of at least 300% for all of the fund’s borrowings, and,
in the event that such asset coverage shall at any time
fall below 300%, a fund must, within three days thereafter
(not including Sundays and holidays), reduce the
amount of its borrowings to an extent that the asset coverage
of all of a fund’s borrowings shall be at least 300%.
In addition, a fund may borrow up to 5% of its total
assets from banks or other lenders for temporary purposes
(a loan is presumed to be for temporary purposes
if it is repaid within 60 days and is not extended or
renewed). For additional information, see “Borrowing”
in Part
II —
Appendix II-G.
At present, the 1940
Act does not set forth a maximum percentage
of a fund’s assets that may be invested in commodities.
Under the 1940 Act, a
fund generally may not lend portfolio securities
representing more than one-third of its total asset
value (including the value of collateral received for loans of
portfolio securities).
The SEC staff currently
interprets concentration to mean investing more
than 25% of a fund’s assets in a particular industry
or group of industries (excluding US government securities).
Other Investment Policies. The
Board has adopted certain additional non-fundamental
policies and restrictions which are observed
in the conduct of the fund’s affairs.
They differ from fundamental investment policies in
that they may be changed or amended by action of the
Board without requiring prior notice to, or approval of, the
shareholders.
As a matter of non-fundamental policy:
(1)
the
fund may not purchase illiquid securities if, as a result, more
than 15% of the fund's net assets would be invested in such securities.
(2)
the
fund may not acquire securities of other investment companies,
except as permitted by the 1940 Act and the rules, regulations
and any applicable exemptive order issued thereunder.
(3)
the
fund may not purchase warrants if, as a result, such securities,
taken at the lower of cost or market value, would represent more
than 5% of the value of the fund's total assets (for this purpose,
warrants acquired in units or attached to securities will be
deemed to have no value).
(4)
the
Board has the discretion to retain the current distribution arrangement
for the fund while investing in a master fund in a master-feeder
structure (this policy would permit the Board, without shareholder
approval to convert the fund to a master-feeder structure).
(5)
the
fund may invest more than 25% of its assets in municipal securities
that are repayable out of revenue streams generated from economically
related projects or facilities.
(6)
the
fund may invest more than 25% of its total assets in industrial
development or other private activity bonds, subject to its fundamental
investment policies.
(7)
the
fund will not sell interest rate caps or floors where it does
not own securities or other instruments providing the income
stream the fund may be obligated to pay.
For purposes of non-fundamental
policy (1), an illiquid security is any investment
that the fund reasonably expects cannot be sold
or disposed of in current market conditions
in seven calendar days without the sale or disposition
significantly changing the market value of the investment.
Important information
concerning the tax consequences of an investment
in the fund is contained in Part II—
Appendix II-H.
Independent
Registered Public Accounting Firm, Reports to Shareholders
and Financial Statements
Ernst & Young LLP,
200 Clarendon Street, Boston, Massachusetts
02116, an independent registered public accounting
firm, audits the financial statements of the fund
and provides other audit, tax and related services. Shareholders
will receive annual audited financial statements and semi-annual
unaudited financial statements.
The financial statements,
together with the report of the Independent
Registered Public Accounting Firm, financial
For information on CUSIP
numbers and fund fiscal year end information, see Part
I—Appendix
I-K.
Part I:
Appendix I-A—Board
Member Share Ownership and Control Persons
Board Member Share Ownership in the fund
The following tables show
the dollar range of equity securities beneficially owned by each current Board Member in the
fund and in DWS funds as of December 31, 2023.
Dollar Range of Beneficial Ownership(1)
|
DWS
Massachusetts Tax-Free Fund |
Independent
Board Member: |
Mary
Schmid Daugherty (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aggregate Dollar Range of Beneficial Ownership(1)
|
Funds
Overseen by
Board
Member in the
DWS
Funds |
Independent
Board Member: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)The
dollar ranges are: None, $1 – $10,000, $10,001 – $50,000, $50,001 – $100,000, or over $100,000.
(2)Ms.
Daugherty was appointed as an Independent Board Member effective August 15, 2023.
Ownership in Securities of the Advisor and Related Companies
As reported to the fund,
the information in the table below reflects ownership by the current Independent Board Members
and their immediate family members of certain securities as of December 31, 2023.
An immediate family member can be a spouse,
children residing in the same household, including step and adoptive children, and any dependents.
The securities represent ownership in the Advisor or Distributor and any persons (other than a registered investment
company) directly or indirectly controlling, controlled by, or under common control with the Advisor or Distributor
(including Deutsche Bank AG and DWS Group).
|
Owner
and
Relationship
to
Board
Member |
|
|
Value
of
Securities
on an
Aggregate
Basis |
Percent
of
Class
on an
Aggregate
Basis |
|
|
|
|
|
|
|
Owner
and
Relationship
to
Board
Member |
|
|
Value
of
Securities
on an
Aggregate
Basis |
Percent
of
Class
on an
Aggregate
Basis |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 2,
2024,
all Board Members and officers owned, as a group, less than 1% of the outstanding shares of the fund.
Shareholders who beneficially
own 25% or more of a fund's shares may have a significant impact on any shareholder vote
of the fund. Although the fund does not have information concerning the beneficial ownership of shares, the
following table identifies those investors who
owned of record 25% or more of the fund’s shares as of July 2,
2024:
DWS Massachusetts Tax-Free Fund
Name
and Address of Investor |
|
|
NATIONAL
FINANCIAL SERVICES LLC
FOR
EXCLUSIVE BENE OF OUR CUSTOMERS
ATTN
MUTUAL FUNDS DEPT - 4TH FL
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310-1995 |
|
|
5% or Greater Ownership of Share Classes
The following table identifies
those investors who owned 5% or more of a fund share class as of July 2,
2024.
All holdings are of record, unless otherwise indicated.
DWS Massachusetts Tax-Free Fund
Name
and Address of Investor |
|
|
|
MLPF&S
FOR THE SOLE BENEFIT OF
ITS
CUSTOMERS
ATTN
FUND ADMINISTRATION XXXXX
4800
DEER LAKE DR EAST 2ND FL
JACKSONVILLE
FL 32246-6484 |
|
|
|
MORGAN
STANLEY SMITH BARNEY
HARBORSIDE
FINANCIAL CENTER
PLAZA
II 3RD FLOOR
JERSEY
CITY NJ 07311 |
|
|
|
NATIONAL
FINANCIAL SERVICES LLC
FOR
EXCLUSIVE BENE OF OUR CUSTOMERS
ATTN
MUTUAL FUNDS DEPT - 4TH FL
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310-1995 |
|
|
|
Name
and Address of Investor |
|
|
|
FIRST
CLEARING LLC
SPECIAL
CUSTODY ACCT FOR THE
EXCLUSIVE
BENEFIT OF CUSTOMER
2801
MARKET ST
ST
LOUIS MO 63103-2523 |
|
|
|
UBS
WM USA
OMNI
ACCOUNT M/F
SPEC
CDY A/C EXCL BEN CUST UBSFSI
1000
HARBOR BLVD
WEEHAWKEN
NJ 07086-6761 |
|
|
|
LPL
FINANCIAL
9785
TOWNE CENTRE DR
SAN
DIEGO CA 92121-1968 |
|
|
|
RBC
CAPITAL MARKETS LLC
MUTUAL
FUND OMNIBUS PROCESSING
OMNIBUS
510
MARQUETTE AVE
MINNEAPOLIS
MN 55402-1110 |
|
|
|
AMERICAN
ENTERPRISE INVESTMENT SVC
707
2ND AVE S
MINNEAPOLIS
MN 55402-2405 |
|
|
|
MLPF&S
FOR THE SOLE BENEFIT OF
ITS
CUSTOMERS
ATTN
FUND ADMINISTRATION XXXXX
4800
DEER LAKE DR EAST 2ND FL
JACKSONVILLE
FL 32246-6484 |
|
|
|
AMERICAN
ENTERPRISE INVESTMENT SVC
707
2ND AVE S
MINNEAPOLIS
MN 55402-2405 |
|
|
|
RAYMOND
JAMES
OMNIBUS
FOR MUTUAL FUNDS
HOUSE
ACCT FIRM XXXXXXXX
ATTN
COURTNEY WALLER
880
CARILLON PARKWAY
ST
PETERSBURG FL 33716-1100 |
|
|
|
LPL
FINANCIAL
9785
TOWNE CENTRE DR
SAN
DIEGO CA 92121-1968 |
|
|
|
NATIONAL
FINANCIAL SERVICES LLC
FOR
EXCLUSIVE BENE OF OUR CUSTOMERS
ATTN
MUTUAL FUNDS DEPT - 4TH FL
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310-1995 |
|
|
|
PERSHING
LLC
1
PERSHING PLZ
JERSEY
CITY NJ 07399-0001 |
|
|
|
Name
and Address of Investor |
|
|
|
MORGAN
STANLEY SMITH BARNEY
HARBORSIDE
FINANCIAL CENTER
PLAZA
II 3RD FLOOR
JERSEY
CITY NJ 07311 |
|
|
|
NATIONAL
FINANCIAL SERVICES LLC
FOR
EXCLUSIVE BENE OF OUR CUSTOMERS
ATTN
MUTUAL FUNDS DEPT - 4TH FL
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310-1995 |
|
|
|
AMERICAN
ENTERPRISE INVESTMENT SVC
707
2ND AVE S
MINNEAPOLIS
MN 55402-2405 |
|
|
|
MORGAN
STANLEY SMITH BARNEY
HARBORSIDE
FINANCIAL CENTER
PLAZA
II 3RD FLOOR
JERSEY
CITY NJ 07311 |
|
|
|
MLPF&S
FOR THE SOLE BENEFIT OF
ITS
CUSTOMERS
ATTN
FUND ADMINISTRATION XXXXX
4800
DEER LAKE DR E FL 2ND
JACKSONVILLE
FL 32246-6484 |
|
|
|
NATIONAL
FINANCIAL SERVICES LLC
FOR
EXCLUSIVE BENE OF OUR CUSTOMERS
ATTN
MUTUAL FUNDS DEPT - 4TH FL
499
WASHINGTON BLVD
JERSEY
CITY NJ 07310-1995 |
|
|
|
CHARLES
SCHWAB & CO INC
ATTN
MUTUAL FUNDS DEPT
101
MONTGOMERY ST
SAN
FRANCISCO CA 94104-4151 |
|
|
|
Part I:
Appendix I-B—Board
Committees and Meetings
Information Concerning Committees and Meetings of the
Board
The Board oversees the
operations of the DWS funds and meets periodically to oversee fund activities, and to review fund
performance and contractual arrangements with fund service providers. The Board met five
times during the most recently completed calendar year.
Board Leadership Structure
A fund’s Board is
responsible for the general oversight of a fund’s affairs and for assuring that the fund is managed in
the best interests of its shareholders. The Board regularly reviews a fund’s investment performance as well as the quality
of other services provided to a fund and its shareholders by DIMA and its affiliates, including administration and
shareholder servicing. At least annually, the Board reviews and evaluates the fees and operating expenses paid by
a fund for these services and negotiates changes that it deems appropriate. In carrying out these responsibilities, the
Board is assisted by a fund’s auditors, independent counsel and other experts, as appropriate, selected by and responsible
to the Board.
Independent Board Members
are not considered “interested
persons”
(as defined in the 1940 Act) of the fund or its investment
adviser. These Independent Board Members must vote separately to approve all financial arrangements and
other agreements with a fund’s investment adviser and other affiliated parties. The role of the Independent Board Members
has been characterized as that of a “watchdog”
charged with oversight to protect shareholders’ interests against
overreaching and abuse by those who are in a position to control or influence a fund. A fund’s Independent Board
Members meet regularly as a group in executive session without representatives of the Advisor present. An Independent
Board Member currently serves as chairman of the Board.
Taking into account the
number, diversity and complexity of the funds overseen by the Board Members and the aggregate amount
of assets under management in the DWS funds, the Board has determined that the efficient conduct of its affairs
makes it desirable to delegate responsibility for certain specific matters to committees of the Board. These committees,
which are described in more detail below, review and evaluate matters specified in their charters and/or enabling
resolutions, and take actions on those matters and/or make recommendations to the Board, as appropriate. Each
committee may utilize the resources of counsel and auditors as well as other experts. The committees meet as often
as necessary, either in conjunction with regular meetings of the Board or otherwise. The membership and chair of
each committee are appointed by the Board upon recommendation of the Nominating and Governance Committee. The
membership and chair of each committee consist exclusively of Independent Board Members.
The Board has determined
that this committee structure also allows the Board to focus more effectively on the oversight of
risk as part of its broader oversight of a fund’s affairs. While risk management is the primary responsibility of the Advisor,
the Board regularly receives reports regarding investment risks and compliance risks. The Board’s committee structure
allows separate committees to focus on different aspects of these risks and their potential impact on some or
all of the DWS funds and to discuss with the Advisor how it monitors and controls such risks.
Board Committees.
The Board has established the following standing committees: Audit Committee, Nominating and
Governance Committee, Operations Committee and Dividend Committee.
|
Number
of
Meetings
in Last
Calendar
Year |
|
|
|
|
Assists
the Board in fulfilling its responsibility
for
oversight of (1) the integrity of the financial
statements,
(2) a fund’s accounting and
financial
reporting policies and procedures, (3)
a
fund’s compliance with legal and regulatory
requirements
related to accounting and
financial
reporting, (4) valuation of fund assets
and
securities and (5) the qualifications,
independence
and performance of the
independent
registered public accounting firm
for
a fund. Oversees a fund’s valuation
designee,
who is responsible for valuing the
fund’s
securities and other assets. The Audit
Committee
also approves and recommends to
the
Board the appointment, retention or
termination
of the independent registered
public
accounting firm for a fund, reviews the
scope
of audit and internal controls, considers
and
reports to the Board on matters relating to
a
fund’s accounting and financial reporting
practices,
and performs such other tasks as
the
full Board deems necessary or appropriate. |
Catherine
Schrand (Chair),
Richard
J. Herring (Vice
Chair),
Mary Schmid
Daugherty
and Keith R. Fox |
|
Number
of
Meetings
in Last
Calendar
Year |
|
|
NOMINATING
AND
GOVERNANCE
COMMITTEE
|
|
Recommends
individuals for membership on
the
Board, nominates officers, Board and
committee
chairs, vice chairs and committee
members,
and oversees the operations of the
Board.
The Nominating and Governance
Committee
has not established specific,
minimum
qualifications that must be met by an
individual
to be considered by the Nominating
and
Governance Committee for nomination as
a
Board Member. The Nominating and
Governance
Committee may take into account
a
wide variety of factors in considering Board
Member
candidates, including, but not limited
to:
(i) availability and commitment of a
candidate
to attend meetings and perform his
or
her responsibilities to the Board, (ii) relevant
industry
and related experience, (iii)
educational
background, (iv) financial expertise,
(v)
an assessment of the candidate's ability,
judgment
and expertise, and (vi) the current
composition
of the Board. The Committee
generally
believes that the Board benefits from
diversity
of background, experience and views
among
its members, and considers this as a
factor
in evaluating the composition of the
Board,
but has not adopted any specific policy
in
this regard. The Nominating and Governance
Committee
reviews recommendations by
shareholders
for candidates for Board positions
on
the same basis as candidates
recommended
by other sources. Shareholders
may
recommend candidates for Board
positions
by forwarding their correspondence
by
US mail or courier service to Keith R. Fox,
DWS
Funds Board Chair, c/o Thomas R. Hiller,
Ropes
& Gray LLP, Prudential Tower, 800
Boylston
Street, Boston, MA 02199-3600. |
Rebecca
W. Rimel (Chair),
Chad
D. Perry (Vice Chair)
and
Keith R. Fox |
|
|
Reviews
the administrative operations and
general
compliance matters of the funds.
Reviews
administrative matters related to the
operations
of the funds, policies and
procedures
relating to portfolio transactions,
custody
arrangements, fidelity bond and
insurance
arrangements and such other tasks
as
the full Board deems necessary or
appropriate.
|
William
N. Searcy, Jr.
(Chair),
Dawn-Marie Driscoll
(Vice
Chair), Chad D. Perry,
and
Rebecca W. Rimel |
|
|
Authorizes
dividends and other distributions for
those
funds that are organized as Maryland
corporations
or as series of a Maryland
corporation.
The Committee meets on an as-
needed
basis. The Committee applies only to
the
following corporations: Deutsche DWS
Global/International
Fund, Inc. and Deutsche
DWS
International Fund, Inc. |
Dawn-Marie
Driscoll, Keith
R.
Fox, Richard J. Herring
(Alternate),
Rebecca W.
Rimel
(Alternate), Catherine
Schrand
(Alternate) and
William
N. Searcy, Jr.
(Alternate)
|
Ad Hoc Committees.
In addition to the standing committees described above, from time to time the Board may also form
ad hoc committees to consider specific issues.
Part I:
Appendix I-C—Board
Member Compensation
Each Independent Board
Member receives compensation from the fund for his or her services, which includes retainer fees
and specified amounts for various committee services and for the Board Chairperson and Vice Chairperson, if any.
No additional compensation is paid to any Independent Board Member for travel time to meetings, attendance at
directors’ educational seminars or conferences, service on industry or association committees, participation as speakers
at directors’ conferences or service on special fund industry director task forces or subcommittees. Independent Board
Members do not receive any employee benefits such as pension or retirement benefits or health insurance from
the fund or any fund in the DWS fund complex.
Board Members who are
officers, directors, employees or stockholders of DWS or its affiliates receive no direct compensation from
the fund, although they are compensated as employees of DWS, or its affiliates, and as a result may be deemed to
participate in fees paid by the fund. The following tables show, for each current Independent Board Member, compensation from
the fund during its most recently completed fiscal year, and aggregate compensation from all of the funds in the
DWS fund complex during calendar year 2023.
Aggregate Compensation from the fund
|
DWS
Massachusetts Tax-Free Fund |
Independent
Board Member: |
Mary
Schmid Daugherty (1) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Compensation from DWS Fund Complex
|
Total
Compensation
from
the fund and
DWS
Fund Complex(2) |
Independent
Board Member: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
William
N. Searcy, Jr.(4)
|
|
(1)
Ms.
Daugherty was appointed as an Independent Board Member effective August 15, 2023.
(2)
For
each Independent Board Member, total compensation from the DWS fund complex represents compensation from
68
funds as of December 31, 2023.
(3)
Includes
$125,000 in annual retainer fees received by Mr. Fox as Chairperson of the DWS funds.
(4)
Includes
$25,000 in annual retainer fees for serving as Chairperson of a Board committee (other than the Audit Committee)
of the DWS funds and $35,000 in annual retainer fees for serving
as Chairperson of the Audit Committee of the DWS funds, as applicable.
Part I:
Appendix I-D—Portfolio
Management
Fund Ownership of Portfolio Managers
The following table shows
the dollar range of fund shares owned beneficially and of record by the portfolio management team
as well as in all US registered DWS funds advised by the Advisor as a group, including investments by their immediate
family members sharing the same household and amounts invested through retirement and deferred compensation plans.
This information is provided as of the fund's most recent fiscal year end.
DWS Massachusetts Tax-Free Fund
Name
of Portfolio Manager |
Dollar
Range of
Fund
Shares Owned |
Dollar
Range of All DWS
Fund
Shares Owned |
|
|
|
|
|
|
In addition to managing
the assets of the fund, a portfolio manager may have responsibility for managing other client accounts
of the Advisor or its affiliates. The tables below show, per portfolio manager, the number and asset size of: (1)
SEC registered investment companies (or series thereof) other than the fund, (2) pooled investment vehicles that are
not registered investment companies and (3) other accounts (e.g., accounts managed for individuals or organizations) managed
by a portfolio manager. Total assets attributed to a portfolio manager in the tables below include total assets of
each account managed, although a portfolio manager may only manage a portion of such account’s assets. For a fund
subadvised by subadvisors unaffiliated with the Advisor, total assets of funds managed may only include assets allocated
to the portfolio manager and not the total assets of a fund managed. The tables also show the number of performance-based
fee accounts, as well as the total assets of the accounts for which the advisory fee is based on the
performance of the account. This information is provided as of the fund's most recent fiscal year end.
DWS Massachusetts Tax-Free Fund
Other SEC Registered Investment Companies Managed:
Name
of
Portfolio
Manager |
Number
of
Registered
Investment
Companies
|
Total
Assets of
Registered
Investment
Companies
|
Number
of Investment
Company
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-Based
Fee
Accounts |
|
|
|
|
|
|
|
|
|
|
DWS Massachusetts Tax-Free Fund
Other Pooled Investment Vehicles Managed:
Name
of
Portfolio
Manager |
Number
of
Pooled
Investment
Vehicles
|
Total
Assets of
Pooled
Investment
Vehicles
|
Number
of Pooled
Investment
Vehicle
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
DWS Massachusetts Tax-Free Fund
Name
of
Portfolio
Manager |
|
Total
Assets
of
Other
Accounts
|
Number
of Other
Accounts
with
Performance-
Based
Fee |
Total
Assets of
Performance-
Based
Fee
Accounts
|
|
|
|
|
|
|
|
|
|
|
In addition to the accounts
above, an investment professional may manage accounts in a personal capacity that may include
holdings that are similar to, or the same as, those of the fund. The Advisor or Subadvisor, as applicable, has in
place a Code of Ethics that is designed to address conflicts of interest and that, among other things, imposes restrictions
on the ability of portfolio managers and other “access
persons”
to invest in securities that may be recommended or traded in
the fund and other client accounts.
Part I:
Appendix I-E—Service
Provider Compensation
DWS Massachusetts Tax-Free Fund
|
Gross
Amount
Paid
to DIMA
for
Advisory
|
Amount
Waived
by
DIMA for
Advisory
Services
|
Gross
Amount Paid to
DIMA
for General
Administrative
Services
|
Amount
Waived by
DIMA
for General
Administrative
Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
Amount Paid to
DSC
for Transfer
Agency
Services |
Amount
Waived by
DSC
for Transfer
Agency
Services |
|
|
|
|
|
|
|
|
|
(1)
Effective October 1, 2021, the fund pays the Advisor a fee, calculated daily and paid monthly, at the annual rate of 0.400% on the first
$250 million of the fund’s average daily
net assets, 0.370% on the next $750 million of the fund’s average daily net assets, 0.350% on the next $1.5 billion
of the fund’s average daily net assets, 0.330% on the next $2.5 billion of the fund’s average daily net assets, 0.300% on
the next $2.5 billion of the fund’s average
daily net assets, 0.280% on the next $2.5 billion of the fund’s average daily net assets, 0.260% on the next $2.5 billion of the
fund’s average daily net assets, and 0.250% of the fund’s average daily net assets thereafter. Prior to October 1, 2021, the
fund paid the Advisor a fee, calculated daily
and paid monthly, at the annual rate of 0.450% on the first $250 million of the fund’s average daily net assets, 0.420% on the
next $750 million of the fund’s average daily net assets, 0.400% on the next $1.5 billion of the fund’s average daily net
assets, 0.380% on the next $2.5 billion of the
fund’s average daily net assets, 0.350% on the next $2.5 billion of the fund’s average daily net assets, 0.330% on the next
$2.5 billion of the fund’s average daily
net assets, 0.310% on the next $2.5 billion of the fund’s average daily net assets, and 0.300% of the fund’s average
daily net assets thereafter.
The following waivers are currently in effect:
The Advisor has contractually
agreed through July 31, 2025
to waive its fees and/or reimburse fund expenses to the extent
necessary to maintain the fund’s total annual operating expenses (excluding certain expenses such as extraordinary expenses,
taxes, brokerage, interest expense and acquired fund fees and expenses) at ratios no higher than 0.85%, 1.60%,
0.60% and 0.60% for Class A, Class C, Institutional Class and Class S, respectively. The agreement may only be
terminated with the consent of the fund’s Board.
Part I:
Appendix I-F—Sales
Charges
The following tables show
the aggregate amount of underwriting commissions paid, the amount of underwriting commissions
retained by DDI and any CDSCs paid to DDI for the noted fiscal period(s). Any commissions not retained by
DDI were paid out to unaffiliated brokers.
Class A Initial Sales Charge:
|
|
Aggregate
Sales
Commissions
|
Aggregate
Commissions
Retained
by
DDI |
DWS
Massachusetts Tax-Free Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
DWS
Massachusetts Tax-Free Fund |
|
|
|
|
|
|
|
|
|
|
|
Part I:
Appendix I-G—Distribution
Plan Payments
Expenses of the fund paid
in connection with the Rule 12b-1 Plans for each class of shares that has adopted a Rule 12b-1
Plan are set forth below for the most recent fiscal year.
12b-1 Compensation to Underwriter and Firms:
|
|
|
12b-1
Shareholder
Services
Fees |
12b-1
Shareholder
Services
Fees
Waived
|
DWS
Massachusetts Tax-Free Fund |
|
|
|
|
|
|
|
|
|
Part I:
Appendix I-H—Portfolio
Transactions and Brokerage Commissions
Variations to the fund’s
portfolio turnover rate may be due to, among other things, a fluctuating volume of shareholder purchase
and redemption orders, market conditions, and/or changes in the Advisor's investment outlook.
|
|
|
DWS
Massachusetts Tax-Free Fund |
|
|
|
|
Brokerage
Commissions
Paid
by Fund |
DWS
Massachusetts Tax-Free Fund |
|
|
|
|
|
|
|
|
(1)
DWS Massachusetts Tax-Free Fund incurred brokerage commissions in fiscal year 2024 as a result of its investment in
a closed-end registered investment company.
Brokerage Commissions Paid to Affiliated Brokers
|
|
Name
of
Affiliated
Broker |
|
Aggregate
Brokerage
Commissions
Paid
by Fund
to
Affiliated
Brokers
|
%
of the Total
Brokerage
Commissions
|
%
of the
Aggregate
Dollar
Value of
all
Portfolio
Transactions
|
DWS
Massachusetts
Tax-Free
Fund |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The fund did not hold
any securities of its regular brokers or dealers (as such term is defined in the 1940 Act) as of the
end of its most recent fiscal year.
Transactions for Research Services
For the most recent fiscal
year, the fund allocated the following amount of transactions, and related commissions, to
broker-dealer firms that have been deemed by the Advisor to provide research services. The provision of research services
was not necessarily a factor in the placement of business with such firms.
|
Amount
of Transactions
with
Research Firms |
Commissions
Paid
on
Transactions
with
Research Firms |
DWS
Massachusetts Tax- Free Fund |
|
|
Part I:
Appendix I-I—Investments,
Practices and Techniques, and Risks
Below is a list of headings
related to investments, practices and techniques, and risks which are further described in Appendix
II-G.
DWS Massachusetts Tax-Free Fund
Adjustable Rate Securities
Commodity Pool Operator Exclusion
High Yield Fixed Income Securities - Junk
Bonds
Impact of Large Redemptions
and Purchases of Fund Shares
Industrial Development and Pollution Control
Bonds
Interfund Borrowing and Lending Program
Investment Companies
and Other Pooled Investment Vehicles
Mortgage-Backed Securities
Municipal Leases,
Certificates of Participation and Other Participation Interests
Obligations of Banks and Other Financial
Institutions
Real Estate Investment Trusts (REITs)
Reverse Repurchase Agreements
Special Information
Concerning Master-Feeder Fund Structure
Structured Notes (including
Equity-Linked Notes (ELNs))
Tax-Exempt Commercial Paper
Tax-Exempt Pass-Through Securities
Tender Option Bond Transactions
Variable and Floating Rate Instruments
Warrants
When-Issued and Delayed-Delivery Securities
Part I:
Appendix I-J—Securities
Lending Activities
The fund had no securities lending activity
during its most recent fiscal year.
Part I:
Appendix I-K—Additional
Information
Fund
and its Fiscal Year End |
|
|
DWS
Massachusetts Tax-Free Fund |
|
|
|
|
|
|
|
|
|
|
|
Part I:
Appendix I-L—State
Specific Risk Factors—Massachusetts
STATE SPECIFIC RISK FACTORS
The fund will invest
in bonds issued by the Commonwealth of Massachusetts or its political subdivisions. The fund is
therefore subject to various statutory, political, and economic factors unique to Massachusetts. Discussed below are
some of the more significant factors that could affect the ability of the bond issuers to repay interest and principal on
Massachusetts securities owned by the fund. The information is derived from various public sources, including the Commonwealth
of Massachusetts Investor Program’s website and the Information Statement of the Commonwealth of
Massachusetts dated May 9,
2024,
as supplemented on June 4,
2024,
all of which are available to investors generally and which the
fund assumes
to be accurate.
DWS Massachusetts Tax-Free Fund
The following information
as to certain Massachusetts risk factors is given to investors in view of the fund’s policy of concentrating
its investments in Massachusetts issuers. Such information constitutes only a brief summary, does not
purport to be a complete description and is based on information from official statements relating to securities offerings
of Massachusetts issuers and other sources believed to be reliable. No independent verification has been made
of the following information.
The fund is more susceptible
to factors adversely affecting issuers of Massachusetts municipal securities than comparable municipal
bond funds that do not focus on investments in Massachusetts issuers.
Commonwealth Employment and Income
Rates. The unemployment rate for the Commonwealth was 5.4%
in 2021, 3.3%
in 2022, and 3.0% in 2024.
The national unemployment rate was 4.2% in 2021,3.5%
in 2022, and 3.7%
in 2024.
As a result of the COVID-19 pandemic (see “Special
Disclosure Regarding COVID-19 Matters”),
the unemployment rate in the Commonwealth reached
a peak of 17.1% in April 2020 (compared to 2.9% in March 2020).
In 2021 real per
capita personal income in Massachusetts was $82,500
and in 2022,
real per capita income was nearly $85,000.
Nationally, in 2021
real per capita personal income was just under $63,000
and in 2022,
real per capita income was just
over
$65,000.
Types of Debt and Debt Limits. The
Commonwealth is authorized to issue three types of debt directly: 1) general obligation
debt; 2) special obligation debt; and 3) federal grant anticipation notes. General obligation debt is secured by
a pledge of the full faith and credit of the Commonwealth. Special obligation debt may be secured by either a pledge
of receipts credited to the Commonwealth Transportation Fund (formerly the Highway Fund) or with a pledge of
receipts credited to the Convention Center Fund. Federal grant anticipation notes are secured by a pledge of federal highway
construction reimbursements. The Commonwealth is also authorized to pledge its credit in aid of and provide contractual
support for certain independent authorities and political subdivisions within the Commonwealth.
Since December 1989,
state finance law has included a limit on the amount of outstanding “direct”
bonds of the Commonwealth. The limit for each
fiscal year is increased to 105% of the previous fiscal year’s limit. Based on this calculation,
the statutory limit on “direct”
bonds during fiscal 2023 is $29.195 billion. The statutory limit on outstanding debt
is calculated using the generally accepted accounting principles (“GAAP”)
concept of principal outstanding, which reflects
that the principal amount of outstanding bonds includes the amount of any premium and is measured net of any
discount, costs of issuance and other financing costs (“net
proceeds”).
State law further provides that bonds to be
refunded from the proceeds of Commonwealth refunding bonds are to be excluded from outstanding “direct”
bonds upon the issuance of the refunding bonds.
Pursuant to special legislation enacted over the years, certain outstanding Commonwealth
debt obligations are not counted in computing the amount of bonds subject to the limit. As of March
31, 2024,
the Commonwealth had $27.2
billion in general obligation bonds outstanding, of which $26.9
billion, or 99.1%
was fixed rate debt and $258.2
million, or 0.9%,
was variable rate debt. As of March
31, 2024,
$23.4
billion, or 86.1%,
of the Commonwealth’s general obligation debt was tax-exempt and $3.8
billion, or 13.9%,
was taxable. The Commonwealth’s
outstanding general obligation variable rate debt as of March
31, 2024,
consists of a $100.0
million
direct
purchase agreement indexed to SIFMA and
college opportunity bonds (COBs).
The
outstanding $158.2
million
of COBs
($82.0
million of original
principal and including a discount
equal to $76.2
million) were
sold in conjunction
with
a college savings program administered by the Massachusetts
Educational Financing Authority
(MEFA),
which bear
deferred interest at a rate equal to
the percentage change in the
consumer price index plus 2%,
together with current
interest
at the rate of 0.5%.
This debt is held directly by MEFA and has no secondary market.
As of June 24,
2024,
the Commonwealth of Massachusetts Investor Program’s
website disclosed that the general obligation
bonds issued by the Commonwealth were rated “Aa1”
by Moody’s
Investors Service, Inc., “AA+”
by S&P Global Ratings and “AA+”
by Fitch Ratings. From time to time, the rating agencies may change their ratings or provide different
ratings for different bond issues.
Major Obligations.
In addition to debt obligations issued by the Commonwealth, Massachusetts has other long-term liabilities
in connection with the pledge of credit in aid of certain independent authorities and political subdivisions within
the Commonwealth. These Commonwealth liabilities are
classified as general obligation contract assistance liabilities
or contingent liabilities. The Commonwealth is also authorized to pledge its credit in support of scheduled, periodic
payments to be made by the Commonwealth under
interest rate swaps and other hedging agreements related to bonds
or notes of the Commonwealth.
General obligation contract
assistance liabilities arise from statutory requirements for (i) payments by the Commonwealth to
the Massachusetts Clean Water Trust, the Massachusetts Department of Transportation (“MassDOT”),
and the Massachusetts Development Finance Agency
that are used by these entities to pay a portion of the
debt service on certain of their outstanding
bonds and (ii) payments from the Social Innovation Financing Trust Fund
on “pay
for success contracts,”
which are contracts to improve outcomes and lower costs for contracted government services. Such liabilities constitute
a pledge of the Commonwealth’s credit for which a two-thirds vote of the Legislature is required.
Contingent liabilities
relate to debt obligations of certain independent authorities and agencies of the Commonwealth that
are expected to be paid without Commonwealth assistance, but for which the Commonwealth has some kind of
liability if expected payment sources do not materialize. These liabilities consist of guaranties
and similar obligations with respect to which
the Commonwealth’s credit has been or may be pledged, as in the case of certain debt obligations of
the Massachusetts Bay Transportation Authority (“MBTA”)
(pre-2000), the Woods Hole, Martha’s Vineyard and Nantucket Steamship
Authority, regional transit authorities, and the higher education building authorities. Furthermore, the Commonwealth has
certain payment obligations contemplated by statute for which the Commonwealth’s credit has not been pledged, as
in the case of the Commonwealth’s obligation to fund debt service, solely from moneys otherwise appropriated for
the affected institution, owed by certain community colleges and state universities on bonds issued by the former Massachusetts
Health and Educational Facilities Authority (now the Massachusetts Development Finance Agency) and
the Massachusetts State College Building Authority.
Additionally, under legislation
approved in 2010 and amended in 2011, the Massachusetts Development Finance Agency is
authorized to issue bonds for the benefit of nonprofit community hospitals and nonprofit
community health centers. Such
bonds are to be secured by capital reserve funds funded at the time of bond issuance in an amount equal to the
maximum annual debt service on the bonds. The legislation contains no limit on the amount of such bonds that may
be issued. No bonds have ever been issued pursuant to this legislation.
A portion of the Commonwealth’s
receipts from the sales tax (other than the tax on meals) is dedicated through non-budgeted special
revenue funds to the MBTA and the Massachusetts School Building Authority (“MSBA”).
The amount dedicated to the MSBA is the amount
raised by a 1% sales tax (not including meals), subject to an inflation-adjusted floor. The amount
dedicated to the MBTA is the greater of (i) the amount raised by the 1% sales tax (not including meals), plus $160
million and (ii) an annually adjusted floor. The floor grows each year by the allowable base revenue growth (the lesser
of sales tax growth or inflation, but not greater than 3% and not less than 0%) and was certified as $1.162
billion for fiscal 2024
and $1.197
billion for fiscal 2025.
The Commonwealth’s receipts from the sales tax on account of
motor vehicle sales (net of amounts required to be credited to the Convention Center Fund or dedicated to the MBTA
or MSBA) are dedicated to the Commonwealth Transportation Fund.
Commencing August 2019,
legislation approved by the then Governor established an annual two-day sales tax holiday in
August of each year.
The
sales tax revenues provided to the MBTA and the MSBA by the Commonwealth are not included in the tax figures in
the following paragraphs. Total tax revenue transferred to the MBTA amounted to $1,261.4
million in fiscal 2021,
$1,348.9
million in fiscal 2022,
and $1,424.0 million
in fiscal 2023.
Total tax revenue transferred to the MSBA amounted to
$1,101.4
million in fiscal 2021,
$1,188.9
million in fiscal 2022,
and $1,264.0 million
in fiscal 2023.
The total tax revenue expected to be transferred
to the MBTA and MSBA in fiscal year 2024
is $1,419.9
million and $1,259.9
million, respectively.
Commonwealth Budget. The
Commonwealth’s tax revenues increased in each of fiscal years 2021 and 2022 and decreased
in fiscal year 2023. Tax revenues for fiscal 2021 were $34.156 billion and resulted in a surplus of $7.804 billion.
Tax revenues for fiscal 2022 were $41.146 billion and resulted in a surplus of $6.101 billion. Tax revenues for fiscal
2023 were $36.427 billion and resulted in a deficit of approximately $2.862 billion. In January 2023, a fiscal 2024 consensus
tax revenue estimate of $40.410 billion and an estimate of $1 billion from the new 4% surtax on personal income
above $1 million approved through a ballot initiative in November 2022 were agreed upon by the Secretary of
Administration and Finance and the chairs of the House and Senate Committees on Ways and Means. The fiscal 2024
consensus tax revenue estimate of $40.410 billion represents revenue growth of 1.6% from the revised fiscal 2023
estimate. On March 1, 2023, Governor Maura T. Healey filed her fiscal 2024 budget recommendation providing for
a total of $55.5 billion in authorized spending, including projected transfers to the Medical Assistance Trust Fund. This
represents an increase of 4.1% above the fiscal 2023 budget, including new investments supported by the surtax revenue.
On January 7, 2024, the Secretary of Administration and Finance revised the tax revenue estimate for fiscal 2024
to $39.410 billion (excluding income surtax revenues), representing a reduction of $1.0 billion from the prior consensus
tax revenue estimate.
In March
2023, the
Governor filed her budget recommendations for fiscal 2024.
Governor Maura Healey’s
fiscal 2024
budget recommendations proposed state spending
of $55.5
billion, or a4.1%
increase from fiscal 2023.
The fiscal 2024
budget proposal is supported by a consensus tax revenue estimate that reflects a projection of 1.6%
tax revenue growth over the revised projected
fiscal 2023
tax revenue figure of $39.768
billion. The fiscal 2024 budget was approved by
the Governor on August
9, 2023.
It provides for approximately
$55.980 billion in authorized spending,
including projected transfers to the Medical
Assistance Trust Fund and accounts for a reduction of approximately
$580 million of
tax revenue related to subsequently enacted tax relief legislation.
In signing the budget,
the Governor vetoed
$205
million in net spending.
The fiscal 2024 budget
is approximately
5.1%
greater than fiscal 2023 estimated spending levels
at the time of the Governor’s approval. The fiscal 2024 budget as approved by the Governor incorporates an increased
$40.830 billion tax revenue forecast, which
reflects the consensus tax revenue estimate of $40.410 billion
and the
$1 billion estimate of revenue from
the new 4% surtax on personal income above $1 million,
reduced by a $580
million set aside for tax relief. In
October 2023, the
Governor signed into law
tax relief legislation that is expected to reduce
revenues by $577
million in fiscal 2024 on
a gross basis and
$519
million in fiscal 2024
on a net basis accounting
for off-budget
capital gains transfers to the
stabilization fund, eventually
annualizing to slightly more than $1 billion
by fiscal 2028. The
fiscal 2024 budget set aside $580
million on net to cover the cost of this tax relief legislation.
In August 2023, the Governor
declared a state of emergency in Massachusetts due to rapidly rising numbers of families, including
newly arriving immigrants and refugees, seeking emergency shelter and supportive services in Massachusetts. As
of May 2024, the Governor has approved two supplemental appropriations to support the emergency shelter program and
associated services. On December 4, 2023, the Governor approved $260 million in supplemental appropriations which
included $10 million for resettlement agencies. On April 30, 2024, the Governor approved an additional $426 million
in supplemental appropriations to continue ongoing emergency shelter support of which $251 million is intended to
support services through the end of fiscal 2024, with the remaining $175 million set aside for fiscal 2025, if needed.
In January 2024, a fiscal
2025 consensus tax revenue estimate of $40.202 billion, as well as a $1.3 billion estimate of
revenue from the 4% surtax on personal income above the surtax threshold of $1 million (adjusted for inflation annually
in each tax year after 2023), were agreed upon by the Secretary of Administration and Finance and the chairs of
the House and Senate Committees on Ways and Means. The fiscal 2025 consensus tax revenue estimate of $40.202 billion
(excluding estimated income surtax revenues) represents revenue growth of 2% above the revised fiscal 2024 estimate
of $39.410 billion. The estimated $1.3 billion of additional income surtax revenue will be available in fiscal 2025
to support additional spending on education and transportation initiatives. On January 24, 2024, the Governor
filed
her fiscal 2025 budget recommendation, providing for a total of $56.1 billion in authorized spending, excluding projected
transfers to the Medical Assistance Trust Fund. This represents an increase of 2.9% above the fiscal 2024 budget,
excluding new investments supported by income surtax revenue.
Special Disclosure Regarding COVID-19
Matters. In response to the outbreak of COVID-19 and the declaration
by the World Health Organization on March 11,
2020 of a COVID-19 pandemic, in March 2020 then Governor Baker declared a
state of emergency in the Commonwealth. Governor Baker’s administration undertook several mitigation measures in
response to the pandemic, and the Commonwealth experienced widespread economic disruption during the period, including
a significant increase in the unemployment rate in Massachusetts in calendar 2020, which peaked at 17.1% in
April 2020, compared to 2.9% in March 2020. The Commonwealth began a phased reopening of the economy in May
2020, and in December 2020, the Commonwealth began phased vaccination efforts across Massachusetts. On June
15, 2021, the state of emergency in the Commonwealth related to COVID-19 was terminated. The state public health
emergency ended on May 11, 2023, to correspond with the end of the federal public health emergency.
The federal government
enacted several laws related to the COVID-19 pandemic, which provided resources for emergency response
and recovery efforts and economic assistance, including unemployment insurance to state and local governments, businesses
and individuals. The Commonwealth estimates the total value of these federal measures within Massachusetts at
approximately $116 billion. Among this assistance was receipt by the Commonwealth of $2.461 billion through the federal
Coronavirus Relief Fund (“CRF”)
created under the Coronavirus Aid, Relief and Economic Security Act and $5.286
billion from the Coronavirus State Fiscal Recovery Fund (“CSFRF”)
created under the American Rescue Plan Act of
2021 (“ARPA”).As
of March 30,
2024,
the
Executive Office for Administration and Finance estimates that
approximately $3.323
billion in CSFRF funding has been expended and approximately
$89.1 million remains
to be allocated.
Cash Management and Borrowing for Deferred
Revenues. On May 11, 2020, the Commonwealth entered into a line
of credit with a syndicate of commercial banks in an amount up to $1.75 billion. As of February 17, 2021, the line of
credit was reduced to the amount of $500 million. In
May 2023, the
line of credit was
amended to change the interest rate index from
LIBOR to SOFR in anticipation of the expiration of LIBOR at the end of June. In addition,
the maturity
of the
line was extended to May 1, 2026. As
of March 31, 2024,
no
amount was outstanding
under the
line of credit.
The budgeted operating
funds of the Commonwealth ended fiscal 2021 with a surplus and other sources over expenditures and
other uses of $7.804 billion and aggregate ending fund balances in the budgeted operating funds of the Commonwealth of
approximately $12.099 billion. Budgeted revenues and other sources for fiscal year 2021 totaled approximately $56,882.4,
including tax revenues of $31,771.9 billion. Commonwealth budgeted expenditures and other uses in fiscal 2021
totaled approximately $49,078.5 billion. At the end of fiscal 2021, the Stabilization Fund’s ending balance was $4.626
billion. The Commonwealth gained approximately $1.125 billion in the Stabilization Fund during fiscal 2021.
The budgeted operating
funds of the Commonwealth ended fiscal 2022 with a surplus and other sources over expenditures and
other uses of $6.1011 billion and aggregate ending fund balances in the budgeted operating funds of the Commonwealth of
approximately $18.200 billion. Budgeted revenues and other sources for fiscal year 2022 totaled approximately $62.084,
including tax revenues of $38.587 billion. Commonwealth budgeted expenditures and other uses in fiscal 2022
totaled approximately $55.982 billion. At the end of fiscal 2022, the Stabilization Fund’s ending balance was approximately
$6.937 billion. The Commonwealth gained approximately $2.311 billion in the Stabilization Fund during fiscal
2022.
The budgeted operating
funds of the Commonwealth ended fiscal 2023 with a deficit of revenues and other sources over
expenditures and other uses of $2.8618 billion and aggregate ending fund balances in the budgeted operating funds
of the Commonwealth of approximately $15.3385 billion. Budgeted revenues and other sources for fiscal year 2023
totaled approximately $57.4145 billion, including tax revenues of $33.704 billion. Commonwealth budgeted expenditures and
other uses in fiscal 2023 totaled approximately $60.2763 billion. At the end of fiscal 2023, the Stabilization Fund’s ending
balance was approximately $8.0361 billion. The Commonwealth gained approximately $1.0982 billion in the Stabilization
Fund during fiscal 2023.
Limitations
on Tax Revenues. Growth of state tax revenues is limited by law
in the Commonwealth to the average positive
rate of growth in total wages and salaries in the Commonwealth, as reported by the federal government, during
the three calendar years immediately preceding the end of each fiscal year. The law also requires that allowable state
tax revenues be reduced by the aggregate amount received by local governmental units from any newly authorized or
increased local option taxes or excises. Prior to tax year 2023,
any excess in state tax revenue collections for a given
fiscal year over the prescribed limit, as determined by the State Auditor, is applied
as a credit against the then-current personal
income tax liability of all taxpayers in the Commonwealth in proportion to the personal income tax liability of
all taxpayers in the Commonwealth for the immediately preceding tax year. Effective
for tax year 2023 and thereafter, the credit
is provided in an equal amount to all taxpayers, replacing the proportional distribution previously required by
law. The law does not exclude principal and interest payments
on Commonwealth debt obligations from the scope of
its tax limit. However, the preamble to the law containing the limitation provides that “although
not specifically required by anything contained
in this chapter, it is assumed that from allowable state tax revenues as defined herein the
Commonwealth will give priority attention to the funding of state financial assistance to local governmental units, obligations
under the state governmental pension systems and payment of principal and interest on debt and other obligations
of the Commonwealth.”
State tax revenues on fiscal 2020,2021,
and 2023
were lower than the allowable state tax revenue
growth limit set by state law. Fiscal 2022 was the first time since fiscal 1987 that net state tax revenues
exceeded the allowable state tax revenues.
Local Aid. The
Commonwealth makes substantial local aid payments to its cities, towns and regional school districts to
mitigate the impact of local property tax limits on local programs and services. Local aid payments to cities, towns, and
regional school districts take the form of both direct and indirect assistance. Direct local aid consists of general revenue
sharing funds and specific program funds sent directly to local governments and regional school districts. The
Commonwealth’s budget for fiscal 2024
provides $7.933
billion of state-funded direct and indirect local aid to municipalities.
A large portion of general
revenue sharing funds is earmarked for public education and is distributed through a formula designed
to ensure that each district reaches at least a minimum level of “foundation”
spending per public education pupil. The fiscal
2024
budget calls for the Commonwealth to provide approximately $5.998 billion in state aid for education. The
fiscal 2024
budget includes state funding
for so-called
“Chapter
70”
public education
aid of
$6.593
billion.
The other major component
of direct local aid is unrestricted general governmental aid, which provides unrestricted funds
for municipal use. The fiscal 2024
budget provides for $1.256
billion in unrestricted general government aid.
The Commonwealth is authorized
to issue short-term general obligation debt as revenue anticipation notes or bond anticipation
notes. Fixed-rate revenue anticipation notes may be issued by the State Treasurer annually in anticipation of
revenue receipts for the same fiscal year. Revenue anticipation notes must be repaid no later than the close of the fiscal
year in which they are issued. Bond anticipation notes may be issued by the State Treasurer in anticipation of the
issuance of bonds, including, in some circumstances special obligation bonds. The State Treasurer is responsible for
cash management and ensuring that all Commonwealth financial obligations are met on a timely basis. The Commonwealth does
not engage in inter-fund borrowing but pools its non-segregated (primarily non-Stabilization Fund) cash. Cash flow
management incorporates the periodic use of short-term borrowing to meet cash flow needs for both capital and
operating expenditures. All revenue anticipation notes, including those issued as commercial paper, must be repaid by
the end of the fiscal year. As of March 31,
2023, there were no revenue anticipation notes outstanding and the State
Treasurer does not anticipate issuing revenue anticipation notes in fiscal 2024.
In November 1980, voters
in the Commonwealth approved a statewide tax limitation initiative petition, commonly known
as Proposition 2 1/2, to constrain levels of property taxation and to limit the charges and fees imposed on cities
and towns by certain governmental entities, including county governments. Proposition 2 1/2 is not a provision of
the state constitution and accordingly is subject to amendment or repeal by the Legislature. Proposition 2 1/2, as amended
to date, limits the property taxes that may be levied by any city or town in any fiscal year to the lesser of (i)
2.5% of the full and fair cash valuation of the real estate and personal property therein, or (ii) 2.5% over the previous year’s
levy limit plus any growth in the tax base from certain new construction and parcel subdivisions. The law contains certain
override provisions and, in addition, permits debt service on specific bonds and notes and expenditures for
identified
capital projects to be excluded from the limits by a majority vote at a general or special municipal election. Between
fiscal 1981 and fiscal 2024,
the aggregate property tax levy across all cities and towns grew from $3.347 billion
to $21.749
billion, a compound annual growth rate of 4.45%.
Medicaid.
The Commonwealth’s Medicaid program, called MassHealth, provides health care to over
2 million low-income children
and families, certain low-income adults, disabled individuals and low-income elders. The program, administered by
the Office of Medicaid within the Executive Office of Health and Human Services, receives federal reimbursement on
most expenditures. The Children’s Health Insurance Program (“CHIP”)
is currently authorized through federal fiscal 2029.
For Massachusetts, the CHIP matching rate of 88% for federal fiscal 2019 was reduced to 76.5% for federal fiscal
2020 and was further reduced to 65% for federal fiscal 2021 and
beyond. Under the Affordable Care Act (“ACA”),
beginning January 1, 2014, MassHealth began
receiving enhanced federal reimbursement for spending on an expanded population,
comprising a new adult group (generally childless adults with incomes under 133% of the federal poverty limit).
The federal reimbursement rate for this group was 93% in calendar year 2019, decreasing to 90% for calendar 2020
and beyond. In response to the COVID-19 pandemic, the Families First Act established a 6.2% increase to the matching
rate effective January 1, 2020 through March 31, 2023. The increase to the matching rate declined
incrementally in each
subsequent
quarter of
calendar year 2023, and was eliminated effective December 31,
2023. The
increase did
not apply to expenditures for the ACA expansion population
and was
contingent on several factors, including, but not
limited to, elimination of member cost-sharing for all COVID-19 related testing and treatment, and a maintenance-of-effort requirement
on eligibility standards that ended
on April 1, 2023. Following the end of the
maintenance-of-effort requirement, MassHealth
began an effort to
redetermine eligibility for its members. Since the redetermination
began in April 2023, MassHealth has seen a
decrease of 14.9%, or approximately 358,000 members,
in its caseload. While MassHealth’s
overall caseload has decreased since April 2023,
the Massachusetts Health Connector has enrolled about 122,000 individuals
who were deemed no longer eligible for MassHealth through the redetermination process.
Current MassHealth enrollment estimates are reflected in the
fiscal 2024 budget.
Many of the Commonwealth’s
healthcare programs and expenditures are governed by the federal ACA, which has been
and continues to be the subject of certain legal challenges. In December 2017, Congress eliminated the financial penalty
under the ACA’s individual shared responsibility provision, otherwise known as the individual mandate. In December 2019,
Congress enacted legislation that both deferred the commencement and accelerated the full implementation of
reductions in federal reimbursement for hospitals that treat a disproportionate number of Medicaid recipients. To date,
such actions have not had or are not expected to have a material adverse impact on the Commonwealth and its
health care programs. While it is not possible to predict with any certainty whether or when any other provisions of
the ACA may be, in whole or in part, modified, repealed, or withdrawn, any such actions could have a material adverse
effect on the Commonwealth’s healthcare programs and expenditures.
State health
care reform legislation enacted in 2006 created the Commonwealth
Health Insurance Connector Authority (“Health
Connector”).
The Health Connector and its programs are supported by the Commonwealth CareTrust
Fund (“CCTF”),
which is supported by dedicated revenue sources, as well as insurance carrier administrative fees. The Health
Connector administers the Commonwealth’s Health Insurance Marketplace under the ACA. As the Commonwealth’s Marketplace,
the Health Connector offers qualified health plans to individuals and small businesses. Qualifying individuals can
be eligible for federal tax credits to lower their health insurance premiums, and certain small businesses shopping through
the Marketplace can access federal small business health care tax credits for up to two years. Individuals with
incomes between 133% and 300% of the federal poverty level (“FPL”),
as well as certain lawfully present immigrants with
incomes between 0% and 300% FPL, have access to additional state and federal subsidies through a program called
ConnectorCare. The state provides additional state subsidies via ConnectorCare to ensure that the premiums and
point-of-service cost sharing for certain low-income members, after factoring in federal subsidies, are similar to what
was available through the state’s pre-ACA Commonwealth Care program.
The fiscal 2024 state budget expanded the income
limits of ConnectorCare from 300% FPL to 500% FPL. This is a two-year pilot program, beginning for calendar
2024 plans and continuing through calendar 2025.
Total Health Connector gross
spending in fiscal 2023
from the CCTF is estimated to have been $126.9
million ($94.1
million net of federal revenue).
These expenditures
reflect the extension of the national public health emergency due to
the COVID-19 pandemic through the end-date of May 2023, as well as other changes to eligibility and benefit levels resulting
from the passage of the ARPA.
The
fiscal 2024 budget for the Health Connector reflects $212.4 million in gross spending from the CCTF. Net of federal
revenue, fiscal 2024 expenditures are estimated to be $159.2 million, an increase of $65.1 million compared to
fiscal 2023. This increase is driven by the new two-year pilot program to expand ConnectorCare to cover those eligible
who earn between 300% and 500% FPL. The fiscal 2024 budget for the Health Connector is expected to be fully
funded from dedicated revenues and the existing balance to be rolled forward in the CCTF.
The fiscal 2024
budget includes $20.8
billion in funding for non-administrative spending for the MassHealth program.
Transportation.
The MassDOT incorporates the former Massachusetts Turnpike Authority and has jurisdiction over the
MBTA and the Regional Transit Authorities. MassDOT has attributes of a state department as well as an authority. It
operates like a state department for purposes of state finance laws and is reported as part of the Commonwealth for
compliance with federal and state tax law. In this unique relationship all road and bridge assets of the Commonwealth (including
the former Turnpike Authority) have been transferred to MassDOT, while the Commonwealth will continue to
hold current and future debt for the construction repair, improvement, and replacement of these assets. On June 30,
2009, the Commonwealth and the Turnpike Authority entered into a contract for financial assistance which provides for
the payment by the Commonwealth to MassDOT, as successor to the Turnpike Authority, of $100 million per fiscal year,
commencing July 1, 2009 until June 30, 2039.
On August 10, 2022, “An
Act Relative to Massachusetts’ Transportation Resources and Climate”
(“MassTRAC”)
was signed into law. MassTRAC authorizes a total
of approximately $11.375 billion of expenditures to support significant investments
in the Commonwealth’s roads, bridges, railways, transit agencies, and environmental infrastructure, including investments
made possible by the federal Bipartisan Infrastructure Law (“BIL”)
enacted in November 2021. MassTRAC includes
approximately $6.279
billion in authorization to support the Commonwealth’s core programs for Highway, Rail,
Transit, Aeronautics, Planning and
Shared Services, and Energy
and Environmental Affairs. This authorization does not
factor in anticipated federal reimbursements, which would reduce the amount of bonds needed to fund planned projects.
MassTRAC also includes $3.5
billion to support the pursuit of federal discretionary and competitive grant program
funding, as well as $400.0 million in authorization to support capital projects that improve safety of the MBTA’s transit
assets and address findings identified during the Federal Transit Administration’s safety management inspection of
the MBTA, $275.0 million in authorization for investments in the East-West passenger rail project, and $920.9 million in
authorization for various local and regional transportation projects.
Pensions.
Almost all non-federal public employees in the Commonwealth participate in defined benefit pension plans administered
pursuant to state law by 104 public retirement systems. The Commonwealth is responsible for the payment of
pension benefits for Commonwealth employees (members of the state employees’ retirement system) and for teachers
of the cities, towns and regional school districts throughout the state (including members of the Massachusetts teachers’
retirement system and teachers in the Boston public schools, who are members of the Boston Retirement System
(“BRS”)
but whose pensions are also the responsibility of the Commonwealth). The Commonwealth is also responsible
for cost-of-living adjustments granted by local systems from 1981 to 1996. The Massachusetts State Employees’ Retirement
System (“MSERS”)
and the Massachusetts Teachers’ Retirement System (“MTRS”)
are the two largest plans of the public contributory
retirement systems operated in the Commonwealth. As of January 1, 2023,
MTRS had 101,286
members and 70,769
retirees and beneficiaries and MSERS had 87,554
members, 69,167
retirees and beneficiaries and 5,221
terminated employees entitled to benefits but not yet receiving them. Subject to legislative approval,
annual increases in cost-of-living allowances are provided in an amount equal to the lesser of 3% or the previous
year’s percentage increase in the United States Consumer Price Index on the first $13,000 of benefits for members
of MSERS and MTRS. The Legislature approved the 3% increase in cost-of-living allowances for fiscal 2024
for eligible participants of the MSERS and MTRS.
The cost-of-living adjustment for fiscal 2023 was a one-time increase to
5% of the $13,000 base for retirees of the MSERS and MTRS.
Employees of certain
independent authorities and agencies, such as the Massachusetts Water Resources Authority,
and of counties, cities and towns (other than
teachers) are covered by 102 separate retirement systems and the Commonwealth
is not responsible for making contributions towards the funding of these retirement systems. The state
employees’ and state teachers’ retirement systems were originally established as “pay-as-you-go”
systems, meaning that amounts were appropriated
each year to pay current benefits, and no provision was made to fund currently
the
future liabilities already incurred. In fiscal 1988 the Commonwealth began to address the unfunded liabilities of the
two state systems by making appropriations to pension reserves. Under current law such unfunded liability is required
to be amortized to zero by June 30, 2040.
On December
20, 2023,
the Public Employee Retirement Administration Commission released its actuarial valuation of
the Commonwealth’s total pension obligation as of January 1, 2023.
This valuation was based on the plan provisions in
effect at the time and on member data and asset information as of December 31, 2022.
The unfunded actuarial accrued liability as
of that date for the total obligation was approximately $42.380
billion, including approximately $14.120
billion for MSERS, $25.749
billion for MTRS, $2.429
billion for Boston teachers that are members of the BRS, and $81.0
million for cost-of-living increases reimbursable to local systems. This valuation study estimated the total actuarial accrued
liability as of January 1, 2023
to be approximately $116.211
billion (comprising $49.200
billion for MSERS, $62.286
billion for MTRS, $4.644
billion for Boston teachers and $81.0
million for cost-of-living increases reimbursable to
local systems). Total assets were valued on an actuarial basis at approximately $73.831
billion based on a five-year average valuation
method (comprising $35.080
billion for MSERS, $36.537
billion for MTRS and $2.215
billion for Boston teachers), which equaled105.2%
of the December 31, 2022
total asset market value. As of January 1, 2023,
the actuarial accrued liability for MSERS was
$49.200
billion. The actuarial value of assets as of that date was $35.079
billion. The unfunded actuarial liability was
$14.120
billion. As of January 1, 2023,
the actuarial accrued liability for MTRS was
$62.286
billion. The actuarial value of assets as of that date was $36.537
billion. The unfunded actuarial liability was
$25.749
billion. Since the last valuation, there was an overall actuarial loss
of $2.244
billion. There was a non-investment related
loss
on actuarial liability of approximately $177
million and
a loss n of approximately $2.067
billion on the actuarial value of assets.
On January 23,
2024,
the Commonwealth issued an actuarial valuation, as of June 30, 2023,
of its liabilities in respect of other post-employment
benefit obligations (“OPEB”).
According to this report, the Commonwealth’s unfunded OPEB liability,
assuming no pre-funding and using a discount rate of 4.30%, was approximately $14.203
billion as of June 30, 2023.
The State Retiree Benefits
Trust Fund
was created to consolidate the state’s retiree funding efforts and better project future
liabilities,
and beginning in fiscal 2008, expenses for current state retirees’ healthcare were paid from the fund. Also
in fiscal 2008, the State Retiree Benefits Trust fund benefited from a one-time transfer of approximately $329 million
from the Health Care Security Trust. The plan net position as of June 30, 2023
was approximately $2.3
billion.
Statement of Additional Information
(SAI)—Part
II
Part
II of this SAI includes policies, investment techniques and
information that apply to the DWS funds. Unless otherwise
noted, the use of the term “fund”
applies to all DWS funds.
Investment Advisor. DIMA,
with headquarters at 875 Third Avenue, New York,
NY 10022, is the investment advisor for the
fund. Under the oversight of the Board, the
Advisor makes investment decisions, buys and sells securities
for the fund and conducts research that leads to
these purchase and sale decisions. The Advisor is an indirect,
wholly-owned subsidiary of DWS Group GmbH &
Co. KGaA (DWS Group), a separate, publicly-listed financial
services firm that is an indirect, majority-owned subsidiary
of Deutsche Bank AG. The Advisor and its predecessors
have more than 95
years of experience managing mutual funds and
provide a full range of global investment advisory services to
institutional and retail clients.
DWS represents the asset
management activities conducted by DWS Group
or any of its subsidiaries, including DIMA,
other affiliated investment advisors and the
Distributor. DWS is a global organization that offers a
wide range of investing expertise and resources, including
hundreds of portfolio managers and analysts and
an office network that reaches the world’s major investment
centers. This well-resourced global investment platform
brings together a wide variety of experience and
investment insight across industries, regions, asset classes
and investing styles.
The Advisor and its affiliates
may utilize the resources of DWS’s global
investment platform to provide investment management
services through branch offices or affiliates
located outside the US. In some cases, the Advisor
and its affiliates may also utilize DWS’s branch offices
or affiliates located in the US or outside the US to
perform certain services, such as trade execution, trade matching
and settlement, or various administrative, back-office
or other services. The delegation of trade execution,
trade matching and settlement services to DWS’s
branch offices or affiliates will not result in additional fees
for a fund or a fund’s shareholders. The branch offices or
affiliates receive a flat fee for their trade routing services, payable
by the Advisor, and do not have authority to select portfolio
investments or otherwise provide advice to a fund.
DWS’s branch offices or affiliates may have discretion to
select intermediaries to execute trades and to aggregate trade
orders for a fund with those of other DWS funds
as
well as non-DWS funds clients. The delegation of trade execution,
trade matching and settlement services to DWS’s
branch offices or affiliates may result in certain savings
for the Advisor and its affiliates through consolidation
of functions and, as a result, may create a conflict of
interest between the Advisor and its affiliates and a fund.
To the extent services are performed outside the US,
such activity may be subject to both US and foreign regulation.
It is possible that the jurisdiction in which the Advisor
or its affiliate performs such services may impose restrictions
or limitations on portfolio transactions that are
different from, and in addition to, those that apply in the US.
In some instances, the
investments for a fund may be managed by the
same individuals who manage one or more other
mutual funds advised by DIMA that have similar
names, objectives and investment styles. A fund may
differ from these other mutual funds in size, cash flow
patterns, distribution arrangements, expenses and tax
matters. Accordingly, the holdings and performance of
a fund may be expected to vary from those of other mutual funds.
Certain investments may
be appropriate for a fund and also for other
clients advised by DIMA. Investment decisions
for a fund and other clients are made with a view
to achieving their respective investment objectives
and after consideration of such factors as their current holdings,
availability of cash for investment and the size of
their investments generally. Frequently, a particular security
may be bought or sold for only one client or in different
amounts and at different times for more than one
but less than all clients. Likewise, a particular security may
be bought for one or more clients when that same security
is being sold for one or more other clients. In addition,
purchases or sales of the same security may be
made for two or more clients on the same day. In such
event, such transactions will be allocated among the
clients in a manner believed by DIMA to be equitable to
each. In some cases, this procedure could have an adverse
effect on the price or amount of the securities purchased
or sold by a fund. Purchase and sale orders for
a fund may be combined with those of other clients of
DIMA in the interest of achieving the most favorable net results
to a fund.
DIMA, its parent or its
subsidiaries, or affiliates may have deposit,
loan and other commercial banking relationships
with the issuers of obligations which may be
purchased
on behalf of a fund, including outstanding loans to
such issuers which could be repaid in whole or in part with
the proceeds of securities so purchased. Such affiliates
deal, trade and invest for their own accounts in such
obligations and are among the leading dealers of various
types of such obligations. DIMA has informed a fund
that, in making its investment decisions, it does not
obtain or use material inside information in its possession
or in the possession of any of its affiliates. In
making investment recommendations for a fund, DIMA will
not inquire or take into consideration whether an issuer
of securities proposed for purchase or sale by a fund
is a customer of DIMA, its parent or its subsidiaries
or affiliates. Also, in dealing with its customers, the
Advisor, its parent, subsidiaries, and affiliates will not inquire
or take into consideration whether securities of such
customers are held by any fund managed by DIMA or any such affiliate.
Officers and employees
of the Advisor from time to time may have transactions
with various banks, including a fund’s
custodian bank. It is the Advisor’s opinion that the terms
and conditions of those transactions which have occurred
were not influenced by existing or potential custodial or other
fund relationships.
From time to time, DIMA,
DWS Group, Deutsche Bank AG or their affiliates
may at their sole discretion invest their own
assets in shares of a fund for such purposes it
deems appropriate, including investments designed to
assist in the management of a fund. Any such investment
may be hedged by DIMA, DWS Group, Deutsche Bank
AG or their affiliates and, in that event, the
return on such investment, net of the effect of the hedge,
would be expected to differ from the return of a fund.
DIMA, DWS Group, Deutsche Bank AG or their affiliates
have no obligation to make any investment in a
fund and the amount of any such investment may or may
not be significant in comparison to the level of assets of
a fund. In the event that such an investment is made, except
as otherwise required under the 1940 Act, DIMA, DWS
Group, Deutsche Bank AG or their affiliates would be
permitted to redeem the investment at such time that they deem
appropriate.
DWS Investment Management
Americas, Inc., DWS Distributors, Inc. and their
advisory affiliates (“DWS
Service Providers”)
have sought and obtained a permanent order from
the Securities and Exchange Commission providing
exemptive relief under Section 9 of the Investment
Company Act of 1940, as amended, on which the
DWS Service Providers rely in connection
with
the continued provision of investment advisory and underwriting
services to the funds and other registered investment companies.
DWS Name.
Under a separate agreement, DWS Investment GmbH
has granted a license to DWS Group which permits
the DWS funds to utilize the “DWS”
trademark.
Consultant.
For DWS Emerging Markets Equity Fund, the
Consultant provides current analysis and views on Latin
American politics, currencies, risks, markets and companies
to DIMA in connection with the investment management services
it provides to the fund.
Terms of the Investment Management
Agreement. Pursuant to the applicable Investment
Management Agreement, DIMA provides continuing
investment management of the assets of a fund.
In addition to the investment management of
the assets of a fund, the Advisor determines
the investments to be made for each fund, including
what portion of its assets remain uninvested
in cash or cash equivalents, and with whom the
orders for investments are placed, consistent with a
fund’s policies as stated in its prospectus and SAI, or as
adopted by a fund’s Board. DIMA will also monitor, to
the extent not monitored by a fund’s administrator or other
agent, a fund’s compliance with its investment and tax
guidelines and other compliance policies.
Pursuant to the Investment
Management Agreement, (unless otherwise provided
in the agreement or as determined by a fund’s
Board and to the extent permitted by applicable
law), DIMA pays the compensation and expenses
of all the Board members, officers, and executive
employees of a fund, including a fund’s share of payroll
taxes, who are affiliated persons of DIMA.
The Investment Management
Agreement provides that a fund, except as noted
below, is generally responsible for expenses
that include, but are not limited to: fees payable
to the Advisor; outside legal, accounting or auditing expenses,
including with respect to expenses related to
negotiation, acquisition or distribution of portfolio investments;
maintenance of books and records that are maintained
by a fund, a fund’s custodian, or other agents of
a fund; taxes and governmental fees; fees and expenses of
a fund’s accounting agent, custodian, sub-custodians, depositories,
transfer agents, dividend reimbursing agents and
registrars; payment for portfolio pricing or valuation services
to pricing agents, accountants, bankers and other specialists,
if any; brokerage commissions or other costs of
acquiring or disposing of any portfolio securities or
other
instruments of a fund; and litigation expenses and other
extraordinary expenses not incurred in the ordinary course of
a fund’s business.
DIMA may enter into arrangements
with affiliates and third party service providers
to perform various administrative, back-office
and other services. Such service providers may
be located in the US or in non-US jurisdictions.
The costs and expenses of such arrangements are generally borne
by DIMA, not by a fund.
Shareholders are not
parties to, or intended (or “third
party”)
beneficiaries of the Investment Management Agreement,
and the Investment Management Agreement is not
intended to create in any shareholder any right to enforce
it or to seek any remedy under it, either directly or on behalf
of a fund.
For DWS Latin America Equity Fund,
in rendering investment subadvisory services,
the Subadvisor may use the resources of a foreign
(non-US) affiliate (the Overseas Affiliate)
that is not registered under the Investment
Advisers Act of 1940, as amended (the Advisers
Act), to provide services to the fund. Under a Participating
Affiliates Agreement, the Overseas Affiliate may
be considered a Participating Affiliate of Itaú USA Asset
Management, Inc (IUAM)
as that term is used in relief granted by the
staff of the SEC allowing US-registered advisers
to use the resources of unregistered advisory
affiliates subject to the regulatory supervision
of the registered adviser. Each Participating Affiliate and
any of their respective employees who provide services
to the fund are considered under a Participating
Affiliate Agreement to be an “associated
person”
of the Subadvisor as that term is defined in
the Advisers Act for purposes of the Subadvisor’s
required supervision. Itaú Unibanco S.A.
is a Participating Affiliate of the Subadvisor.
Itaú Unibanco S.A. has appointed the Subadvisor
to act as its resident agent for service of process in the US.
For DWS
ESG Core Equity Fund and DWS CROCI®
Equity Dividend Fund,
the Investment Management Agreement also provides
that DIMA shall render administrative services
(not otherwise provided by third parties) necessary
for a fund’s operation as an open-end investment
company including, but not limited to, preparing
reports and notices to the Board and shareholders;
supervising, negotiating contractual arrangements
with, and monitoring various third-party service providers
to the Registrant (such as the Registrant’s transfer
agent, pricing agents, custodian, accountants and
others); preparing and making filings with the SEC and
other regulatory agencies; assisting in the prepa
ration
and filing of the Registrant’s federal, state and local tax
returns; preparing and filing the Registrant’s federal excise
tax returns; assisting with investor and public relations
matters; monitoring the valuation of securities and
the calculation of net asset value; monitoring the registration
of shares of the Registrant under applicable federal
and state securities laws; maintaining the Registrant’s
books and records to the extent not otherwise maintained
by a third party; assisting in establishing accounting
policies of the Registrant; assisting in the resolution
of accounting and legal issues; establishing and
monitoring the Registrant’s operating budget; processing
the payment of the Registrant’s bills; assisting the
Registrant in, and otherwise arranging for, the payment of
distributions and dividends; and otherwise assisting the
Registrant in the conduct of its business, subject to the direction
and control of the Board.
On behalf of DWS
ESG Core Equity Fund and DWS CROCI®
Equity Dividend Fund, pursuant to a sub-administration
agreement between DIMA and State Street Bank
& Trust Company (SSB), DIMA has delegated certain
administrative functions for each of these funds to
SSB under the Investment Management Agreement. The
costs and expenses of such delegation are borne by DIMA, not
by a fund.
The Investment Management
Agreement allows DIMA to delegate any of its
duties under the Investment Management Agreement
to a subadvisor, subject to a majority vote
of the Board, including a majority of the Board
who are not interested persons of a fund, and, if required
by applicable law, subject to a majority vote of a fund’s
shareholders.
The Investment Management
Agreement provides that DIMA shall not be liable
for any error of judgment or mistake of law
or for any loss suffered by a fund in connection
with matters to which the agreement relates, except
a loss resulting from willful malfeasance, bad faith or
gross negligence on the part of DIMA in the performance
of its duties or from reckless disregard by DIMA of
its obligations and duties under the agreement. The Investment
Management Agreement may be terminated at any
time, without payment of penalty, by either party
or by vote of a majority of the outstanding voting securities
of a fund on 60 days’ written notice.
The Investment Management
Agreement continues in effect from year to year
only if its continuance is approved annually
by the vote of a majority of the Board Members who
are not parties to such agreement or interested
persons
of any such party and either by a vote of the Board
or of a majority of the outstanding voting securities of a fund.
Under the Investment
Management Agreement, a fund, except as otherwise
noted, pays DIMA a management fee calculated
daily based on the prior day’s net assets and
then aggregated for a particular month. For DWS ESG
Core Equity Fund and DWS CROCI®
Equity Dividend Fund,
the management fee paid to DIMA is calculated and
payable monthly based on the average daily net assets for
the particular month. The annual management fee rate
for each fund is set forth in Part II – Appendix II-C.
CROCI®
Investment Strategy and Valuation Group (applicable only to
those funds that employ a CROCI®
strategy). The
CROCI®
Investment Strategy and Valuation Group is a
unit within the DWS Group, through a licensing arrangement
with the funds’ Advisor. The CROCI®
Investment Strategy and Valuation Group is responsible
for devising the CROCI®
strategy and calculating the CROCI®
Economic P/E Ratios. The CROCI®
Investment Strategy and Valuation Group is not
responsible for the management of the funds
and does not act in a fiduciary capacity in
relation to the funds or the investors in the funds.
The CROCI®
strategy is provided without any representations
or warranties of any kind and the CROCI®
Investment Strategy and Valuation Group shall
not be responsible for any error or omissions
in any CROCI®
strategy.
The calculation of the
CROCI®
Economic P/E Ratios is determined by the CROCI®
Investment Strategy and Valuation Group using
publicly available information. This publicly
available information is adjusted on rules-based assumptions
made by the CROCI®
Investment and Valuation Group that, subsequently,
may prove not to have been correct. As CROCI®
Economic P/Es Ratios are calculated using historical
information, there can be no guarantee of the
future performance of the CROCI®
strategy.
Subadvisors (applicable only to those
funds that have subadvisory arrangements as described in Part
I). Each Subadvisor
serves as subadvisor to a fund pursuant to the
terms of a subadvisory agreement between it and DIMA (Subadvisory
Agreement).
DWS International GmbH,
Mainzer Landstrasse 11-17, Frankfurt am Main,
Germany, serves as Subadvisor to all or a portion
of the assets of one or more funds. DWS International
GmbH is an investment advisor registered
with
the SEC and with the Federal Financial Supervisory
Authority in Germany, an affiliate of DIMA and a direct, wholly-owned
subsidiary of DWS Group.
Itaú USA Asset Management,
Inc., 540 Madison Avenue, 24th Floor, New York,
New York 10022, a subsidiary of Itaú Unibanco
S.A. (a Brazilian publicly quoted bank), serves
as Subadvisor to all or a portion of the assets of one
or more funds. The Subadvisor is an investment advisor registered
with the SEC.
Northern Trust Investments,
Inc. (NTI) 50 South LaSalle Street, Chicago,
IL 60603, a subsidiary of Northern Trust Corporation,
serves as Subadvisor to all or a portion of the
assets of one or more funds. NTI is an Illinois State Banking
Corporation and an investment adviser registered
under the Investment Advisers Act of 1940, as amended.
It primarily manages assets for institutional and
individual separately managed accounts, investment companies
and bank common and collective funds. Northern
Trust Corporation is regulated by the Board of Governors
of the Federal Reserve System as a financial holding
company under the U.S. Bank Holding Company Act of 1956, as amended.
RREEF America L.L.C.
(RREEF), 222 South Riverside Plaza, Chicago,
Illinois 60606, serves as Subadvisor to all
or a portion of the assets of one or more funds. RREEF is
an investment advisor registered with the SEC. RREEF is
an affiliate of DIMA and an indirect, wholly-owned subsidiary
of DWS Group. RREEF has provided real estate investment
management services to institutional investors since
1975 and has been an investment advisor of real estate securities
since 1993.
Terms of the Subadvisory Agreements.
Pursuant to the terms of the applicable Subadvisory
Agreement, a Subadvisor makes the investment
decisions, buys and sells securities, and conducts
the research that leads to these purchase and
sale decisions for a fund. A Subadvisor is also
responsible for selecting brokers and dealers to execute
portfolio transactions and for negotiating brokerage
commissions and dealer charges on behalf of a
fund. Under the terms of the Subadvisory Agreement, a
Subadvisor manages the investment and reinvestment of
a fund's assets and provides such investment advice, research
and assistance as DIMA may, from time to time, reasonably request.
Each Subadvisory Agreement
provides that the Subadvisor will not be liable
for any error of judgment or mistake of law
or for any loss suffered by a fund in connection with matters
to which the Subadvisory Agreement relates,
except
a loss resulting from (a) the subadvisor causing a
fund to be in violation of any applicable federal or state law,
rule or regulation or any investment policy or restriction
set forth in a fund's prospectus or as may be provided
in writing by the Board or DIMA, or (b) willful misconduct,
bad faith or gross negligence on the part of
the Subadvisor in the performance of its duties or from reckless
disregard by the Subadvisor of its obligations and duties under
the Subadvisory Agreement.
A Subadvisory Agreement
continues from year to year only as long as
such continuance is specifically approved at
least annually (a) by a majority of the Board Members who
are not parties to such agreement or interested persons
of any such party, and (b) by the shareholders or
the Board of the Registrant. A Subadvisory Agreement may
be terminated at any time upon 60 days’ written notice
by DIMA or by the Board of the Registrant or by majority
vote of the outstanding shares of a fund, and will
terminate automatically upon assignment or upon termination
of a fund’s Investment Management Agreement.
Under each Subadvisory
Agreement between DIMA and a Subadvisor, DIMA,
not a fund, pays the Subadvisor a subadvisory
fee based on the percentage of the assets overseen
by the Subadvisor or based on a percentage of
the fee received by DIMA from a fund. The Subadvisor fee
is paid directly by DIMA at specific rates negotiated between
DIMA and the Subadvisor. No fund is responsible for paying the
Subadvisor.
Sub-Subadvisors (applicable only to
those funds that have sub-subadvisory arrangements as described
in Part I). Each
Sub-Subadvisor serves as a sub-subadvisor with
respect to a fund pursuant to the terms of the applicable
sub-subadvisory agreement between it and the Subadvisor (Sub-Subadvisory
Agreement).
DWS Alternatives Global
Limited, 21 Moorfields,
London, United
Kingdom, EC2Y 9DB,
serves as Sub-Subadvisor to a fund. DWS Alternatives
Global Limited is an investment advisor registered
with the SEC. In addition, DWS Alternatives
Global Limited is an affiliate of DIMA and a direct, wholly-owned
subsidiary of DWS Group.
DWS Investments Australia
Limited, Level 16, Deutsche Bank Place, Corner
of Hunter & Phillip Streets, Sydney, NSW
2000, Australia, serves as Sub-Subadvisor to a fund. DWS
Investments Australia Limited is an investment advisor
registered with the SEC. In addition, DWS Investments
Australia Limited is an affiliate of DIMA and a direct, wholly-owned
subsidiary of DWS Group.
Terms of the
Sub-Subadvisory Agreements. Pursuant to
the terms of the applicable Sub-Subadvisory Agreement and
under the oversight of the Board, DIMA and the Subadvisor,
the Sub-Subadvisors provide investment management
services with respect to a fund’s assets related
to specific foreign markets and provides such investment
advice, research and assistance as the Subadvisor
may, from time to time, reasonably request. The
Subadvisor allocates, and reallocates as it deems appropriate,
each of a fund’s assets among the Sub-Subadvisors.
A Sub-Subadvisor is also responsible for selecting
brokers and dealers to execute portfolio transactions
and for negotiating brokerage commissions and dealer
charges on behalf of a fund. Under the terms of the
Sub-Subadvisory Agreement, a Sub-Subadvisor manages
the investment and reinvestment of a portion of a fund’s
assets.
Each Sub-Subadvisory
Agreement provides that the Sub-Subadvisor shall
not be subject to any liability for any act
or omission in the course of providing investment management
services to a fund, except a loss resulting from
willful misconduct, bad faith or gross negligence on
the part of the Sub-Subadvisor in the performance of its
duties or from reckless disregard by the Sub-Subadvisor of
its obligations and duties under the Sub-Subadvisory Agreement.
A Sub-Subadvisory Agreement
continues from year to year only as long as
such continuance is specifically approved at
least annually (a) by a majority of the Board Members
who are not parties to such agreement or interested
persons of any such party, and (b) by the shareholders
or the Board of the Trust/Corporation. A Sub-Subadvisory
Agreement may be terminated at any time upon
60 days’ written notice by the Board of the Trust/Corporation
or by majority vote of the outstanding shares
of a fund, and will terminate automatically upon assignment
or upon termination of a fund’s Subadvisory Agreement.
Under the Sub-Subadvisory
Agreements, the Subadvisor, not the fund, pays
each Sub-Subadvisor a sub-subadvisory fee based
on the percentage of the assets overseen by the
Sub-Subadvisor from the fee received by the Subadvisor
from DIMA. The sub-subadvisory fee is paid directly
by a Subadvisor at specific rates negotiated between
a Subadvisor and a Sub-Subadvisor. No fund is responsible for
paying a Sub-Subadvisor.
Board Members
Board Members and Officers’ Identification
and Background. The
identification and background of the Board Members
and Officers of the Registrant are set forth in Part
II—Appendix
II-A.
Board Committees and Compensation.
Information regarding
the Committees of the Board, as well as compensation
paid to the Independent Board Members and to
Board Members who are not officers of the Registrant,
for certain specified periods, is set forth in Part I—Appendix
I-B and Part I—Appendix
I-C.
Administrator, Fund Accounting Agent,
Transfer Agent and Shareholder Service Agent, and Custodian
Administrator.
DIMA serves as a fund’s administrator pursuant
to an Administrative Services Agreement (except for
DWS CROCI®
Equity Dividend Fund and DWS ESG Core Equity Fund).
For its services under
the Administrative Services Agreement, the Administrator
receives a fee at the rate set forth in Part
II—Appendix
II-C. The Administrator will
pay Accounting Agency fees out of the Administrative Services
fee.
Under the Administrative
Services Agreement, the Administrator is obligated
on a continuous basis to provide such administrative
services as the Board of a fund reasonably deems
necessary for the proper administration of a fund. The
Administrator provides a fund with personnel; arranges
for the preparation and filing of a fund’s tax returns;
prepares and submits reports and meeting materials
to the Board and the shareholders; prepares and
files updates to a fund’s prospectus and statement of
additional information as well as other reports required to
be filed by the SEC; maintains a fund’s records; provides a
fund with office space, equipment and services; supervises,
negotiates the contracts of and monitors the performance
of third parties contractors; oversees the tabulation of
proxies; monitors the valuation of portfolio securities and
monitors compliance with Board-approved valuation procedures;
assists in establishing the accounting and tax
policies of a fund; assists in the resolution of accounting
issues that may arise with respect to a fund; establishes
and monitors a fund’s operating expense budgets;
reviews and processes a fund’s bills; assists in determining
the amount of dividends and distributions available
to be paid by a fund, prepares and arranges dividend
notifications and provides information to agents to
effect payments thereof; provides to the Board periodic and
special reports; provides assistance with investor
and
public relations matters; and monitors the registration
of shares under applicable federal and state law. The
Administrator also performs certain fund accounting services
under the Administrative Services Agreement.
The Administrative Services
Agreement provides that the Administrator will
not be liable under the Administrative Services
Agreement except for willful misfeasance, bad faith
or negligence in the performance of its duties or from
the reckless disregard by it of its duties and obligations
thereunder. Pursuant to an agreement between the
Administrator and SSB, the Administrator has delegated
certain administrative functions to SSB. The costs
and expenses of such delegation are borne by the Administrator,
not by a fund.
In certain instances,
a fund may be eligible to participate in class
action settlements involving securities presently or
formerly held by the fund. Pursuant to the Advisor’s procedures,
approved by the Board, proof of claim forms are
routinely filed on behalf of a fund by a third party service
provider, with certain limited exceptions. The Board receives
periodic reports regarding the implementation of
these procedures. Under some circumstances, the Advisor
may decide that a fund should not participate in a
class action, and instead cause the fund to pursue alternative
legal remedies. Where the rights and interests of funds
differ, the Advisor might take different approaches to
the same class action claim. In addition, laws and processes
related to class actions outside of the US differ from
laws and processes in the US, and the Board and the
Advisor will consider whether or not to join certain foreign
class actions based on the facts and circumstances of the class
action.
Fund Accounting Agent.
For DWS CROCI®
Equity Dividend Fund and DWS ESG Core Equity Fund, DIMA,
100 Summer Street, Boston, Massachusetts 02110,
is responsible for determining net asset value
per share and maintaining the portfolio and
general accounting records for a fund pursuant
to a Fund Accounting Agreement. For its services
under a Fund Accounting Agreement, DIMA receives
a fee at the rate set forth in Part II — Appendix II-C.
Pursuant to an agreement
between DIMA and SSB, DIMA has delegated certain
fund accounting functions to SSB under the Fund Accounting Agreement.
Transfer Agent and Shareholder Service
Agent. DSC, 222
South Riverside Plaza, Chicago, Illinois 60606, an affiliate
of the Advisor, is each fund’s transfer agent, dividend-paying
agent and shareholder service agent
pursuant
to a transfer agency and service agreement (Transfer
Agency and Services Agreement). Pursuant to a
sub-transfer agency agreement between DSC and SS&C GIDS,
Inc. (formerly known as DST Systems, Inc.) (SS&C), DSC
has delegated certain transfer agent, dividend paying agent
and shareholder servicing agent functions to SS&C. The
costs and expenses of such delegation are borne by
DSC, not by a fund. For its services under the Transfer Agency
and Services Agreement, DSC receives a fee at the
rate set forth in Part II—Appendix
II-C. Each fund, or
the Advisor (including any affiliate of the Advisor), or both,
may pay unaffiliated third parties for providing recordkeeping
and other administrative services with respect
to accounts of participants in retirement plans or
other beneficial owners of shares whose interests are generally
held in an omnibus account.
Custodian.
Under its custody agreement with a fund, the
Custodian (i) maintains separate accounts in the name of
a fund, (ii) holds and transfers portfolio securities on account
of a fund, (iii) accepts receipts and makes disbursements
of money on behalf of a fund, and (iv) collects
and receives all income and other payments and distributions
on account of a fund’s portfolio securities. The
Custodian has entered into agreements with foreign subcustodians
approved by the Board pursuant to Rule 17f-5 under the 1940 Act.
In some instances, the
Custodian may use Deutsche Bank AG or its affiliates,
as subcustodian (DB Subcustodian) in certain
countries. To the extent a fund holds any securities
in the countries in which the Custodian uses a
DB Subcustodian as a subcustodian, those securities will
be held by DB Subcustodian as part of a larger omnibus
account in the name of the Custodian (Omnibus Account).
For its services, DB Subcustodian receives (1) an
annual fee based on a percentage of the average daily net
assets of the Omnibus Account and (2) transaction charges
with respect to transactions that occur within the
Omnibus Account (e.g., foreign exchange transactions
or corporate transactions). To the extent that a DB Subcustodian
receives any brokerage commissions for any transactions,
such transactions and amount of brokerage commissions
paid by the fund are set forth in Part I – Appendix I-H.
The Custodian’s
fee may be reduced by certain earnings credits in favor of a
fund.
Fund Legal Counsel.
Provides legal services to the funds.
Trustee/Director Legal Counsel.
Serves as legal counsel to the Independent Board Members.
Principal Underwriter
and Distribution Agreement. Pursuant
to a distribution agreement (Distribution Agreement)
with a fund, DDI, 222 South Riverside Plaza, Chicago,
Illinois 60606, an affiliate of the Advisor, is the principal
underwriter and distributor for each class of shares
of a fund and acts as agent of a fund in the continuous
offering of its shares. The Distribution Agreement
remains in effect for a class from year-to-year only
if its continuance is approved for the class at least annually
by a vote of the Board, including the Board Members
who are not parties to the Distribution Agreement or interested
persons of any such party.
The Distribution Agreement
automatically terminates in the event of its
assignment and may be terminated for a class
at any time without penalty by a fund or by DDI upon
60 days’ notice. Termination by a fund with respect to
a class may be by vote of (i) a majority of the Board Members
who are not interested persons of a fund and who
have no direct or indirect financial interest in the Distribution
Agreement or any related agreement, or (ii) a
“majority
of the outstanding voting securities”
of the class of a fund, as defined under the
1940 Act. All material amendments must be approved
by the Board in the manner described above with
respect to the continuation of the Distribution
Agreement. The provisions concerning continuation,
amendment and termination of a Distribution
Agreement are on a fund-by-fund and class-by-class basis.
Under the Distribution
Agreement, DDI uses reasonable efforts to sell
shares of a fund and may appoint various financial
services firms to sell shares of a fund and to provide
ongoing shareholder services. DDI bears all of its
expenses of providing services pursuant to the Distribution
Agreement, including the payment of any commissions,
concessions, and distribution and/or shareholder service
fees to financial services firms. A fund pays the cost
of the registration of its shares for sale under the federal
securities laws and the registration or qualification
of its shares for sale under the securities laws of the
various states. A fund also pays the cost for the prospectus
and shareholder reports to be typeset and printed
for existing shareholders, and DDI, as principal underwriter,
pays for the printing and distribution of copies thereof
used in connection with the offering of shares to
prospective investors. DDI also pays for supplementary sales
literature and advertising costs. DDI receives any sales
charge upon the purchase of shares of a class with an
initial sales charge and pays commissions, concessions
and distribution fees to firms for the sale of a fund’s shares.
DDI also receives any contingent deferred sales charges
paid with respect to the redemption of any shares
having
such a charge. DDI receives no compensation from a
fund as principal underwriter and distributor except with respect
to certain fund classes in amounts authorized by
a Rule 12b-1 Plan adopted for a class by a fund (see Distribution
and Service Agreements and Plans).
Shareholder and Administrative Services.
Shareholder and administrative services are
provided to certain fund classes under a shareholder
services agreement (Services Agreement) with
DDI. The Services Agreement continues in effect
for each class from year to year so long as
such continuance is approved for the class at least
annually by a vote of the Board, including the Board Members
who are not interested persons of a fund and who
have no direct or indirect financial interest in the Services
Agreement or in any related agreement. The Services
Agreement automatically terminates in the event of
its assignment and may be terminated for a class at any
time without penalty by a fund or by DDI upon 60 days’
notice. Termination by a fund with respect to a class may
be by a vote of (i) the majority of the Board Members who
are not interested persons of a fund and who have no
direct or indirect financial interest in the Services Agreement
or in any related agreement, or (ii) a “majority
of the outstanding voting securities”
of the class of such fund, as defined under
the 1940 Act. The Services Agreement may not
be amended for a class to increase materially
the fee to be paid by a fund without approval of
a majority of the outstanding voting securities of such class
of a fund, and all material amendments must in any
event be approved by the Board in the manner described
above with respect to the continuation of the Services Agreement.
Under the Services Agreement,
DDI provides, and may appoint various financial
services firms to provide, information and services
to investors in certain classes of a fund. Firms
appointed by DDI provide such office space and
equipment, telephone facilities and personnel as is necessary
or beneficial for providing information and services
to shareholders in the applicable classes of a fund.
Such services and assistance may include, but are not
limited to, establishing and maintaining accounts and records,
processing purchase and redemption transactions,
answering routine inquiries regarding a fund, providing
assistance to clients in changing dividend and investment
options, account designations and addresses and
such other administrative services as may be agreed upon
from time to time and permitted by applicable statute, rule or
regulation.
DDI bears all of its
expenses of providing those services pursuant
to the Services Agreement, including the payment
of any service fees to financial services firms
appointed
by DDI to provide such services and DDI receives
compensation from a fund for its services under the
Services Agreement in amounts authorized by a Rule 12b-1
Plan adopted for a class by a fund (see Distribution and Service
Agreements and Plans).
DDI may itself provide
some of the above distribution and shareholder
and administrative services and may retain any
portion of the fees received under the Distribution
Agreement and/or the Services Agreement not paid
to financial services firms to compensate itself for such
distribution and shareholder and administrative functions
performed for a fund. Firms to which DDI may pay
commissions, concessions, and distribution fees or service
fees or other compensation may include affiliates of DDI.
Codes of Ethics.
Each fund, the Advisor, each fund’s principal
underwriter and distributor, and, if applicable, each
fund’s subadvisor(s) (and, if applicable, sub-subadvisor(s))
have adopted codes of ethics under Rule 17j-1
under the 1940 Act. Board Members, officers of
a Registrant and employees of the Advisor and principal underwriter
are permitted to make personal securities transactions,
including transactions in securities that may be
purchased or held by a fund, subject to requirements and
restrictions set forth in the applicable Code of Ethics. The
Advisor’s Code of Ethics contains provisions and requirements
designed to identify and address certain conflicts
of interest between personal investment activities
and the interests of a fund. Among other things, the
Advisor’s Code of Ethics prohibits certain types of transactions
absent prior approval, imposes time periods during
which personal transactions may not be made in certain
securities, and requires the submission of duplicate broker
confirmations and quarterly reporting of securities transactions.
Additional restrictions apply to portfolio managers,
traders, research analysts and others involved in
the investment advisory process. Exceptions to these and
other provisions of the Advisor’s or subadvisors Codes of
Ethics may be granted in particular circumstances after review
by appropriate personnel.
For each Trust (except Deutsche DWS
Asset Allocation Trust, Deutsche DWS Portfolio Trust, Deutsche
DWS Tax Free Trust and Cash Account Trust)
The Board has the authority
to divide the shares of the Trust into multiple
funds by establishing and designating two or
more series of the Trust. The Board also has
the authority to establish and designate two or more
classes
of shares of the Trust, or of any series thereof, with
variations in the relative rights and preferences between
the classes as determined by the Board; provided that
all shares of a class shall be identical with each other and
with the shares of each other class of the same series except
for such variations between the classes, including bearing
different expenses, as may be authorized by the Board
and not prohibited by the 1940 Act and the rules and
regulations thereunder. All shares issued and outstanding
are transferable, have no pre-emptive or conversion
rights (except as may be determined by the Board)
and are redeemable as described in the SAI and in
the prospectus. Each share has equal rights with each other
share of the same class of the fund as to voting, dividends,
exchanges, conversion features and liquidation.
Shareholders are entitled to one vote for each full
share held and fractional votes for fractional shares held.
A fund generally is not
required to hold meetings of its shareholders.
Under the Declaration of Trust, shareholders
only have the power to vote in connection with the
following matters and only to the extent and as provided
in the Declaration of Trust and as required by applicable
law: (a) the election, re-election or removal of one
or more Trustees if a meeting of shareholders is called by
or at the direction of the Board for such purpose(s), provided
that the Board shall promptly call a meeting of shareholders
for the purpose of voting upon the question of
removal of one or more Trustees as a result of a request in
writing by the holders of not less than 10% of the outstanding
shares of the Trust; (b) the termination of the
Trust or a fund if, in either case, the Board submits the
matter to a vote of shareholders; (c) any amendment of
the Declaration of Trust that (i) would affect the rights of
shareholders to vote under the Declaration of Trust, (ii)
requires shareholder approval under applicable law or
(iii) the Board submits to a vote of shareholders; and (d)
such additional matters as may be required by law or as
the Board may determine to be necessary or desirable. Shareholders
also vote upon changes in fundamental policies or restrictions.
The Declaration of Trust
provides that shareholder meeting quorum requirements
shall be established in the By-laws. The By-laws
of the Trust currently provide that the presence
in person or by proxy of the holders of 30% of the
shares entitled to vote at a meeting shall constitute a
quorum for the transaction of business at meetings of shareholders
of the Trust (or of an individual series or class if required
to vote separately).
On
any matter submitted to a vote of shareholders, all shares
of the Trust entitled to vote shall, except as otherwise
provided in the By-laws, be voted in the aggregate
as a single class without regard to series or classes
of shares, except (a) when required by applicable
law or when the Board has determined that the matter
affects one or more series or classes of shares materially
differently, shares shall be voted by individual series
or class; and (b) when the Board has determined that
the matter affects only the interests of one or more series
or classes, only shareholders of such series or classes shall
be entitled to vote thereon.
The Declaration of Trust
provides that the Board may, in its discretion,
establish minimum investment amounts for shareholder
accounts, impose fees on accounts that do not
exceed a minimum investment amount and involuntarily
redeem shares in any such account in payment of
such fees. The Board, in its sole discretion, also may cause
the Trust to redeem all of the shares of the Trust or
one or more series or classes held by any shareholder
for any reason, to the extent permissible by the 1940
Act, including: (a) if the shareholder owns shares having
an aggregate net asset value of less than a specified
minimum amount; (b) if a particular shareholder’s
ownership of shares would disqualify a series from
being a regulated investment company; (c) upon a shareholder’s
failure to provide sufficient identification to
permit the Trust to verify the shareholder’s identity; (d)
upon a shareholder’s failure to pay for shares or meet or
maintain the qualifications for ownership of a particular class
or series of shares; (e) if the Board determines (or pursuant
to policies established by the Board it is determined)
that share ownership by a particular shareholder is
not in the best interests of remaining shareholders; (f)
when a fund is requested or compelled to do so by governmental
authority or applicable law; and (g) upon a
shareholder’s failure to comply with a request for information
with respect to the direct or indirect ownership of
shares or other securities of the Trust. The Declaration
of Trust also authorizes the Board to terminate a fund
or any class without shareholder approval, and the Trust
may suspend the right of shareholders to require the
Trust to redeem shares to the extent permissible under the 1940
Act.
The Declaration of Trust
provides that, except as otherwise required
by applicable law, the Board may authorize the Trust
or any series or class thereof to merge, reorganize or
consolidate with any corporation, association, trust or series
thereof (including another series or class of the Trust)
or other entity (in each case, the “Surviving
Entity”)
or
the Board may sell, lease or exchange all or substantially
all of the Trust property (or all or substantially all of the
Trust property allocated or belonging to a particular series
or class), including its good will, to any Surviving Entity,
upon such terms and conditions and for such consideration
as authorized by the Board. Such transactions
may be effected through share-for-share exchanges, transfers
or sales of assets, in-kind redemptions and purchases,
exchange offers or any other method approved by
the Board. The Board shall provide notice to affected shareholders
of each such transaction. The authority of the
Board with respect to the merger, reorganization or consolidation
of any class of the Trust is in addition to the
authority of the Board to combine two or more classes of
a series into a single class. (For DWS RREEF Global Real
Estate Securities Fund, the fund's by-laws contain special
provisions related to a reorganization of the fund.)
Upon the termination
of the Trust or any series, after paying or
adequately providing for the payment of all liabilities, which
may include the establishment of a liquidating trust or
similar vehicle, and upon receipt of such releases, indemnities
and refunding agreements as they deem necessary
for their protection, the Board may distribute the
remaining Trust property or property of the series to the
shareholders of the Trust or the series involved, ratably according
to the number of shares of the Trust or such series
held by the several shareholders of the Trust or such
series on the date of termination, except to the extent
otherwise required or permitted by the preferences
and special or relative rights and privileges of any classes
of shares of a series involved, provided that any distribution
to the shareholders of a particular class of shares
shall be made to such shareholders pro rata in proportion
to the number of shares of such class held by
each of them. The composition of any such distribution
(e.g., cash, securities or other assets) shall be determined
by the Trust in its sole discretion and may be
different among shareholders (including differences among shareholders
in the same series or class).
Under Massachusetts law,
shareholders of a Massachusetts business trust
could, under certain circumstances, be held
personally liable for obligations of a fund. The Declaration
of Trust, however, disclaims shareholder liability for
acts or obligations of the fund and requires that notice of
such disclaimer be given in each agreement, obligation, or
instrument entered into or executed by a fund or a fund's
trustees. Moreover, the Declaration of Trust provides for
indemnification out of fund property for all losses and expenses
of any shareholder held personally liable for the
obligations of the fund, and the fund may be covered by
insurance which the Board considers adequate to cover foreseeable
tort claims. Thus, the risk of a shareholder
incurring
financial loss on account of shareholder liability is
limited to circumstances in which a disclaimer is inoperative
and a fund itself is unable to meet its obligations.
For Deutsche DWS Asset Allocation Trust,
Deutsche DWS Portfolio Trust and Deutsche DWS Tax Free Trust
The Board has the authority
to divide the shares of the Trust into multiple
funds by establishing and designating two or
more series of the Trust. The Board also has
the authority to establish and designate two or more classes
of shares of the Trust, or of any series thereof, with
variations in the relative rights and preferences between
the classes as determined by the Board; provided that
all shares of a class shall be identical with each other and
with the shares of each other class of the same series except
for such variations between the classes, including bearing
different expenses, as may be authorized by the Board
and not prohibited by the 1940 Act and the rules and
regulations thereunder. All shares issued and outstanding
are transferable, have no pre-emptive or conversion
rights (except as may be determined by the Board)
and are redeemable as described in the SAI and in
the prospectus. Each share has equal rights with each other
share of the same class of the fund as to voting, dividends,
exchanges, conversion features and liquidation.
Shareholders are entitled to one vote for each full
share held and fractional votes for fractional shares held.
A fund generally is not
required to hold meetings of its shareholders.
Under the Declaration of Trust, shareholders
only have the power to vote in connection with the
following matters and only to the extent and as provided
in the Declaration of Trust and as required by applicable
law: (a) the election, re-election or removal of one
or more Trustees if a meeting of shareholders is called by
or at the direction of the Board for such purpose(s), provided
that the Board shall promptly call a meeting of shareholders
for the purpose of voting upon the question of
removal of one or more Trustees as a result of a request in
writing by the holders of not less than 10% of the outstanding
shares of the Trust; (b) the termination of the
Trust or a fund if, in either case, the Board submits the
matter to a vote of shareholders; (c) any amendment of
the Declaration of Trust that (i) would change any right with
respect to any shares of the Trust or fund by reducing the
amount payable thereon upon liquidation of the Trust or
fund or by diminishing or eliminating any voting rights pertaining
thereto, in which case the vote or consent of the
holders of two-thirds of the shares of the Trust or fund
outstanding and entitled to vote would be required
(ii)
requires shareholder approval under applicable law or
(iii) the Board submits to a vote of shareholders; and (d)
such additional matters as may be required by law or as
the Board may determine to be necessary or desirable. Shareholders
also vote upon changes in fundamental policies or restrictions.
In addition, under the
Declaration of Trust, shareholders of the Trust
also have the power to vote in connection with
the following matters to the extent and as provided in
the Declaration of Trust and as required by applicable law:
(a) to the same extent as the stockholders of a Massachusetts
business corporation as to whether or not a court
action, proceeding or claims should or should not be
brought or maintained derivatively or as a class action on
behalf of the Trust or the shareholders; (b) with respect to
any merger, consolidation or sale of assets; (c) with respect
to any investment advisory or management contract
entered into with respect to one or more funds; (d)
with respect to the incorporation of the Trust or a fund; (e)
with respect to any plan adopted pursuant to Rule 12b-1
(or any successor rule) under the 1940 Act; and (f) with
respect to such additional matters relating to the Trust
as may be required by the Declaration of Trust, the By-laws
or any registration of the Trust with the SEC as an investment
company under the 1940 Act.
The Declaration of Trust
provides that shareholder meeting quorum requirements
shall be established in the By-laws. The By-laws
of the Trust currently provide that the presence
in person or by proxy of the holders of 30% of the
shares entitled to vote at a meeting shall constitute a
quorum for the transaction of business at meetings of shareholders
of the Trust (or of an individual series or class if required
to vote separately).
On any matter submitted
to a vote of shareholders, all shares of the
Trust entitled to vote shall, except as otherwise
provided in the By-laws, be voted in the aggregate
as a single class without regard to series or classes
of shares, except (a) when required by applicable
law or when the Board has determined that the matter
affects one or more series or classes of shares materially
differently, shares shall be voted by individual series
or class; and (b) when the Board has determined that
the matter affects only the interests of one or more series
or classes, only shareholders of such series or classes shall
be entitled to vote thereon.
The Declaration of Trust
provides that the Board may, in its discretion,
establish minimum investment amounts for shareholder
accounts, impose fees on accounts that do not
exceed a minimum investment amount and involuntarily
redeem shares in any such account in payment
of
such fees. The Board, in its sole discretion, also may cause
the Trust to redeem all of the shares of the Trust or
one or more series or classes held by any shareholder
for any reason, to the extent permissible by the 1940
Act, including: (a) if the shareholder owns shares having
an aggregate net asset value of less than a specified
minimum amount; (b) if a particular shareholder’s
ownership of shares would disqualify a series from
being a regulated investment company; (c) upon a shareholder’s
failure to provide sufficient identification to
permit the Trust to verify the shareholder’s identity; (d)
upon a shareholder’s failure to pay for shares or meet or
maintain the qualifications for ownership of a particular class
or series of shares; (e) if the Board determines (or pursuant
to policies established by the Board it is determined)
that share ownership by a particular shareholder is
not in the best interests of remaining shareholders; (f)
when a fund is requested or compelled to do so by governmental
authority or applicable law; and (g) upon a
shareholder’s failure to comply with a request for information
with respect to the direct or indirect ownership of
shares or other securities of the Trust. The Declaration
of Trust also authorizes the Board to terminate a fund
or any class without shareholder approval, and the Trust
may suspend the right of shareholders to require the
Trust to redeem shares to the extent permissible under the 1940
Act.
Upon the termination
of the Trust or any series, after paying or
adequately providing for the payment of all liabilities, which
may include the establishment of a liquidating trust or
similar vehicle, and upon receipt of such releases, indemnities
and refunding agreements as they deem necessary
for their protection, the Board may distribute the
remaining Trust property or property of the series to the
shareholders of the Trust or the series involved, ratably according
to the number of shares of the Trust or such series
held by the several shareholders of the Trust or such
series on the date of termination, except to the extent
otherwise required or permitted by the preferences
and special or relative rights and privileges of any classes
of shares of a series involved, provided that any distribution
to the shareholders of a particular class of shares
shall be made to such shareholders pro rata in proportion
to the number of shares of such class held by
each of them. The composition of any such distribution
(e.g., cash, securities or other assets) shall be determined
by the Trust in its sole discretion and may be
different among shareholders (including differences among shareholders
in the same series or class).
Under
Massachusetts law, shareholders of a Massachusetts
business trust could, under certain circumstances, be
held personally liable for obligations of a fund. The Declaration
of Trust, however, disclaims shareholder liability for
acts or obligations of the fund and requires that notice of
such disclaimer be given in each agreement, obligation, or
instrument entered into or executed by a fund or a fund's
trustees. Moreover, the Declaration of Trust provides for
indemnification out of fund property for all losses and expenses
of any shareholder held personally liable for the
obligations of the fund and the fund may be covered by
insurance which the Board considers adequate to cover foreseeable
tort claims. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is
limited to circumstances in which a disclaimer is inoperative
and a fund itself is unable to meet its obligations.
The Board Members have
the authority to create additional funds and
to designate the relative rights and preferences
as between the different funds. The Board Members
also may authorize the division of shares of a fund
into different classes, which may bear different expenses.
All shares issued and outstanding are fully paid
and non-assessable, transferable, have no pre-emptive
or conversion rights and are redeemable as described
in the funds’ prospectuses and SAIs. Each share has
equal rights with each other share of the same class of
the fund as to voting, dividends, exchanges, conversion features
and liquidation. Shareholders are entitled to one vote
for each full share held and fractional votes for fractional
shares held. The Board Members may also terminate
any fund or class by notice to the shareholders without shareholder
approval.
The Trust generally is
not required to hold meetings of its shareholders.
Under the Declaration of Trust, however, shareholder
meetings will be held in connection with the
following matters: (a) the election or removal of Board Members
if a meeting is called for such purpose; (b) the adoption
of any contract for which shareholder approval is
required by the 1940 Act; (c) any termination or reorganization
of the Trust to the extent and as provided in the Declaration
of Trust; (d) any amendment of the Declaration
of Trust (other than amendments changing the name of
the Trust or any fund, establishing a fund, supplying any
omission, curing any ambiguity or curing, correcting or
supplementing any defective or inconsistent provision thereof);
and (e) such additional matters as may be required by
law, the Declaration of Trust, the By-laws of the Trust, or
any registration of the Trust with the SEC or any state,
or
as the Board Members may consider necessary or desirable.
The shareholders also would vote upon changes in
fundamental investment objectives, policies or restrictions.
Subject to the Declaration
of Trust, shareholders may remove Board Members.
Each Board Member serves until the next meeting
of shareholders, if any, called for the purpose
of electing Board Members and until the election
and qualification of a successor or until such Board
Member sooner dies, resigns, retires or is removed by
a majority vote of the shares entitled to vote (as described
below) or a majority of the Board Members. In
accordance with the 1940 Act (a) the Trust will hold a shareholder
meeting for the election of Board Members at
such time as less than a majority of the Board Members have
been elected by shareholders, and (b) if, as a result of
a vacancy in the Board, less than two-thirds of the Board
Members have been elected by the shareholders, that
vacancy will be filled only by a vote of the shareholders.
The Declaration of Trust
provides that obligations of the Trust are not
binding upon the Board Members individually but
only upon the property of the Trust, that the Board Members
and officers will not be liable for errors of judgment
or mistakes of fact or law, and that a Trust will indemnify
its Board Members and officers against liabilities and
expenses incurred in connection with litigation in which
they may be involved because of their offices with a
Trust except if it is determined in the manner provided in
the Declaration of Trust that they have not acted in good
faith in the reasonable belief that their actions were in
the best interests of the Trust. However, nothing in the
Declaration of Trust protects or indemnifies a Board Member
or officer against any liability to which he would otherwise
be subject by reason of willful misfeasance, bad
faith, gross negligence, or reckless disregard of the duties
involved in the conduct of their office.
Board Members may be
removed from office by a vote of the holders
of a majority of the outstanding shares at a
meeting called for that purpose, which meeting shall be
held upon the written request of the holders of not less
than 10% of the outstanding shares. Upon the written request
of ten or more shareholders who have been such for
at least six months and who hold shares constituting at
least 1% of the outstanding shares of the Trust stating that
such shareholders wish to communicate with the other
shareholders for the purpose of obtaining the signatures
necessary to demand a meeting to consider removal
of
a trustee, the Trust has undertaken to disseminate appropriate
materials at the expense of the requesting shareholders.
The Declaration of Trust
provides that the presence at a shareholder
meeting in person or by proxy of at least 30%
of the shares entitled to vote on a matter shall constitute
a quorum. Thus, a meeting of shareholders of a
fund could take place even if less than a majority of the
shareholders were represented on its scheduled date. Shareholders
would in such a case be permitted to take action
which does not require a larger vote than a majority of
a quorum, such as the election of Board Members and
ratification of the selection of auditors. Some matters requiring
a larger vote under the Declaration of Trust, such as
termination or reorganization of a fund and certain amendments
of the Declaration of Trust, would not be affected
by this provision; nor would matters which under the
1940 Act require the vote of a “majority
of the outstanding voting securities”
as defined in the 1940 Act.
The Declaration of Trust
specifically authorizes the Board to terminate
the Trust (or any fund or class) by notice to the shareholders
without shareholder approval.
Under Massachusetts law,
shareholders of a Massachusetts business trust
could, under certain circumstances, be held
personally liable for obligations of the Trust. The Declaration
of Trust, however, disclaims shareholder liability for
acts or obligations of the Trust and requires that notice of
such disclaimer be given in each agreement, obligation, or
instrument entered into or executed by the Trust or the
Board Members. Moreover, the Declaration of Trust provides
for indemnification out of Trust property for all losses
and expenses of any shareholder held personally liable
for the obligations of the Trust and the Trust may be
covered by insurance. Thus, the risk of a shareholder incurring
financial loss on account of shareholder liability is
considered by the Advisor remote and not material, since
it is limited to circumstances in which a disclaimer is
inoperative and the Trust itself is unable to meet its obligations.
All shares issued and
outstanding are fully paid and non-assessable,
transferable, have no pre-emptive rights (except
as may be determined by the Board of Directors) or
conversion rights (except as described below) and are redeemable
as described in the SAI and in each fund’s prospectus.
Each share has equal rights with each other share
of the same class of a fund as to voting, dividends,
exchanges
and liquidation. Shareholders are entitled to one
vote for each share held and fractional votes for fractional
shares held.
The Board of Directors
may determine that shares of a fund or a class
of a fund shall be automatically converted into
shares of another fund of the Corporation or of another class
of the same or another fund based on the relative net
assets of such fund or class at the time of conversion. The
Board of Directors may also provide that the holders of
shares of a fund or a class of a fund shall have the right
to convert or exchange their shares into shares of one
or more other funds or classes on terms established by the Board
of Directors.
Each share of the Corporation
may be subject to such sales loads or charges,
expenses and fees, account size requirements,
and other rights and provisions, which may be
the same or different from any other share of the Corporation
or any other share of any fund or class of a fund
(including shares of the same fund or class as the share),
as the Board of Directors may establish or change from
time to time and to the extent permitted under the 1940 Act.
The Corporation is not
required to hold an annual meeting of shareholders
in any year in which the election of Directors
is not required by the 1940 Act. If a meeting of
shareholders of the Corporation is required by the 1940 Act
to take action on the election of Directors, then an annual
meeting shall be held to elect Directors and take such
other action as may come before the meeting. Special
meetings of the shareholders of the Corporation,
or of the shareholders of one or more funds or classes
thereof, for any purpose or purposes, may be called
at any time by the Board of Directors or by the President,
and shall be called by the President or Secretary at
the request in writing of shareholders entitled to cast a
majority of the votes entitled to be cast at the meeting.
Except as provided in
the 1940 Act, the presence in person or by proxy
of the holders of one-third of the shares entitled to
vote at a meeting shall constitute a quorum for the transaction
of business at meetings of shareholders of the Corporation or
of a fund or class.
On any matter submitted
to a vote of shareholders, all shares of the
Corporation entitled to vote shall be voted in
the aggregate as a single class without regard to series or
classes of shares, provided, however, that (a) when applicable
law requires that one or more series or classes vote
separately, such series or classes shall vote separately and,
subject to (b) below, all other series or classes shall
vote
in the aggregate; and (b) when the Board of Directors determines
that a matter does not affect the interests of
a particular series or class, such series or class shall not
be entitled to any vote and only the shares of the affected series
or classes shall be entitled to vote.
Notwithstanding any provision
of Maryland corporate law requiring authorization
of any action by a greater proportion than a
majority of the total number of shares entitled to vote
on a matter, such action shall be effective if authorized
by the majority vote of the outstanding shares entitled to vote.
Subject to the requirements
of applicable law and any procedures adopted
by the Board of Directors from time to time,
the holders of shares of the Corporation or any one
or more series or classes thereof may take action or
consent to any action by delivering a consent, in writing or
by electronic transmission, of the holders entitled to cast
not less than the minimum number of votes that would
be necessary to authorize or take the action at a formal meeting.
The Articles of Incorporation
provide that the Board of Directors may, in
its discretion, establish minimum investment
amounts for shareholder accounts, impose fees
on accounts that do not exceed a minimum investment
amount and involuntarily redeem shares in any
such account in payment of such fees. The Board of Directors,
in its sole discretion, also may cause the Corporation
to redeem all of the shares of the Corporation or one
or more series or classes held by any shareholder for
any reason, to the extent permissible by the 1940 Act,
including: (a) if the shareholder owns shares having an
aggregate net asset value of less than a specified minimum
amount; (b) if the shareholder’s ownership of shares
would disqualify a series from being a regulated investment
company; (c) upon a shareholder’s failure to provide
sufficient identification to permit the Corporation
to verify the shareholder’s identity; (d) upon a shareholder’s
failure to pay for shares or meet or maintain the qualifications
for ownership of a particular series or class; (e)
if the Board of Directors determines (or pursuant to policies
established by the Board of Directors it is determined)
that share ownership by a shareholder is not in the
best interests of the remaining shareholders; (f) when the
Corporation is requested or compelled to do so by governmental
authority or applicable law; or (g) upon a shareholder’s
failure to comply with a request for information
with respect to the direct or indirect ownership of
shares of the Corporation. By redeeming shares the Corporation
may terminate a fund or any class without
shareholder
approval, and the Corporation may suspend the
right of shareholders to require the Corporation to redeem
shares to the extent permissible under the 1940 Act.
Except as otherwise permitted
by the Articles of Incorporation, upon liquidation
or termination of a fund or class, shareholders
of such fund or class of such fund shall be entitled
to receive, pro rata in proportion to the number of
shares of such fund or class held by each of them, a share
of the net assets of such fund or class, and the holders
of shares of any other particular fund or class shall
not be entitled to any such distribution, provided, however,
that the composition of any such payment (e.g., cash,
securities and/or other assets) to any shareholder shall
be determined by the Corporation in its sole discretion,
and may be different among shareholders (including
differences among shareholders in the same fund or class).
For Master/Feeder Arrangements
Deutsche DWS Equity 500
Index Portfolio and Government Cash Management
Portfolio (the “Portfolios”
and each a “Portfolio”)
are organized as master trust funds under the
laws of the State of New York. Each Portfolio serves
as a master fund in a master/feeder arrangement. References
to a fund in this section refer only to a fund that
is a feeder fund in a master/feeder arrangement. Each
Portfolio's Declaration of Trust provides that a fund and
other entities investing in the Portfolio (e.g., other investment
companies, insurance company separate accounts
and common and commingled trust funds) will each
be liable for all obligations of a Portfolio. However, the
risk of a fund incurring financial loss on account of such
liability is limited to circumstances in which both inadequate
insurance existed and a Portfolio itself was unable
to meet its obligations. Accordingly, the Board believes
that neither a fund nor its shareholders will be adversely
affected by reason of a fund's investing in a Portfolio.
Whenever a fund is requested to vote on a matter pertaining
to a Portfolio, a fund will vote its shares without a
meeting of shareholders of a fund if the proposal is one,
in which made with respect to a fund, would not require
the vote of shareholders of a fund as long as such
action is permissible under applicable statutory and regulatory
requirements. In addition, whenever a fund is
requested to vote on matters pertaining to the fundamental
policies of a Portfolio, a fund will hold a meeting of
the fund's shareholders and will cast its vote as instructed
by the fund's shareholders. The percentage of
a fund's votes representing fund shareholders not voting
will be voted by a fund in the same proportion as
fund
shareholders who do, in fact, vote. For all other matters
requiring a vote, a fund will hold a meeting of shareholders
of a fund and, at the meeting of investors in
a Portfolio, a fund will cast all of its votes in the same proportion
as the votes of a fund's shareholders even if all
fund shareholders did not vote. Even if a fund votes all
its shares at the Portfolio meeting, other investors with
a greater pro rata ownership of a Portfolio could have
effective voting control of the operations of a Portfolio.
Purchase and Redemption of
Shares
General Information.
Policies and procedures affecting transactions
in a fund’s shares can be changed at any time
without notice, subject to applicable law. Transactions
may be contingent upon proper completion of application
forms and other documents by shareholders and their
receipt by a fund’s agents. Transaction delays in processing
(and changing account features) due to circumstances
within or beyond the control of a fund and its agents
may occur. Shareholders (or their financial services firms)
are responsible for all losses and fees resulting from
bad checks, cancelled orders or the failure to consummate
transactions effected pursuant to instructions reasonably believed
to be genuine.
A fund may suspend (in
whole or in part) or terminate the offering
of its shares at any time for any reason and may
limit the amount of purchases by, and refuse to sell to,
any person. During the period of such suspension, a fund
may permit certain persons (for example, persons who
are already shareholders of the fund) to continue to
purchase additional shares of a fund and to have dividends reinvested.
Orders will be confirmed
at a share price next calculated after receipt
in good order by DDI. Except as described below,
orders received by certain dealers or other
financial services firms prior to the close of a fund's business
day will be confirmed at a price based on the net asset value
determined on that day (trade date).
Use of Financial Services Firms.
Dealers and other financial services firms provide
varying arrangements for their clients to purchase
and redeem a fund’s shares, including
different minimum investments, and may assess transaction
or other fees. In addition, certain privileges with
respect to the purchase and redemption of shares or
the reinvestment of dividends may not be available through
such firms. Firms may arrange with their clients for
other investment or administrative services. Such firms may
independently establish and charge additional
amounts
to their clients for such services. Firms also may
hold a fund’s shares in nominee or street name as agent
for and on behalf of their customers. In such instances,
the Shareholder Service Agent will have no information
with respect to or control over the accounts of
specific shareholders. Such shareholders may obtain access
to their accounts and information about their accounts
only from their firm. Certain of these firms may receive
compensation from a fund through the Shareholder
Service Agent for record-keeping and other expenses
relating to these nominee accounts. Some firms may
participate in a program allowing them access to their
clients’ accounts for servicing including, without limitation,
transfers of registration and dividend payee changes;
and may perform functions such as generation of
confirmation statements and disbursement of cash dividends.
Such firms, including affiliates of DDI, may receive
compensation from a fund through the Shareholder Service Agent
for these services.
A fund has authorized
one or more financial service institutions,
including certain members of the Financial Industry
Regulatory Authority (FINRA) other than DDI (i.e.,
financial institutions), to accept purchase and redemption
orders for a fund’s shares. Such financial institutions
may also designate other parties, including plan administrator
intermediaries, to accept purchase and redemption
orders on a fund’s behalf. Orders for purchases or
redemptions will be deemed to have been received by
a fund when such financial institutions or, if applicable,
their authorized designees accept the orders. Subject
to the terms of the contract between a fund and the
financial institution, ordinarily orders will be priced at
a fund’s net asset value next computed after acceptance
by such financial institution or its authorized designees.
Further, if purchases or redemptions of a fund’s shares
are arranged and settlement is made at an investor’s
election through any other authorized financial institution,
that financial institution may, at its discretion, charge a fee
for that service.
Tax-Sheltered Retirement Plans.
The funds are available for purchase by establishing
a retirement plan with DWS Trust Company as
custodian. DWS Trust Company is a banking entity
organized in New Hampshire and is an affiliate
of DIMA. Plans available include, Traditional IRAs, Roth
IRAs, Simplified Employee Pension (SEP) IRAs and Coverdell Education
Savings Accounts.
Materials describing
these plans and materials for establishing them
are available from the Shareholder Service Agent
upon request. DDI may pay commissions to dealers and
other financial services firms in connection with
shares
sold to retirement plans. For further information about
such compensation, see Compensation Schedule as
set forth in Part II—Appendix
II-D. Additional fees and
transaction policies and procedures may apply to such
plans. Certain funds investing in municipal securities may
not be appropriate for such Tax-Sheltered Retirement Plans.
Investors should consult their own tax advisors before establishing
a retirement plan.
A fund may offer only
certain of the classes of shares referred to
in the subsections below. Thus, the information
provided below in regard to the purchase of certain classes
of shares is only applicable to funds offering such classes
of shares. For information regarding purchases of
shares of Deutsche DWS Variable Series I, Deutsche DWS
Variable Series II and Deutsche DWS Investments VIT
Funds, please see Variable Insurance Funds
below. For information regarding purchases of
money market funds, please see Money
Market Funds below.
Purchase of Class A Shares.
The public offering price of Class A shares
is the net asset value plus a sales charge based
on investment amount, if applicable, as set forth in
the relevant prospectus and the “Class
A Sales Charge Schedule”
set forth in Part II – Appendix II-F. Class
A shares are subject to a Rule 12b-1 fee, as
described in the relevant prospectus (see also
the discussion of Rule 12b-1 Plans under Distribution
and Service Agreements and Plans below).
Class A Shares Reduced Sales Charges
Quantity Discounts.
An investor or the investor’s dealer or
other financial services firm must notify the Shareholder
Service Agent or DDI whenever a quantity discount or
reduced sales charge is applicable to a purchase. In order
to qualify for a lower sales charge, all orders from an
organized group will have to be placed through a single dealer
or other firm and identified as originating from a qualifying
purchaser.
Combined Purchases.
A fund’s Class A shares may be purchased
at the rate applicable to the sales charge discount
bracket attained by combining same day investments
in all share classes of two or more retail DWS funds
(excluding direct purchases of DWS money market funds).
Cumulative Discount.
Class A shares of a fund may also be purchased
at the rate applicable to the discount bracket
attained by adding to the cost of shares being purchased,
the value of all share classes of retail DWS funds
(excluding shares in DWS money market funds
for
which a sales charge has not previously been paid and
computed at the maximum offering price at the time of
the purchase for which the discount is applicable for Class
A shares) already owned by the investor or his or her
immediate family member (including the investor’s spouse
or life partner and children or stepchildren age 21 or younger).
Letter of Intent.
The reduced sales charges for Class A shares,
as shown in the relevant prospectus and the “Class
A Sales Charge Schedule”
set forth in Part II – Appendix
II-F, also apply to the aggregate amount of purchases
of all shares of retail DWS funds (excluding direct
purchases of DWS money market funds) made by
any purchaser within a 24-month period under a written Letter
of Intent (Letter) provided to DDI. The Letter, which imposes
no obligation to purchase or sell additional Class A
shares, provides for a price adjustment depending upon the
actual amount purchased within such period. The Letter provides
that the first purchase following execution of the
Letter must be at least 5% of the amount of the intended
purchase, and that 5% of the amount of the intended
purchase normally will be held in escrow in the form
of shares pending completion of the intended purchase.
If the total investments under the Letter are less
than the intended amount and thereby qualify only for
a higher sales charge than actually paid, the appropriate
number of escrowed shares are redeemed and the
proceeds used toward satisfaction of the obligation to
pay the increased sales charge. A shareholder may include
the value (at the maximum offering price, which is
determined by adding the maximum applicable sales load
charged to the net asset value) of all shares of such DWS
funds held of record as of the initial purchase date under
the Letter as an “accumulation
credit”
toward the completion of the Letter, but no
price adjustment will be made on such shares.
A description of other
waivers are included in the relevant prospectus.
Purchase of Class C Shares.
Class C shares of a fund are offered at net
asset value. No initial sales charge is imposed,
which allows the full amount of the investor’s purchase
payment to be invested in Class C shares for his
or her account. Class C shares are subject to a contingent
deferred sales charge of 1.00% (for shares sold
within one year of purchase) and Rule 12b-1 fees, as
described in the relevant prospectus (see also the discussion
of Rule 12b-1 Plans under Distribution and Service Agreements
and Plans below).
Class
C shares automatically convert to Class A shares of
the same fund at the relative net asset values of the two
classes no later than the end of the month in which the
eighth anniversary of the date of purchase occurs (or
such earlier date as the Trustees or Directors of a fund
may authorize), provided that the relevant fund or the
financial intermediary through which the shareholder
purchased such Class C shares has records verifying
the completion of the eight-year aging period. Class
C shares issued upon reinvestment of income and capital
gain dividends and other distributions will be converted
to Class A shares on a pro rata basis with the Class
C shares. For purposes of calculating the time period remaining
on the conversion of Class C shares to Class A
shares, Class C shares received on exchange retain their
original purchase date. No sales charges or other charges will
apply to any such conversion.
Purchase of Class R Shares.
Class R shares of a fund are offered at net
asset value. No initial sales charge is imposed,
which allows the full amount of the investor’s purchase
payment to be invested in Class R shares for his
or her account. Class R shares are subject to a Rule 12b-1
fee, as described in the relevant prospectus (see also
the discussion of Rule 12b-1 Plans under Distribution and Service
Agreements and Plans below).
The Shareholder Service
Agent monitors transactions in Class R shares
to help to ensure that investors purchasing Class
R shares meet the eligibility requirements described in
the prospectus. If the Shareholder Service Agent is unable
to verify that an investor meets the eligibility requirements
for Class R, either following receipt of a completed
application form within time frames established
by a fund or as part of its ongoing monitoring, the Shareholder
Service Agent may take corrective action up
to and including canceling the purchase order or redeeming the
account.
Purchase of Class R6 Shares. Class
R6 shares of a fund are offered at net asset
value. Class
R6 shares are generally available only to certain
retirement plans, IRA platform programs approved
by DWS Distributors, Inc. that trade on an omnibus
basis and certain plans administered as college
savings plans under Section 529 of the Internal
Revenue Code. If your plan or program sponsor
has selected Class R6 shares as an investment option,
you may purchase Class R6 shares through your securities
dealer or any institution authorized to act as a shareholder
servicing agent for your plan or program. There
is no minimum investment for Class R6 shares. Contact
your securities dealer or shareholder servicing agent
for details on how to buy and sell Class R6 shares.
Purchase of Institutional
Class Shares. Institutional Class
shares of a fund are offered at net asset value without
a sales charge to certain eligible investors as described
in the section entitled “Buying,
Exchanging and Selling Class A, Class C, Institutional
Class and Class S Shares”
in a fund’s prospectus.
Investors may invest
in Institutional Class shares by setting up
an account directly with the Transfer Agent or through an
authorized service agent. Investors who establish shareholder
accounts directly with the Shareholder Service Agent
should submit purchase and redemption orders as described in
the relevant prospectus.
Purchase of Class S. Class
S shares of a fund are offered at net asset
value. Class S shares are available through (i)
fee-based programs of investment dealers that have special
agreements with a fund’s distributor, (ii) certain group
retirement plans and (iii) certain registered investment
advisors, or (iv) by establishing an account directly
with a fund’s Transfer Agent. Investors who purchase
shares through a financial intermediary may be
charged ongoing fees for services they provide. Class S
shares may also be available on brokerage platforms of
firms that have agreements with DDI to offer such shares
when acting solely on an agency basis for its customers
for the purchase or sale of such shares. If you
transact in Class S shares through one of these programs,
you may be required to pay a commission and/or
other forms of compensation to your broker. Shares of
a fund are available in other share classes that have different
fees and expenses.
Multi-Class Suitability for Classes
A and C. DDI has established
the following procedures regarding the purchase
of Class A and Class C shares, as applicable. Orders
to purchase Class C shares of $500,000 or more (certain
funds have a $250,000 maximum for Class C purchases,
see the applicable fund's prospectus) will be declined
with the exception of orders received from (i) financial
representatives acting for clients whose shares are
held in an omnibus account; and (ii) DWS/Ascensus 403(b) Plans.
The following provisions
apply to DWS/ Ascensus 403(b) Plans.
(1)
Class
C Share DWS/ Ascensus 403(b) Plans. Orders to purchase Class
C shares for a DWS/ Ascensus 403(b) Plan, regardless of when
such plan was established on the system, will be invested instead
in Class A shares at net asset value when the combined
subaccount value in DWS funds or other
eligible
assets held by the plan is $1,000,000 or more.
This provision will be imposed for the first purchase
after eligible plan assets reach the $1,000,000
threshold. A later decline in assets below the
$1,000,000 threshold will not affect the plan’s ability
to continue to purchase Class A shares at net asset value.
The procedures described
above do not reflect in any way the suitability
of a particular class of shares for a particular
investor and should not be relied upon as such. A
suitability determination must be made by investors with the
assistance of their financial representative.
Purchase Privileges for DWS Affiliated
Individuals. Current
or former Board members of the DWS funds, employees,
their spouses or life partners and children or
step-children age 21 or younger, of Deutsche Bank AG
or its affiliates or a subadvisor to any DWS fund or a broker-dealer
authorized to sell shares of a fund are generally
eligible to purchase shares in the class of a fund
with the lowest expense ratio, usually the Institutional
Class shares. If a fund does not offer Institutional Class
shares, these individuals are eligible to buy Class A
shares at NAV. Each fund also reserves the right to waive
the minimum account balance requirement for employee
and director accounts. Fees generally charged to
IRA accounts will be charged to accounts of employees and directors.
Money Market Funds. Shares
of a fund are sold at net asset value directly
from a fund or through selected financial services
firms, such as broker-dealers and banks. Each
fund seeks to have its investment portfolio as fully invested
as possible at all times in order to achieve maximum
income. Since each fund will be investing in instruments
that normally require immediate payment in Federal
Funds (monies credited to a bank’s account with
its regional Federal Reserve Bank), as described in the
applicable prospectus, each fund has adopted procedures
for the convenience of its shareholders and to ensure that each
fund receives investable funds.
Variable Insurance Funds.
Shares of Deutsche DWS Variable
Series I, Deutsche DWS Variable Series II and Deutsche DWS
Investments VIT Funds are continuously
offered to separate accounts of participating insurance
companies at the net asset value per share next
determined after a proper purchase request has been received
by the insurance company. The insurance companies
offer to variable annuity and variable life insurance
contract owners units in its separate accounts which
directly correspond to shares in a fund. Each insurance
company submits purchase and redemption
orders
to a fund based on allocation instructions for premium
payments, transfer instructions and surrender or
partial withdrawal requests which are furnished to the insurance
company by such contract owners. Contract owners
can send such instructions and requests to the insurance
companies in accordance with procedures set forth
in the prospectus for the applicable variable insurance product
offered by the insurance company.
Purchases In-Kind.
A fund may, at its own option, accept securities
in payment for shares. The securities delivered in
payment for shares are valued by the method described under
“Net
Asset Value”
as of the day a fund receives the securities.
This is a taxable transaction to the shareholder.
Securities may be accepted in payment for shares only
if they are, in the judgment of the Advisor, appropriate
investments for a fund. In addition, securities accepted
in payment for shares must: (i) meet the investment
objective and policies of the acquiring fund; (ii)
be acquired by the applicable fund for investment and not
for resale; (iii) be liquid securities which are not restricted
as to transfer either by law or liquidity of market; and
(iv) if stock, have a value which is readily ascertainable
as evidenced by a listing on a stock exchange, over-the-counter
market or by readily available market quotations
from a dealer in such securities. The shareholder
will be charged the costs associated with receiving or
delivering the securities. These costs include security movement
costs and taxes and registration costs. A fund reserves
the right to accept or reject at its own option any and all securities
offered in payment for its shares.
A fund may offer only
certain of the classes of shares referred to
in the subsections below. Thus, the information
provided below in regard to the redemption of certain
classes of shares is only applicable to funds offering such
classes of shares. Please consult the prospectus for
the availability of these redemption features for a specific
fund. In addition, the information provided below does
not apply to contract holders in variable insurance products.
Contract owners should consult their contract prospectuses for
applicable redemption procedures.
A request for repurchase
(confirmed redemption) may be communicated by
a shareholder through a financial services firm
to DDI, which firms must promptly submit orders to be effective.
Redemption requests must
be unconditional. Redemption requests (and a
stock power for certificated shares) must be
duly endorsed by the account holder. As specified in the
relevant prospectus, signatures may need to be
guaranteed
by a commercial bank, trust company, savings and
loan association, federal savings bank, member firm of
a national securities exchange or other financial institution
permitted by SEC rule. DWS accepts Medallion Signature
Guarantees. Additional documentation may be required,
particularly from institutional and fiduciary account
holders, such as corporations, custodians (e.g., under
the Uniform Transfers to Minors Act), executors, administrators,
trustees or guardians.
Wires.
The ability to send wires is limited by the business hours
and holidays of the firms involved. A fund is not responsible
for the efficiency of the federal wire system or
the account holder’s financial services firm or bank. The
account holder is responsible for any charges imposed by
the account holder’s firm or bank. To change the designated
account to receive wire redemption proceeds, send a
written request to the Shareholder Service Agent with signatures
guaranteed as described above or contact the firm through which
fund shares were purchased.
Systematic Withdrawal Plan. An
owner of $5,000 or more of a class of a fund’s
shares at the offering price (net asset value
plus, in the case of Class A shares, the initial
sales charge, as applicable) may provide for the payment
from the owner’s account of any requested dollar amount
to be paid to the owner or a designated payee monthly,
quarterly, semiannually or annually pursuant to a
Systematic Withdrawal Plan (the “Plan”).
The $5,000 minimum account size is not applicable
to IRAs. The minimum periodic payment is $50.
The maximum annual rate at which shares subject
to CDSC may be redeemed without the imposition
of the CDSC is 12% of the net asset value of the account.
Non-retirement plan shareholders
may establish a Plan to receive monthly, quarterly
or periodic redemptions from his or her account
for any designated amount of $50 or more. Shareholders
may designate which day they want the systematic
withdrawal to be processed. If a day is not
designated, the withdrawal will be processed on the 25th
day of the month so
that the payee should receive payment approximately
on the first of the month. The check amounts
may be based on the redemption of a fixed dollar
amount, fixed share amount, percent of account
value or declining balance. The Plan provides for
income dividends and capital gains distributions, if any,
to be reinvested in additional shares. Shares are then liquidated
as necessary to provide for withdrawal payments.
Since the withdrawals are in amounts selected by
the investor and have no relationship to yield or income, payments
received cannot be considered as yield or income
on the investment and the resulting liquidations may
deplete or possibly extinguish the initial investment
and
any reinvested dividends and capital gains distributions.
Any such requests must be received by the Shareholder
Service Agent ten days prior to the date of the first
systematic withdrawal. A Plan may be terminated at
any time by the shareholder, the Trust or its agent on written
notice, and will be terminated when all fund shares under
the Plan have been liquidated or upon receipt by the Trust of
notice of death of the shareholder.
The purchase of Class
A shares while participating in a Plan will
ordinarily be disadvantageous to the investor because
the investor will be paying a sales charge, if applicable,
on the purchase of shares at the same time that
the investor is redeeming shares upon which a sales charge
may have already been paid. Therefore, an investor should
consider carefully whether to make additional investments
in Class A shares if the investor is at the same time making
systematic withdrawals.
Contingent Deferred Sales Charge (CDSC).
The following example will illustrate the operation
of the CDSC for Class A (when applicable) and
Class C shares, to the extent applicable. Assume
that an investor makes a single purchase of
$10,000 of a fund’s Class C shares and then 11
months later the value of the shares has grown by $1,000
through reinvested dividends and by an additional $1,000
of share appreciation to a total of $12,000. If the investor
were then to redeem the entire $12,000 in share value,
the CDSC would be payable only with respect to $10,000
because neither the $1,000 of reinvested dividends
nor the $1,000 of share appreciation is subject to
the charge. The charge would be at the rate of 1.00% ($100).
The rate of the CDSC
is determined by the length of the period of
ownership. Investments are tracked on a monthly basis.
The period of ownership for this purpose begins the
first day of the month in which the order for the investment
is received. In the event no specific order is requested
when redeeming shares subject to a CDSC, the
redemption will be made first from shares representing
reinvested dividends and then from the earliest purchase
of shares. DDI receives any CDSC directly. The CDSC
will not be imposed upon redemption of reinvested dividends or
share appreciation.
Redemptions In-Kind.
A fund reserves the right to honor any request
for redemption or repurchase by making payment
in whole or in part in securities, which are subject to
market risk until sold, may incur taxes and may incur brokerage
costs, rather than cash. These securities will be
chosen pursuant to procedures adopted by the fund’s Board
and valued as they are for purposes of computing
a
fund’s net asset value. A shareholder may incur transaction
expenses in converting these securities to cash. Please
see the prospectus for any requirements that may be
applicable to certain funds to provide cash up to certain amounts.
For the following funds, this right may only be exercised
upon the consent of the shareholder: DWS Government
& Agency Securities Portfolio, a series of Cash
Account Trust; DWS Government Money Market Series,
a series of Deutsche DWS Money Market Trust; and
DWS Treasury Portfolio and DWS ESG Liquidity Fund, each a series
of Investors Cash Trust.
Checkwriting
(applicable to DWS Short Duration Fund, DWS
Intermediate Tax-Free Fund and DWS Massachusetts
Tax-Free Fund only).
The Checkwriting Privilege is not offered to
new investors. The Checkwriting Privilege is
available for shareholders of DWS Intermediate Tax-Free Fund
and DWS Short Term Bond Fund (which was acquired by
DWS Short Duration Fund) who previously elected this
privilege prior to August 19, 2002, and to shareholders
of DWS Massachusetts Tax-Free Fund who were shareholders
of the Scudder Massachusetts Limited Term Tax
Free Fund prior to July 31, 2000. Checks may be used
to pay any person, provided that each check is for at
least $100 and not more than $5 million. By using the checks,
the shareholder will receive daily dividend credit on
his or her shares until the check has cleared the banking system.
Investors who purchased shares by check may write
checks against those shares only after they have been
on a fund’s book for 10 calendar days. Shareholders
who use this service may also use other redemption
procedures. No shareholder may write checks against
certificated shares. A fund pays the bank charges for
this service. However, each fund will review the cost of
operation periodically and reserve the right to determine if
direct charges to the persons who avail themselves of this
service would be appropriate. Each fund, State Street Bank
and Trust Company and the Transfer Agent reserve the
right at any time to suspend or terminate the Checkwriting procedure.
The following sections
relate to certain Money Market Funds. Please
consult the prospectus for the availability of these redemption
features for a specific fund.
Redemption by Check/ACH Debit Disclosure.
A fund will accept Automated Clearing House
(ACH) debit entries for accounts that have elected
the checkwriting redemption privilege (see Redemptions
by Draft below). Please consult the prospectus
for the availability of the checkwriting privilege
for a specific fund. An example of an ACH debit
is a transaction in which you have given
your
insurance company, mortgage company, credit card company,
utility company, health club, etc., the right to withdraw
your monthly payment from your fund account or
the right to convert your mailed check into an ACH debit.
Sometimes, you may give a merchant from whom you
wish to purchase goods the right to convert your check
to an ACH debit. You may also authorize a third party
to initiate an individual payment in a specific amount from
your account by providing your account information and
authorization to such third party via the Internet or telephone.
You authorize a fund upon receipt of an ACH debit
entry referencing your account number, to redeem fund
shares in your account to pay the entry to the third party
originating the debit. A fund will make the payment on
the basis of the account number that you provide to your
merchant and will not compare this account number with
the name on the account. A fund, the Shareholder Service
Agent or any other person or system handling the
transaction are not required to determine if there is a
discrepancy between the name and the account number shown on
the transfer instructions.
The payment of any ACH
debit entry will be subject to sufficient funds
being available in the designated account; a
fund will not be able to honor an ACH debit entry if sufficient
funds are not available. ACH debit entry transactions
to your fund account should not be initiated or authorized
by you in amounts exceeding the amount of Shares
of a fund then in the account and available for redemption.
A fund may refuse to honor ACH debit entry transactions
whenever the right of redemption has been suspended
or postponed, or whenever the account is otherwise
impaired. Your fund account statement will show
any ACH debit entries in your account; you will not
receive any other separate notice. (Merchants are permitted
to convert your checks into ACH debits only with your prior consent.)
You may authorize payment
of a specific amount to be made from your account
directly by a fund to third parties on a continuing
periodic basis. To arrange for this service, you
should contact the person or company you will be paying.
Any preauthorized transfers will be subject to sufficient
funds being available in the designated account. A
preauthorized transfer will continue to be made from the
account in the same amount and frequency as initially established
until you terminate the preauthorized transfer instructions
with the person or company whom you have been
paying. If regular preauthorized payments may vary in
amount, the person or company you are going to pay should
tell you ten (10) days before each payment will be
made and how much the payment will be. If you have told
a fund in advance to make regular payments out of
your
account, you may stop any of these payments by writing
or calling the Shareholder Service Agent at the address
and telephone number listed in the next paragraph in
time for the Shareholder Service Agent to receive your request
three (3) business days or more before the payment
is scheduled to be made. If you call, a fund may
also require that you put your request in writing so that
a fund will receive it within fourteen (14) days after you
call. If you order a fund to stop one of these payments three
(3) business days or more before the transfer is scheduled
and a fund does not do so, a fund will be liable for
your loss or damages but not in an amount exceeding the
amount of the payment. A stop payment order will stop
only the designated periodic payment. If you wish to
terminate the periodic preauthorized transfers, you should
do so with the person or company to whom you have been making
payments.
In case of errors or questions about
your ACH debit entry transactions
please telephone (see telephone number on front
cover) or write (DWS Service Company, P.O. Box
219151, Kansas City, MO 64121-9151) the Shareholder
Service Agent as soon as possible if you think your
statement is wrong or shows an improper transfer or
if you need more information about a transfer listed on
the statement. Our business days are Monday through Friday
except holidays. The Shareholder Service Agent must
hear from you no later than sixty (60) days after a fund
sent you the first fund account statement on which the
problem or error appeared. If you do not notify the Shareholder
Service Agent within sixty (60) days after a fund
sends you the account statement, you may not get back
any money you have lost, and you may not get back any
additional money you lose after the sixty (60) days if
a fund or the Shareholder Service Agent could have stopped
someone from taking that money if you had notified the Shareholder
Service Agent in time.
Tell us your name and
account number, describe the error or the transfer
you are unsure about, and explain why you believe
it is an error or why you need more information.
Tell us the dollar amount of the suspected error. If
you tell the Shareholder Service Agent orally, the Shareholder
Service Agent may require that you send your complaint
or questions in writing within ten (10) business days.
The Shareholder Service Agent will determine whether
an error occurred within ten (10) business days after
it hears from you and will correct any error promptly. If
the Shareholder Service Agent needs more time, however,
it may take up to forty-five (45) days (or up to ninety
(90) days for certain types of transactions) to investigate
your complaint or question. If the Shareholder Service
Agent decides to do this, your account will be credited
with escrowed fund shares within ten (10)
business
days for the amount you think is in error so that
you will have the use of the money during the time it
takes the Shareholder Service Agent to complete its investigation.
If the Shareholder Service Agent asks you to
put your complaint or questions in writing and the Shareholder
Service Agent does not receive it within ten (10)
business days, your account may not be credited. The
Shareholder Service Agent will tell you the results within
three (3) business days after completing its investigation.
If the Shareholder Service Agent determines that
there was no error, the Shareholder Service Agent will
send you a written explanation. You may ask for copies of
documents that were used by the Shareholder Service Agent in
the investigation.
In the event a fund or
the Shareholder Service Agent does not complete
a transfer from your account on time or in the
correct amount according to a fund’s agreement with
you, a fund may be liable for your losses or damages. A
fund will not be liable to you if: (i) there are not sufficient
funds available in your account; (ii) circumstances beyond
our control (such as fire or flood or malfunction of
equipment) prevent the transfer; (iii) you or another shareholder
have supplied a merchant with incorrect account
information; or (iv) a merchant has incorrectly formulated
an ACH debit entry. In any case, a fund’s liability shall
not exceed the amount of the transfer in question.
A fund or the Shareholder
Service Agent will disclose information to third
parties about your account or the transfers
you make: (1) where it is necessary for completing
the transfers; (2) in order to verify the existence or
condition of your account for a third party such as a credit
bureau or a merchant; (3) in order to comply with government
agencies or court orders; or (4) if you have given a fund written
permission.
The acceptance and processing
of ACH debit entry transactions is established
solely for your convenience and a fund reserves
the right to suspend, terminate or modify your
ability to redeem fund shares by ACH debit entry transactions
at any time. ACH debit entry transactions are
governed by the rules of the National Automated Clearing
House Association (NACHA) Operating Rules and
any local ACH operating rules then in effect, as well as Regulation
E of the Federal Reserve Board.
Redemptions by Draft.
Upon request, shareholders of certain Money
Market Funds will be provided with drafts to
be drawn on a fund (Redemption Checks). Please consult
the prospectus for the availability of the checkwriting
redemption privilege for a specific Money Market
Fund. These Redemption Checks may be made
payable
to the order of any person for not more than $5 million.
When a Redemption Check is presented for payment,
a sufficient number of full and fractional shares in
the shareholder’s account will be redeemed as of the next
determined net asset value to cover the amount of the
Redemption Check. This will enable the shareholder to
continue earning dividends until a fund receives the Redemption
Check. A shareholder wishing to use this method
of redemption must complete and file an Account Application
which is available from a fund or firms through which
shares were purchased. Redemption Checks should not
be used to close an account since the account normally
includes accrued but unpaid dividends. A fund reserves
the right to terminate or modify this privilege at
any time. This privilege may not be available through some
firms that distribute shares of a fund. In addition, firms
may impose minimum balance requirements in order to
offer this feature. Firms may also impose fees to investors
for this privilege or establish variations of minimum check amounts.
Unless more than one
signature is required pursuant to the Account
Application, only one signature will be required
on Redemption Checks. Any change in the signature
authorization must be made by written notice to
the Shareholder Service Agent. Shares purchased by check
or through certain ACH transactions may not be redeemed
by Redemption Check until the shares have been
on a fund’s books for at least ten (10) days. Shareholders
may not use this procedure to redeem shares held
in certificate form. A fund reserves the right to terminate or
modify this privilege at any time.
A fund may refuse to
honor Redemption Checks whenever the right of
redemption has been suspended or postponed,
or whenever the account is otherwise impaired.
A $10 service fee will be charged when a Redemption
Check is presented to redeem fund shares in
excess of the value of a fund account or in an amount less
than the minimum Redemption Check amount specified
in the prospectus; when a Redemption Check is
presented that would require redemption of shares that
were purchased by check or certain ACH transactions
within ten (10) days; or when “stop
payment”
of a Redemption Check is requested.
Special Redemption Features.
Certain firms that offer Shares of the Money
Market Funds also provide special redemption
features through charge or debit cards and checks
that redeem fund shares. Various firms have different
charges for their services. Shareholders should obtain
information from their firm with respect to any
special
redemption features, applicable charges, minimum balance
requirements and special rules of the cash management program
being offered.
The exchange features
may not be available to all funds. Please consult
the prospectus for the availability of exchanges
for a specific fund. A fund may offer only certain of
the classes of shares referred to in the subsections below.
Thus, the information provided below in regard to
the exchange of certain classes of shares is only applicable
to funds offering such classes of shares. In addition, the
information provided below does not apply to contract holders
in variable insurance products. Contract holders should
consult their contract prospectuses for applicable exchange procedures.
General.
Shareholders may request a taxable exchange of
their shares for shares of the corresponding class of other
DWS funds without imposition of a sales charge, subject
to the provisions below. Shares of the fund acquired
in an exchange that were subject to a CDSC at the
time of the exchange will continue to be subject to the
CDSC schedule of the shares of the fund you originally
purchased. No CDSC charges apply to shares of DWS
money market funds or a fund with Class A shares without a sales
charge acquired directly.
Shareholders who exchange
their shares out of a DWS money market fund
or a fund with Class A shares without a sales
charge into Class A shares of certain other DWS funds
will generally be subject to the applicable sales charge
(not including shares acquired by dividend reinvestment
or shares that have previously paid a sales charge).
Certain DWS funds may
not be available to shareholders on an exchange.
To learn more about which DWS funds may be available
on exchange, please contact your financial services
firm or visit our Web site at: dws.com (the Web site
does not form a part of this Statement of Additional Information)
or call DWS (see telephone number on front cover).
Shareholders must obtain
the prospectus of the DWS fund they are exchanging
into from dealers, other firms or DDI.
Compensation of Financial Intermediaries
Incentive Plan for DWS Distributors,
Inc. Personnel. DDI
has adopted an Incentive Plan (Plan) covering wholesalers
that market shares of the DWS funds to financial
representatives
(DWS Wholesalers). These financial representatives
in turn may recommend that investors purchase shares
of a DWS fund. The Plan is an incentive program that
combines monthly and quarterly incentive components
based on achieving certain sales and other performance
metrics. Under the Plan, DWS Wholesalers will receive
a monetary monthly incentive based on the amount
of sales generated from their marketing of the funds,
and that incentive will differ depending on the product
tier of a fund. Each fund is assigned to one of four
product tiers—taking into consideration, among other things,
the following criteria, where applicable:
•
a
fund’s consistency with DWS’s branding and long-term
strategy
•
a
fund’s competitive performance
•
a
fund’s Morningstar rating
•
the
length of time a fund’s Portfolio Managers have managed
a fund/strategy
•
market
size for the fund tier
•
a
fund’s size, including sales and redemptions of a fund’s
shares
This information and
other factors are discussed with senior representatives
from various groups within the asset management
division, who review on a regular basis the
funds assigned to each product tier described above and
may make changes to those assignments periodically.
No one factor, whether positive or negative, determines
a fund’s placement in a given product tier; all these factors
together are considered, and the designation of funds
in a particular tier represents management’s judgment
based on the above criteria. In addition, management
may consider a fund’s profile over the course of
several review periods before making a change to its tier
assignment. These tier assignments will be posted to
the DWS funds’ Web site at: fundsus.dws.com/us/en-us/legal-resources/wholesaler-compensation.html.
DWS Wholesalers receive the
highest compensation for Tier
1 funds, successively less for Tier 2 funds, successively
less for Tier 3 funds and successively less for Tier 4
funds. The level of compensation among these product tiers
may differ significantly.
In the normal course
of business, DWS will from time to time introduce
new funds into the DWS family of funds. As a
general rule, new funds will be assigned to the product
tier that is most appropriate to the type of fund
at
the time of its launch based on the criteria described above.
As described above, the fund tier assignments are reviewed periodically
and are subject to change.
The prospect of receiving,
or the receipt of, additional compensation by
a DWS Wholesaler under the Plan may provide
an incentive to favor marketing funds in higher payout
tiers over funds in lower payout tiers. The Plan, however,
will not change the price that investors pay for shares
of a fund. The DWS Compliance Department monitors
DWS Wholesaler sales and other activity in an effort
to detect unusual activity in the context of the compensation
structure under the Plan. However, investors
may wish to take the compensation structure into
account when considering purchasing a fund or evaluating any
recommendations relating to fund shares.
Financial Services Firms’ Compensation.
DDI may pay compensation to financial intermediaries
in connection with the sale of fund shares as
described in Part II – Appendix
II-D. In addition, financial intermediaries may receive
compensation for post-sale administrative services from
DDI or directly from a fund as described in Part II –
Appendix II-D.
Compensation for Recordkeeping Services.
Certain financial institutions, including affiliates
of DDI, may receive compensation from a fund
for recordkeeping and other expenses relating
to nominee accounts or for providing certain
services to their client accounts. Generally, payments
by a fund to financial institutions for providing such
services are not expected to exceed 0.25% of shareholder
assets for which such services are provided. Normally,
compensation for these financial institutions is
paid by the Transfer Agent, which is in turn reimbursed by
the applicable fund. To the extent that record keeping compensation
in excess of the amount reimbursed by a fund
is owed to a financial institution, the Transfer Agent, Distributor
or Advisor may pay compensation from their own
resources (see Financial Intermediary Support Payments below).
Compensation for Recordkeeping Services:
Variable Insurance Funds.
Technically, the shareholders of Deutsche DWS
Variable Series I, Deutsche DWS Variable Series
II and Deutsche DWS Investments VIT Funds are the
participating insurance companies that offer shares of
the funds as investment options for holders of certain variable
annuity contracts and variable life insurance policies.
Effectively, ownership of fund shares is passed through
to insurance company contract and policy holders. The
holders of the shares of a fund on the records of a fund
are the insurance companies and no information
concerning
fund holdings of specific contract and policy holders
is maintained by a fund. The insurance companies place
orders for the purchase and redemption of fund shares
with a fund reflecting the investment of premiums paid,
surrender and transfer requests and other matters on
a net basis; they maintain all records of the transactions
and holdings of fund shares and distributions thereon for
individual contract and policy holders; and they prepare and
mail to contract and policy holders confirmations and periodic
account statements reflecting such transactions and holdings.
A fund may compensate
certain insurance companies for record keeping
and other administrative services performed
with regard to holdings of Class B shares as an
expense of the Class B shares up to 0.15%. These fees
are included within the “Other
Expenses”
category in the fee table for each portfolio
in the Class B Shares Prospectus (see How Much
Investors Pay in the applicable fund's prospectus).
In addition, the Advisor may, from time to time,
pay from its own resources certain insurance
companies for record keeping and other administrative
services related to Class A and Class B shares of
the Portfolios held by such insurance companies on behalf
of their contract and policy holders (see Financial Intermediary
Support Payments below).
Financial Intermediary Support Payments.
The Advisor, the
Distributor and their affiliates have undertaken to furnish
certain additional information below regarding the level
of payments made by them to selected affiliated and
unaffiliated brokers, dealers, participating insurance companies
or other financial intermediaries (financial representatives)
in connection with the sale and/or distribution
of fund shares or the retention and/or servicing of investors
and fund shares (revenue sharing).
The Advisor, the Distributor
and/or their affiliates may pay additional compensation,
out of their own assets and not as an additional
charge to each fund, to financial representatives
in connection with the sale and/or distribution
of fund shares or the retention and/or servicing of
fund investors and fund shares. Such revenue sharing payments
are in addition to any distribution or service fees
payable under any Rule 12b-1 or service plan of any fund,
any recordkeeping/sub-transfer agency/networking fees
payable by each fund (generally through the Distributor
or an affiliate) and/or the Distributor or the Advisor
to certain financial representatives for performing such
services and any sales charges, commissions, non-cash
compensation arrangements expressly permitted
under applicable rules of FINRA or other concessions
described in the fee table or elsewhere in the prospectuses
or the SAI as payable to all financial repre
sentatives.
For example, the Advisor, the Distributor and/or their
affiliates may, using their legitimate profits, compensate
financial representatives for providing each fund
with “shelf
space”
or access to a third party platform (including
the costs associated with establishing and maintaining
the fund on such platform) or fund offering list,
or other marketing programs including, without limitation,
inclusion of each fund on preferred or recommended
sales lists, mutual fund “supermarket”
platforms and other formal sales programs; granting
the Distributor access to the financial representative’s
sales force; granting the Distributor access
to the financial representative’s conferences
and meetings; assistance in training and educating
the financial representative’s personnel; and
obtaining other forms of marketing support. In addition,
revenue sharing payments may consist of the Distributor’s
and/or its affiliates’ payment or reimbursement
of ticket charges that would otherwise be assessed
by a financial representative on an investor’s
fund transactions. The level of revenue sharing payments
made to financial representatives may be a fixed
fee or based upon one or more of the following factors:
gross sales, current assets and/or number of accounts
of each fund attributable to the financial representative,
the particular fund or fund type or other measures
as agreed to by the Advisor, the Distributor and/or
their affiliates and the financial representatives or
any combination thereof. The amount of these payments
is determined at the discretion of the Advisor, the
Distributor and/or their affiliates from time to time, may
be substantial, and may be different for different financial
representatives based on, for example, the nature of
the services provided by the financial representative.
The Advisor, the Distributor
and/or their affiliates currently make revenue
sharing payments from their own assets in connection
with the sale and/or distribution of DWS fund
shares, or the retention and/or servicing of investors, to
financial representatives in amounts that generally range from
0.01% up to 0.52% of assets of a fund serviced and
maintained by the financial representative, 0.05% to
0.25% of sales of a fund attributable to the financial representative,
a flat fee of up to $95,000, or any combination
thereof. These amounts are annual figures typically paid
on a quarterly basis and are subject to change at the
discretion of the Advisor, the Distributor and/or their affiliates.
Receipt of, or the prospect of receiving, this additional
compensation, may influence your financial representative’s
recommendation of a fund or of any particular
share class of a fund. You should review your financial
representative’s compensation disclosure and/or
talk
to your financial representative to obtain more information
on how this compensation may have influenced your
financial representative’s recommendation of a fund.
Other Payments to Financial Intermediaries.
In addition to the above-described payments,
the Distributor may, using its legitimate profits,
pay fees to a financial intermediary who sells
shares of the funds for other products or services
offered through the financial intermediary that are
unrelated to the sale or distribution of the funds’ shares,
but which may be helpful to the Distributor in carrying
out its distribution responsibilities. Such products or
services may include access to various kinds of analytical
data. Such payments may be in the form of licensing fees.
For all funds except for DWS ESG Liquidity
Fund: The Advisor,
the Distributor and/or their affiliates may also make
such revenue sharing payments to financial representatives
under the terms discussed above in connection with
the distribution of both DWS funds and non-DWS funds
by financial representatives to retirement plans that
obtain recordkeeping services from ADP, Inc. or to 403(b)
plans that obtain recordkeeping services from Ascensus,
Inc., on the DWS-branded retirement plan platform
(the Platform). The level of revenue sharing payments
is based upon sales of both the DWS funds and
the non-DWS funds by the financial representative on
the Platform or current assets of both the DWS funds and
the non-DWS funds serviced and maintained by the financial representative
on the Platform.
Each fund has been advised
that the Advisor, the Distributor and their
affiliates expect that the firms listed in Part
II—Appendix
II-E will receive revenue sharing payments
at different points during the coming year as described above.
The Advisor, the Distributor
or their affiliates may enter into additional
revenue sharing arrangements or change or discontinue
existing arrangements with financial representatives at any time
without notice.
The prospect of receiving,
or the receipt of additional compensation or
promotional incentives described above by financial
representatives may provide such financial representatives
and/or their salespersons with an incentive to
favor sales of shares of the DWS funds or a particular DWS
fund over sales of shares of mutual funds (or non-mutual
fund investments) with respect to which the financial
representative does not receive additional compensation
or promotional incentives, or receives lower levels
of additional compensation or promotional incentives.
Similarly, financial representatives may receive
different
compensation or incentives that may influence their
recommendation of any particular share class of a fund
or of other funds. These payment arrangements, however,
will not change the price that an investor pays for
fund shares or the amount that a fund receives to invest
on behalf of an investor and will not increase fund expenses.
You may wish to take such payment arrangements
into account when considering and evaluating any recommendations
relating to fund shares and you should discuss
this matter with your financial representative and review your
financial representative’s disclosures.
It is likely that broker-dealers
that execute portfolio transactions for a fund
will include firms that also sell shares of
the DWS funds to their customers. However, the Advisor
will not consider sales of DWS fund shares as a
factor in the selection of broker-dealers to execute portfolio
transactions for the DWS funds. Accordingly, the
Advisor has implemented policies and procedures reasonably
designed to prevent its traders from considering
sales of DWS fund shares as a factor in the selection of
broker-dealers to execute portfolio transactions for a fund.
In addition, the Advisor, the Distributor and/or their affiliates
will not use fund brokerage to pay for their obligation
to provide additional compensation to financial representatives
as described above.
Dividends (for non-Money Market Funds).
A fund, other than a money fund, intends to
distribute, at least annually: (i) substantially
all of its investment company taxable income
(computed without regard to the dividends-paid deduction),
which generally includes taxable ordinary income
and any excess of net realized short-term capital gains
over net realized long-term capital losses; (ii) net tax-exempt
income, if any; and (iii) the entire excess of net
realized long-term capital gains over net realized short-term
capital losses. However, if a fund determines
that it is in the interest of its shareholders, a fund may
decide to retain all or part of its net realized long-term capital
gains for reinvestment, after paying the related federal
taxes. In such a case, shareholders will be treated for
federal income tax purposes as having received their share
of such gains, but will then generally be able to claim
a credit against their federal income tax liability for the
federal income tax a fund pays on such gain. If a fund
does not distribute the amount of ordinary income and/or
capital gain required to be distributed by an excise tax
provision of the Code, a fund may be subject to that excise
tax on the undistributed amounts. In certain circumstances,
a fund may determine that it is in the interest of
shareholders to distribute less than the required amount.
A
fund has a schedule for paying out any earnings to shareholders
(see Understanding Distributions and Taxes in
each fund's prospectus). Additional distributions may also
be made in November or December (or treated as made
on December 31) if necessary to avoid an excise tax imposed under
the Code.
Any dividends or capital
gains distributions declared in October, November
or December with a record date in such a month
and paid during the following January will be
treated by shareholders for federal income tax purposes as
if received on December 31 of the calendar year declared.
Dividends paid by a fund
with respect to each class of its shares will
be calculated in the same manner, at the same time and on the
same day.
The level of income dividends
per share (as a percentage of net asset value)
will be lower for Class C shares than for other
share classes primarily as a result of the distribution
services fee applicable to Class C shares. Distributions
of capital gains, if any, will be paid in the same amount for
each class.
Income dividends and
capital gain dividends (see Taxation of US Shareholders
– Dividends and Distributions), if any, of
a fund will be credited to shareholder accounts in full and
fractional shares of the same class of that fund at net
asset value on the reinvestment date, unless shareholders
indicate to the Shareholder Service Agent, that they
wish to receive them in cash or in shares of other DWS
funds as provided in the fund's prospectus. Shareholders
must maintain the required minimum account balance
in the fund distributing the dividends in order to use
this privilege of investing dividends of a fund in shares of
another DWS fund. A fund will reinvest dividend checks (and
future dividends) in shares of that same fund and class
if checks are returned as undeliverable. Dividends and
other distributions of a fund in the aggregate amount of
$10 or less are automatically reinvested in shares of that
fund and class unless the shareholder requests that a
check be issued for that particular distribution. Shareholders
who chose to receive distributions by electronic transfer are
not subject to this minimum.
Generally, if a shareholder
has elected to reinvest any dividends and/or
other distributions, such distributions will
be made in shares of that fund and confirmations will
be mailed to each shareholder. If a shareholder has chosen
to receive cash, a check will be sent. Distributions
of investment company taxable income and net realized
capital gains are generally taxable, whether made in shares or
cash.
With
respect to variable insurance products, all distributions
will be reinvested in shares of a fund unless we are
informed by an insurance company that they should be
paid out in cash. The insurance companies will be informed
about the amount and character of distributions
from the relevant fund for federal income tax purposes.
Each distribution is
accompanied by a brief explanation of the form
and character of the distribution. The characterization
of distributions on such correspondence may differ
from the characterization for federal income tax purposes.
Early each year, a fund issues to each shareholder
a statement of the federal income tax status of all distributions
in the prior calendar year.
A fund may at any time
vary its foregoing distribution practices and,
therefore, reserves the right from time to time
to either distribute or retain for reinvestment such of
its net investment income and its net short-term and net
long-term capital gains as its Board determines appropriate
under the then-current circumstances. In particular, and
without limiting the foregoing, a fund may make additional
distributions of net investment income or net realized
capital gain in order to satisfy the minimum distribution requirements
contained in the Code.
Dividends (Money Market Funds).
Dividends are declared daily and paid monthly.
Shareholders will receive dividends in additional
shares unless they elect to receive cash, as
provided in a fund's prospectus. Dividends will be
reinvested monthly in shares of a fund at net asset value.
Shareholders will receive all unpaid dividends upon redeeming
their entire account, unless they elect to receive
all unpaid dividends on the next monthly dividend payment date,
as provided in a fund’s prospectus.
Each fund calculates
its dividends based on its daily net investment
income. For this purpose, the net investment income
of a money fund generally consists of (a) accrued interest
income plus or minus amortized discount or premium,
(b) plus or minus all short-term realized gains and
losses on investments and (c) minus accrued expenses
allocated to the applicable fund. Expenses of each
money fund are accrued each day. Dividends are reinvested
monthly and shareholders will receive monthly confirmations
of dividends and of purchase and redemption
transactions except that confirmations of dividend
reinvestment for DWS IRAs and other fiduciary accounts
for which SSB acts as trustee will be sent quarterly.
Distributions
of a fund's net realized long-term capital gains
in excess of net realized short-term capital losses, if
any, and any undistributed net realized short-term capital gains
in excess of net realized long-term capital losses are
normally declared and paid annually at the end of the
fiscal year in which they were earned to the extent they are
not offset by any capital loss carryforwards.
If the shareholder elects
to receive dividends or distributions in cash,
checks will be mailed monthly, within five business
days of the reinvestment date, to the shareholder
or any person designated by the shareholder. Each fund
reinvests dividend checks (and future dividends) in shares
of a fund if checks are returned as undeliverable. Dividends
and other distributions in the aggregate amount of
$10 or less are automatically reinvested in shares of a
fund unless the shareholder requests that a check be issued
for that particular distribution. Shareholders who chose
to receive distributions by electronic transfer are not subject
to this minimum.
Dividends and distributions
are treated the same for federal income tax
purposes, whether made in shares or cash.
Distribution and Service
Agreements and Plans
For information regarding
distribution and service agreements and plans
for retail funds, see I. Retail Funds
below.
For information regarding
distribution and service agreements and plans
for money market funds, see II. Money Market
Funds below.
For information regarding
distribution and service agreements and plans
for variable insurance funds, see III. Deutsche
DWS Variable Series II
and
IV. Deutsche DWS Investments VIT Funds below.
For all of the agreements
and plans described below, no Independent Board
Member has any direct or indirect financial
interest in the operation of the agreement or plan.
A fund may offer only
certain of the classes of shares referred to
in the subsections below. Thus, the information
provided below in regard to certain classes of shares
is only applicable to funds offering such classes of shares.
Rule 12b-1 Plans.
Certain funds, as described in the applicable
prospectuses, have adopted plans pursuant to Rule 12b-1
under the 1940 Act (each a Rule 12b-1 Plan) on behalf
of their Class A, C and R shares, as applicable, that
authorize payments out of class assets for distribution
and/or shareholder and administrative services as
described in more detail below. Because Rule 12b-1 fees
are paid out of class assets on an ongoing basis, they
will, over time, increase the cost of an investment and may cost
more than other types of sales charges.
Rule 12b-1 Plans provide
alternative methods for paying sales charges
and provide compensation to DDI or intermediaries
for post-sale servicing, which may help funds grow
or maintain asset levels to provide operational efficiencies
and economies of scale. Each Rule 12b-1 Plan
is approved and reviewed separately for each applicable
class in accordance with Rule 12b-1 under the 1940 Act,
which regulates the manner in which an investment company
may, directly or indirectly, bear the expenses of
distributing its shares. A Rule 12b-1 Plan may not be amended
to increase the fee to be paid by a fund with respect
to a class without approval by a majority of the outstanding
voting securities of such class.
If a Rule 12b-1 Plan
is terminated in accordance with its terms,
the obligation of the applicable class to make payments
to DDI pursuant to the Rule 12b-1 Plan will cease
and a fund will not be required to make any payments
not previously accrued past the termination date.
Thus, there is no legal obligation for a class to pay any
expenses incurred by DDI other than fees previously
accrued and payable under a Rule 12b-1 Plan, if for
any reason the Rule 12b-1 Plan is terminated in accordance
with its terms. Because the Rule 12b-1 Plans are compensation
plans, future fees under a Rule 12b-1 Plan may
or may not be sufficient to cover DDI for its expenses incurred.
On the other hand, under certain circumstances, DDI
might collect in the aggregate over certain periods more
in fees under the applicable Rule 12b-1 Plan than it
has expended over that same period in providing distribution
services for a fund. For example, if Class C shares of
a fund were to appreciate (resulting in greater asset base
against which Rule 12b-1 fees are charged) and sales of
a fund’s Class C shares were to decline (resulting in lower
expenditures by DDI under the Rule 12b-1 Plan), fees
payable could exceed expenditures. Similarly, fees paid
to DDI could exceed DDI’s expenditures over certain periods
shorter than the life of the Rule 12b-1 Plan simply due
to the timing of expenses incurred by DDI that is not
matched to the timing of revenues received. Under
these
or other circumstances where DDI’s expenses are less
than the Rule 12b-1 fees, DDI will retain its full fees and make
a profit.
Class C and Class R Shares
Fees for Distribution Services.
For its services under the Distribution Agreement,
DDI receives a fee from a fund under its Rule
12b-1 Plan, payable monthly, at the annual rate
of 0.75% of average daily net assets of a fund
attributable to Class C shares. This fee is accrued daily
as an expense of Class C shares. DDI currently advances
to firms the first-year distribution fee at a rate of
0.75% of the purchase price of Class C shares. DDI does
not advance the first-year distribution fee to firms for
sales of Class C shares to employer-sponsored employee
benefit plans using the OmniPlus subaccount
record keeping system made available through ADP, Inc.
under an alliance between ADP, Inc. and DDI and its affiliates.
For periods after the first year, DDI currently pays
firms for sales of Class C shares a distribution fee, generally
payable quarterly, at an annual rate of 0.75% of
net assets attributable to Class C shares maintained and
serviced by the firm. This fee continues until terminated
by DDI or the applicable fund. Under the Distribution
Agreement, DDI also receives any contingent deferred
sales charges paid with respect to Class C shares.
For its services under
the Distribution Agreement, DDI receives a fee
from a fund under its Rule 12b-1 Plan, payable
monthly, at the annual rate of 0.25% of average daily
net assets of a fund attributable to Class R shares. This
fee is accrued daily as an expense of Class R shares. DDI
currently pays firms for sales of Class R shares a distribution
fee, generally payable quarterly, at an annual rate
of 0.25% of net assets attributable to Class R shares maintained
and serviced by the firm. This fee continues until terminated
by DDI or the applicable fund.
Class A, Class C and Class R Shares
Fees for Shareholder Services.
For its services under the Services Agreement,
DDI receives a shareholder services fee from
a fund under a Rule 12b-1 Plan, payable monthly,
at an annual rate of up to 0.25% of the average daily
net assets of Class A, C and R shares of a fund, as applicable.
With respect to Class
A and Class R shares of a fund, DDI pays each
firm a service fee, generally payable quarterly,
at an annual rate of up to 0.25% of the net assets
in fund accounts that it maintains and services attributable
to Class A and Class R shares of a fund, generally
commencing immediately after investment. With respect
to Class C shares of a fund, DDI currently
advances
to firms the first-year service fee at a rate of up
to 0.25% of the purchase price of such shares. DDI does
not advance the first-year service fee to firms for sales
of Class C shares to employer-sponsored employee benefit
plans using the OmniPlus subaccount record keeping
system made available through ADP, Inc. under an
alliance between ADP, Inc. and DDI and its affiliates. For
periods after the first year, DDI currently intends to pay
firms a service fee at a rate of up to 0.25% (calculated
monthly and generally paid quarterly) of the net assets
attributable to Class C shares of a fund maintained and serviced
by the firm.
Firms to which administrative
service fees may be paid include affiliates
of DDI. In addition DDI may, from time to time,
pay certain firms from its own resources additional amounts
for ongoing administrative services and assistance
provided to their customers and clients who are shareholders
of a fund.
DDI also may provide
some of the above services and may retain any
portion of the fee under the Services Agreement
not paid to firms to compensate itself for shareholder
or administrative functions performed for a fund.
Currently, the shareholder services fee payable to DDI
is payable at an annual rate of up to 0.25% of net assets
based upon fund assets in accounts for which a firm
provides administrative services and at the annual rate
of 0.15% of net assets based upon fund assets in accounts
for which there is no firm of record (other than DDI)
listed on a fund’s records. The effective shareholder
services fee rate to be charged against all assets of
each fund while this procedure is in effect will depend upon
the proportion of fund assets that is held in accounts for
which a firm of record provides shareholder services. The
Board of each fund, in its discretion, may approve basing
the fee to DDI at the annual rate of 0.25% on all fund assets
in the future.
II. Money Market Funds (except DWS
Cash Investment Trust Class A and DWS Cash Investment Trust
Class C Shares, which are addressed under Retail Funds above)
Rule 12b-1 Plans.
Certain Money Market Funds have adopted for
certain classes of shares a plan pursuant to Rule
12b-1 under the 1940 Act (each a Rule 12b-1 Plan) that
provides for fees payable as an expense of the class that
are used by DDI to pay for distribution services for those
classes. Additionally, in accordance with the Rule 12b-1
Plan for certain classes, shareholder and administrative
services are provided to the applicable fund for the
benefit of the relevant classes under a fund’s Services
Agreement
with DDI. With respect to certain classes, shareholder
and administrative services may be provided outside
of a Rule 12b-1 Plan either by DDI pursuant to the
Services Agreement or by financial services firms under
a Shareholder Services Plan. Because Rule 12b-1 fees
are paid out of fund assets on an ongoing basis, they
will, over time, increase the cost of an investment and may cost
more than other types of sales charges.
The Rule 12b-1 Plans
provide alternative methods for paying for distribution
services and provide compensation to DDI or
financial services firms for post-sales servicing,
which may help funds grow or maintain asset levels
to provide operational efficiencies and economies of
scale. Each Rule 12b-1 Plan is approved and reviewed separately
for each such class in accordance with Rule 12b-1
under the 1940 Act, which regulates the manner in
which an investment company may, directly or indirectly, bear
the expenses of distributing its shares. A Rule 12b-1 Plan
may not be amended to increase the fee to be paid by
a fund with respect to a class without approval by a majority
of the outstanding voting securities of such class of a fund.
If a Rule 12b-1 Plan
is terminated in accordance with its terms,
the obligation of the applicable fund to make payments
to DDI pursuant to the Rule 12b-1 Plan will cease
and a fund will not be required to make any payments
not previously accrued past the termination date.
Thus, there is no legal obligation for a fund to pay any
expenses incurred by DDI other than fees previously
accrued and payable under a Rule 12b-1 Plan, if for
any reason the Rule 12b-1 Plan is terminated in accordance
with its terms. Because the Rule 12b-1 Plans are compensation
plans, future fees under a Rule 12b-1 Plan may
or may not be sufficient to cover DDI for its expenses incurred.
On the other hand, under certain circumstances, DDI
might collect in the aggregate over certain periods more
in fees under the applicable Rule 12b-1 Plan than it has expended
over that same period.
Distribution and Shareholder Services
Service Shares—Cash
Account Trust. The Distribution Agreement
authorizes the fund to pay DDI, as an expense of
the DWS Government & Agency Securities Portfolio and
the DWS Tax-Exempt Portfolio of Cash Account Trust, a
distribution services fee, payable monthly, at an annual rate
of 0.60% of average daily net assets of the Service Shares
of the applicable fund. This fee is paid pursuant to
a Rule 12b-1 Plan. DDI normally pays firms a fee for distribution
and administrative services, payable monthly,
at
a maximum annual rate of up to 0.60% of average daily
net assets of Service Shares held in accounts that they maintain
and service.
Managed Shares—Cash
Account Trust. The Services Agreement
currently authorizes a fund to pay DDI, as an expense
of the Government Cash Managed Shares class of
the DWS Government & Agency Securities Portfolio of
Cash Account Trust and the Tax-Exempt Cash Managed Shares
class of the DWS Tax-Exempt Portfolio of Cash Account
Trust, an administrative service fee, payable monthly,
at an annual rate of 0.15% of average daily net assets
of the Managed Shares of a fund. This fee is paid pursuant
to a Rule 12b-1 Plan. The Rule 12b-1 Plan for the
Tax-Exempt Cash Managed Shares class authorizes the
payment of up to 0.25% of average daily net assets of
the class and, at the discretion of the Board, the administrative
service fee may be increased from the current level
to a maximum of 0.25% of average daily net assets. The
Rule 12b-1 Plan for the Government Cash Managed Shares
class authorizes the payment of up to 0.15% of average
daily net assets of the class. DDI normally pays firms
a fee for administrative services, payable monthly, at
a maximum annual rate of up to 0.15% of average daily
net assets of Managed Shares held in accounts that they maintain
and service.
Tax-Free Investment Class—Cash
Account Trust and Investment Class Shares—
Investors Cash Trust.
The Distribution
Agreement authorizes a fund to pay DDI, as an
expense of the Tax-Free Investment Class of the DWS Tax-Exempt
Portfolio of Cash Account Trust and the Investment
Class Shares of the DWS Treasury Portfolio of
Investors Cash Trust (collectively, Investment Class), a
distribution services fee, payable monthly, at an annual rate
of 0.25% of average daily net assets of the Investment
Class shares of the applicable fund. This fee is
paid pursuant to a Rule 12b-1 Plan. DDI normally pays firms
a fee for distribution services, payable monthly, at a
maximum annual rate of up to 0.25% of average daily net
assets of shares of the Investment Class held in accounts
that they maintain and service. The Services Agreement
authorizes a fund to pay DDI, as an expense of
the Investment Class of the aforementioned funds, an
administrative service fee, payable monthly, at an annual
rate of 0.07% of average daily net assets of the Investment
Class shares of the applicable fund. This administrative
service fee is not paid pursuant to a Rule 12b-1
Plan. DDI normally pays firms a fee for administrative
services, payable monthly, at a maximum annual rate
of up to 0.07% of average daily net assets of shares of
the Investment Class held in accounts that they maintain and
service.
Services Agreement
for DWS ESG Liquidity Fund – Institutional Reserved
Shares and DWS Treasury Portfolio – Institutional Shares,
each a series of Investors Cash Trust.
The Services Agreement authorizes each fund
to pay DDI an administrative services fee, payable
monthly, at an annual rate of 0.05% of the average
daily net assets of the class specified for each fund
(Class). The administrative services fee for DWS Treasury
Portfolio – Institutional Shares may be increased to
0.10% at the discretion of the Board. DDI normally pays
firms an administrative services fee, payable monthly, at
a maximum annual rate up to 0.05% of the average daily
net assets of the Class held in accounts that they maintain
and service. This administrative services fee is not paid pursuant
to a Rule 12b-1 Plan.
The administrative services
fee is accrued daily as an expense of the Class.
DDI may enter into agreements with firms pursuant
to which the firms provide personal service
and/or maintenance of shareholder accounts including,
but not limited to, establishing and maintaining shareholder
accounts and records, distributing monthly statements,
processing purchase and redemption transactions,
answering routine client inquiries regarding a fund,
assistance to clients in changing dividend options, account
designations and addresses, aggregating trades of
all the firm’s clients, providing account information to clients
in client sensitive formats and such other services as
a fund may reasonably request. The administrative service
fee is not payable for advertising, promotion or other distribution
services.
Firms to which administrative
services fees may be paid include affiliates
of DDI. In addition DDI may, from time to time,
pay certain firms from its own resources additional amounts
for ongoing administrative services and assistance
provided to their customers and clients who are shareholders
of a fund.
DDI also may provide
some of the above services and may retain any
portion of the fee under the Services Agreement
not paid to firms to compensate itself for shareholder
or administrative functions performed for a fund.
III. Deutsche DWS Variable Series II
Rule 12b-1 Plan. Each
fund of Deutsche DWS Variable Series II
that has authorized the issuance of Class B shares has
adopted a distribution plan under Rule 12b-1 (Plan) that
provides for fees payable as an expense of the Class B
shares. Under the Plan, a fund may make quarterly payments
as reimbursement to DDI for distribution and shareholder
servicing related expenses incurred or paid
by
the Distributor or a participating insurance company. No
such payment shall be made with respect to any quarterly
period in excess of an amount determined for such
period at the annual rate of 0.25% of the average daily
net assets of Class B shares during that quarterly period.
The fee is payable by a fund, on behalf of Class B
shares, of up to 0.25% of the average daily net assets attributable
to Class B shares of the fund. Because 12b-1 fees
are paid out of fund assets on an ongoing basis, they
will, over time, increase the cost of investment and may
cost more than other types of sales charges. The Plan
and any Rule 12b-1 related agreement that is entered into
by a fund or the Distributor in connection with the Plan
will continue in effect for a period of more than one year
only so long as continuance is specifically approved at
least annually by a vote of a majority of the Board, and of
a majority of the Board Members who are not interested
persons (as defined in the 1940 Act) of a fund. In addition,
the Plan and any Rule 12b-1 related agreement may
be terminated as to Class B shares of a fund at any time,
without penalty, by vote of a majority of the outstanding
Class B shares of that fund or by vote of a majority
of the Board Members who are not interested persons
of a fund and who have no direct or indirect financial
interest in the operation of the Plan or any Rule 12b-1
related agreement. The Plan provides that it may not
be amended to increase materially the amount that may
be spent for distribution of Class B shares of a fund without
the approval of Class B shareholders of that fund.
IV. Deutsche DWS Investments VIT Funds
Rule 12b-1 Plan. DWS
Equity 500 Index VIP and DWS Small Cap Index
VIP of Deutsche DWS Investments VIT Funds have
each adopted a distribution plan under Rule 12b-1
(Plan) that provides for fees payable as an expense of
the Class B shares. Under the Plan, a fund may make payments
to DDI for remittance directly or indirectly to a
participating dealer, shareholder service agent, life insurance
company or other applicable party a fee in an amount
not to exceed the annual rate of 0.25% of the average
daily net assets of the Class B shares under a participation
agreement, service agreement, sub-distribution
agreement or other similar agreement which provides
for Class B shares. DDI is authorized pursuant
to the Plan to pay for anything reasonably designed
to enhance sales or retention of shareholders and
for the provision of services to shareholders of the Class
B shares. Because 12b-1 fees are paid out of fund assets
on an ongoing basis, they will, over time, increase the
cost of investment in Class B shares, and may cost more
than other types of sales charges. The Plan and any
Rule 12b-1 related agreement that is entered into by
a fund or the Distributor in connection with the Plan
will
continue in effect for a period of more than one year only
so long as continuance is specifically approved at least
annually by a vote of a majority of the Board, and of
a majority of the Board Members who are not interested
persons (as defined in the 1940 Act) of a fund. In addition,
the Plan and any Rule 12b-1 related agreement may
be terminated as to Class B shares of a fund at any time,
without penalty, by vote of a majority of the outstanding
Class B shares of that fund or by vote of a majority
of the Board Members who are not interested persons
of a fund and who have no direct or indirect financial
interest in the operation of the Plan or any Rule 12b-1
related agreement. The Plan provides that it may not
be amended to increase materially the amount that may
be spent for distribution of Class B shares of a fund without
the approval of the shareholders of such class.
Investments, Practices and Techniques, and Risks
Part II - Appendix II-G includes
a description of the investment practices and
techniques which a fund may employ in pursuing
its investment objective, as well as the associated
risks. Descriptions in this SAI of a particular investment
practice or technique in which a fund may engage
(or a risk that a fund may be subject to) are meant to
describe the spectrum of investments that the Advisor (and/or
subadvisor or sub-subadvisor, if applicable) in its discretion
might, but is not required to, use in managing a
fund. The Advisor (and/or subadvisor or sub-subadvisor, if
applicable) may in its discretion at any time employ such
practice and technique for one or more funds but not
for all funds advised by it. Furthermore, it is possible that
certain types of investment practices or techniques described
herein may not be available, permissible, economically
feasible or effective for their intended purposes
in all markets. Certain practices, techniques or
investments may not be principal activities of the fund, but,
to the extent employed, could from time to time have a material
impact on a fund’s performance.
It is possible that certain investment
practices and/or techniques may not be permissible for a fund
based on its investment restrictions, as described herein
(also see Part I: Investments, Practices and Techniques, and
Risks) and in a fund’s prospectus.
Portfolio
Transactions
The Advisor is generally
responsible for placing orders for the purchase
and sale of portfolio securities, including the
allocation of brokerage. As described in the Management
of the Funds section above, the Advisor may
delegate trade execution, trade matching and settlement
services to DWS's branch offices or affiliates located
in the US or outside the US. With respect to those funds
for which a sub-investment advisor manages a fund’s
investments, references in this section to the “Advisor”
should be read to mean the Subadvisor, except as noted below.
The policy of the Advisor
in placing orders for the purchase and sale
of securities for a fund is to seek best execution, taking
into account execution factors such as: costs; speed;
likelihood of execution and settlement; size; nature; and
any other consideration relevant to the execution of a
particular order. The relative importance of these execution
factors will be determined based on the following
criteria: characteristics of the order; the financial instruments
that are the subject of the order; the characteristics
of the execution venues to which the order can be
directed; the current market circumstances; and the objectives,
investment policies and risks of a fund. Generally,
the Advisor will regard price and cost as the important
factors for best execution, however there may be
circumstances when the Advisor may determine that other
execution factors have a greater influence for a particular order
in achieving the best possible result.
The Advisor will generally
select brokers to effect securities transactions
based on a number of criteria, including their: market
and security familiarity; access to liquidity or willingness
to commit risk to a principal trade; financial stability
and certainty of settlement; reliability and integrity of
maintaining confidentiality; soundness of technological
infrastructure and operational capabilities; safeguards
and compliance controls to protect clients; pricing
costs for execution-only services; and ability to provide transaction
costs analysis.
Commission rates on transactions
in equity securities on US securities exchanges
are subject to negotiation. Commission rates
on transactions in equity securities on foreign
securities exchanges are generally fixed. Purchases
and sales of fixed-income securities and certain over-the-counter
securities are effected on a net basis, without
the payment of brokerage commissions. Transactions
in fixed income and certain over-the-counter securities
are generally placed by the Advisor with the principal
market makers for these securities unless the Advisor
reasonably believes more favorable results are
available
elsewhere. Transactions with dealers serving as
market makers reflect the spread between the bid and
asked prices. Purchases of underwritten issues will include
an underwriting fee paid to the underwriter. Money market
instruments are normally purchased in principal transactions
directly from the issuer or from an underwriter
or market maker. The Advisor seeks to evaluate the
overall reasonableness of brokerage commissions with
commissions charged on comparable transactions and
compares the brokerage commissions (if any) paid by
the funds to reported commissions paid by others. The
Advisor routinely reviews commission rates, execution and
settlement services performed and makes internal and external
comparisons.
It is likely that the
broker-dealers selected based on the considerations
described in this section will include firms that
also sell shares of the funds to their customers. However,
the Advisor does not consider sales of shares of
the funds as a factor in the selection of broker-dealers to
execute portfolio transactions for the funds and, accordingly,
has implemented policies and procedures reasonably designed
to prevent its traders from considering sales of
shares of the funds as a factor in the selection of broker-dealers
to execute portfolio transactions for the funds.
The Advisor is permitted
by Section 28(e) of the 1934 Act, when placing
portfolio transactions for a fund, to cause
a fund to pay brokerage commissions in excess of
that which another broker-dealer might charge for executing
the same transaction in order to obtain research and
brokerage services if the Advisor determines that such
commissions are reasonable in relation to the overall services
provided. The Advisor may from time to time, in
reliance on Section 28(e) of the 1934 Act, execute portfolio
transactions with broker-dealers that provide research
and brokerage services to the Advisor. Consistent with
the Advisor’s policy regarding best execution, where more
than one broker is believed to be capable of providing best
execution for a particular trade, the Advisor may take
into consideration the receipt of research and brokerage
services in selecting the broker-dealer to execute
the trade. Although certain research and brokerage
services from broker-dealers may be useful to
a fund and to the Advisor, it is the opinion of the Advisor that
such information only supplements its own research effort
since the information must still be analyzed, weighed and
reviewed by the Advisor’s staff. To the extent that research
and brokerage services of value are received by
the Advisor, the Advisor avoids expenses that it might otherwise
incur. Research and brokerage services received
from a broker-dealer may be useful to the Advisor and
its affiliates in providing investment management services
to all or some of its clients, which includes a
fund.
Services received from broker-dealers that executed securities
transactions for a fund will not necessarily be used by the Advisor
specifically to service that fund.
Research and brokerage
services provided by broker-dealers may include,
but are not limited to, information on the economy,
industries, groups of securities, individual companies,
statistical information, accounting and tax law
interpretations, political developments, legal developments
affecting portfolio securities, technical market action,
pricing and appraisal services, credit analysis, risk measurement
analysis, performance analysis and measurement
and analysis of corporate responsibility issues.
Research and brokerage services are typically received
in the form of written or electronic reports, access to
specialized financial publications, telephone contacts and
personal meetings with security analysts, but may also
be provided in the form of access to various computer software
and meetings arranged with corporate and industry
representatives. In addition, the Advisor may also
select broker-dealers and obtain from them research and
brokerage services that are used in connection with executing
trades, such as computer software and/or electronic
communication services used by the Advisor to facilitate trading
activity with a broker-dealer.
Research and brokerage
services may include products obtained from
third parties if the Advisor determines that such
product or service constitutes brokerage and research
as defined in Section 28(e) and interpretations thereunder.
Provided a subadvisor is acting in accordance
with any instructions and directions of the Advisor or
the Board, the subadvisor is authorized to pay to a broker
or dealer who provides third party brokerage and research
services a commission for executing a portfolio transaction
for a fund in excess of what another broker or
dealer may charge, if the subadvisor determines in good
faith that such commission was reasonable in relation
to the value of the third party brokerage and research services
provided by such broker or dealer.
The Advisor may use brokerage
commissions to obtain certain brokerage products
or services that have a mixed use (i.e., it
also serves a function that does not relate to the
investment decision-making process). In those circumstances,
the Advisor will make a good faith judgment to evaluate
the various benefits and uses to which it intends to
put the mixed use product or service and will pay for that
portion of the mixed use product or service that it reasonably
believes does not constitute research and brokerage services
with its own resources.
The
Advisor will monitor regulatory developments and market
practice in the use of client commissions to obtain research
and brokerage services and may adjust its portfolio transactions
policies in response thereto.
Due to European regulatory
changes affecting the Advisor and certain of
its affiliates, beginning in January 2018, funds
(or portions thereof) subadvised by the Advisor’s European
affiliates will no longer participate in the client commission
arrangements described above with respect to
obtaining research services. For those funds (or relevant portions
thereof), the Advisor or its affiliates will pay for research
services previously obtained through use of client commissions
from their own assets. The Advisor and its affiliates
have put into place procedures to ensure that all
funds managed by the Advisor or its affiliates pay only their
proportionate share of the cost of research services, as
appropriate. The subadvisory agreements for the relevant
funds have been modified to reflect the European regulatory changes.
Investment decisions
for a fund and for other investment accounts
managed by the Advisor are made independently
of each other in light of differing conditions. However,
the same investment decision may be made for
two or more of such accounts. In such cases, simultaneous
transactions are inevitable. To the extent permitted by
law, the Advisor may aggregate the securities to be sold
or purchased for a fund with those to be sold or purchased
for other accounts in executing transactions. The
Advisor has adopted policies and procedures that are
reasonably designed to ensure that when the Advisor aggregates
securities purchased or sold on behalf of accounts,
the securities are allocated among the participating
accounts in a manner that the Advisor believes to
be fair and equitable. The Advisor makes allocations among
accounts based upon a number of factors that may
include, but are not limited to, investment objectives
and guidelines, risk tolerance, availability of other investment
opportunities and available cash for investment.
While in some cases this practice could have a
detrimental effect on the price paid or received by, or on
the size of the position obtained or disposed of for, a fund,
in other cases it is believed that the ability to engage in
volume transactions will be beneficial to a fund. With respect
to limited opportunities or initial public offerings, the
Advisor may make allocations among accounts on a pro-rata basis
with consideration given to suitability.
The Advisor and its affiliates
and each fund's management team manage other
mutual funds and separate accounts, some of
which use short sales of securities as a part of its
investment strategy. The simultaneous management of
long and short portfolios creates potential conflicts of
interest
including the risk that short sale activity could adversely
affect the market value of the long positions (and
vice versa), the risk arising from sequential orders in
long and short positions, and the risks associated with receiving
opposing orders at the same time. The Advisor has
adopted procedures that it believes are reasonably designed
to mitigate these potential conflicts of interest. Incorporated
in the procedures are specific guidelines developed
to ensure fair and equitable treatment for all clients.
The Advisor and the investment team have established
monitoring procedures and a protocol for supervisory
reviews, as well as compliance oversight to ensure that
potential conflicts of interest relating to this type of activity
are properly addressed.
The Advisor may provide
model portfolio recommendations for a variety
of investment styles to clients of the Advisor
and affiliates. Model portfolios may relate to the same
investment strategies that are also offered to or utilized
by the Advisor’s other client accounts, including the
DWS funds. The Advisor may provide model portfolio recommendations
on a non-discretionary or discretionary basis
to sponsors of model portfolio programs (Sponsors)
who may utilize such recommendations in connection
with the management of their client accounts; i.e.,
the Advisor may provide model portfolio recommendations
to Sponsors who then execute securities transactions
on behalf of their program clients in accordance with
the model portfolios. Model portfolio related trading activity
by Sponsors on behalf of their clients could potentially
result in the Advisor’s non-model portfolio clients, including
the DWS funds, receiving prices that are less favorable
than prices that might otherwise have been obtained
absent the Sponsors’ trading activity, particularly
for orders that are large in relation to a security’s average
daily trading volume. The Advisor intends to take reasonable
steps to minimize the market impact on non-model
portfolio client accounts of orders associated with
model portfolio recommendations provided to Sponsors.
Deutsche Bank AG or one
of its affiliates (or in the case of a subadvisor,
the subadvisor or one of its affiliates) may
act as a broker for the funds and receive brokerage commissions
or other transaction-related compensation from
the funds in the purchase and sale of securities, options
or futures contracts when, in the judgment of the
Advisor, and in accordance with procedures approved by
the Board, the affiliated broker will be able to obtain a
price and execution at least as favorable as those
obtained
from other qualified brokers and if, in the transaction,
the affiliated broker charges the funds a rate consistent
with that charged to comparable unaffiliated customers in similar
transactions.
Portfolio Turnover. Portfolio
turnover rate is defined by the SEC as the ratio
of the lesser of sales or purchases to the monthly
average value of such securities owned during
the year, excluding all securities whose remaining maturities
at the time of acquisition were one year or less.
Higher levels of activity
by a fund result in higher transaction costs
and may also result in the recognition
of taxable capital gains (including short-term
gains, which generally are taxed to individuals
at ordinary income rates). Purchases and sales
are made whenever necessary, in the Advisor’s discretion,
to meet a fund’s objective.
Portfolio Holdings Information
In addition to the public
disclosure of fund portfolio holdings through
required SEC quarterly filings (and monthly
filings for money market funds), each fund may make
its portfolio holdings information publicly available on
the DWS funds’ Web site as described in a fund's prospectus.
Each fund does not disseminate non-public information
about portfolio holdings except in accordance with policies and
procedures adopted by a fund.
Each fund’s procedures
permit non-public portfolio holdings information
to be shared with DWS and its affiliates, subadvisors,
if any, administrators, sub-administrators,
fund accountants, custodians, sub-custodians,
independent registered public accounting firms,
attorneys, officers and trustees/directors and each of
their respective affiliates and advisers who require access
to this information to fulfill their duties to the fund and
are subject to the duties of confidentiality, including the
duty not to trade on non-public information, imposed by
law or contract, or by a fund’s procedures. This non-public
information may also be disclosed, subject to
the requirements described below, to certain third parties,
such as securities lending agents, financial printers,
proxy voting firms, mutual fund analysts, rating and
tracking agencies, and, on an ad hoc basis, transition managers,
to shareholders in connection with in-kind redemptions
or, in connection with investing in underlying
funds, subadvisors to DWS funds of funds (Authorized Third Parties).
Prior
to any disclosure of a fund’s non-public portfolio holdings
information to Authorized Third Parties, a person who
has been authorized by the Board to make such determinations
must make a good faith determination in light
of the facts then known that a fund has a legitimate business
purpose for providing the information, that the disclosure
is in the best interest of a fund, and that the recipient
assents or otherwise has a duty to keep the information
confidential and to not trade based on the information
received while the information remains non-public
and that the disclosure would be in compliance with
all applicable laws and DWS’s and a subadvisor’s fiduciary
duties to a fund. No compensation is received by
a fund or DWS for disclosing non-public holdings information.
Periodic reports regarding these procedures will be provided
to the Board.
Portfolio holdings information
distributed by the trading desks of DWS or a
subadvisor for the purpose of facilitating efficient
trading of such securities and receipt of relevant
research is not subject to the foregoing requirements.
Non-public portfolio holding information does not include
portfolio characteristics (other than holdings or subsets
of holdings) about a fund and information derived therefrom,
including, but not limited to, how the fund’s investments
are divided among various sectors, industries,
countries, value and growth stocks, bonds, small, mid
and large cap stocks, currencies and cash, types of bonds,
bond maturities, duration, bond coupons and bond credit
quality ratings, alpha, beta, tracking error, default rate,
portfolio turnover, and risk and style characteristics so
long as the identity of the fund’s holdings could not be
derived from such information.
Registered investment
companies that are subadvised by DWS may be
subject to different portfolio holdings disclosure
policies, and neither DWS nor the Board exercise
control over such policies. In addition, separate account
clients of DWS have access to their portfolio holdings
and are not subject to a fund’s portfolio holdings disclosure
policy. The portfolio holdings of some of the funds
subadvised by DWS and some of the separate accounts
managed by DWS may substantially overlap with the portfolio holdings
of a fund.
DWS also manages certain
unregistered commingled trusts, the portfolio
holdings of which may substantially overlap
with the portfolio holdings of a fund. These trusts are
not subject to a fund’s portfolio holdings disclosure policy,
but have their own policy that is similar to that of the
funds. To the extent that investors in these commingled
trusts may receive portfolio holdings information
of their trust on a different basis from that on
which
fund portfolio holdings information is made public, DWS
has implemented procedures reasonably designed to
encourage such investors to keep such information confidential,
and to prevent those investors from trading on the basis of non-public
holdings information.
In addition, DWS may,
from time to time, provide model portfolios
to third party sponsors of model portfolio programs,
which model portfolios may substantially overlap
with the portfolio holdings of a fund. These model portfolios
are not subject to a fund’s portfolio holdings disclosure
policy. DWS has adopted procedures that require
such third party sponsors to agree in writing to keep
the model portfolio information confidential and to limit
their use of the information to implementing their respective
model portfolio programs.
There is no assurance
that a fund’s policies and procedures
with respect to the disclosure of portfolio holdings information
will protect the fund from the potential misuse of
portfolio holdings information by those in possession of that
information.
Applicable to funds other than money
market funds. The
net asset value per share of a fund is normally computed
as of the close of regular trading on the New York
Stock Exchange (Exchange) on each day the Exchange is
open for trading (Value Time). The Exchange is scheduled to
be closed on the following holidays: New Year’s Day, Dr.
Martin Luther King, Jr. Day, Presidents’ Day, Good Friday,
Memorial Day, Juneteenth National Independence
Day, Independence Day, Labor Day, Thanksgiving and
Christmas, and on the preceding Friday or subsequent
Monday when one of these holidays falls on a Saturday
or Sunday, respectively. Net asset value per share is
determined separately for each class of shares by dividing
the value of the total assets of the fund attributable
to the shares of that class, less all liabilities attributable
to that class, by the total number of shares of that
class outstanding. The per share net asset value may be
lower for certain classes of the fund because of higher expenses
borne by these classes.
The Board has designated
the Advisor as the valuation designee for a
fund pursuant to Rule 2a-5 under the 1940 Act.
The Advisor’s Pricing Committee values securities and
other assets using the methodologies described below.
An
equity security is valued at its official closing price on
the security’s primary exchange or over-the-counter (OTC)
market as of the Value Time. Lacking any sales, the
security is valued at the calculated mean between the
most recent bid quotation and the most recent asked quotation
(Calculated Mean) on such exchange or OTC market
as of the Value Time. If it is not possible to determine
the Calculated Mean, the security is valued at
the most recent bid quotation on such exchange or OTC market
as of the Value Time.
Debt securities are valued
as follows: Money market instruments, including
instruments purchased with remaining maturities
of 60 days or less, shall be valued based on
prices obtained from an approved pricing agent, or
if such information is not available, the money market instruments
shall be valued using the average of the most recent
reliable bid quotations or evaluated prices obtained from
two or more broker-dealers. Bank loans are valued at
prices supplied by an approved pricing agent (which are
intended to reflect the mean between the bid and asked
prices), if available, and otherwise at the mean of the
most recent bid and asked quotations or evaluated prices,
as applicable, based on quotations or evaluated prices
obtained from one or more broker-dealers. Privately placed
debt securities, other than Rule 144A debt securities,
initially are valued at cost and thereafter based on
all relevant factors, including type of security, size of holding
and restrictions on disposition. Municipal debt securities
are valued at prices supplied by an approved pricing
agent (which are intended to reflect the mean between
the bid and asked prices), if available, and otherwise
at the mean of the most recent bid and asked quotations
or evaluated prices obtained from a broker-dealer.
Other debt securities are valued at prices supplied by
an approved pricing agent, if available, and otherwise at
the average of the most recent bid quotations or evaluated
prices, as applicable, obtained from two or more broker-dealers.
If it is not possible to value a particular debt
security pursuant to the above methods, the security is
valued on the basis of factors including (but not limited to)
maturity, coupon, creditworthiness, currency denomination,
and the movement of the market in which the security is normally
traded.
An exchange-traded option
contract on securities, currencies and other
financial instruments is valued at its official
closing price on the relevant exchange. Lacking any
sales, the option contract is valued at the Calculated Mean.
If it is not possible to determine the Calculated Mean,
the option contract is valued at the most recent bid
quotation in the case of a purchased option contract or
the most recent asked quotation in the case of a written
option
contract, in each case as of the Value Time. An option
contract on securities, currencies and other financial instruments
traded in the OTC market is valued as of the
Value Time at a price supplied by an approved pricing agent,
if available, and otherwise at the evaluated price provided
by the broker-dealer with which it was traded. Futures
contracts (and options thereon) are valued at the most
recent settlement price or official close, if available, on
the exchange on which they are traded most extensively.
With the exception of stock index futures contracts which
trade on the Chicago Mercantile Exchange, closing settlement
times are prior to the close of trading on the Exchange.
For stock index futures contracts which trade on
the Chicago Mercantile Exchange, closing settlement prices
are normally available at approximately 4:20 pm Eastern time.
If market quotations
for a fund asset are not readily available or
if the Advisor believes that the value of a fund
asset as determined in accordance with the methodologies
above is unreliable, the value of the fund asset is
taken to be an amount which, in the opinion of the Advisor’s
Pricing Committee, represents fair value. The value
of all other holdings is the fair value of the asset on
the valuation date as determined by the Advisor’s Pricing
Committee.
The following paragraph applies to
funds that invest in underlying DWS mutual funds. The
net asset value of each underlying DWS mutual
fund is determined based upon the nature of
the securities as set forth in the prospectus
and statement of additional information of such
underlying DWS mutual fund. Shares of each underlying
DWS mutual fund in which the fund may invest are valued
at the net asset value per share of each underlying
DWS mutual fund as of the close of regular trading on
the Exchange on each day the Exchange is open for trading.
The net asset value per share of the underlying DWS
mutual funds will be calculated and reported to the
fund by each underlying DWS mutual fund’s accounting agent.
The following additional paragraphs
apply to DWS Equity 500 Index Fund and DWS S&P 500 Index
Fund (feeder funds).
Each feeder fund pursues its investment objective
by investing substantially all of its assets in a master
portfolio—the
Deutsche DWS Equity 500 Index Portfolio (Portfolio),
which has the same investment objective and
is subject to the same investment risks as the feeder fund.
Net asset value per share
of a feeder fund is determined as of the Value
Time separately for each class of shares by
dividing the value of the total assets of the
feeder
fund (i.e., the value of the feeder fund’s investment in
the Portfolio and any other assets) attributable to the shares
of that class, less all liabilities attributable to that class,
by the total number of shares of that class outstanding.
As of the Value Time,
the Portfolio determines its net value (i.e.,
the value of the Portfolio’s portfolio instruments
and any other assets less all liabilities) using the valuation
procedures for securities and other assets described above.
Each investor in the
Portfolio, including a feeder fund, may add
to or reduce its investment in the Portfolio on each
day that net asset value of the feeder fund and the Portfolio
are computed as described above. At the close of
a Value Time, the value of each investor’s beneficial interest
in the Portfolio will be determined by multiplying
the net value of the Portfolio, determined as provided
above, by the percentage, effective for that day, which
represents that investor’s share of the aggregate beneficial
interests in the Portfolio. Any additions or withdrawals,
which are to be effected as of the Value Time
on that day, will then be effected. The percentage of
the aggregate beneficial interests in the Portfolio held by
each investor in the Portfolio, including a feeder fund, will
then be recomputed as the percentage equal to the fraction
(i) the numerator of which is the value of the investor’s
investment in the Portfolio as of the Value Time on
such day plus or minus, as the case may be, the amount of
net additions to or withdrawals from such investor’s investment
in the Portfolio effected as of the Value Time on
such day, and (ii) the denominator of which is the aggregate
net value of the Portfolio, determined as provided
above, as of the Value Time on such day plus or
minus, as the case may be, the amount of net additions to
or withdrawals from the aggregate investments in the Portfolio
by all investors, including the feeder fund, in the
Portfolio. The percentage so determined for a feeder fund
will then be applied to determine the value of the feeder
fund’s interest in the Portfolio as of the Value Time on
the following day that net asset value is determined.
Applicable to money market funds other
than DWS Government Money Market Series and DWS ESG Liquidity
Fund. The net asset value (NAV) per share of a
fund is calculated on each day (Valuation Day) on which the
fund is open for business as of the time described in
the fund’s prospectus. A fund is open for business each
day the New York Stock Exchange (Exchange) is open
for trading, and the fund may, but is not required to,
accept certain types of purchase and redemption orders
(not including exchanges) on days that the
Exchange
is not open or beyond an early Exchange closing time,
as described in the fund’s prospectus. The Exchange is
scheduled to be closed on the following holidays: New Year’s
Day, Dr. Martin Luther King, Jr. Day, Presidents’ Day,
Good Friday, Memorial Day, Juneteenth National Independence
Day, Independence Day, Labor Day, Thanksgiving
and Christmas, and on the preceding Friday or subsequent
Monday when one of these holidays falls on a
Saturday or Sunday, respectively. Net asset value per
share is determined separately for each class of shares by
dividing the value of the total assets of the fund attributable
to the shares of that class, less all liabilities attributable
to that class, by the total number of shares of that
class outstanding. Although there is no guarantee, a fund’s
NAV per share will normally be $1.00.
A fund values its portfolio
instruments at amortized cost, which does not
take into account unrealized capital gains or
losses. This involves initially valuing an instrument at its
cost and thereafter assuming a constant amortization
to maturity of any discount or premium, regardless of
the impact of fluctuating interest rates on the market value
of the instrument. While this method provides certainty
in valuation, it may result in periods during which value,
as determined by amortized cost, is higher or lower than
the price the fund would receive if it sold the instrument.
The Board has established
procedures reasonably designed to stabilize
a fund’s NAV per share at $1.00. Under
the procedures, the Advisor will monitor and notify the
Board of circumstances where a fund’s NAV per share calculated
by using market valuations may deviate from the
$1.00 per share calculated using amortized cost. If there
were any deviation that the Board believed would result
in a material dilution or unfair result for investors or
existing shareholders, the Board would promptly consider
what action, if any, should be initiated. Such actions
could include selling assets prior to maturity to realize
capital gains or losses; shortening the average maturity
of a fund's portfolio; adjusting the level of dividends;
redeeming shares in kind; or valuing assets based
on market valuations. For example, if a fund’s net asset
value per share (computed using market values) declined,
or was expected to decline, below $1.00 (computed
using amortized cost), the fund might temporarily
reduce or suspend dividend payments in an effort to
maintain the net asset value at $1.00 per share. As a result
of such reduction or suspension of dividends or other
action by the Board, an investor would receive less income
during a given period than if such a reduction or suspension
had not taken place. Such action could result in
investors receiving no dividend for the period during which
they hold their shares and receiving, upon
redemption,
a price per share lower than that which they paid.
On the other hand, if a fund’s net asset value per share
(computed using market values) were to increase, or
were anticipated to increase above $1.00 (computed using
amortized cost), a fund might supplement dividends in
an effort to maintain the net asset value at $1.00 per share.
Market valuations are
obtained by using actual quotations provided
by market makers, estimates of market value,
or values obtained from yield data relating to classes of
money market instruments published by reputable sources
at the mean between the bid and asked prices for
the instruments. In the event market quotations are not
readily available for certain portfolio assets, the fair value
of such portfolio assets will be determined in good faith
by the Advisor’s Pricing Committee based upon input from
the Advisor or other third parties.
The following paragraph applies to
DWS ESG Liquidity Fund only.
The net asset value of shares of the fund is generally
calculated on each day the New York Stock Exchange
is open for trading, as described in the fund’s prospectuses.
The fund generally values its portfolio instruments
using information furnished by an independent pricing
service or market quotations. Interactive Data Corporation
serves as the primary independent pricing service
for the fund. In the event pricing service information
or market quotations are not available for certain portfolio
assets, or when the value of certain portfolio assets
is believed to have been materially affected by a significant
event, the fair value of such portfolio assets will
be determined by the Advisor’s Pricing Committee. The
fund will typically value newly acquired securities at cost
on date of acquisition, and thereafter using information furnished
by an independent pricing service.
Applicable to the following money market
fund: DWS Government Money Market Series. The
fund pursues its investment objective by investing
substantially all of its assets in a master
portfolio—the
Government Cash Management Portfolio (Portfolio),
which has the same investment objective and
is subject to the same investment risks as the
fund. The net asset value (NAV) per share of
the fund is calculated on each day (Valuation Day)
on which the fund is open for business as of the time
described in the fund’s prospectus. The fund is open for
business each day the New York Stock Exchange (Exchange)
is open for trading, and the fund may, but is not
required to, accept certain types of purchase and redemption
orders (not including exchanges) on days that the
Exchange is not open or beyond an early Exchange closing
time, as described in the fund’s prospectus. The
Exchange
is scheduled to be closed on the following holidays:
New Year’s Day, Dr. Martin Luther King, Jr. Day, Presidents’
Day, Good Friday, Memorial Day, Juneteenth Independence
Day, Independence Day, Labor Day, Thanksgiving
and Christmas, and on the preceding Friday or subsequent
Monday when one of these holidays falls on a
Saturday or Sunday, respectively. Net asset value per
share is determined separately for each class of shares by
dividing the value of the total assets of the fund (i.e., the
value of the fund’s investment in the Portfolio and any
other assets) attributable to the shares of that class, less
all liabilities attributable to that class, by the total number
of shares of that class outstanding. Although there
is no guarantee, the fund’s NAV per share will normally
be $1.00.
On each Valuation Day,
the Portfolio determines its net value (i.e.,
the value of the Portfolio’s portfolio instruments
and any other assets less all liabilities). The Portfolio values
its portfolio instruments at amortized cost, which does
not take into account unrealized capital gains or losses.
This involves initially valuing an instrument at its cost
and thereafter assuming a constant amortization to maturity
of any discount or premium, regardless of the impact
of fluctuating interest rates on the market value of
the instrument. While this method provides certainty in
valuation, it may result in periods during which value, as
determined by amortized cost, is higher or lower than the
price the Portfolio would receive if it sold the instrument.
Each investor in the
Portfolio, including the fund, may add to or
reduce its investment in the Portfolio on each Valuation
Day. At the close of each such Valuation Day, the
value of each investor’s beneficial interest in the Portfolio
will be determined by multiplying the net value of
the Portfolio, as determined by amortized cost, by the percentage,
effective for that day, which represents that investor’s
share of the aggregate beneficial interests in the
Portfolio. Any additions or withdrawals, which are to be
effected as of the close of business on that day, will then
be effected. The percentage of the aggregate beneficial
interests in the Portfolio held by each investor in
the Portfolio, including the fund will then be recomputed
as the percentage equal to the fraction (i) the numerator
of which is the value of the investor’s investment
in the Portfolio as of the close of business on
such day plus or minus, as the case may be, the amount of
net additions to or withdrawals from such investor’s investment
in the Portfolio effected as of the close of business
on such day, and (ii) the denominator of which is
the aggregate net value of the Portfolio, as determined
by amortized cost, as of the close of business on such
day plus or minus, as the case may be, the amount
of
net additions to or withdrawals from the aggregate investments
in the Portfolio by all investors, including the
fund, in the Portfolio. The percentage so determined for
the fund will then be applied to determine the value of
the fund’s interest in the Portfolio as of the close of the
following Valuation Day.
The Board has established
procedures reasonably designed to stabilize
the fund’s NAV per share at $1.00. Under
the procedures, the Advisor will monitor and notify the
Board of circumstances where a fund’s NAV per share calculated
based on valuing the fund’s investment in the Portfolio
and the fund’s other assets using market valuations
may deviate from the $1.00 per share calculated based
on valuing a fund’s investment in the Portfolio and the
fund’s other assets using amortized cost. If there were
any deviation that the Board believed would result in
a material dilution or unfair result for investors or existing shareholders,
the Board would promptly consider what action,
if any, should be initiated. Such actions could include
selling assets prior to maturity to realize capital gains
or losses; shortening average maturity of the investment
portfolio; adjusting the level of dividends; redeeming
shares in kind; or valuing assets based on market
valuations. For example, if the fund’s net asset value
per share (computed using market values) declined, or
was expected to decline, below $1.00 (computed using amortized
cost), the fund might temporarily reduce or suspend
dividend payments in an effort to maintain the net
asset value at $1.00 per share. As a result of such reduction
or suspension of dividends or other action by the
Board, an investor would receive less income during a
given period than if such a reduction or suspension had
not taken place. Such action could result in investors receiving
no dividend for the period during which they hold
their shares and receiving, upon redemption, a price per
share lower than that which they paid. On the other hand,
if the fund’s net asset value per share (computed using
market values) were to increase, or were anticipated
to increase above $1.00 (computed using amortized cost),
the fund might supplement dividends in an effort to
maintain the net asset value at $1.00 per share. Because
a fund invests substantially all of its assets in the
Portfolio, certain of these actions could be implemented at the
Portfolio level at the discretion of its Board.
Market valuations are
obtained by using actual quotations provided
by market makers, estimates of market value,
or values obtained from yield data relating to classes of
money market instruments published by reputable sources
at the mean between the bid and asked prices for
the instruments. In the event market quotations are not
readily available for certain portfolio assets, the fair
value
of such portfolio assets will be determined in good faith
by the Advisor’s Pricing Committee based upon input from
the Advisor or other third parties.
Proxy Voting Policy and Guidelines
Each fund has delegated
proxy voting responsibilities to the Advisor,
subject to the Board’s general oversight. A fund
has delegated proxy voting responsibilities to the Advisor
with the direction that proxies should be voted consistent
with the fund’s best economic interests. The Advisor
has adopted its own Proxy Voting Policy and Guidelines
(Policy) for this purpose. The Policy addresses, among other
things, conflicts of interest that may arise between the
interests of a fund, and the interests of the Advisor and
its affiliates, including a fund’s principal underwriter. The
Policy is included in Part II—Appendix
II-I.
You may obtain information
about how a fund voted proxies related to its
portfolio securities during the 12-month period
ended June 30 (1) without charge, upon request,
by calling
(800)
728-3337
or, for
institutional money
market funds, (800)
730-1313;
(2)
on our
Web site at dws.com/en-us/resources/proxy-voting;
and (3) by visiting the SEC’s Web site at www.sec.gov.
A fund’s prospectus(es)
and this SAI omit certain information contained
in the Registration Statement which a fund has
filed with the SEC under the 1933 Act and reference
is hereby made to the Registration Statement for
further information with respect to a fund and the securities
offered hereby.
Bonds and Commercial Paper Ratings
Set forth below are descriptions
of ratings (as of the date of each rating agency’s
annual ratings publication or other current
ratings publication, as applicable) which represent opinions
as to the quality of the securities. It should be emphasized,
however, that ratings are relative and subjective and are not
absolute standards of quality.
If a fixed income security
is rated differently among the three major ratings
agencies (i.e., Moody’s Investor Services,
Inc., Fitch Investors Services, Inc., and S&P Global
Ratings), portfolio management would rely on the highest
credit rating for purposes of the fund’s investment policies.
Moody’s Investors Service,
Inc. Global Long-Term Rating Scale
Moody’s long-term
ratings are assigned to issuers or
obligations with an original maturity of eleven
months or more and reflect both on the likelihood
of a default or impairment on contractual financial
obligations and the expected
financial loss suffered in the event of default or impairment.
Aaa
Obligations rated Aaa are judged to be of the highest quality,
subject to the lowest level of credit risk.
Aa
Obligations rated Aa are judged to be of high quality and are
subject to very low credit risk.
A
Obligations rated A are judged to be upper-medium grade and are
subject to low credit risk.
Baa
Obligations rated Baa are judged to be medium-grade
and subject to moderate credit risk and as such may possess certain
speculative characteristics.
Ba
Obligations rated Ba are judged to be speculative and are subject
to substantial credit risk.
B
Obligations rated B are considered speculative and are subject
to high credit risk.
Caa
Obligations rated Caa are judged to be speculative of
poor standing and are subject to very high credit risk.
Ca
Obligations rated Ca are highly speculative and are likely
in, or very near, default, with some prospect of recovery of
principal and interest.
C
Obligations rated C are the lowest rated class of bonds and
are typically in default, with little prospect for recovery of
principal or
interest.
Note:
Moody’s appends numerical modifiers 1, 2, and 3 to
each generic rating classification from Aa through Caa. The
modifier 1 indicates that the obligation ranks in the higher
end of its generic rating category; the modifier 2 indicates
a mid-range ranking; and the modifier 3 indicates a
ranking in the lower end of that generic rating category. Additionally,
a “(hyb)”
indicator is appended to all ratings of hybrid
securities issued by banks, insurers, finance companies, and
securities firms.
By their terms, hybrid
securities allow for the omission of scheduled
dividends, interest, or principal payments, which
can potentially result in impairment if such an omission
occurs. Hybrid securities may also be subject
to
contractually allowable write-downs of principal that could
result in impairment. Together with the hybrid indicator,
the long-term obligation rating assigned to a hybrid
security is an expression of the relative credit risk associated
with that security.
Moody’s Investors Service, Inc. Global Short-Term
Rating Scale
Moody’s short-term
ratings are assigned to obligations with an
original maturity of thirteen months or less and reflect
both on the likelihood of a default or impairment on
contractual financial obligations and the expected financial
loss suffered in the event of default or impairment.
P-1
Ratings of Prime-1 reflect a superior ability to repay short-term
obligations.
P-2
Ratings of Prime-2 reflect a strong ability to repay short-term
obligations.
P-3
Ratings of Prime-3 reflect an acceptable ability to repay short-term
obligations.
NP
Issuers (or supporting institutions) rated Not Prime do not fall
within any of the Prime rating categories.
Moody’s Investors Service, Inc. US Municipal Short-Term
Debt and Demand Obligation Ratings
Short-Term Obligation Ratings
The Municipal Investment
Grade (MIG) scale is used to rate US municipal
cash flow notes, bond anticipation notes and
certain other short-term obligations, which typically mature
in three years or less.
MIG 1
This designation denotes superior credit quality. Excellent
protection is afforded by established cash flows, highly
reliable liquidity support, or demonstrated broad-based access
to the market for refinancing.
MIG 2
This designation denotes strong credit quality. Margins
of protection are ample, although not as large as in the preceding
group.
MIG 3
This designation denotes acceptable credit quality. Liquidity
and cash-flow protection may be narrow, and market
access for refinancing is likely to be less well-established.
SG
This designation denotes speculative-grade credit quality.
Debt instruments in this category may lack sufficient margins
of protection.
Demand Obligation Ratings
For
variable rate demand obligations (VRDOs), Moody’s
assigns
both a long-term rating and a short-term payment obligation
rating. The long-term rating addresses the issuer’s
ability to meet scheduled principal and interest payments.
The short-term payment obligation rating addresses
the ability of the issuer or the liquidity provider to
meet any purchase price payment obligation resulting from
optional tenders (“on
demand”)
and/or mandatory tenders
of the VRDO. The short-term payment
obligation rating uses the Variable Municipal
Investment Grade (VMIG) scale.
Transitions of VMIG ratings with conditional
liquidity support differ from transitions of Prime ratings
reflecting the risk that external liquidity support will
terminate if the issuer’s long-term rating drops below investment
grade.
For VRDOs,
Moody's
typically assigns a VMIG rating if the frequency
of the payment obligation is less than every three
years. If
the frequency of the payment obligation is
less than three years, but the obligation is payable only with
remarketing proceeds, the VMIG short-term rating is
not assigned and it is denoted as “NR”.
VMIG 1
This designation denotes superior credit quality. Excellent
protection is afforded by the superior short-term credit
strength of the liquidity provider and structural and legal protections.
VMIG 2
This designation denotes strong credit quality. Good
protection is afforded by the strong short-term credit strength
of the liquidity provider and structural and legal protections.
VMIG 3
This designation denotes acceptable credit quality. Adequate
protection is afforded by the satisfactory short-term
credit strength of the liquidity provider and structural and
legal protections.
SG
This designation denotes speculative-grade credit quality.
Demand features rated in this category may be supported
by a liquidity provider that does not have a sufficiently
strong short-term rating or may lack the structural or legal
protections.
S&P Global Ratings Long-Term
Issue Credit Ratings
AAA An
obligation rated 'AAA' has the highest rating assigned
by S&P Global Ratings. The obligor's capacity to
meet its financial commitments on the obligation is extremely
strong.
AA An
obligation rated 'AA' differs from the highest-rated
obligations only to a small degree. The obligor's capacity
to meet its financial commitments on the obligation is very strong.
A An
obligation rated 'A' is somewhat more susceptible to
the adverse effects of changes in circumstances and economic
conditions than obligations in higher-rated categories.
However, the obligor's capacity to meet its financial commitments
on the obligation is still strong.
BBB An
obligation rated 'BBB' exhibits adequate protection
parameters. However, adverse economic conditions
or changing circumstances are more likely to weaken the
obligor’s capacity to meet its financial commitments on
the obligation.
Obligations rated 'BB',
'B', 'CCC', 'CC', and 'C' are regarded as having
significant speculative characteristics. 'BB'
indicates the least degree of speculation and 'C'
the highest. While such obligations will likely have some
quality and protective characteristics, these may be
outweighed by large uncertainties or major exposure to adverse
conditions.
BB An
obligation rated 'BB' is less vulnerable to nonpayment
than other speculative issues. However, it faces
major ongoing uncertainties or exposure to adverse business,
financial, or economic conditions that could lead
to the obligor's inadequate capacity to meet its financial commitments
on the obligation.
B
An obligation rated 'B' is more vulnerable to nonpayment than
obligations rated 'BB', but the obligor currently has the
capacity to meet its financial commitments on the obligation.
Adverse business, financial, or economic conditions
will likely impair the obligor's capacity or willingness to meet
its financial commitments on the obligation.
CCC
An obligation rated 'CCC' is currently vulnerable to nonpayment
and is dependent upon favorable business, financial,
and economic conditions for the obligor to meet its
financial commitments on the obligation. In the event
of
adverse business, financial, or economic conditions, the
obligor is not likely to have the capacity to meet its financial
commitments on the obligation.
CC
An obligation rated 'CC' is currently highly vulnerable to
nonpayment. The 'CC' rating is used when a default has
not yet occurred but S&P Global Ratings expects default
to be a virtual certainty, regardless of the anticipated time
to default.
C
An obligation rated 'C' is currently highly vulnerable to nonpayment,
and the obligation is expected to have lower relative
seniority or lower ultimate recovery compared with obligations
that are rated higher.
D
An obligation rated 'D' is in default or in breach of an imputed
promise. For non-hybrid capital instruments, the 'D'
rating category is used when payments on an obligation
are not made on the date due, unless S&P Global
Ratings believes that such payments will be made within
the next five business days in the absence of a stated
grace period or within the earlier of the stated grace
period or the next 30 calendar days. The 'D' rating also
will be used upon the filing of a bankruptcy petition or
the taking of similar action and where default on an obligation
is a virtual certainty, for example due to automatic
stay provisions. A rating on an obligation is lowered
to 'D' if it is subject to a distressed debt restructuring.
Plus (+) or Minus (-) Ratings
from 'AA' to 'CCC' may be modified by the addition
of a plus (+) or minus (-) sign to show relative standing within
the rating categories.
S&P Global Ratings Short-Term Issue Credit Ratings
A-1
A short-term obligation rated 'A-1' is rated in the highest
category by S&P Global Ratings. The obligor's capacity
to meet its financial commitments on the obligation
is strong. Within this category, certain obligations
are designated with a plus sign (+). This indicates that
the obligor's capacity to meet its financial commitments on these
obligations is extremely strong.
A-2
A short-term obligation rated 'A-2' is somewhat more susceptible
to the adverse effects of changes in circumstances
and economic conditions than obligations in higher rating
categories. However, the obligor's capacity to meet its
financial commitments on the obligation is satisfactory.
A-3
A short-term obligation rated 'A-3' exhibits adequate protection
parameters. However, adverse economic conditions
or changing circumstances are more likely to weaken an
obligor’s capacity to meet its financial commitments on
the obligation.
B
A short-term obligation rated 'B' is regarded as vulnerable
and has significant speculative characteristics.
The obligor currently has the capacity to meet its financial
commitments; however, it faces major ongoing uncertainties
that could lead to the obligor's inadequate capacity to meet
its financial commitments.
C
A short-term obligation rated 'C' is currently vulnerable to
nonpayment and is dependent upon favorable business, financial,
and economic conditions for the obligor to meet its financial
commitments on the obligation.
D
A short-term obligation rated 'D' is in default or in breach of
an imputed promise. For non-hybrid capital instruments,
the 'D' rating category is used when payments on
an obligation are not made on the date due, unless S&P
Global Ratings believes that such payments will be made
within any stated grace period. However, any stated grace
period longer than five business days will be treated as
five business days. The 'D' rating also will be used upon
the filing of a bankruptcy petition or the taking of a
similar action and where default on an obligation is a virtual
certainty, for example due to automatic stay provisions.
A rating on an obligation is lowered to 'D' if it is subject
to a distressed debt restructuring.
SPUR (S&P Underlying Rating)
A SPUR is an opinion about the stand-alone capacity
of an obligor to pay debt service on a credit-enhanced
debt issue, without giving effect to the enhancement
that applies to it. These ratings are published
only at the request of the debt issuer or obligor
with the designation SPUR to distinguish them from
the credit-enhanced rating that applies to the debt issue.
S&P Global Ratings maintains surveillance of an issue with
a published SPUR.
S&P Global Ratings Municipal Short-Term Note Ratings
An S&P Global Ratings
US municipal note rating reflects S&P Global
Ratings’ opinion about the liquidity factors and
market access risks unique to the notes. Notes due in
three years or less will likely receive a note rating. Notes
with an original maturity of more than three years will
most likely receive a long-term debt rating. In determining
which type of rating, if any, to assign, S&P Global Ratings’
analysis will review the following considerations:
•
Amortization
schedule—the
larger the final maturity relative to other maturities, the more
likely it will be treated as a note; and
•
Source
of payment—the
more dependent the issue is on the market for its refinancing,
the more likely it will be treated as a note.
Note rating symbols are as follows:
SP-1
Strong capacity to pay principal and interest. An issue
determined to possess a very strong capacity to pay debt service
is given a plus (+) designation.
SP-2
Satisfactory capacity to pay principal and interest, with
some vulnerability to adverse financial and economic changes
over the term of the notes.
SP-3
Speculative capacity to pay principal and interest.
D ‘D’
is assigned upon failure to pay the note when due, completion
of a distressed debt restructuring, or the filing of
a bankruptcy petition or the taking of similar action and
where default on an obligation is a virtual certainty, for example
due to automatic stay provisions.
S&P Global Ratings Dual Ratings
Dual ratings may be assigned
to debt issues that have a put option or demand
feature. The first component of the rating addresses
the likelihood of repayment of principal and
interest as due, and the second component of
the rating addresses only the demand feature. The first
component of the rating can relate to either a short-term
or long-term transaction and accordingly use either
short-term or long-term rating symbols. The second component
of the rating relates to the put option and is assigned
a short-term rating symbol (for example, 'AAA/A-1+'
or 'A-1+/A-1'). With US municipal short-term demand
debt, the US municipal short-term note rating symbols
are used for the first component of the rating (for example,
'SP-1+/A-1+').
S&P Global Market Intelligence Earnings and Dividend
Rankings for Common Stocks
S&P Global Market
Intelligence, an affiliate of S&P Global Ratings,
has provided Earnings and Dividend Rankings, commonly
referred to as Quality Rankings, on common stocks
since 1956. Quality Rankings reflect the long-term growth
and stability of a company’s earnings and dividends.
The
Quality Rankings System attempts to capture the long-term
growth and stability of earnings and dividends record
in a single system. In assessing Quality Rankings, S&P
Global Market Intelligence recognizes that earnings and
dividend performance is the end result of the interplay of
various factors such as products and industry position, corporate
resources and financial policy. Over the long run,
the record of earnings and dividend performance has
a considerable bearing on the relative quality of stocks.
The rankings, however,
do not profess to reflect all of the factors,
tangible or intangible, that bear on stock quality.
The rankings are generated
by a computerized system and are based on per-share
earnings and dividend records of the most recent
10 years – a period long enough to measure
significant secular (long-term) growth, capture indications
of changes in trend as they develop, encompass
the full peak-to-peak range of the business cycle,
and include a bull and a bear market. Basic scores are
computed for earnings and dividends, and then adjusted
as indicated by a set of predetermined modifiers for
change in the rate of growth, stability within long-term trend,
and cyclicality. Adjusted scores for earnings and dividends are
then combined to yield a final ranking.
The ranking system makes
allowance for the fact that corporate size generally
imparts certain advantages from an investment
standpoint. Conversely, minimum size limits (in
sales volume) are set for the various rankings. However, the
system provides for making exceptions where the score
reflects an outstanding earnings and dividend record.
The following table shows the letter classifications and brief
descriptions of Quality Rankings.
The ranking system grants
some exceptions to the pure quantitative rank.
Thus, if a company has not paid any dividend
over the past 10 years, it is very unlikely that it will
rank higher than A-. In addition, companies may receive a
bonus score based on their sales volume (higher sales are
viewed as better for stability). If a company omits a dividend
on preferred stock, it will receive a rank of no better
than C that year. If a company pays a dividend on the
common stock, it is highly unlikely that the rank will be
below B-, even if it has incurred losses. In addition, if
a company files for bankruptcy, the model’s rank is automatically
changed to D.
Fitch Ratings Long-Term Ratings
AAA:
Highest Credit Quality.
‘AAA’ ratings denote the lowest expectation
of default risk. They are assigned only in cases of
exceptionally strong capacity for payment of financial commitments.
This capacity is highly unlikely to be adversely affected by
foreseeable events.
AA:
Very High Credit Quality.
‘AA’ ratings denote expectations of
very low default risk. They indicate very strong capacity for
payment of financial commitments. This capacity is not significantly
vulnerable to foreseeable events.
A:
High Credit Quality.
‘A’ ratings denote expectations of low
default risk. The capacity for payment of financial commitments
is considered strong. This capacity may, nevertheless,
be more vulnerable to adverse business or economic
conditions than is the case for higher ratings.
BBB:
Good Credit Quality.
‘BBB’ ratings indicate that expectations
of default risk are currently low. The capacity for
payment of financial commitments is considered adequate,
but adverse business or economic conditions are more likely to
impair this capacity.
BB:
Speculative. ‘BB’ ratings indicate an elevated vulnerability
to default risk, particularly in the event of adverse changes
in business or economic conditions over time; however,
business or financial flexibility exists that supports the servicing
of financial commitments.
B:
Highly Speculative.
‘B’ ratings indicate that material default
risk is present, but a limited margin of safety remains. Financial
commitments are currently being met; however, capacity
for continued payment is vulnerable to deterioration in the business
and economic environment.
CCC:
Substantial Credit Risk.
Very low margin for safety. Default is a real possibility.
CC:
Very High Levels of Credit Risk.
Default of some kind appears probable.
C:
Near Default.
A default or default-like process has begun, or
for a closed funding vehicle, payment capacity is irrevocably
impaired. Conditions that are indicative of a ‘C’
category rating for an issuer include:
a. The
issuer has entered into a grace or cure period following non-payment
of a material financial obligation;
b.
The
formal announcement by the issuer or their agent of a distressed
debt exchange; and
c.
A
closed financing vehicle where payment capacity is irrevocably
impaired such that it is not expected to pay interest
and/or principal in full during the life of the transaction,
but where no payment default is imminent.
RD:
Restricted Default.
‘RD’ ratings indicate an issuer that in Fitch’s
opinion has experienced:
a. An
uncured payment default or distressed debt exchange on
a bond, loan or other material financial obligation, but
b. Has
not entered into bankruptcy filings, administration, receivership,
liquidation, or other formal winding-up procedure, and
c. Has
not otherwise ceased operating.
a.
The
selective payment default on a specific class or currency of
debt;
b.
The
uncured expiry of any applicable original grace
period, cure period or default forbearance period
following a payment default on a bank loan,
capital markets security or other material financial obligation.
D:
Default. ‘D’ ratings indicate an issuer that in Fitch’s opinion
has entered into bankruptcy filings, administration, receivership,
liquidation or other formal winding-up procedure
or that has otherwise ceased business and debt
is still outstanding.
Default ratings are not
assigned prospectively to entities or their
obligations; within this context, non-payment on an
instrument that contains a deferral feature or grace period
will generally not be considered a default until after the
expiration of the deferral or grace period, unless a default
is otherwise driven by bankruptcy or other similar circumstance,
or by a distressed debt exchange.
In all cases, the assignment
of a default rating reflects the agency’s
opinion as to the most appropriate rating category
consistent with the rest of its universe of ratings
and may differ from the definition of default
under the terms of an issuer’s financial
obligations or local commercial practice.
Within rating categories,
Fitch may use modifiers. The modifiers “+”
or “-”
may be appended to a rating to denote relative
status within major rating categories. For example,
the
rating category ‘AA’ has three notch-specific rating levels
(‘AA+’; ‘AA’; ‘AA–‘; each a rating level). Such suffixes are
not added to ‘AAA’ ratings and ratings below the ‘CCC’ category.
For the short-term rating category of ‘F1’, a ‘+’ may
be appended.
Fitch Ratings Short-Term Ratings
F1:
Highest Short-Term Credit Quality. Indicates the strongest
intrinsic capacity for timely payment of financial commitments;
may have an added “+”
to denote any exceptionally strong credit feature.
F2:
Good Short-Term Credit Quality. Good intrinsic capacity for timely
payment of financial commitments.
F3:
Fair Short-Term Credit Quality. The intrinsic capacity for
timely payment of financial commitments is adequate.
B:
Speculative Short-Term Credit Quality. Minimal capacity for
timely payment of financial commitments, plus heightened
vulnerability to near term adverse changes in financial and economic
conditions.
C:
High Short-Term Default risk. Default is a real possibility.
RD:
Restricted Default. Indicates an entity that has defaulted on
one or more of its financial commitments, although it
continues to meet other financial obligations. Typically applicable
to entity ratings only.
D:
Default. Indicates a broad-based default event for an entity,
or the default of a short-term obligation.
Part II:
Appendix II-A—Board
Members, Advisory Board Members and Officers
Identification and Background
The following table presents
certain information regarding the Board Members and Advisory Board Members, as applicable,
of the Trust/Corporation. Each Board Member’s and Advisory Board Member’s year of birth is set forth in parentheses
after his or her name. Unless otherwise noted, (i) each Board Member and Advisory Board Member has engaged
in the principal occupation(s) noted in the table for at least the most recent five years, although not necessarily in
the same capacity, and (ii) the address of each Board Member and Advisory Board Member that is not an “interested
person”
(as defined in the 1940 Act) of the Trust/Corporation or the Advisor (each, an “Independent
Board Member”
or “Independent
Advisory Board Member”)
is Keith R. Fox, DWS Funds Board Chair, c/o Thomas R. Hiller, Ropes & Gray
LLP, Prudential Tower, 800 Boylston Street, Boston, MA 02199-3600. The term of office for each Board Member is
until the election and qualification of a successor, or until such Board Member sooner dies, resigns, is removed or as
otherwise provided in the governing documents of the Trust/Corporation. Because the fund does not hold an annual meeting
of shareholders, each Board Member will hold office for an indeterminate period. The term of office for each Advisory
Board Member is until such Advisory Board Member is elected or appointed to the Board, or until such Advisory
Board Member sooner dies, resigns or is removed by the Board, or until the Advisory Board is abolished by the
Board. The number of funds in the DWS fund complex shown in the table below includes all registered open- and closed-end
funds (including all of their portfolios) advised by the Advisor and any registered funds that have an investment advisor
that is an affiliated person of the Advisor.
Independent Board Members / Independent Advisory Board
Members
Name,
Year of Birth,
Position
with
the Trust/Corporation
and
Length of Time
|
Business
Experience and
Directorships
During the Past 5 Years |
Number
of
Funds
in
DWS
Fund
Complex
Overseen
|
Other
Directorships
Held
by Board Member/
Advisory
Board Member |
Keith
R. Fox, CFA (1954)
Chairperson
since 2017,
and
Board Member since
1996
|
Former
Managing General Partner, Exeter
Capital
Partners (a series of private
investment
funds) (1986-2023); Former
Chairman,
National Association of Small
Business
Investment Companies; Former
Directorships:
ICI Mutual Insurance
Company;
BoxTop Media Inc. (advertising);
Sun
Capital Advisers Trust (mutual funds);
Progressive
International Corporation
(kitchen
goods designer and distributor) |
|
|
Mary
Schmid Daugherty,
NACD.DC,
PHD, CFA (1958)
Board
Member or Advisory
Board
Member since
2023(3)
|
Senior
Fellow in Applied Finance,
Department
of Finance, Opus College of
Business
at the University of St. Thomas
(1987-present);
Directorships: The Meritex
Company
(2017-present); and The
Hardenbergh
Foundation (2021-present);
Former
Directorships: Driessen Water, Inc.
(2016-2023);
Mairs & Power Funds Trust
(mutual
funds) (2010-2022); and Crescent
Electric
Supply Company (2010-2019) |
|
|
Name,
Year of Birth,
Position
with
the Trust/Corporation
and
Length of Time
Served(1)
|
Business
Experience and
Directorships
During the Past 5 Years |
Number
of
Funds
in
DWS
Fund
Complex
Overseen
|
Other
Directorships
Held
by Board Member/
Advisory
Board Member |
Dawn-Marie
Driscoll (1946)
Board
Member since 1987 |
Emeritus
Executive Fellow, Hoffman Center
for
Business Ethics, Bentley University;
formerly:
Partner, Palmer & Dodge (law firm)
(1988-1990);
Vice President of Corporate
Affairs
and General Counsel, Filene’s (retail)
(1978-1988);
Directorships: Trustee and
former
Chairman of the Board, Southwest
Florida
Community Foundation (charitable
organization);
Former Directorships: ICI
Mutual
Insurance Company (2007-2015);
Sun
Capital Advisers Trust (mutual funds)
(2007-2012);
Investment Company Institute
(audit,
executive, nominating committees)
and
Independent Directors Council
(governance,
executive committees) |
|
|
Richard
J. Herring (1946)
Board
Member since 1990 |
Jacob
Safra Professor of International
Banking
and Professor of Finance, The
Wharton
School, University of Pennsylvania
(1972-present);
formerly: Director, The
Wharton
Financial Institutions Center (1994-
2020);
Vice Dean and Director, Wharton
Undergraduate
Division (1995-2000) and
Director,
The Lauder Institute of International
Management
Studies (2000-2006); Member
FDIC
Systemic Risk Advisory Committee
(2011-present),
Member Systemic Risk
Council
(2012-present) and Member of the
Advisory
Board of the Yale Program on
Financial
Stability (2013-present); Former
Directorships:
Co-Chair of the Shadow
Financial
Regulatory Committee (2003-2015),
Executive
Director of The Financial
Economists
Roundtable (2008-2015),
Director
of The Thai Capital Fund (2007-
2013),
Director of The Aberdeen Singapore
Fund
(2007-2018), Director, The Aberdeen
Japan
Fund (2007-2021) and Nonexecutive
Director
of Barclays Bank DE (2010-2018) |
|
|
Chad
D. Perry (1972) Board
Member
since 2021 |
Executive
Vice President, General Counsel
and
Secretary, RLJ Lodging Trust(2)
(since
2023);
formerly Executive Vice President,
General
Counsel and Secretary, Tanger
Factory
Outlet Centers, Inc.(2)
(2011-2023);
Executive
Vice President and Deputy General
Counsel,
LPL Financial Holdings Inc.(2)(2006-
2011);
Senior Corporate Counsel, EMC
Corporation
(2005-2006); Associate, Ropes &
Gray
LLP (1997-2005) |
|
Director,
Great Elm Capital
Corp.
(business development
company)
(since 2022) |
Name,
Year of Birth,
Position
with
the Trust/Corporation
and
Length of Time
Served(1)
|
Business
Experience and
Directorships
During the Past 5 Years |
Number
of
Funds
in
DWS
Fund
Complex
Overseen
|
Other
Directorships
Held
by Board Member/
Advisory
Board Member |
Rebecca
W. Rimel (1951)
Board
Member since 1995 |
Directorships:
Washington College (since
July
2023); Formerly: Executive Vice
President,
The Glenmede Trust Company
(investment
trust and wealth management)
(1983-2004);
Board Member, Investor
Education
(charitable organization) (2004-
2005);
Former Directorships: Trustee,
Executive
Committee, Philadelphia Chamber
of
Commerce (2001-2007); Director, Viasys
Health
Care(2)
(January 2007-June 2007);
Trustee,
Thomas Jefferson Foundation
(charitable
organization) (1994-2012);
President,
Chief Executive Officer and
Director
(1994-2020) and Senior Advisor
(2020-2021),
The Pew Charitable Trusts
(charitable
organization); Director,
BioTelemetry
Inc.(2)
(acquired by Royal
Philips
in 2021) (healthcare) (2009-2021);
Director,
Becton Dickinson and Company(2)
(medical
technology company) (2012-2022) |
|
Director,
The Bridgespan
Group
(nonprofit organization)
(since
October 2020) |
Catherine
Schrand (1964)
Board
Member since 2021 |
Celia
Z. Moh Professor of Accounting (2016-
present)
and Professor of Accounting (1994-
present),
The Wharton School, University of
Pennsylvania;
and Member of the Financial
Economists
Roundtable and Member of its
Steering
Committee (2024-present).
Directorships:
Advisory Board Member, the
Jacobs
Levy Center, The Wharton School,
University
of Pennsylvania (since 2023);
Former
positions: Vice Dean, Wharton
Doctoral
Programs, The Wharton School,
University
of Pennsylvania (2016-2019) |
|
|
William
N. Searcy, Jr. (1946)
Board
Member since 1993 |
Private
investor since October 2003;
formerly:
Pension & Savings Trust Officer,
Sprint
Corporation(2)
(telecommunications)
(November
1989-September 2003); Former
Directorships:
Trustee, Sun Capital Advisers
Trust
(mutual funds) (1998-2012) |
|
|
Officers(5)
Name,
Year of Birth, Position
with
the Trust/Corporation
and
Length of Time Served(6)
|
Business
Experience and Directorships During the Past 5 Years |
Hepsen
Uzcan(7)
(1974)
President
and Chief Executive
Officer,
2017-present |
Head
of Americas CEO Office, DWS (2023-present), Head of Fund Administration,
Head
of Product Americas and Head of U.S. Mutual Funds, DWS (2017-present); Vice
President,
DWS Service Company (2018-present); President, DB Investment
Managers,
Inc.(2018-present); President and Chief Executive Officer, The European
Equity
Fund, Inc., The New Germany Fund, Inc. and The Central and Eastern Europe
Fund,
Inc. (2017-present); Vice President, DWS Investment Management Americas,
Inc.
(2023-present); formerly: Vice President for the Deutsche funds (2016-2017);
Assistant
Secretary for the DWS funds (2013-2019); Secretary, DWS USA Corporation
(2018-2023);
Assistant Secretary, DWS Investment Management Americas, Inc. (2018-
2023);
Assistant Secretary, DWS Trust Company (2018-2023); Assistant Secretary, The
European
Equity Fund, Inc., The New Germany Fund, Inc. and The Central and Eastern
Europe
Fund, Inc. (2013-2020); Assistant Secretary, DWS Distributors, Inc. (2018-
2023);
Directorships: Director of DWS Service Company (2018-present); Director of DB
Investment
Managers, Inc. (2018-present); Director of Episcopalian Charities of New
York
(2018-present); Interested Director of The European Equity Fund, Inc., The New
Germany
Fund, Inc. and The Central and Eastern Europe Fund, Inc. (2020-present);
Director
of ICI Mutual Insurance Company (2020-present); Director of DWS USA
Corporation
(2023-present); Director of DWS Investment Management Americas, Inc.
(2023-present);
and Manager of DBX Advisors LLC. (2023-present) |
John
Millette(8)
(1962)
Vice
President and Secretary,
1999-present
|
Legal
(Associate General Counsel), DWS; Chief Legal Officer, DWS Investment
Management
Americas, Inc. (2015-present); Director and Vice President, DWS Trust
Company
(2016-present); Secretary, DBX ETF Trust (2020-present); Vice President, DBX
Advisors
LLC (2021-present); Secretary, The European Equity Fund, Inc., The New
Germany
Fund, Inc. and The Central and Eastern Europe Fund, Inc. (2011-present);
formerly:
Secretary, Deutsche Investment Management Americas Inc. (2015-2017);
and
Assistant Secretary, DBX ETF Trust (2019-2020) |
Ciara
Crawford(7)(1984)
Assistant
Secretary, 2019 -
present
|
Fund
Administration (Specialist), DWS (2015-present); Secretary, DWS Service
Company
(2024-present); Assistant Secretary of U.S. Mutual Funds, DWS (2019-
present);
Secretary, DWS USA Corporation (2024-present); Secretary, DBX Advisors,
LLC
(2024-present); Secretary, DWS Investment Management Americas, Inc. (2024-
present);
Clerk, DWS Trust Company (2024-present); Secretary, DWS Distributors, Inc.
(2024-present);
formerly, Assistant Secretary DWS Service Company (2018-2024);
Assistant
Secretary, DWS USA Corporation (2023-2024); Assistant Secretary, DBX
Advisors,
LLC (2023-2024); Assistant Secretary, DWS Investment Management
Americas,
Inc. (2023-2024); Assistant Clerk, DWS Trust Company (2023-2024);
Assistant
Secretary, DWS Distributors, Inc. (2023-2024); Legal Assistant at Accelerated
Tax
Solutions |
Diane
Kenneally(8)
(1966)
Chief
Financial Officer and
Treasurer,
2018 – present |
Fund
Administration Treasurer’s Office (Head since 2024), DWS; Treasurer, Chief
Financial
Officer and Controller, DBX ETF Trust (2019-present); Treasurer and Chief
Financial
Officer, The European Equity Fund, Inc., The New Germany Fund, Inc. and The
Central
and Eastern Europe Fund, Inc. (2018-present); formerly: Assistant Treasurer for
the
DWS funds (2007-2018); and Co-Head of DWS Treasurer’s Office (2018-2024) |
Yvonne
Wong(8)
(1960)
Assistant
Treasurer, since
December
1, 2023 |
Fund
Administration (Senior Analyst), DWS; Assistant Treasurer, DBX ETF Trust (since
November
14, 2023) |
Sheila
Cadogan(8)(1966)
Assistant
Treasurer, 2017-
present
|
Fund
Administration Treasurer’s Office, Head of Accounting and Vendor Oversight
(since
2024), DWS; Director and Vice President, DWS Trust Company (2018-present);
Assistant
Treasurer, DBX ETF Trust (2019-present); Assistant Treasurer, The European
Equity
Fund, Inc., The New Germany Fund, Inc. and The Central and Eastern Europe
Fund,
Inc. (2018-present). Formerly: Co-Head of DWS Treasurer’s Office (2018-2024) |
Scott
D. Hogan(8)
(1970)
Chief
Compliance Officer,
2016-present
|
Anti-Financial
Crime & Compliance US (Senior Team Lead), DWS; Chief Compliance
Officer,
The European Equity Fund, Inc., The New Germany Fund, Inc. and The Central
and
Eastern Europe Fund, Inc. (2016-present) |
Name,
Year of Birth, Position
with
the Trust/Corporation
and
Length of Time Served(6)
|
Business
Experience and Directorships During the Past 5 Years |
Caroline
Pearson(8)
(1962)
Chief
Legal Officer, 2010-
present
|
Legal
(Regional Head of Legal, Americas), DWS (since 2024); Assistant Secretary, DBX
ETF
Trust (2020-present); Chief Legal Officer, DBX Advisors LLC (2019-present); Chief
Legal
Officer, The European Equity Fund, Inc., The New Germany Fund, Inc. and The
Central
and Eastern Europe Fund, Inc. (2012-present); formerly: Secretary, Deutsche
AM
Distributors, Inc. (2002-2017); Secretary, Deutsche AM Service Company (2010-
2017);
Chief Legal Officer, DBX Strategic Advisors LLC (2020-2021); and Legal (Senior
Team
Lead), DWS (2020-2024) |
Christian
Rijs(7)
(1980)
Anti-Money
Laundering
Compliance
Officer, 2021-
present
|
Senior
Team Lead Anti-Financial Crime and Compliance, DWS; AML Officer, DWS Trust
Company
(2021-present); AML Officer, DBX ETF Trust (2021-present); AML Officer, The
European
Equity Fund, Inc., The New Germany Fund, Inc. and The Central and Eastern
Europe
Fund, Inc. (2021-present); formerly: DWS UK & Ireland Head of Anti-Financial
Crime
and MLRO |
(1)
The
length of time served represents the year in which the Board Member joined the board of one or more DWS funds currently overseen by
the Board.
(2)
A
publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.
(3)
Ms.
Daugherty
is an Advisory Board Member of Deutsche DWS Asset Allocation Trust, Deutsche DWS Equity 500 Index Portfolio, Deutsche DWS
Global/International Fund, Inc., Deutsche DWS Income Trust, Deutsche DWS Institutional Funds, Deutsche DWS International Fund, Inc.,
Deutsche DWS Investment Trust, Deutsche DWS Investments VIT Funds, Deutsche DWS Money Market Trust, Deutsche DWS Municipal Trust,
Deutsche DWS Portfolio Trust, Deutsche DWS Securities Trust, Deutsche DWS Tax Free Trust, Deutsche DWS Variable Series I and Government
Cash Management Portfolio. Ms.
Daugherty
is a Board Member of each other Trust.
(4)
Ms.
Daugherty
oversees 21 funds in the DWS Fund Complex as a Board Member of various Trusts. Ms.
Daugherty
is an Advisory Board Member of various Trusts/Corporations comprised
of 47
funds in the DWS Fund Complex.
(5)
As
a result of their respective positions held with the Advisor or its affiliates, these individuals are considered “interested
persons”
of the Advisor within the meaning of the 1940 Act. Interested
persons receive no compensation from the fund.
(6)
The
length of time served represents the year in which the officer was first elected in such capacity for one or more DWS funds.
(7)
Address:
875 Third Avenue, New York, New York 10022.
(8)
Address:
100 Summer Street, Boston, MA 02110.
(9)
Address:
5201 Gate Parkway, Jacksonville, FL 32256.
Certain officers hold
similar positions for other investment companies for which DIMA or an affiliate serves as the Advisor.
Officer’s Role with Principal Underwriter: DWS
Distributors, Inc.
|
|
|
Anti-Money
Laundering Compliance Officer |
Board Member Qualifications
The Nominating and Governance
Committee is responsible for recommending proposed nominees for election to the
full Board for its approval. In recommending the election of the current Board Members, the Committee generally considered
the educational, business and professional experience of each Board Member in determining his or her qualifications
to serve as a Board Member, including the Board Member's record of service as a director or trustee of
public and private organizations. In the case of most Board Members, this included their many years of previous service
as a trustee of certain of the DWS funds. This previous service has provided these Board Members with a valuable
understanding of the history of the DWS funds and the DIMA organization and has also served to demonstrate their
high level of diligence and commitment to the interests of fund shareholders and their ability to work effectively and
collegially with other members of the Board. The Committee also considered, among other factors, the particular attributes
described below with respect to the various individual Board Members:
Mary Schmid Daugherty—Ms.
Daugherty’s
experience as a
professor of finance and business consultant,
and her experience
as a corporate director of numerous organizations, including
experience as a mutual fund director.
Dawn-Marie
Driscoll—Ms.
Driscoll's professional training and experience as an attorney, her expertise as a consultant, professor
and author on the subject of business ethics, her service as a member of the executive committee of the Independent
Directors Council of the Investment Company Institute and her experience as a director of an insurance company
serving the mutual fund industry.
Keith R. Fox—Mr.
Fox's experience as the chairman and a director of various private operating companies and investment partnerships
and his experience as a director and audit committee member of several public companies. In addition, he
holds the Chartered Financial Analyst designation.
Richard J. Herring—Mr.
Herring's experience as a professor of finance at a leading business school and his service as
an advisor to various professional and governmental organizations.
Chad D. Perry—Mr.
Perry’s professional training and experience as an attorney, his experience as general counsel of
a public company and his prior experience in the financial services industry.
Rebecca W. Rimel—Ms.
Rimel's experience on a broad range of public policy issues acquired during her service as the
executive director of a major public charity and her experience as a director of several public companies.
Catherine Schrand—Ms.
Schrand’s experience as a professor of accounting at a leading business school and her expertise
as an author and editor on the subject of accounting and economics.
William N. Searcy, Jr.—Mr.
Searcy's experience as an investment officer for various major public company retirement plans,
which included evaluation of unaffiliated investment advisers and supervision of various administrative and accounting
functions.
Part II:
Appendix II-B—Portfolio
Management Compensation
For funds advised by DWS Investment Management Americas,
Inc. or its Affiliates
Each fund is managed by
a team of investment professionals who each play an important role in a fund’s management process.
Team members work together to develop investment strategies and select securities for a fund. This team works
for the Advisor or its affiliates and is supported by a large staff of economists, research analysts, traders and other
investment specialists. The Advisor or its affiliates believe(s) its team approach benefits investors by bringing together
many disciplines and leveraging its extensive resources. Team members with primary responsibility for management of
a fund, as well as team members who have other ongoing management responsibilities for a fund, are identified in
each fund’s prospectus, as of the date of a fund’s prospectus. Composition of the team may change over time, and
shareholders and investors will be notified of changes affecting individuals with primary fund management responsibility.
Compensation of Portfolio Managers
The Advisor and its affiliates
are part of DWS. The brand DWS represents DWS Group GmbH & Co. KGaA (“DWS
Group”)
and any of its subsidiaries such as DWS Investment Management Americas, Inc. and RREEF America L.L.C. which
offer advisory services. DWS seeks to offer its investment professionals competitive short-term and long-term compensation
based on continuous, above average, fund performance relative to the market. This includes measurement of
short and long-term performance against industry and portfolio benchmarks. As employees of DWS, portfolio managers are
paid on a total compensation basis, which includes Fixed Pay (base salary) and Variable Compensation, as follows:
•
Fixed
Pay (FP) is the key and primary element of compensation for the majority of DWS employees and reflects the
value of the individual’s role and function within the organization. It rewards factors that an employee brings to
the organization such as skills and experience, while reflecting regional and divisional (i.e. DWS) specifics. FP levels
play a significant role in ensuring competitiveness of the Advisor and its affiliates in the labor market, thus benchmarking
provides a valuable input when determining FP levels.
•
Variable
Compensation (VC) is a discretionary compensation element that enables DWS Group to provide additional reward
to employees for their performance and behaviors, while reflecting DWS Group’s affordability and the financial
situation. VC aims to:
Recognize that every
employee contributes to DWS’s success through the franchise component of Variable Compensation (Franchise
Component), and
Reflect individual performance,
investment performance, behaviors and culture through discretionary individual VC (Individual
Component).
Employee seniority as
well as divisional and regional specifics determine which VC elements are applicable for a given employee
and the conditions under which they apply. Both Franchise and Individual Components may be awarded in shares
or other share-based instruments and other deferral arrangements.
•
VC
can be delivered via cash, restricted equity awards, and/or restricted incentive awards or restricted compensation. Restricted
compensation may include:
•
notional
fund investments
•
restricted
equity, notional equity,
•
such
other form as DWS may decide in its sole discretion.
•
VC
comprises a greater proportion of total compensation as an employee’s seniority and total compensation level increase.
Proportion of VC delivered via a long-term incentive award, which is subject to performance conditions and
forfeiture provisions, will increase significantly as the amount of the VC increases.
•
Additional
forfeiture and claw back provisions, including complete forfeiture and claw back of VC may apply in certain
events if an employee is designated a Material Risk Taker.
•
For
key investment professionals, in particular, a portion of any long-term incentives will be in the form of notional investments
aligned, where possible, to the funds they manage.
In general, each of the
Advisor and its advisory affiliates seek to offer their investment professionals competitive short-term and
long-term compensation based on continuous, above average, fund performance relative to the market. This includes measurement
of short and long-term performance against industry and portfolio benchmarks. To evaluate their investment professionals
in light of and consistent with the compensation principles set forth above, the Advisor and its affiliates review
investment performance for all accounts managed in relation to the appropriate Morningstar peer group universe with
respect to a fund, iMoneyNet peer group with respect to a money market fund or relevant benchmark index(es) set
forth in the governing documents with respect to each other account type. The ultimate goal of this process is to evaluate
the degree to which investment professionals deliver investment performance that meets or exceeds their clients’
risk and return objectives. When determining total compensation, the Advisor and its affiliates consider a number of
quantitative, qualitative and other factors:
•
Quantitative
measures (e.g. one-, three- and five-year pre-tax returns versus the appropriate Morningstar peer group
universe for a fund, or versus the appropriate iMoneyNet peer group for a money market fund or relevant benchmark
index(es) set forth in the governing documents with respect to each other account type, taking risk targets
into account) are utilized to measure performance.
•
Qualitative
measures (e.g. adherence to, as well as contributions to, the enhancement of the investment process) are
included in the performance review.
•
Other
factors (e.g. non-investment related performance, teamwork, adherence to compliance rules, risk management and
“living
the values”
of the Advisor and its affiliates) are included as part of a discretionary component of the review
process, giving management the ability to consider additional markers of performance on a subjective basis.
•
Furthermore,
it is important to note that DWS Group functions within a controlled environment based upon the risk
limits established by DWS Group's Risk division, in conjunction with DWS Group management. Because risk
consideration is inherent in all business activities, performance assessment factors in an employee’s ability to
assess and manage risk.
Real, potential or apparent
conflicts of interest may arise when a portfolio manager has day-to-day portfolio management responsibilities
with respect to more than one fund or account, including the following:
•
Certain
investments may be appropriate for a fund and also for other clients advised by the Advisor and their affiliates,
including other client accounts managed by a fund’s portfolio management team. Investment decisions for
a fund and other clients are made with a view to achieving their respective investment objectives and after consideration
of such factors as their current holdings, availability of cash for investment and the size of their investments
generally. A particular security may be bought or sold for only one client or in different amounts and at
different times for more than one but less than all clients. Likewise, because clients of the Advisor and their affiliates
may have differing investment strategies, a particular security may be bought for one or more clients
when
one or more other clients are selling the security. The investment results achieved for a fund may differ from
the results achieved for other clients of the Advisor and their affiliates. In addition, purchases or sales of the
same security may be made for two or more clients on the same day. In such event, such transactions will be
allocated among the clients in a manner believed by the Advisor and their affiliates to be most equitable to each
client, generally utilizing a pro rata allocation methodology. In some cases, the allocation procedure could potentially
have an adverse effect or positive effect on the price or amount of the securities purchased or sold by
a fund. Purchase and sale orders for a fund may be combined with those of other clients of the Advisor and their
affiliates in the interest of achieving the most favorable net results to a fund and the other clients.
•
To
the extent that a portfolio manager has responsibilities for managing multiple client accounts, a portfolio manager will
need to divide time and attention among relevant accounts. The Advisor and their affiliates attempt to minimize these
conflicts by aligning its portfolio management teams by investment strategy and by employing similar investment models
across multiple client accounts.
•
In
some cases, an apparent conflict may arise where the Advisor has an incentive, such as a performance-based fee,
in managing one account and not with respect to other accounts it manages. The Advisor and their affiliates will
not determine allocations based on whether it receives a performance-based fee from the client. Additionally, the
Advisor has in place supervisory oversight processes to periodically monitor performance deviations for accounts with
like strategies.
•
The
Advisor and its affiliates and the investment team of a fund may manage other mutual funds and separate accounts
on a long only or a long-short basis. The simultaneous management of long and short portfolios creates potential
conflicts of interest including the risk that short sale activity could adversely affect the market value of the
long positions (and vice versa), the risk arising from sequential orders in long and short positions, and the risks
associated with receiving opposing orders at the same time. The Advisor has adopted procedures that it believes
are reasonably designed to mitigate these and other potential conflicts of interest. Included in these procedures
are specific guidelines developed to provide fair and equitable treatment for all clients whose accounts are
managed by each fund’s portfolio management team. The Advisor and the portfolio management team have established
monitoring procedures, a protocol for supervisory reviews, as well as compliance oversight to ensure that
potential conflicts of interest relating to this type of activity are properly addressed.
The Advisor is owned
by DWS Group, a multinational global financial services firm that is a majority owned subsidiary of
Deutsche Bank AG. Therefore, the Advisor is affiliated with a variety of entities that provide, and/or engage in commercial banking,
insurance, brokerage, investment banking, financial advisory, broker-dealer activities (including sales and trading), hedge
funds, real estate and private equity investing, in addition to the provision of investment management services to
institutional and individual investors. Since Deutsche Bank AG, its affiliates, directors, officers and employees (the “Firm”)
are engaged in businesses and have interests in addition to managing asset management accounts, such wide
ranging activities involve real, potential or apparent conflicts of interest. These interests and activities include potential
advisory, transactional and financial activities and other interests in securities and companies that may be directly
or indirectly purchased or sold by the Firm for its clients’ advisory accounts. The Advisor may take investment positions
in securities in which other clients or related persons within the Firm have different investment positions. There
may be instances in which the Advisor and their affiliates are purchasing or selling for their client accounts, or pursuing
an outcome in the context of a workout or restructuring with respect to, securities in which the Firm is undertaking
the same or differing strategy in other businesses or other client accounts. These are considerations of which
advisory clients should be aware and which will cause conflicts that could be to the disadvantage of the Advisor, and
their affiliate’s advisory clients, including the Fund. The Advisor has instituted business and compliance policies, procedures
and disclosures that are designed to identify, monitor and mitigate conflicts of interest and, as appropriate, to
report them to a fund’s Board.
For funds advised by Northern Trust
Investments, Inc. (NTI)
Northern Trust Investments,
Inc. pays its investment professionals out of its total revenues, including the sub-advisory fees
earned with respect to the Fund. Generally, the compensation for the Northern Trust Investments, Inc. portfolio managers
is based on the competitive marketplace and consists of a fixed base salary plus a variable annual cash incentive
award. In addition, non-cash incentives, such as stock options or restricted stock of Northern Trust Corporation, may
be awarded from time to time. The annual cash incentive award is discretionary and is based on a quantitative and
qualitative evaluation of each portfolio manager’s investment performance and contribution to his or her respective product
team plus the financial performance of the investment business unit and Northern Trust Corporation as a whole.
Northern Trust Investments,
Inc.’s portfolio managers are often responsible for managing one or more funds, as well as
other client accounts, including ETFs, separate accounts and other pooled investment vehicles. A fund’s manager may
manage various client accounts that may have materially higher or lower fee arrangements than the fund. The side-by-side
management of these accounts may raise potential conflicts of interest relating to cross trading, the allocation
of investment opportunities and the aggregation and allocation of trades. In addition, while portfolio managers generally
only manage accounts with similar investment strategies, it is possible that due to varying investment restrictions among
accounts certain investments are made for some accounts and not others or conflicting investment positions could
be taken among accounts. Some portfolio managers may be dual officers of one or more Northern Trust Investments, Inc.’s
affiliates and undertake investment advisory duties for the affiliates. The portfolio managers have a responsibility to
manage all client accounts in a fair and equitable manner. Northern Trust Investments, Inc. seeks to provide best execution
of all securities transactions and aggregate and then allocate securities to client accounts in a fair and timely manner.
To this end, Northern Trust Investments, Inc. has developed policies and procedures designed to mitigate and
manage the potential conflicts of interest that may arise from side-by-side management. As Northern Trust Investments, Inc.
becomes aware of additional potential or actual conflicts of interest, they will be reviewed on a case-by case basis.
Northern Trust Investments,
Inc. manages its client accounts consistent with applicable law and follows its own policies and
procedures that are reasonably designed to treat clients fairly and to prevent any client or group of clients from being
systematically favored or disadvantaged.
For funds advised by Itaú USA Asset Management,
Inc. (IUAM)
The compensation for IUAM’s
portfolio managers is based on the competitive marketplace and consists of a fixed base
salary plus a variable annual incentive bonus award. The fixed base salary is the largest component of individual compensation
for most Itaú investment management employees.
Bonuses are paid annually
and in cash for most professionals. A deferred compensation scheme for a portion of bonuses above
a certain level is in place. This deferral is for a three-year period, with every year vesting 1/3 of the retained amount.
Itaú also has a stock option plan in place for certain key professionals. Any compensation received under the
stock plan is additional to the annual bonus each investment professional receives.
The annual bonus award
is discretionary and is based on a quantitative and qualitative evaluation of each portfolio manager’s
investment performance and contribution to his or her respective team plus the financial performance of the
asset management unit, and of Itaú Unibanco, S.A. as a whole. The annual bonus award is not based on the amount
of assets held in the funds. Moreover, no material differences exist between the compensation structure for fund
accounts and other types of accounts that may be managed by Itaú’s investment professionals.
Conflicts
IUAM has adopted and instituted
policies and procedures that it believes are reasonably designed to mitigate potential conflicts
of interest.
IUAM manages client accounts
consistent with applicable law and follows its own policies and procedures that are reasonably
designed to treat clients fairly and to prevent any client or group of clients from being systematically favored or
disadvantaged. IUAM’s portfolio managers generally seek to minimize any risk of conflicts of interest by aligning investment
management teams by discipline and/or strategy and by employing similar investment models or strategies across
multiple institutional mandates. IUAM seeks to ensure that it will place client transactions with appropriate care
and diligence, including seeking best execution, treating all clients fairly, and disclosing all material conflicts of interest.
IUAM acknowledges that
actual or potential conflicts of interest may arise in situations where a portfolio manager or team
may manage multiple institutional mandates. IUAM’s portfolio managers are often responsible for managing one
or more funds, as well as other client accounts, including mutual funds, separate accounts, and other pooled investment
vehicles. A portfolio manager may manage various client accounts that may have materially higher or lower fee
arrangements than the funds. The side-by-side management of these accounts may raise potential conflicts of interest
relating to cross trading, the competition for the same assets, the allocation of investment opportunities, and the
aggregation and allocation of trades.
In addition, while portfolio
managers generally only manage accounts with similar investment strategies, it is possible that
due to varying investment restrictions among accounts that certain investments are made for some accounts and
not others or that conflicting investment positions could be taken among accounts. Some portfolio managers may
be dual officers of one or more Itaú affiliates and undertake investment advisory duties for the affiliates.
The portfolio managers
have a responsibility to manage all client accounts in a fair and equitable manner. IUAM seeks to
provide best execution of all securities transactions and aggregate and then allocate securities to client accounts in
a fair and timely manner. To this end, IUAM has developed policies and procedures designed to mitigate and manage the
potential conflicts of interest that may arise from side-by-side management.
From time to time securities
to be sold on behalf of a client may be suitable for purchase by another client. In such instances,
if IUAM determines in good faith that the transaction is in the best interest of each client, it may arrange for
the securities to be crossed between client accounts at an independently determined fair market value and in compliance
with the 1940 Act, if applicable. Cross-trades present conflicts of interest, as there may be an incentive for
IUAM to favor one client to the disadvantage of another. Cross-trades are only effected as permitted under applicable law
and regulation and consistent with the client’s guidelines, with any restrictions. IUAM conducts periodic reviews of
trades for consistency with these policies.
Receipt of research from
brokers who execute client transactions involves conflicts of interest. To the extent that IUAM
or its affiliates utilize commissions to obtain research services for IUAM’s use, it will receive a benefit as it will not
have to pay for the research, products or services itself. IUAM may, therefore, have an incentive to select or recommend a
broker-dealer based on its interest in receiving research rather than in obtaining the lowest commission rate on the transaction.
IUAM may also obtain research services from brokerage commissions incurred by client accounts that may
not directly benefit such client accounts. Similarly, clients may benefit from research even if trades placed on their
behalf did not contribute to the compensation of the broker-dealer providing such research. IUAM does not seek to
allocate research services to client accounts proportionately to the commissions that the client accounts generate.
Part II:
Appendix II-C—Contractual
Fee Rates of Service Providers
Fees payable to DIMA for investment management services.
The management fee(s) for each fund, at
the annual percentage rate of daily net assets, are indicated below:
|
|
|
|
DWS
California Tax-Free Income Fund |
First
$250 million 0.400%
Next
$750 million 0.370%
Next
$1.5 billion 0.350%
Next
$2.5 billion 0.330%
Next
$2.5 billion 0.300%
Next
$2.5 billion 0.280%
Next
$2.5 billion 0.260%
Thereafter
0.250% |
DWS
Intermediate Tax-Free Fund |
|
DWS
Managed Municipal Bond Fund |
First
$250 million 0.365%
Next
$750 million 0.345%
Next
$1.5 billion 0.325%
Next
$2.5 billion 0.315%
Next
$2.5 billion 0.295%
Next
$2.5 billion 0.275%
Next
$2.5 billion 0.255%
Thereafter
0.235% |
DWS
Massachusetts Tax-Free Fund |
First
$250 million 0.400%
Next
$750 million 0.370%
Next
$1.5 billion 0.350%
Next
$2.5 billion 0.330%
Next
$2.5 billion 0.300%
Next
$2.5 billion 0.280%
Next
$2.5 billion 0.260%
Thereafter
0.250% |
DWS
New York Tax-Free Income Fund |
First
$250 million 0.400%
Next
$750 million 0.370%
Next
$1.5 billion 0.350%
Next
$2.5 billion 0.330%
Next
$2.5 billion 0.300%
Next
$2.5 billion 0.280%
Next
$2.5 billion 0.260%
Thereafter
0.250% |
DWS
Short-Term Municipal Bond Fund |
First
$500 million 0.300%
Next
$500 million 0.285%
Next
$1.0 billion 0.270%
Thereafter
0.255% |
DWS
Strategic High Yield Tax-Free Fund |
First
$300 million 0.455%
Next
$200 million 0.405%
Next
$500 million 0.380%
Next
$500 million 0.360%
Next
$500 million 0.350%
Thereafter
0.340% |
|
|
Taxable
Fixed-Income Funds |
|
DWS
Emerging Markets Fixed Income Fund |
|
|
First
$1.0 billion 0.550%
Next
$1.5 billion 0.535%
Next
$2.5 billion 0.510%
Next
$2.5 billion 0.485%
Next
$2.5 billion 0.460%
Thereafter
0.450% |
DWS
Global High Income Fund |
|
|
First
$1 billion 0.315%
Next
$1.5 billion 0.310%
Next
$2.5 billion 0.300%
Next
$2.5 billion 0.280%
Next
$2.5 billion 0.260%
Next
$2.5 billion 0.240%
Thereafter
0.220% |
|
First
$250 million 0.480%
Next
$750 million 0.450%
Next
$1.5 billion 0.430%
Next
$2.5 billion 0.410%
Next
$2.5 billion 0.380%
Next
$2.5 billion 0.360%
Next
$2.5 billion 0.340%
Thereafter
0.320% |
|
First
$1.5 billion 0.365%
Next
$500 million 0.340%
Next
$1.0 billion 0.315%
Next
$1.0 billion 0.300%
Next
$1.0 billion 0.285%
Next
$1.0 billion 0.270%
Thereafter
0.255% |
DWS
Total Return Bond Fund |
First
$1.5 billion 0.400%
Next
$1.75 billion 0.385%
Next
$1.75 billion 0.370%
Next
$2.5 billion 0.355%
Next
$2.5 billion 0.345%
Next
$2.5 billion 0.325%
Thereafter
0.315% |
|
|
DWS
Global Income Builder Fund |
First
$1.5 billion 0.370%
Next
$500 million 0.345%
Next
$1.5 billion 0.310%
Next
$2.0 billion 0.300%
Next
$2.0 billion 0.290%
Next
$2.5 billion 0.280%
Next
$2.5 billion 0.270%
Thereafter
0.260% |
|
|
DWS
Multi-Asset Conservative Allocation
Fund
|
(a)
0.100% of the Fund’s
average
daily net assets
invested
in exchange
traded
funds and mutual
funds;
and (b) 0.550% of
the
Fund’s average daily
net
assets not covered in
|
DWS
Multi-Asset Moderate Allocation Fund |
(a)
0.100% of the Fund’s
average
daily net assets
invested
in exchange
traded
funds and mutual
funds;
and (b) 0.550% of
the
Fund’s average daily
net
assets not covered in
|
|
|
DWS
Enhanced Commodity Strategy Fund |
First
$500 million 0.800%
Next
$500 million 0.750%
Next
$500 million 0.700%
Next
$1.0 billion 0.675%
Next
$1.0 billion 0.650%
Next
$1.5 billion 0.625%
Thereafter
0.600% |
DWS
RREEF Global Infrastructure Fund |
First
$1.0 billion 0.900%
Next
$1.0 billion 0.875%
Next
$2.0 billion 0.825%
Next
$2.0 billion 0.775%
Thereafter
0.750% |
DWS
RREEF Global Real Estate Securities
Fund
|
First
$1.0 billion 0.700%
Thereafter
0.675% |
DWS
RREEF Real Assets Fund |
First
$500 million 0.800%
Next
$1.5 billion 0.785%
Next
$1.5 billion 0.775%
Next
$3.0 billion 0.750%
Thereafter
0.725% |
DWS
RREEF Real Estate Securities Fund |
First
$100 million 0.565%
Next
$100 million 0.465%
Next
$100 million 0.415%
Thereafter
0.365% |
|
|
|
First
$250 million 0.495%
Next
$750 million 0.465%
Next
$1.5 billion 0.445%
Next
$2.5 billion 0.425%
Next
$2.5 billion 0.395%
Next
$2.5 billion 0.375%
Next
$2.5 billion 0.355%
Thereafter
0.335% |
|
|
|
First
$100 million 0.900%
Next
$100 million 0.800%
Next
$100 million 0.750%
Next
$200 million 0.700%
Next
$500 million 0.630%
Next
$500 million 0.580%
Thereafter
0.550% |
|
First
$250 million 0.365%
Next
$750 million 0.360%
Next
$1.5 billion 0.355%
Next
$5.0 billion 0.345%
Next
$5.0 billion 0.335%
Next
$5.0 billion 0.325%
Thereafter
0.300% |
DWS
CROCI®
Equity Dividend Fund |
First
$250 million 0.630%
Next
$750 million 0.600%
Next
$1.5 billion 0.580%
Next
$2.5 billion 0.560%
Next
$2.5 billion 0.530%
Next
$2.5 billion 0.520%
Next
$2.5 billion 0.510%
|
|
First
$1.5 billion 0.425%
Next
$500 million 0.400%
Next
$1.0 billion 0.375%
Next
$1.0 billion 0.350%
Next
$1.0 billion 0.325%
Thereafter
0.300% |
DWS
Equity Sector Strategy Fund |
(a)
0.100% of the Fund’s
average
daily net assets
invested
in exchange
traded
funds and mutual
funds;
and (b) 0.300% of
the
Fund’s average daily
net
assets not covered in
|
|
First
$250 million 0.465%
Next
$750 million 0.460%
Next
$1.5 billion 0.455%
Next
$5 billion 0.445%
Next
$5 billion 0.435%
Next
$5 billion 0.425%
|
DWS
Health and Wellness Fund |
First
$500 million 0.765%
Thereafter
0.715% |
DWS
Large Cap Focus Growth Fund |
First
$500 million 0.615%
Next
$1.5 billion 0.565%
Thereafter
0.515% |
|
|
DWS
Science and Technology Fund |
First
$250 million 0.480%
Next
$750 million 0.450%
Next
$1.5 billion 0.430%
Next
$2.5 billion 0.410%
Next
$2.5 billion 0.380%
Next
$2.5 billion 0.360%
Next
$2.5 billion 0.340%
Thereafter
0.320% |
|
First
$250 million 0.650%
Next
$250 million 0.620%
Next
$500 million 0.615%
Next
$4.0 billion 0.565%
Next
$2.5 billion 0.550%
Next
$2.5 billion 0.540%
Next
$2.5 billion 0.530%
Thereafter
0.520% |
DWS
Small Cap Growth Fund |
First
$500 million 0.650%
Next
$1 billion 0.600%
Next
$2.5 billion 0.550%
Next
$2.5 billion 0.540%
Next
$2.5 billion 0.530%
Next
$2.5 billion 0.520%
Thereafter
0.510% |
|
|
Deutsche
DWS Equity 500 Index Portfolio |
|
DWS
Equity 500 Index Fund |
|
|
|
International/Global
Equity Funds |
|
DWS
CROCI®
International Fund |
First
$2.5 billion 0.565%
Next
$2.5 billion 0.545%
Next
$5.0 billion 0.525%
Next
$5.0 billion 0.515%
Thereafter
0.465% |
DWS
Emerging Markets Equity Fund |
|
DWS
ESG International Core Equity Fund |
|
|
First
$2.5 billion 0.600%
Next
$2.5 billion 0.595%
Next
$2.5 billion 0.565%
Next
$2.5 billion 0.555%
Next
$2.5 billion 0.545%
Thereafter
0.535% |
DWS
Global Small Cap Fund |
|
DWS
International Growth Fund |
|
DWS
Latin America Equity Fund |
First
$400 million 1.000%
Next
$400 million 0.900%
Thereafter
0.800% |
|
|
|
|
DWS
Alternative Asset Allocation VIP |
(a)
0.100% of the fund’s
average
daily net assets
invested
in exchange-
traded
funds and mutual
funds;
and (b) 1.00% of
the
fund’s average daily
net
assets not covered in
|
|
First
$250 million 0.390%
Next
$750 million 0.365%
Thereafter
0.340% |
|
First
$250 million 0.390%
Next
$750 million 0.365%
Thereafter
0.340% |
DWS
CROCI®
International VIP |
First
$500 million 0.650%
Thereafter
0.600% |
|
First
$250 million 0.600%
Next
$750 million 0.575%
Next
$1.5 billion 0.550%
Next
$2.5 billion 0.525%
Next
$2.5 billion 0.500%
Next
$2.5 billion 0.475%
Next
$2.5 billion 0.450%
Thereafter
0.425% |
|
First
$1 billion 0.150%
Next
$1 billion 0.125%
Thereafter
0.100% |
DWS
Global Income Builder VIP |
First
$250 million 0.370%
Next
$750 million 0.345%
Thereafter
0.310% |
|
|
|
First
$250 million 0.500%
Next
$750 million 0.470%
Next
$1.5 billion 0.450%
Next
$2.5 billion 0.430%
Next
$2.5 billion 0.400%
Next
$2.5 billion 0.380%
Next
$2.5 billion 0.360%
Thereafter
0.340% |
DWS
Government Money Market VIP |
First
$500 million 0.235%
Next
$500 million 0.220%
Next
$1.0 billion 0.205%
Thereafter
0.190% |
DWS
International Growth VIP |
|
|
|
DWS
Small Mid Cap Growth VIP |
First
$250 million 0.550%
Next
$750 million 0.525%
Thereafter
0.500% |
|
|
DWS
Small Mid Cap Value VIP |
First
$250 million 0.650%
Next
$750 million 0.620%
Next
$1.5 billion 0.600%
Next
$2.5 billion 0.580%
Next
$2.5 billion 0.550%
Next
$2.5 billion 0.540%
Next
$2.5 billion 0.530%
Thereafter
0.520% |
|
|
Cash
Account Trust – DWS Government &
Agency
Securities Portfolio |
First
$500 million 0.120%
Next
$500 million 0.100%
Next
$1.0 billion 0.075%
Next
$1.0 billion 0.060%
|
Cash
Account Trust – DWS Tax-Exempt
Portfolio
|
First
$500 million 0.120%
Next
$500 million 0.100%
Next
$1.0 billion 0.075%
Next
$1.0 billion 0.060%
|
|
First
$1.0 billion 0.1500%
Next
$3.0 billion 0.1325%
Thereafter
0.1200% |
DWS
Government Money Market Series |
|
DWS
Money Market Prime Series |
First
$215 million 0.400%
Next
$335 million 0.275%
Next
$250 million 0.200%
Next
$800 million 0.150%
Next
$800 million 0.140%
Next
$800 million 0.130%
Thereafter
0.120% |
Government
Cash Management Portfolio |
First
$3 billion 0.1200%
Next
$4.5 billion 0.1025%
Thereafter
0.0900% |
Investors
Cash Trust – DWS Treasury
Portfolio
|
|
(1)
Shareholders
of a fund also indirectly bear their pro rata share of the operating expenses, including the management fee
paid to DIMA or other investment advisor, of the underlying funds in which a fund invests.
(2)
The
fund’s management fee rate includes administrative services provided by DIMA which are necessary for the
fund’s operation as an open-end investment company.
(3)
The
fund invests substantially all its assets in Deutsche DWS Equity 500 Index Portfolio (Master Fund). DIMA receives
a management fee from the Master Fund. In the event that the fund withdraws its investment in the Master
Fund, DIMA would become responsible for directly managing the assets of the fund. In such event, the fund
would pay DIMA a management fee at an annual rate of 0.05% or 0.15% of the daily net assets of DWS Equity
500 Index Fund or DWS S&P 500 Index Fund, respectively.
(4)
The
fund’s management fee is computed based on the combined average daily net assets of the DWS Government &
Agency Securities Portfolio and DWS Tax-Exempt Portfolio, each a series of Cash Account Trust, and allocated among
each fund based upon relative net assets. DIMA has contractually agreed to reduce its management fee
for
DWS Government & Agency Securities Portfolio such that after the allocation of the fee to each series of Cash
Account Trust, the amount payable by DWS Government & Agency Securities Portfolio will be limited to 0.05%
of its average daily net assets.
(5)
The
fund invests substantially all its assets in Government Cash Management Portfolio (the Master Fund). DIMA receives
a management fee from the Master Fund. In the event that the fund withdraws its investment in the Master
Fund, DIMA would become responsible for directly managing the assets of the fund. In such event, the fund
would pay DIMA a management fee directly, which would be as follows: (a) first $3 billion 0.1200%; (b) next
$4.5 billion 0.1025%; and (c) thereafter 0.0900%.
Fee payable to DIMA for administrative
services. DWS
CROCI®
Equity Dividend Fund and DWS ESG Core Equity Fund
do not pay DIMA a separate administrative services fee. Each fund, except those noted below, pays DIMA an administrative
services fee, computed daily and paid monthly, of 0.097% of a fund’s average daily net assets. Deutsche
DWS Equity 500 Index Portfolio
and Government Cash Management Portfolio each
pay DIMA an administrative services fee, computed daily and paid
monthly, of 0.030% of a fund’s average daily net assets.
Fees payable to DIMA for fund accounting
services. Currently, DIMA receives no fee for its services to
DWS CROCI®
Equity Dividend Fund;
however, subject to Board approval, DIMA may seek payment from the fund for fund accounting services
in the future.
DIMA receives an annual
fee from DWS ESG Core Equity Fund
for fund accounting services equal to 0.015% of its average daily
net assets.
Fee payable to DSC for transfer agency
and shareholder services. DSC receives an annual fixed fee and
annual per account fees. The annual fixed and
per account fees are charged each month on a prorated basis to each class of the
funds based on the number of open accounts within the class during the month. The DWS money market funds pay
additional fixed fees for certain services specific to the DWS money market funds. Smaller fees are also charged for
closed accounts for which information must be retained on DSC’s system for up to 18 months after closing for tax
reporting purposes.
Certain out-of-pocket
expenses incurred by DSC, including expenses of printing and mailing routine fund documents, costs
of record retention and transaction processing costs are reimbursed by a fund or are paid directly by a fund. Certain
additional out-of-pocket expenses, including costs of computer hardware and software, third party record-keeping fees
in excess of 0.25%, printing of shareholder educational materials, processing of proxy statements, and hosting and
maintaining the funds’ digital (including mobile) investor platforms may only be reimbursed by a fund with the prior
approval of the Board.
Fees payable to Subadvisors by DIMA for subadvisory
services.
The following sets forth
information relating to subadvisory fees paid by DIMA to each of the applicable funds' Subadvisors that
are not affiliated with DIMA. The subadvisory fee paid by DIMA for each of the following funds is computed daily and
payable monthly, at the annual percentage rate of the daily net assets overseen by the Subadvisor, unless otherwise noted.
|
|
|
|
|
|
Deutsche
DWS Equity 500 Index Portfolio |
|
First
$2.0 billion 0.015%
Next
$2.0 billion 0.010%
Thereafter
0.005% |
|
|
|
|
|
First
$2.0 billion 0.015%
Next
$2.0 billion 0.010%
Thereafter
0.005% |
|
|
|
|
|
First
$100 million 0.080%
Next
$400 million 0.040%
Thereafter
0.020% |
International/Global
Equity Funds |
|
|
DWS
Latin America Equity Fund |
|
50%,
after the effect of
waivers,
of the
management
fee payable
to
DIMA pursuant to the
Investment
Management
Agreement,
as in effect
from
time to time |
Part II:
Appendix II-D—Financial
Services Firms’ Compensation
General.
DDI may pay compensation to financial intermediaries in connection with the sale of fund shares as described below.
In addition, financial intermediaries may receive compensation for post-sale shareholder or administrative services from
DDI or directly from a fund as described below.
In addition to the discounts
or commissions described herein and in the prospectus, DDI, the Advisor or its affiliates may
pay or allow additional discounts, commissions or incentives, in the form of cash, to firms that sell shares of a fund
(see “Financial
Intermediary Support Payments”
under “Part
II: Purchase and Redemption of Shares”).
Banks and other financial
services firms may provide administrative services related to order placement and payment to
facilitate transactions in shares of a fund for their clients, and DDI may pay them a transaction fee up to the level of
the discount or commission allowable or payable to dealers.
Retail Funds: Class A, Class C and Class R Shares
Class A Shares:
The fund receives the entire net asset value of all its Class A shares sold. DDI, as principal underwriter, retains
the sales charge on sales of Class A shares from which it allows discounts from the applicable public offering price
to investment dealers, which discounts are uniform for all dealers in the United States and its territories. The normal
discount is set forth in the sales charge tables set forth in Appendix II-F.
Upon notice to all dealers, DDI may re-allow
to dealers up to the full applicable Class A sales charge during periods and for transactions specified in such notice
and such re-allowances may be based upon attainment of minimum sales levels. During periods when 90% or
more of the sales charge is re-allowed, such dealers may be deemed to be underwriters as that term is defined in the
1933 Act.
DDI may at its discretion
compensate investment dealers or other financial services firms in connection with the sale of
Class A shares of a fund in accordance with the Large Order NAV Purchase Privilege and the compensation schedule up
to the following amounts:
Compensation
Schedule:
Retail
Sales and DWS/Ascensus 403(b) Plan(1)
|
|
As
a Percentage of
Net
Asset Value |
|
|
|
|
|
|
|
|
|
|
|
|
$3
million to $49,999,999 |
|
$10
million to $49,999,999 |
|
|
|
(1)
For
purposes of determining the appropriate commission percentage to be applied to a particular sale under the foregoing
schedule, DDI will consider the cumulative amount invested by the purchaser in a fund and other funds
including purchases pursuant to the “Combined
Purchases,”
“Letter
of Intent”
and “Cumulative
Discount”
features referred to in the “Purchases”
sub-heading of the “Purchase
and Redemption of Shares”
section of this SAI.
(2)
Applicable
to the following funds: DWS CROCI®
U.S. Fund, DWS International Growth Fund and DWS RREEF Real Assets
Fund.
(3)
Applicable
to the following fund: DWS GNMA Fund.
(4)
Applicable
to the following funds: DWS Short Duration Fund and DWS Short-Term Municipal Bond Fund.
(5)
Applicable
to the following funds: DWS California Tax-Free Income Fund, DWS Intermediate Tax-Free Fund, DWS Managed
Municipal Bond Fund, DWS Massachusetts Tax-Free Fund, DWS New York Tax-Free Income Fund, DWS Strategic
High Yield Tax-Free Fund and DWS Total Return Bond Fund.
(6)
Applicable
to the following funds: DWS Global High Income Fund, DWS High Income Fund
and DWS
Emerging Markets Fixed Income Fund.
(7)
Applicable
to all equity funds except those in footnote (2).
(8)
Applicable
to DWS Floating Rate Fund.
(9)
Applicable
to all income and equity funds except those noted in footnotes (3), (4), (5) and (8).
(10)
Applicable
to all income and equity funds.
As described in the relevant
prospectus(es) under “Annual
Fund Operating Expenses”
table and in the “Class
A NAV Sales”
sub-heading under the “Investing
in the Fund(s)”
section, Class A shares may be sold at net asset value without a
sales charge in certain circumstances to certain professionals who assist in the promotion of DWS funds pursuant to
personal services contracts with DDI, for themselves or immediate members of their families. DDI in its discretion may
compensate financial services firms for sales of Class A shares under this privilege at a commission rate of 0.50%
of the amount of Class A shares purchased. In addition, Class A shares of certain DWS mutual funds may participate
in a no-load network, platform or self-directed brokerage account offered by a financial services firm that has
entered into an agreement with DDI as further described in the relevant prospectus(es). The DWS mutual funds may
collectively pay a financial services firm a one-time set-up fee of up to $25,000 to participate in such a no-load network,
platform or self-directed brokerage account.
Compensation for Class C Shares.
DDI currently pays firms for sales of Class C shares a distribution fee, generally payable
quarterly, at an annual rate of 0.75% of net assets attributable to Class C shares maintained and serviced by the
firm. Except as provided below, for sales of Class C shares, DDI advances to firms the first year distribution fee at
a rate of 0.75% of the purchase price of such shares, and, for periods after the first year, DDI pays firms for sales of
Class C shares a distribution fee, generally payable quarterly, at an annual rate of 0.75% of net assets attributable to
Class C shares maintained and serviced by the firm. For sales of Class C shares to employer sponsored employee benefit
plans using the OmniPlus subaccount record-keeping system made available through ADP, Inc. under an alliance with
DDI and its affiliates, DDI does not advance the first year distribution fee and for periods after the date of sale, DDI
currently pays firms a distribution fee, generally payable quarterly, at an annual rate of 0.75% based on net assets as
of the last business day of the month attributable to Class C shares maintained and serviced by the firm. DDI is compensated
by a fund for services as distributor and principal underwriter for Class C shares.
Compensation for Class R Shares.
For sales of Class R shares, DDI currently pays firms a distribution fee, generally payable
quarterly, at an annual rate of 0.25% based on net assets attributable to Class R shares maintained and serviced by
the firm.
Service Fees for Class A, Class C and
Class R Shares: With respect to Class A and Class R shares of
a fund, DDI pays each firm a service fee, generally
payable quarterly, at an annual rate of up to 0.25% of the net assets in fund accounts
that it maintains and services attributable to Class A and Class R shares of a fund, generally commencing immediately
after investment. With respect to Class C shares of a fund, DDI currently advances to firms the first-year service
fee at a rate of up to 0.25% of the purchase price of such shares. DDI does not advance the first year service fee
to firms for sales of Class C shares to employer-sponsored employee benefit plans using the OmniPlus subaccount record
keeping system made available through ADP, Inc. under an alliance between ADP, Inc. and DDI and its affiliates. For
periods after the first year, DDI currently intends to pay firms a service fee at a rate of up to 0.25% (calculated monthly
and generally paid quarterly) of the net assets attributable to Class C shares of a fund maintained and serviced by
the firm (see “Retail
Funds: Class A, Class C and Class R Shares”
under “Part
II: Distribution and Service Agreements and Plans”).
Retail Funds: Institutional Class,
Class R6 and Class S Shares
Compensation for Institutional Class,
Class R6 and Class S Shares. There are no sales charges for Institutional,
Class R6 and Class S shares of a fund.
Money Market Funds (except DWS Cash Investment Trust
Class A and Class C Shares)
DWS Money Market Fund: For
DWS Money Market Fund shares, a series of DWS Money Market Prime Series, DDI may
in its discretion pay compensation, in amounts not to exceed 0.50% of net asset value, to firms in connection with
the sales of fund shares to employee benefit plans in excess of $3 million using the OmniPlus subaccount record-keeping system
maintained by ADP, Inc. for DWS Retirement Plans under an alliance with DDI and its affiliates.
Service Shares-Cash Account Trust:
For the Service Shares classes of the DWS Government & Agency Securities Portfolio
and the DWS Tax-Exempt Portfolio of Cash Account Trust, DDI normally pays firms a fee for distribution and administrative
services, payable monthly, at a maximum annual rate of up to 0.60% of average daily net assets of Service
Shares held in accounts that they maintain and service.
Managed Shares-Cash Account Trust:
For the Government Cash Managed Shares class of the DWS Government &
Agency Securities Portfolio of Cash Account Trust and the Tax-Exempt Cash Managed Shares class of the DWS Tax-Exempt
Portfolio of Cash Account Trust, DDI normally pays firms a fee for administrative services, payable monthly, at
a maximum annual rate of up to 0.15% of average daily net assets of Managed Shares held in accounts that they maintain
and service.
Institutional Reserved Shares–Investors
Cash Trust: For the Institutional Reserved Shares class of the
DWS ESG Liquidity Fund, a series of Investors
Cash Trust, DDI normally pays firms a fee for administrative services, payable monthly,
at a maximum annual rate of up to 0.05% of average daily net assets of Institutional Reserved Shares held in
accounts that they maintain and service.
Institutional Shares–Investors
Cash Trust: For the Institutional Shares class of the DWS Treasury
Portfolio, a series of Investors Cash Trust,
DDI normally pays firms a fee for administrative services, payable monthly, at a maximum annual
rate of up to 0.05% of average daily net assets of Institutional Shares held in accounts that they maintain and service.
Tax-Free Investment Class-Cash Account
Trust and Investment Class Shares-Investors Cash Trust: For the
Tax-Free Investment Class of the DWS Tax-Exempt
Portfolio of Cash Account Trust and the Investment Class Shares of the DWS
Treasury Portfolio of Investors Cash Trust (collectively, “Investment
Class”),
DDI normally pays firms a fee for distribution
services, payable monthly, at a maximum annual rate of up to 0.25% of average daily net assets of shares of
the Investment Class held in accounts that they maintain and service and DDI normally pays firms a fee for administrative services,
payable monthly, at a maximum annual rate of up to 0.07% of average daily net assets of shares of the Investment
Class held in accounts that they maintain and service.
Deutsche DWS Variable Series II
and Deutsche DWS Investments VIT Funds: For each fund of Deutsche
DWS Variable Series II
and Deutsche DWS Investments VIT Funds that has authorized the issuance of Class B shares,
each fund has adopted a distribution plan under
Rule 12b-1 (Plan) that provides for fees for distribution and shareholder servicing
activities payable through DDI to participating insurance companies as an expense of the Class B shares in
an amount of up to 0.25% of the average daily net assets of Class
B shares held by the insurance company.
Part II:
Appendix II-E—Firms
With Which DWS Has Revenue Sharing Arrangements
The list of financial
representatives below is as of March 31, 2024.
Any additions, modifications or deletions to the list
of financial representatives identified below that have occurred since March 31, 2024
are not reflected. You can ask your financial
representative if it receives revenue sharing payments from the Advisor, the Distributor and/or their affiliates.
Channel: Broker-Dealers and Financial Representatives;
Retirement
- American Portfolio FINSER IN
- FSC Securities Corporation
- Infinex Investments INC
- SagePoint
Financial, Inc.
- Securities America, Inc.
- Woodbury Financial Services, Inc.
- Cetera Advisor Networks LLC
- Cetera Investment Services LLC
- Cetera Financial Specialist LLC
- First Allied Securities, Inc.
Citigroup Global Markets, Inc.
Avantax Investment Services, Inc.
John Hancock Distributors LLC
Merrill Lynch, Pierce, Fenner & Smith
Inc.
Morgan Stanley Wealth
Management
Northwestern Mutual Investment Services,
LLC
Raymond James & Associates
Raymond James Financial Services
Voya Financial Advisors, Inc.
Wells Fargo Advisors, LLC
Channel: Cash Product Platform
Allegheny Investments LTD
Bank of America/Merrill Lynch
Brown Investment Advisory & Trust
Company
Chicago Mercantile Exchange
Church Greg Adams Sec. Corp.
Fiduciary Trust Co. – International
FIS Brokerage & Securities Services
LLC
Institutional Cash Distributors, LLC
J.P. Morgan Clearing Corp.
J.P. Morgan Securities LLC
Lincoln Investment Planning
My Treasury
Raymond James & Associates
State Street Bank & Trust Company
State Street Global Markets
The Bank of New York Mellon
Ultimus Fund Solutions LLC
Channel: Third Party Insurance Platforms
Allstate Life Insurance Company
Allstate Life Insurance Company of New
York
American Maturity Life Insurance Company
Ameritas Life Insurance Group
Annuity Investors Life Insurance Company
CM Life Insurance Company
Columbus Life Insurance Company
Companion Life Insurance Company
Connecticut General Life Insurance Company
EquiTrust Life Insurance Company
Farm Bureau Life Insurance Company
Farmers New World Life Insurance Company
Fidelity Security Life Insurance Company
First Great West Life
and Annuity Company
Genworth Life Insurance Company of New
York
Genworth Life and Annuity Insurance Company
Great West Life and Annuity Insurance
Company
Hartford Life Insurance Company
ICMG Registered Variable Life
Integrity Life Insurance Company
John Hancock Life Insurance Co. –
Manulife Insurance Co.
Kemper Investors Life Insurance Company
Lincoln Benefit Life Insurance Company
Lincoln Financial Distributors
Lincoln Life & Annuity Company of
New York
Lincoln National Life Insurance Company
Massachusetts Mutual Life Insurance Company
National Life Insurance Company
National Integrity Life Insurance Company
Nationwide Life Insurance Company &
Its Affiliates
New York Life Insurance and Annuity Corporation
Phoenix Life Insurance Company
Protective Life Insurance
Prudential Insurance Company of America
RiverSource Life Insurance Company
Security Benefit Life Insurance Company
Sun Life Insurance Company
Symetra Life Insurance Company
Transamerica Life Insurance
Company
Union Central Life Insurance Company
United of Omaha Life Insurance Company
United Investors Life Insurance Company
Western Southern Life Assurance Company
Zurich American Life Insurance Company
of New York
Part II:
Appendix II-F—Class
A Sales Charge Schedule
Class A Purchases.
The public offering price of Class A shares for purchasers choosing an initial sales charge alternative is
the net asset value plus a sales charge, as set forth below. Initial sales charges do not apply to Money Market Funds and
Variable Insurance Funds, which includes Deutsche DWS Variable Series I, Deutsche DWS Variable Series II and Deutsche
DWS Investments VIT Funds.
International/Global Equity funds:
DWS Emerging Markets Equity Fund, DWS ESG International Core Equity Fund, DWS
Global Macro Fund, DWS Global Small Cap Fund, DWS CROCI®
International Fund and DWS Latin America Equity
Fund; US Equity funds:
DWS Capital Growth Fund, DWS Communications Fund, DWS Core Equity Fund, DWS
CROCI®
Equity Dividend Fund, DWS Equity Sector Strategy Fund, DWS Health and Wellness Fund, DWS Large Cap
Focus Growth Fund, DWS ESG Core Equity Fund, DWS Science and Technology Fund, DWS Small Cap Core Fund and
DWS Small Cap Growth Fund; Real Assets funds:
DWS Enhanced Commodity Strategy Fund, DWS RREEF Global Infrastructure
Fund, DWS RREEF Global Real Estate Securities Fund and DWS RREEF Real Estate Securities Fund; Asset
Allocation funds: DWS Global Income Builder Fund, DWS Multi-Asset
Conservative Allocation Fund and DWS Multi-Asset Moderate Allocation
Fund.
|
|
|
As
a Percentage
of
Offering Price* |
As
a Percentage of
Net
Asset Value** |
Allowed
to Dealers as a
Percentage
of Offering Price |
|
|
|
|
$50,000
but less than $100,000 |
|
|
|
$100,000
but less than $250,000 |
|
|
|
$250,000
but less than $500,000 |
|
|
|
$500,000
but less than $1 million |
|
|
|
|
|
|
|
International/Global Equity fund: DWS
International Growth Fund; US Equity fund: DWS
CROCI®
U.S. Fund; Real Assets
fund: DWS RREEF Real Assets Fund:
|
|
|
As
a Percentage
of
Offering Price* |
As
a Percentage of
Net
Asset Value** |
Allowed
to Dealers as a
Percentage
of Offering Price |
|
|
|
|
$50,000
but less than $100,000 |
|
|
|
$100,000
but less than $250,000 |
|
|
|
|
|
|
|
Taxable Fixed-Income funds:
DWS Emerging Markets Fixed Income Fund, DWS Global High Income Fund
and DWS High
Income Fund; Index-Related fund:
DWS S&P 500 Index Fund:
|
|
|
As
a Percentage
of
Offering Price* |
As
a Percentage of
Net
Asset Value** |
Allowed
to Dealers as a
Percentage
of Offering Price |
|
|
|
|
$100,000
but less than $250,000 |
|
|
|
$250,000
but less than $500,000 |
|
|
|
$500,000
but less than $1 million |
|
|
|
|
|
|
|
Tax-Free Income
funds: DWS California Tax-Free Income Fund, DWS Intermediate
Tax-Free Fund, DWS Managed Municipal Bond Fund,
DWS Massachusetts Tax-Free Fund, DWS New York Tax-Free Income Fund and DWS Strategic High
Yield Tax-Free Fund; Taxable Fixed-Income fund:
DWS GNMA Fund:
|
|
|
As
a Percentage
of
Offering Price* |
As
a Percentage of
Net
Asset Value** |
Allowed
to Dealers as a
Percentage
of Offering Price |
|
|
|
|
$100,000
but less than $250,000 |
|
|
|
|
|
|
|
Taxable Fixed-Income fund:
DWS Floating Rate Fund:
|
|
|
As
a Percentage
of
Offering Price* |
As
a Percentage of
Net
Asset Value** |
Allowed
to Dealers as a
Percentage
of Offering Price |
|
|
|
|
$100,000
but less than $250,000 |
|
|
|
$250,000
but less than $500,000 |
|
|
|
$500,000
but less than $1 million |
|
|
|
|
|
|
|
Taxable Fixed-Income fund:
DWS Total Return Bond Fund:
|
|
|
As
a Percentage
of
Offering Price* |
As
a Percentage of
Net
Asset Value** |
Allowed
to Dealers as a
Percentage
of Offering Price |
|
|
|
|
$100,000
but less than $250,000 |
|
|
|
|
|
|
|
Tax-Free Income fund: DWS
Short-Term Municipal Bond Fund; Taxable Fixed-Income fund:
DWS Short Duration Fund:
|
|
|
As
a Percentage
of
Offering Price* |
As
a Percentage of
Net
Asset Value** |
Allowed
to Dealers as a
Percentage
of Offering Price |
|
|
|
|
$100,000
but less than $250,000 |
|
|
|
|
|
|
|
*
The
offering price includes the sales charge.
**
Rounded
to the nearest one-hundredth percent.
***
Redemption
of shares may be subject to a contingent deferred sales charge.
****
Commission
is payable by DDI.
Part II:
Appendix II-G—Investments,
Practices and Techniques, and Risks
To the extent that a fund
invests in an Underlying Fund, or one or more affiliated funds, certain of these risks would also
apply to that fund.
Adjustable Rate Securities.
The interest rates paid on the adjustable rate securities in which a fund invests generally are
readjusted at periodic intervals, usually by reference to a predetermined interest rate index. Adjustable rate securities include
US Government securities and securities of other issuers. Some adjustable rate securities are backed by pools of
mortgage loans. There are three main categories of interest rate indices: those based on US Treasury securities, those
derived from a calculated measure such as a cost of funds index and those based on a moving average of mortgage
rates. Commonly used indices include the one-year, three-year and five-year constant maturity Treasury rates,
the three-month Treasury bill rate, the 180-day Treasury bill rate, rates on longer-term Treasury securities, the 11th
District Federal Home Loan Bank Cost of Funds, the National Median Cost of Funds, the one-month, three-month, six-month
or one-year Secured Overnight Financing Rate (SOFR), the prime rate of a specific bank or commercial paper
rates. As with fixed-rates securities, changes in market interest rates and changes in the issuer’s creditworthiness may
affect the value of adjustable rate securities.
Some indices, such as
the one-year constant maturity Treasury rate, closely mirror changes in market interest rate levels.
Others, such as the 11th District Home Loan Bank Cost of Funds index (Cost of Funds Index), tend to lag behind changes
in market rate levels and tend to be somewhat less volatile. To the extent that the Cost of Funds index may reflect
interest changes on a more delayed basis than other indices, in a period of rising interest rates, any increase may
produce a higher yield later than would be produced by such other indices, and in a period of declining interest rates,
the Cost of Funds index may remain higher for a longer period of time than other market interest rates, which may
result in a higher level of principal prepayments on adjustable rate securities which adjust in accordance with the
Cost of Funds index than adjustable rate securities which adjust in accordance with other indices. In addition, dislocations
in the member institutions of the 11th District Federal Home Loan Bank in recent years have caused and may
continue to cause the Cost of Funds index to change for reasons unrelated to changes in general interest rate levels.
Furthermore, any movement in the Cost of Funds index as compared to other indices based upon specific interest
rates may be affected by changes in the method used to calculate the Cost of Funds index.
If prepayments of principal
are made on the securities during periods of rising interest rates, a fund generally will be able
to reinvest such amounts in securities with a higher current rate of return. However, a fund will not benefit from increases
in interest rates to the extent that interest rates rise to the point where they cause the current coupon of adjustable
rate securities held as investments by a fund to exceed the maximum allowable annual or lifetime reset limits
(cap rates) for a particular adjustable rate security. Also, a fund’s net asset value could vary to the extent that current
yields on adjustable rate securities are different than market yields during interim periods between coupon reset
dates.
During periods of declining
interest rates, the coupon rates may readjust downward, resulting in lower yields to a fund.
Further, because of this feature, the value of adjustable rate securities is unlikely to rise during periods of declining interest
rates to the same extent as fixed-rate instruments. Interest rate declines may result in accelerated prepayment of
adjustable rate securities, and the proceeds from such prepayments must be reinvested at lower prevailing interest rates.
London Interbank Offered
Rate (LIBOR), a common benchmark rate previously used for certain floating rate securities, has
been phased out as of the end of 2021 for most maturities and currencies. As of the end of June 2023, certain remaining
widely used US Dollar LIBOR rates that were published for an additional period of time to assist with the transition
were also phased out. In addition, to aid in the transition,
the Financial Conduct Authority in the United Kingdom,
LIBOR's regulator, has required the continued publishing of certain “synthetic”
US Dollar LIBOR rates for a period of 15 months
after June 30, 2023 for use in certain cases. The transition
process from LIBOR to SOFR for US Dollar LIBOR
rates has become increasingly well defined, especially following the signing of the federal Adjustable Interest
Rate (LIBOR) Act in March 2022 (discussed below). There is no assurance that the composition or characteristics
of
any such alternative reference rate will be similar to or produce the same value or economic equivalence as LIBOR or
that it will have the same volume or liquidity as did LIBOR prior to its discontinuance or unavailability, which may affect
the value or liquidity of, or return on, certain of a fund’s investments.
On March 15, 2022, the
federal Adjustable Interest Rate (LIBOR) Act was signed into law, which provided a statutory alternative
rate-setting methodology on a nationwide basis for certain LIBOR-based instruments that contained no, or
insufficient, alternative rate-setting provisions. On December 16, 2022, the Board of Governors of the Federal Reserve System
adopted a final rule to implement the LIBOR Act, which, among other things, established alternative benchmark rates
based on SOFR to replace LIBOR by operation of law following the cessation date in such instruments that referenced
the following US Dollar LIBOR rates: the overnight rate and the one-, three-, six- and 12-month rates. The transition
of LIBOR-based instruments from LIBOR to a replacement rate as a result of amendment, application of existing
alternative rate-setting provisions, statutory requirements or otherwise may result in a reduction in the value of
certain instruments held by a fund or a reduction in the effectiveness of related fund transactions such as hedges. An
instrument’s transition to a replacement rate could also result in variations in the reported yields of a fund that holds
such instrument. In addition, a liquid market for newly-issued instruments that use alternative reference rates still
may be developing. There may also be challenges for a fund to enter into hedging transactions against such newly-issued instruments
until a market for such hedging transactions develops. All of the aforementioned may adversely affect a fund’s
performance or net asset value.
Advance Refunded Bonds.
A fund may purchase municipal securities that are subsequently refunded by the issuance and
delivery of a new issue of bonds prior to the date on which the outstanding issue of bonds can be redeemed or paid.
The proceeds from the new issue of bonds are typically placed in an escrow fund consisting of US Government obligations
that are used to pay the interest, principal and call premium on the issue being refunded. A fund may also purchase
municipal securities that have been refunded prior to purchase.
Asset-Backed Securities.
A fund may invest in securities generally referred to as asset-backed securities. Asset-backed securities
are securities that directly or indirectly represent interests in, or are secured by and payable from, an underlying pool
of assets such as (but not limited to) first lien mortgages, motor vehicle installment sale contracts, other installment sale
contracts, home equity loans, leases of various types of real and personal property, and receivables from revolving credit
(i.e., credit card) agreements and trade receivables. Such assets are securitized through the use of trusts and special
purpose corporations. Asset-backed securities may provide periodic payments that consist of interest and/or principal
payments. Consequently, the life of an asset-backed security varies with the prepayment and loss experience of
the underlying assets. Payments of principal and interest may be dependent upon the cash flow generated by the underlying
assets backing the securities and, in certain cases, may be supported by some form of credit enhancement (for
more information, see Credit Enhancement). The degree of credit enhancement provided for each issue is generally based
on historical information respecting the level of credit risk associated with the underlying assets. Delinquency or
loss in excess of that anticipated or failure of the credit enhancement could adversely affect the return on an investment in
such a security. The value of the securities also may change because of changes in interest rates or changes in the market’s
perception of the creditworthiness of the servicing agent for the loan pool, the originator of the loans or the financial
institution providing the credit enhancement. Additionally, since the deterioration of worldwide economic and
liquidity conditions that became acute in 2008, asset-backed securities have been subject to greater liquidity risk. Asset-backed
securities are ultimately dependent upon payment of loans and receivables by individuals, businesses and
other borrowers, and a fund generally has no recourse against the entity that originated the loans.
Because asset-backed
securities may not have the benefit of a security interest in the underlying assets, asset-backed securities
present certain additional risks that are not present with mortgage-backed securities. For example, credit card
receivables are generally unsecured, and the debtors are entitled to the protection of a number of state and federal
consumer credit laws, many of which give such debtors the right to avoid payment of certain amounts owed on
the credit cards, thereby reducing the balance due. Furthermore, most issuers of automobile receivables permit the
servicer to retain possession of the underlying obligations. If the servicer were to sell these obligations to another party,
there is a risk that the purchaser would acquire an interest superior to that of the holders of the related automobile receivables.
In addition, because of the large number of vehicles involved in a typical issuance and technical requirements
under
state laws, the trustee for the holders of the automobile receivables may not have a proper security interest in
all of the obligations backing such receivables. Therefore, there is the possibility that recoveries on repossessed collateral
may not, in some cases, be available to support payments on these securities.
The yield characteristics
of the asset-backed securities in which a fund may invest differ from those of traditional debt securities.
Among the major differences are that interest and principal payments are made more frequently on asset-backed securities
(usually monthly) and that principal may be prepaid at any time because the underlying assets generally may
be prepaid at any time. As a result, if a fund purchases these securities at a premium, a prepayment rate that is faster
than expected will reduce their yield, while a prepayment rate that is slower than expected will have the opposite effect
of increasing yield. Conversely, if a fund purchases these securities at a discount, faster than expected prepayments will
increase, while slower than expected prepayments will reduce, the yield on these securities. Because prepayment of
principal generally occurs during a period of declining interest rates, a fund may generally have to reinvest the proceeds
of such prepayments at lower interest rates. Therefore, asset-backed securities may have less potential for capital
appreciation in periods of falling interest rates than other income-bearing securities of comparable maturity. Conversely,
during periods of rising interest rates, prepayment rates tend to decline, thus lengthening the duration of
asset-backed securities, which may increase the price volatility of these securities.
Other Asset-Backed Securities.
The securitization techniques used to develop mortgage-backed securities are now being
applied to a broad range of assets. Through the use of trusts and special purpose corporations, various types of
assets, including automobile loans, computer leases and credit card receivables, are being securitized in pass-through structures
similar to mortgage pass-through structures or in a structure similar to the CMO structure. In general, the collateral
supporting these securities is of shorter maturity than mortgage loans and is less likely to experience substantial prepayments
with interest rate fluctuations.
Several types of asset-backed
securities have already been offered to investors, including Certificates of Automobile Receivables
(CARS) and Collateralized Loan Obligations (CLOs). CARS
represent undivided fractional interests in a trust
whose assets consist of a pool of motor vehicle retail installment sales contracts and security interests in the vehicles
securing the contracts. Payments of principal and interest on CARS
are passed through monthly to certificate holders,
and are guaranteed up to certain amounts and for a certain time period by a letter of credit issued by a financial institution
unaffiliated with the trustee or originator of the trust. An investor’s return on CARS
may be affected by early prepayment of principal
on the underlying vehicle sales contracts. If the letter of credit is exhausted, the trust may
be prevented from realizing the full amount due on a sales contract because of state law requirements and restrictions relating
to foreclosure sales of vehicles and the obtaining of deficiency judgments following such sales or because of
depreciation, damage or loss of a vehicle, the application of federal and state bankruptcy and insolvency laws, or other
factors. As a result, certificate holders may experience delays in payments or losses if the letter of credit is exhausted.
CLOs represent interests in a trust whose underlying assets consist of a pool of loans. Such loans may include
domestic and foreign senior secured loans, senior unsecured loans and subordinate corporate loans, some of
which may be below investment grade or equivalent unrated loans. CLOs issue classes or “tranches”
that vary in risk and yield. A CLO may experience
substantial losses attributable to defaults on underlying assets. Such losses will
be borne first by the holders of subordinate tranches. A fund’s investment in a CLO may decrease in market value because
of (i) loan defaults or credit impairment, (ii) the disappearance of subordinate tranches, (iii) market anticipation of
defaults, and (iv) investor aversion to CLO securities as a class. These risks may be magnified depending on the tranche
of CLO securities in which a fund invests. For example, investments in a junior tranche of CLO securities will likely
be more sensitive to loan defaults or credit impairment than investments in more senior tranches.
A fund may also invest
in residual interests in asset-backed securities. In the case of asset-backed securities issued in
a pass-through structure, the cash flow generated by the underlying assets is applied to make required payments on
the securities and to pay related administrative expenses. The residual in an asset-backed security pass-through structure
represents the interest in any excess cash flow remaining after making the foregoing payments. The amount of
residual cash flow resulting from a particular issue of asset-backed securities will depend on, among other things, the
characteristics of the underlying assets, the coupon rates on the securities, prevailing interest rates, the amount of
administrative expenses and the actual prepayment experience on the underlying assets. Asset-backed security residuals
not registered under the 1933 Act may be subject to certain restrictions on transferability. In addition, there may
be no liquid market for such securities.
The
availability of asset-backed securities may be affected by legislative or regulatory developments. It is possible that
such developments may require a fund to dispose of any then-existing holdings of such securities.
Asset-Indexed Securities.
A fund may purchase asset-indexed securities which are debt securities usually issued by
companies in precious metals related businesses such as mining, the principal amount, redemption terms, or interest rates
of which are related to the market price of a specified precious metal. Market prices of asset-indexed securities will
relate primarily to changes in the market prices of the precious metals to which the securities are indexed rather than
to changes in market rates of interest. However, there may not be a perfect correlation between the price movements of
the asset-indexed securities and the underlying precious metals. Asset-indexed securities typically bear interest or
pay dividends at below market rates (and in certain cases at nominal rates). The purchase of asset-indexed securities also
exposes a fund to the credit risk of the issuer of the asset-indexed securities.
Auction Rate Securities.
Auction rate securities in which certain municipal funds may invest consist of auction rate municipal
securities and auction rate preferred securities issued by closed-end investment companies that invest primarily in
municipal securities. Provided that the auction mechanism is successful, auction rate securities normally permit the
holder to sell the securities in an auction at par value at specified intervals. The dividend is reset by a “Dutch”
auction in which bids are made by broker-dealers
and other institutions for a certain amount of securities at a specified minimum
yield. The dividend rate set by the auction is the lowest interest or dividend rate that covers all securities offered
for sale. While this process is designed to permit auction rate securities to be traded at par value, there is the risk
that an auction will fail due to insufficient demand for the securities. If an auction fails, the dividend rate of the securities
rate adjusts to a maximum rate, specified in the issuer’s offering documents and, in the case of closed-end funds,
relevant charter documents. Security holders that submit sell orders in a failed auction may not be able to sell any
or all of the shares for which they have submitted sell orders. Security holders may sell their shares at the next scheduled
auction, subject to the same risk that the subsequent auction will not attract sufficient demand for a successful auction
to occur. Broker-dealers may also try to facilitate secondary trading in the auction rate securities, although such
secondary trading may be limited and may only be available for shareholders willing to sell at a discount. Since February
2008, many municipal issuers and closed-end funds have experienced, and continue to experience, failed auctions
of their auction rate securities. Repeated auction failures have significantly affected the liquidity of auction rate
securities, shareholders of such securities have generally continued to receive dividends at the above-mentioned maximum
rate. There is no assurance that auctions will resume or that any market will develop for auction rate securities. Valuation
of such securities are highly speculative. Dividends on auction rate preferred securities issued by a closed-end fund
may be reported, generally on Form 1099, as exempt from federal income tax to the extent they are attributable to
tax-exempt interest income earned by a fund on the securities in its portfolio and distributed to holders of the preferred
securities, provided that the preferred securities are treated as equity securities for federal income tax purposes, and
the closed-end fund complies with certain requirements under the Code. A fund’s investments in auction rate preferred
securities of closed-end funds are subject to limitations on investments in other US registered investment companies,
which limitations are prescribed by the 1940 Act.
Bank Loans.
Bank loans are typically senior debt obligations of borrowers (issuers) and, as such, are considered to hold
a senior position in the capital structure of the borrower. These may include loans that hold the most senior position,
that hold an equal ranking with other senior debt, or loans that are, in the judgment of the Advisor, in the category
of senior debt of the borrower. This capital structure position generally gives the holders of these loans a priority
claim on some or all of the borrower’s assets in the event of a default. In most cases, these loans are either partially
or fully collateralized by the assets of a corporation, partnership, limited liability company or other business entity,
or by cash flow that the Advisor believes at the time of acquisition is sufficient to service the loan. These loans are
often issued in connection with recapitalizations, acquisitions, leveraged buy-outs and refinancings. Moody’s and Standard
& Poor’s may rate bank loans higher than high yield bonds of the same issuer to reflect their more senior position.
A fund may invest in both fixed- and floating-rate loans. Senior loans may have longer trade settlement periods than
other types of investments and may be subject to the requirements of Rule 18f-4 under the 1940 Act if such loans
will not settle within 35 days of the trade date.
Bank loans may include
restrictive covenants which must be maintained by the borrower. Such covenants, in addition to
the timely payment of interest and principal, may include mandatory prepayment provisions arising from free cash flow,
restrictions on dividend payments and usually state that a borrower must maintain specific minimum financial
ratios
as well as establishing limits on total debt. A breach of covenant, which is not waived by the agent, is normally an
event of acceleration, i.e., the agent has the right to call the outstanding bank loan. In addition, loan covenants may
include mandatory prepayment provisions stemming from free cash flow. Free cash flow is cash that is in excess of
capital expenditures plus debt service requirements of principal and interest. Such mandatory prepayments typically provide
that all or a portion of free cash flow be applied to prepay the bank loan in the order of maturity described in the
loan documents.
When a fund has an interest
in certain types of bank loans, a fund may have an obligation to make additional loans upon
demand by the borrower. These commitments may have the effect of requiring a fund to increase its investment in
a borrower at a time when it would not otherwise have done so. A fund will enter into such commitments only if the
fund reasonably believes that its assets will allow the fund to meet the obligations and the fund will comply with related
documentation and recordkeeping requirements under Rule 18f-4.
In a typical interest
in a bank loan, the agent administers the loan and has the right to monitor the collateral. The agent is
also required to segregate the principal and interest payments received from the borrower and to hold these payments for
the benefit of the lenders. A fund normally looks to the agent to collect and distribute principal of and interest on a
bank loan. Furthermore, a fund looks to the agent to use normal credit remedies, such as to foreclose on collateral; monitor
credit loan covenants; and notify the lenders of any adverse changes in the borrower’s financial condition or declarations
of insolvency. In the event of a default by the borrower, it is possible, though unlikely, that a fund could receive
a portion of the borrower’s collateral. If a fund receives collateral other than cash, such collateral will be liquidated and
the cash received from such liquidation will be available for investment as part of a fund’s portfolio. At times a fund
may also negotiate with the agent regarding the agent’s exercise of credit remedies under a bank loan. The agent is
compensated for these services by the borrower as is set forth in the loan agreement. Such compensation may take
the form of a fee or other amount paid upon the making of the bank loan and/or an ongoing fee or other amount.
The loan agreement in
connection with bank loans sets forth the standard of care to be exercised by the agents on behalf
of the lenders and usually provides for the termination of the agent’s agency status in the event that it fails to act
properly, becomes insolvent, enters FDIC receivership, or if not FDIC insured, enters into bankruptcy or if the agent
resigns. In the event an agent is unable to perform its obligations as agent, another lender would generally serve
in that capacity.
Under a bank loan, the
borrower generally must pledge as collateral assets which may include one or more of the following:
cash; accounts receivable; inventory; property, plant and equipment; common and preferred stock in its subsidiaries;
trademarks, copyrights, patent rights; and franchise value. A fund may also receive guarantees as a form of
collateral. In some instances, a bank loan may be secured only by stock in a borrower or its affiliates. A fund may also
invest in bank loans not secured by any collateral. The market value of the assets serving as collateral, at the time of
investment, in the opinion of the Advisor, sufficiently collateralize the principal amount of the bank loan. The valuations of
these assets may be performed by an independent appraisal. If the agent becomes aware that the value of the collateral
has declined, the agent may take action as it deems necessary for the protection of its own interests and the
interests of the other lenders, including, for example, giving the borrower an opportunity to provide additional collateral
or accelerating the loan. There is no assurance, however, that the borrower would provide additional collateral or
that the liquidation of the existing collateral would satisfy the borrower’s obligation in the event of nonpayment of scheduled
interest or principal, or that such collateral could be readily liquidated.
Loan agreements frequently
require the borrower to make full or partial prepayment of a loan when the borrower engages
in asset sales or a securities issuance. Prepayments on bank loans may also be made by the borrower at its
election. The rate of such prepayments may be affected by, among other things, general business and economic conditions,
as well as the financial status of the borrower. Prepayment would cause the actual duration of a bank loan to
be shorter than its stated maturity. This should, however, allow a fund to reinvest in a new loan and recognize as income
any unamortized loan fees. This may result in a new facility fee payable to a fund. Because interest rates paid on
bank loans periodically fluctuate with the market, it is expected that the prepayment and a subsequent purchase of
a new bank loan by a fund will not have a material adverse impact on the yield of the portfolio. A fund may hold bank
loans to maturity unless it has become necessary to adjust a fund’s portfolio in accordance with the Advisor’s view
of current or expected economic or specific industry or borrower conditions.
A
fund may be required to pay and may receive various fees and commissions in the process of purchasing, selling and
holding bank loans. The fee may include any, or a combination of, the following elements: arrangement fees, non-use
fees, facility fees, letter of credit fees and ticking fees. Arrangement fees are paid at the commencement of a
loan as compensation for the initiation of the transaction. A non-use fee is paid based upon the amount committed but
not used under the loan. Facility fees are on-going annual fees paid in connection with a loan. Letter of credit fees are
paid if a loan involves a letter of credit. Ticking fees are negotiated at the time of transaction, and are paid from the
initial commitment indication until loan closing.
If legislation or state
or federal regulators impose additional requirements or restrictions on the ability of financial institutions
to make loans that are considered highly leveraged transactions, the availability of bank loans for investment by
a fund may be adversely affected. In addition, such requirements or restrictions could reduce or eliminate sources of
financing for certain borrowers. This would increase the risk of default. If legislation or federal or state regulators require
financial institutions to dispose of bank loans that are considered highly leveraged transactions or subject such bank
loans to increased regulatory scrutiny, financial institutions may determine to sell such bank loans. Such sales by
affected financial institutions may not be at desirable prices, in the opinion of the Advisor. If a fund attempts to sell a
bank loan at a time when a financial institution is engaging in such a sale, the price a fund could get for the bank loan
may be adversely affected.
Affiliates of the Advisor
may participate in the primary and secondary market for bank loans. Because of limitations imposed
by applicable law, the presence of the Advisor's affiliates in the bank loan market may restrict a fund's ability to
acquire some bank loans, or affect the timing or price of such acquisitions. The Advisor does not believe that this will
materially affect a fund's ability to achieve its investment objective. Also, because the Advisor may wish to invest in
the publicly traded securities of a borrower, it may not have access to material non-public information regarding the
borrower to which other lenders have access.
Senior loans may not
be considered “securities,”
and purchasers, such as a fund, therefore may not be entitled to rely
on the anti-fraud and misrepresentation protections of the federal securities laws.
Loan Participations and Assignments.
A fund’s investments in bank loans are expected in most instances to be in the form
of participations in bank loans (Participations) and assignments of portions of bank loans (Assignments) from third
parties. Large loans to corporations or governments may be shared or syndicated among several lenders, usually banks.
A fund may participate in such syndicates, or can buy part of a loan, becoming a direct lender.
When a fund buys an Assignment,
it is essentially becoming a party to the bank agreement. The vast majority of all trades
are Assignments and would therefore generally represent the preponderance of bank loans held by a fund. When
a fund is a purchaser of an Assignment, it typically succeeds to all the rights and obligations under the loan agreement
of the assigning lender and becomes a lender under the loan agreement with the same rights and obligations as
the assigning lender. Because Assignments are arranged through private negotiations between potential assignees and
potential assignors, however, the rights and obligations acquired by a fund as the purchaser of an Assignment may
differ from, and may be more limited than, those held by the assigning lender.
In certain cases, a fund
may buy bank loans on a participation basis, if for example, a fund did not want to become party
to the bank agreement. With respect to any given bank loan, the rights of a fund when it acquires a Participation may
be more limited than the rights of the original lenders or of investors who acquire an Assignment. Participations typically
will result in a fund having a contractual relationship only with the lender and not with the borrower. A fund will
have the right to receive payments of principal, interest and any fees to which it is entitled only from the lender selling
the Participation and only upon receipt by the lender of the payments from the borrower. In connection with purchasing
Participations, a fund generally will have no right to enforce compliance by the borrower with the terms of
the loan agreement relating to the bank loan, nor any rights of set-off against the borrower, and a fund may not directly
benefit from any collateral supporting the bank loan in which it has purchased the Participation. As a result, a
fund will assume the credit risk of both the borrower and the lender that is selling the Participation. In the event of the
insolvency of the lender selling a Participation, a fund may be treated as a general creditor of the lender and may not
benefit from any set-off between the lender and the borrower.
In
the case of loan Participations where a bank or other lending institution serves as financial intermediary between a
fund and the borrower, if the Participation does not shift to a fund the direct debtor-creditor relationship with the borrower,
SEC interpretations require a fund, in some circumstances, to treat both the lending bank or other lending institution
and the borrower as issuers for purposes of a fund’s investment policies. Treating a financial intermediary as
an issuer of indebtedness may restrict a fund’s ability to invest in indebtedness related to a single financial intermediary, or
a group of intermediaries engaged in the same industry, even if the underlying borrowers represent many different companies
and industries.
A fund may pay a fee
or forego a portion of interest payments to the lender selling a Participation or Assignment under the
terms of such Participation or Assignment. In the case of loans administered by a bank or other financial institution that
acts as agent for all holders, if assets held by the agent for the benefit of a purchaser are determined to be subject to
the claims of the agent’s general creditors, the purchaser might incur certain costs and delays in realizing payment on
the loan or loan Participation and could suffer a loss of principal or interest.
Participations and Assignments
involve credit risk, interest rate risk, and liquidity risk, as well as the potential liability associated
with being a lender. If a fund purchases a Participation, it may only be able to enforce its rights through the
participating lender, and may assume the credit risk of both the lender and the borrower. Investments in loans through
direct Assignment of a financial institution’s interests with respect to a loan may involve additional risks. For example,
if a loan is foreclosed, a fund could benefit from becoming part owner of any collateral, however, a fund would
bear the costs and liabilities associated with owning and disposing of the collateral.
A fund may have difficulty
disposing of Assignments and Participations. Because no liquid market for these obligations typically
exists, a fund anticipates that these obligations could be sold only to a limited number of institutional investors. The
lack of a liquid secondary market will have an adverse effect on a fund’s ability to dispose of particular Assignments or
Participations when necessary to meet a fund’s liquidity needs or in response to a specific economic event, such as
a deterioration in the creditworthiness of the borrower. The lack of a liquid secondary market for Assignments and Participations
may also make it more difficult for a fund to assign a value to those securities for purposes of valuing a
fund’s portfolio and calculating its net asset value.
Borrowing.
Under the 1940 Act, a fund is required to maintain continuous asset coverage of 300% with respect to permitted
borrowings and to sell (within three days) sufficient portfolio holdings to restore such coverage if it should decline
to less than 300% due to market fluctuations or otherwise, even if such liquidation of a fund's holdings may be
disadvantageous from an investment standpoint.
Credit Facility.
A fund and other affiliated funds (“Participants”)
share in a revolving credit facility provided by a syndication of
banks. A fund may borrow money under this credit facility for temporary or emergency purposes, including the funding
of shareholder redemption requests, that otherwise might require the untimely disposition of securities. A fund’s
ability to borrow is subject to the terms and conditions of its credit arrangements, which in some cases may limit
the fund’s ability to borrow under the credit facility. Participants are charged an annual commitment fee, which is
allocated based on net assets, among each of the Participants. Interest is charged to a fund on its borrowings at current
commercial rates. A fund can prepay loans at any time and may at any time terminate, or from time to time reduce,
without the payment of a premium or penalty, its commitment under the credit facility subject to compliance with
certain conditions.
Borrowing may exaggerate
changes in the net asset value of fund shares and in the return on a fund’s portfolio. Borrowing will
cost a fund interest expense and other fees, which may reduce a fund’s return. A fund is required to maintain continuous
asset coverage with respect to its borrowings and may be required to sell some of its holdings to reduce debt
and restore coverage at times when it is not advantageous to do so. There is no assurance that a borrowing strategy
will be successful. Upon the expiration of the term of a fund’s existing credit arrangement, the lender may not
be willing to extend further credit to a fund or may only be willing to do so at an increased cost to a fund. If a fund is
not able to extend its credit arrangement, it may be required to liquidate holdings to repay amounts borrowed from the
lender. Because the funds are joint participants in the credit facility, any given fund may be unable to borrow some
or
all of its requested amount at any particular time. This may be true particularly during times of market stress. In addition,
if a fund’s assets increase, there is no assurance that the lender will be willing to make additional loans to a
fund in order to allow it to borrow the amounts desired by a fund to facilitate redemptions.
Brady Bonds.
Brady Bonds are securities created through the exchange of existing commercial bank loans to public and
private entities in certain emerging markets for new bonds in connection with debt restructurings under a debt restructuring
plan introduced by former US Secretary of the Treasury, Nicholas F. Brady (Brady Plan). Brady Bonds may
be collateralized or uncollateralized and are issued in various currencies (but primarily the dollar). Dollar-denominated, collateralized
Brady Bonds, which may be fixed-rate bonds or floating-rate bonds, are generally collateralized in full as to
principal by US Treasury zero coupon bonds having the same maturity as the Brady Bonds. Interest payments on these
Brady Bonds generally are collateralized by cash or securities in an amount that, in the case of fixed rate bonds, is
equal to at least one year of rolling interest payments or, in the case of floating rate bonds, initially is equal to at least
one year’s rolling interest payments based on the applicable interest rate at that time and is adjusted at regular intervals
thereafter. Brady Bonds are often viewed as having three or four valuation components: the collateralized repayment
of principal at final maturity; the collateralized interest payments; the uncollateralized interest payments; and
any uncollateralized repayment of principal at maturity (these uncollateralized amounts constitute the residual risk).
In light of the residual risk of Brady Bonds and the history of defaults of countries issuing Brady Bonds, with respect
to commercial bank loans by public and private entities, investments in Brady Bonds may be viewed as speculative.
Cash Management Vehicles.
A fund may have cash balances that have not been invested in portfolio securities (Uninvested Cash).
Uninvested Cash may result from a variety of sources, including dividends or interest received from portfolio securities,
unsettled securities transactions, reserves held for investment strategy purposes, assets to cover a fund’s open
futures and other derivatives positions, scheduled maturity of investments, liquidation of investment securities to
meet anticipated redemptions and dividend payments, and new cash received from investors. Uninvested Cash may
be invested directly in money market instruments or other short-term debt obligations. A fund may use Uninvested Cash
to purchase shares of unaffiliated money market funds, or affiliated money market funds for which the Advisor or
an affiliate of the Advisor may serve as investment advisor now or in the future. Such money market funds will operate
in accordance with Rule 2a-7 under the 1940 Act and will seek to maintain a stable net asset value (NAV) or will
maintain a floating NAV. A fund indirectly bears its proportionate share of the expenses of each money market fund
in which it invests. The money market funds in which a fund may invest are registered under the 1940 Act or are
excluded from the definition of “investment
company”
under Section 3(c)(1) or 3(c)(7) of the 1940 Act. Investments in
such money market funds may exceed the limits of Section 12(d)(1)(A) of the 1940 Act.
Commercial Paper.
A fund may invest in commercial paper issued by major corporations in reliance on the exemption from
registration afforded by Section 3(a)(3) of the 1933 Act. Such commercial paper may be issued only to finance current
transactions and must mature in nine months or less. Trading of such commercial paper is conducted primarily by
institutional investors through investment dealers, and individual investor participation in the commercial paper market
is very limited. A fund also may invest in commercial paper issued in reliance on the so-called “private
placement”
exemption from registration afforded by Section
4(a)(2) of the 1933 Act (Section 4(a)(2) paper). Section 4(a)(2) paper is
restricted as to disposition under the federal securities laws, and generally is sold to institutional investors such as a
fund who agree that they are purchasing the paper for investment and not with a view to public distribution. Any resale
by the purchaser must be in an exempt transaction. Section 4(a)(2) paper normally is resold to other institutional investors
like a fund through or with the assistance of the issuer or investment dealers who make a market in Section 4(a)(2)
paper, thus providing liquidity.
Commodity Pool Operator Exclusion.
The Advisor currently intends to operate the fund (unless otherwise noted) in
compliance with the requirements of Rule 4.5 of the Commodity Futures Trading Commission (CFTC). As a result, a
fund is not deemed to be a “commodity
pool”
under the Commodity Exchange Act (CEA) and will be limited in its ability
to use futures and options on futures or commodities or engage in swap transactions for other than bona fide hedging
purposes. Provided a fund operates within the limits of Rule 4.5 of the CFTC, a fund will be excluded from registration
with and regulation under the CEA and the Advisor will not be deemed to be a “commodity
pool operator”
with respect to the operations of a fund. If
a fund were no longer able to claim the exclusion, the fund and the Advisor would
be subject to regulation under the CEA.
Commodity Pool
Operator Regulation. DWS Enhanced Commodity Strategy Fund and
DWS RREEF Real Assets Fund are unable to rely
on the exclusion from CFTC Rule 4.5 and therefore will be subjected to regulation under the CEA
and CFTC rules as a commodity pool. The Advisor is currently registered with the National Futures Association as
a “commodity
pool operator”
and a “commodity
trading advisor”
and the Advisor will act as such with respect to the
operation of a fund. As a result, the Advisor and the fund are subject to dual regulation by the CFTC and the SEC. The
CFTC recently adopted regulations that seek to “harmonize”
CFTC regulations with overlapping SEC regulations. Pursuant
to the CFTC harmonization regulations, the Advisor and the fund may elect to meet the requirements of certain
CFTC regulations by complying with specific SEC rules and regulations relating to disclosure and reporting requirements.
The CFTC could deem the fund or the Advisor in violation of an applicable CFTC regulation if the fund or
the Advisor failed to comply with a related SEC regulatory requirement under the CFTC harmonization regulations. The
fund and the Advisor will remain subject to certain CFTC-mandated disclosure, reporting and recordkeeping regulations even
if they elect substitute compliance under the CFTC harmonization regulations. Compliance with the CFTC regulations could
increase the fund’s expenses, adversely affecting investment returns. Investors in a fund and their financial representatives
should consider whether a fund’s status as a “commodity
pool”
impacts their operations or status under the CEA in deciding
whether to invest in a fund.
Common Stock.
Common stock is issued by companies to raise cash for business purposes and represents a proportionate interest
in the issuing companies. Therefore, a fund may participate in the success or failure of any company in which it
holds stock. The market values of common stock can fluctuate significantly, reflecting the business performance of the
issuing company, investor perception and general economic or financial market movements. Despite the risk of price
volatility, however, common stocks have historically offered a greater potential for long-term gain on investment, compared
to other classes of financial assets, such as bonds or cash equivalents, although there can be no assurance that
this will be true in the future.
Convertible Securities.
A fund may invest in convertible securities; that is, bonds, notes, debentures, preferred stocks and
other securities that are convertible (by the holder or by the issuer) into common stock. Investments in convertible securities
can provide an opportunity for capital appreciation and/or income through interest and dividend payments by
virtue of their conversion or exchange features.
The convertible securities
in which a fund may invest include fixed-income or zero coupon debt securities, which may be
converted or exchanged at a stated or determinable exchange ratio into underlying shares of common stock. The exchange
ratio for any particular convertible security may be adjusted from time to time due to stock splits, dividends, spin-offs,
other corporate distributions or scheduled changes in the exchange ratio. A convertible security may be called
for redemption or conversion by the issuer after a particular date and under certain circumstances (including a specified
price) established upon issue. If a convertible security held by a fund is called for redemption or conversion, a
fund could be required to tender it for redemption, convert it into the underlying common stock, or sell it to a third party,
which may have an adverse effect on a fund’s ability to achieve its investment objectives. Convertible securities and
convertible preferred stocks, until converted, have general characteristics similar to both debt and equity securities. Although
to a lesser extent than with debt securities generally, the market values of convertible securities tend to decline
as interest rates increase and, conversely, tend to increase as interest rates decline. In addition, because of the
conversion or exchange feature, the market values of convertible securities typically change as the market values of
the underlying common stocks change, and, therefore, also tend to follow movements in the general market for equity
securities. A unique feature of convertible securities is that, as the market price of the underlying common stock
declines, convertible securities tend to trade increasingly on a yield basis, and so may not experience market value
declines to the same extent as the underlying common stock. When the market price of the underlying common stock
increases, the prices of the convertible securities tend to rise as a reflection of the value of the underlying common
stock, although typically not as much as the underlying common stock. While no securities investments are without
risk, investments in convertible securities generally entail less risk than investments in common stock of the same
issuer.
As debt securities, convertible
securities are investments that provide for a stream of income (or in the case of zero coupon
securities, accretion of income) with generally higher yields than common stocks. Convertible securities generally offer
lower yields than non-convertible securities of similar quality because of their conversion or exchange features.
Of
course, like all debt securities, there can be no assurance of income or principal payments because the issuers of
the convertible securities may default on their obligations.
Convertible securities
are generally subordinated to other similar but non-convertible securities of the same issuer, although
convertible bonds, as corporate debt obligations, enjoy seniority in right of payment to all equity securities, and
convertible preferred stock is senior to common stock, of the same issuer. However, because of the subordination feature,
convertible bonds and convertible preferred stock typically have lower ratings than similar non-convertible securities.
Convertible securities may be issued as fixed income obligations that pay current income or as zero coupon notes
and bonds, including Liquid Yield Option Notes (LYONs).
Contingent convertible securities
(CoCos). A contingent convertible security, or CoCo, is a type
of convertible security typically issued by
a non-U.S. bank that, upon the occurrence of a specified trigger event, may be (i) convertible into equity
securities of the issuer at a predetermined share price; or (ii) written down in liquidation value. Trigger events are
identified in the documents that govern the CoCo and may include a decline in the issuer’s capital below a specified threshold
level, an increase in the issuer’s risk weighted assets, the share price of the issuer falling to a particular level
for a certain period of time and certain regulatory events, such as a change in regulatory capital requirements. CoCos
are designed to behave like bonds in times of economic health yet absorb losses when the trigger event occurs. CoCos
are generally considered speculative and the prices of CoCos may be volatile.
With respect to CoCos
that provide for conversion of the CoCo into common shares of the issuer in the event of a trigger
event, the conversion would deepen the subordination of the investor, creating a greater risk of loss in the event
of bankruptcy. In addition, because the common stock of the issuer may not pay a dividend, investors in such instruments
could experience reduced yields (or no yields at all). With respect to CoCos that provide for the write down
in liquidation value of the CoCo in the event of a trigger event, it is possible that the liquidation value of the CoCo
may be adjusted downward to below the original par value or written off entirely under certain circumstances. For
instance, if losses have eroded the issuer’s capital levels below a specified threshold, the liquidation value of the CoCo
may be reduced in whole or in part. The write-down of the CoCo’s par value may occur automatically and would not
entitle holders to institute bankruptcy proceedings against the issuer. In addition, an automatic write-down could result
in a reduced income rate if the dividend or interest payment associated with the CoCo is based on par value. Coupon
payments on CoCos may be discretionary and may be cancelled by the issuer for any reason or may be subject to
approval by the issuer’s regulator and may be suspended in the event there are insufficient distributable reserves.
Credit Enhancement.
Mortgage-backed securities and asset-backed securities are often backed by a pool of assets representing
the obligations of a number of different parties. To lessen the effect of failure by obligors on underlying assets
to make payments, such securities may contain elements of credit enhancement. Such credit enhancement falls
into two categories: (1) liquidity protection and (2) protection against losses resulting from ultimate default by an
obligor on the underlying assets. Liquidity protection refers to the provision of advances, generally by the entity administering
the pool of assets, to ensure that the pass-through of payments due on the underlying pool occurs in a
timely fashion. Protection against losses resulting from ultimate default enhances the likelihood of ultimate payment of
the obligations on at least a portion of the assets in the pool. Such protection may be provided through guarantees, insurance
policies or letters of credit obtained by the issuer or sponsor from third parties; through various means of structuring
the transaction; or through a combination of such approaches. A fund may pay any additional fees for such credit
enhancement, although the existence of credit enhancement may increase the price of a security.
The ratings of mortgage-backed
securities and asset-backed securities for which third-party credit enhancement provides liquidity
protection or protection against losses from default are generally dependent upon the continued creditworthiness of
the provider of the credit enhancement. The ratings of such securities could be subject to reduction in the event of
deterioration in the creditworthiness of the credit enhancement provider even in cases where the delinquency and loss
experience on the underlying pool of assets is better than expected.
Examples of credit enhancement
arising out of the structure of the transaction include “senior-subordinated
securities”
(multiple class securities with one or more
classes subordinate to other classes as to the payment of principal thereof and
interest thereon, with the result that defaults on the underlying assets are borne first by the holders of the subordinated class),
creation of “reserve
funds”
(where cash or investments, sometimes funded from a portion of the payments
on
the underlying assets, are held in reserve against future losses) and “over-collateralization”
(where the scheduled payments on, or the principal
amount of, the underlying assets exceed those required to make payment of the securities and
pay any servicing or other fees). The degree of credit enhancement provided for each issue is generally based on
historical information with respect to the level of credit risk associated with the underlying assets. Delinquency or
loss in excess of that which is anticipated could adversely affect the return on an investment in such a security.
Certain of a fund’s
other investments may be credit-enhanced by a guaranty, letter of credit, or insurance from a third party.
Any bankruptcy, receivership, default, or change in the credit quality of the third party providing the credit enhancement may
adversely affect the quality and marketability of the underlying security and could cause losses to a fund and affect
a fund’s share price.
Currency Strategies.
In addition to a fund’s main investment strategy, certain funds seek to enhance returns by employing proprietary
quantitative, rules-based methodology currency strategies using derivatives (contracts whose value are based
on, for example, indices, currencies or securities), in particular forward currency contracts. These currency strategies are
long/short rules-based strategies that offer a core approach to currency investing by investing across a diversified pool
of developed and emerging market currencies. There are three strategies:
Carry strategy:
Carry trades are widely known in currency markets. In a carry trade low interest rate currencies
are systematically sold and high interest rate currencies are systematically bought. Such a strategy
seeks to exploit what academics call “forward-rate
bias”
or the “forward
premium puzzle,”
that is, circumstances where the forward rate is not an unbiased
estimate of the future spot. Positive returns may occur when
an investor’s gain from interest rate differentials between the high yielding and low yielding jurisdictions
exceed any losses from currency rate movements between the relevant currencies.
Momentum strategy:
This strategy is based on the observation that many exchange rates have followed multi-year
trends. A strategy that follows a multi-year trend may make positive returns over time. The segmentation
of currency market participants, with some acting quickly on news while others respond more
slowly is one reason why, in some circumstances, trends may emerge and can be protracted.
Valuation strategy:
This strategy is based on the observation that in the long-term, currencies have tended
to move toward their “fair
value.”
The goal of the valuation strategy is to seek a profit for the fund by
systematically buying “undervalued”
currencies and selling “overvalued”
currencies in the medium-term. The success of the currency strategies
depends, in part, on the effectiveness and implementation of portfolio
management’s proprietary models. If portfolio management’s analysis proves to be incorrect, losses
to the fund may be significant and may substantially exceed the intended level of market exposure for
the currency strategies. As part of the currency strategies, a fund will be exposed to the risks of non-US
currency markets. Foreign currency rates may fluctuate significantly over short periods of time for a number
of reasons, including changes in interest rates and economic or political developments in the US or
abroad. As a result, the fund’s exposure to foreign currencies could cause lower returns or even losses to
the fund. Although portfolio management seeks to limit these risks through the aggregation of various long
and short positions, there can be no assurance that it will be able to do so.
Custodial Receipts.
Custodial receipts are interests in separately traded interest and principal component parts of US
Government securities that are issued by banks or brokerage firms and are created by depositing US Government securities
into a special account at a custodian bank. The custodian holds the interest and principal payments for the benefit
of the registered owners of the certificates or receipts. The custodian arranges for the issuance of the certificates or
receipts evidencing ownership and maintains the register. Custodial receipts include Treasury Receipts (TRs), Treasury Investment
Growth Receipts (TIGRs), and Certificates of Accrual on Treasury Securities (CATS). TIGRs and CATS are interests
in private proprietary accounts while TRs and STRIPS are interests in accounts sponsored by the US Treasury. Receipts
are sold as zero coupon securities (see Zero Coupon Securities). A fund may acquire US Government securities and
their unmatured interest coupons that have been separated (stripped) by their holder, typically a custodian bank or
investment brokerage firm. Having separated the interest coupons from the underlying principal of the US Government securities,
the holder will resell the stripped securities in custodial receipt programs with a number of different names, including
TIGRs and CATS. The stripped coupons are sold separately from the underlying principal, which is usually sold
at a deep discount because the buyer receives only the right to receive a future fixed payment on the security
and
does not receive any rights to periodic interest (cash) payments. The underlying US Treasury bonds and notes themselves
are generally held in book-entry form at a Federal Reserve Bank. Counsel to the underwriters of these certificates
or other evidences of ownership of US Treasury securities have stated that, in their opinion, purchasers of
the stripped securities most likely will be deemed the beneficial holders of the underlying US Government securities for
federal tax and securities purposes. In the case of CATS and TIGRs, the Internal Revenue Service (IRS) has reached a
similar conclusion for the purpose of applying the tax diversification requirements applicable to regulated investment companies
such as a fund. CATS and TIGRs are not considered US Government securities by the staff of the SEC. Further,
the IRS conclusion noted above is contained only in a general counsel memorandum, which is an internal document
of no precedential value or binding effect, and a private letter ruling, which also may not be relied upon by a
fund. A fund is not aware of any binding legislative, judicial or administrative authority on this issue.
Depositary Receipts.
A fund may invest in sponsored or unsponsored American Depositary Receipts (ADRs), European Depositary
Receipts (EDRs), Global Depositary Receipts (GDRs), International Depositary Receipts (IDRs) and other types
of Depositary Receipts (which, together with ADRs, EDRs, GDRs and IDRs are hereinafter referred to as Depositary Receipts).
Depositary Receipts provide indirect investment in securities of foreign issuers. Prices of unsponsored Depositary
Receipts may be more volatile than if they were sponsored by the issuer of the underlying securities. Depositary
Receipts may not necessarily be denominated in the same currency as the underlying securities into which they
may be converted. In addition, the issuers of unsponsored Depositary Receipts are not obligated to disclose material
information regarding the underlying securities or their issuer in the United States and, therefore, there may not
be a correlation between such information and the market value of the Depositary Receipts. ADRs are Depositary Receipts
that are bought and sold in the United States and are typically issued by a US bank or trust company which evidence
ownership of underlying securities by a foreign corporation. GDRs, IDRs and other types of Depositary Receipts are
typically issued by foreign banks or trust companies, although they may also be issued by United States banks or
trust companies, and evidence ownership of underlying securities issued by either a foreign or a United States corporation.
Generally, Depositary Receipts in registered form are designed for use in the United States securities markets
and Depositary Receipts in bearer form are designed for use in securities markets outside the United States. Depositary
Receipts, including those denominated in US dollars will be subject to foreign currency exchange rate risk.
However, by investing in US dollar-denominated ADRs rather than directly in foreign issuers’ stock, a fund avoids currency
risks during the settlement period. In general, there is a large, liquid market in the United States for most ADRs.
However, certain Depositary Receipts may not be listed on an exchange and therefore may be illiquid securities.
Derivatives.
A fund may use instruments referred to as derivatives. Derivatives are financial instruments the value of
which is derived, at least in part, from the performance of an underlying asset (such as a commodity like gold or oil,
or a currency), another security, or an index (a measure of value or rates, such as the S&P 500 Index or the prime lending
rate). Derivatives often allow a fund to increase or decrease the level of risk to which a fund is exposed more quickly
and efficiently than direct investments in the underlying asset or instruments.
A fund may, to the extent
consistent with its investment objective and policies, purchase and sell (write) exchange-listed and
over-the-counter (OTC) put and call options on securities, equity and fixed-income indices and other instruments, purchase
and sell futures contracts and options thereon, enter into various transactions such as swaps, caps, floors, collars
and contracts for difference, and may enter into currency forward contracts, currency futures contracts, currency swaps
or options on currencies, or various other currency transactions. The types of derivatives identified above are not
intended to be exhaustive and a fund may use types of derivatives and/or employ derivatives strategies not otherwise described
in this Statement of Additional Information or a fund’s prospectuses.
OTC derivatives are purchased
from or sold to securities dealers, financial institutions or other parties (Counterparties) pursuant
to a bilateral agreement with the Counterparty. As a result, a significant risk of OTC derivatives is counterparty risk.
The Advisor monitors the creditworthiness of OTC derivative counterparties.
A fund may use derivatives
subject to certain limits imposed by a fund’s investment objective and policies (see Investment Restrictions)
and the 1940 Act, or by the requirements for a fund to qualify as a regulated investment company for tax
purposes (see Taxes) (i) to seek to achieve returns, (ii) to attempt to protect against possible changes in the market value
of securities held in or to be purchased for a fund’s portfolio resulting from securities markets or currency exchange rate
fluctuations, (iii) to protect a fund’s unrealized gains in the value of its portfolio securities, (iv) to facilitate the sale
of
portfolio securities for investment purposes, (v) to manage the effective maturity or duration of a fund’s portfolio, (vi)
to establish a position in the derivatives markets as a substitute for purchasing or selling (including selling short) particular
securities, (vii) for funds that invest in foreign securities, to increase exposure to a foreign currency or to shift
exposure to foreign currency fluctuations from one currency to another (not necessarily the US dollar), or (viii) for
any other purposes permitted by law.
A fund may decide not
to employ any of the strategies described below, and no assurance can be given that any strategy
used will succeed. If the Advisor incorrectly forecasts interest rates, market values or other economic factors in
using a derivatives strategy for a fund, a fund might have been in a better position if it had not entered into the transaction
at all. Also, suitable derivatives may not be available in all circumstances. The use of these strategies involves
certain special risks, including a possible imperfect correlation, or even no correlation, between price movements of
derivatives and price movements of related investments. While some strategies involving derivatives can reduce risk
of loss, they can also reduce the opportunity for gain or even result in losses by offsetting favorable price movements in
related investments or otherwise, due to the possible inability of a fund to purchase or sell a portfolio security at a
time that otherwise would be favorable or the possible need to sell a portfolio security at a disadvantageous time, and
the possible inability of a fund to close out or liquidate its derivatives positions.
Pursuant to regulations
adopted by the SEC in October 2020, registered investment companies that invest in derivatives instruments
must comply with new Rule 18f-4 under the Investment Company Act. Among other things, Rule 18f-4 requires
funds that invest in derivatives instruments beyond a specified limited amount to implement a value-at-risk based
limit to their use of certain derivative instruments, maintain a comprehensive derivatives risk management program,
and appoint a derivatives risk manager. A fund that limits its use of derivatives instruments is not subject to
the full requirements of Rule 18f-4 and qualifies as a “limited
derivatives user.”
Derivative transactions entered into to close
out existing positions with the same counterparty will not count towards a fund's derivatives exposure for purposes
of Rule 18f-4. This new regulatory framework eliminated and replaced the asset segregation and coverage framework
established by prior SEC guidance and regulations. Since the compliance date on August 19, 2022, the funds
engaging in derivatives transactions comply with Rule 18f-4 as one of two types: funds that are “limited
derivatives users”
or funds that are derivatives users that must adopt a derivatives risk management program in compliance with Rule
18f-4. Rule 18f-4 also governs a fund's use of certain other transactions that create future payment and/or delivery obligations
by the fund, such as short sale borrowings and reverse repurchase agreements or similar financing transactions, and
certain transactions entered into on a when-issued, delayed-delivery or forward-commitment basis that will not settle
within 35 days of the trade date. The requirements of Rule 18f-4 may limit a fund's ability to engage in derivatives transactions
and certain other transactions noted above as part of its investment strategies. These requirements may also
increase the cost of doing business, which could adversely affect the performance of a fund.
General Characteristics of Options.
A put option gives the purchaser of the option, upon payment of a premium, the right
to sell, and the writer the obligation to buy, the underlying security, commodity, index, currency or other instrument at
the exercise price. For instance, a fund’s purchase of a put option on a security might be designed to protect its holdings
in the underlying instrument (or, in some cases, a similar instrument) against a substantial decline in the market
value by giving a fund the right to sell such instrument at the option exercise price. A call option, upon payment of
a premium, gives the purchaser of the option the right to buy, and the seller the obligation to sell, the underlying instrument
at the exercise price. A fund’s purchase of a call option on a security, commodity, index, currency or other instrument
might be intended to protect a fund against an increase in the price of the underlying instrument that it intends
to purchase in the future by fixing the price at which it may purchase such instrument. If a fund sells or “writes”
a call option, the premium that it receives
may partially offset, to the extent of the option premium, a decrease in the value
of the underlying securities or instruments in its portfolio or may increase a fund’s income. The sale of put options can
also provide income and might be used to protect a fund against an increase in the price of the underlying instrument or
provide, in the opinion of portfolio management, an acceptable entry point with regard to the underlying instrument.
A fund may write covered
call options. A written call option is covered if a fund owns the security or instrument underlying the
call or has an absolute right to acquire that security or instrument without additional cash consideration. A call option
is covered if a fund holds a call on the same security, index or instrument as the written call option where the exercise
price of the purchased call (long position) is equal to or less than the exercise price of the call written. Exchange listed
options are issued and cleared by a regulated intermediary such as the Options Clearing Corporation (OCC).
The
OCC ensures that the obligations of each option it clears are fulfilled. The discussion below uses the OCC as an example,
but is also applicable to other financial intermediaries. OCC issued and exchange listed options generally settle
by physical delivery of the underlying security or currency, or cash delivery for the net amount, if any, by which the
option is “in-the-money”
(i.e., where the value of the underlying instrument exceeds, in the case of a call option, or
is less than, in the case of a put option, the exercise price of the option) at the time the option is exercised. Frequently, rather
than taking or making delivery of the underlying instrument through the process of exercising the option, listed options
are closed by entering into offsetting purchase or sale transactions that do not result in ownership of the new option.
As noted above, OTC options
are purchased from or sold to Counterparties through direct bilateral agreement with the
Counterparty. In contrast to exchange listed options, which generally have standardized terms and performance mechanics,
all the terms of an OTC option, including such terms as method of settlement, term, exercise price, premium, guarantees
and security, are set by negotiation of the parties. Unless the parties provide for it, there is no central clearing
or guaranty function in an OTC option. As a result, if the Counterparty fails to make or take delivery of the security,
currency or other instrument underlying an OTC option it has entered into with a fund or fails to make a cash settlement
payment due in accordance with the terms of that option, a fund will lose any premium it paid for the option
as well as any anticipated benefit of the transaction.
There are a number of
risks associated with transactions in options. Options on particular securities or instruments may
be more volatile than a direct investment in the underlying security or instrument. A decision as to whether, when
and how to use options involves the exercise of skill and judgment, and even a well-conceived transaction may be
unsuccessful to some degree because of market behavior or unexpected events. Additionally, there are significant differences
between the securities and options markets that could result in an imperfect correlation between these markets,
causing a given options transaction not to achieve its objective. Disruptions in the markets for the securities underlying
options purchased or sold by a fund could result in losses on the options. If trading is interrupted in an underlying
security, the trading of options on that security is normally halted as well. As a result, a fund as purchaser or
writer of an option will be unable to close out its positions until options trading resumes, and it may be faced with losses
if trading in the security reopens at a substantially different price. In addition, the OCC or other options markets may
impose exercise restrictions. If a prohibition on exercise is imposed at a time when trading in the option has also been
halted, a fund as purchaser or writer of an option will be locked into its position until one of the two restrictions has
been lifted. If a prohibition on exercise remains in effect until an option owned by a fund has expired, a fund could lose
the entire value of its option.
During the option period,
the covered call writer, in return for the premium on the option, gives up the opportunity to profit
from a price increase in the underlying security or instrument above the sum of the option premium received and
the option's exercise price, but as long as its obligations as a writer continue, retains the risk of loss, minus the option
premium received, should the price of the underlying security or instrument decline. In writing options, a fund has
no control over the time when it may be required to fulfill its obligations as the writer of the option. Once a fund receives
an exercise notice for its option, it cannot effect a closing purchase transaction in order to terminate its obligation under
the option and must deliver the underlying security at the exercise price. Thus, the use of covered call options may
require the fund to sell portfolio securities at inopportune times or for prices other than current market values, will
limit the amount of appreciation the fund can realize above the exercise price of an option on a security, and may cause
the fund to hold a security that it might otherwise sell.
In writing put options,
there is a risk that a fund may be required to buy the underlying security or instrument at a disadvantageous
price if the put option is exercised against a fund. If a put or call option purchased by a fund is not sold
when it has remaining value, and if the market price of the underlying security or instrument remains, in the case
of a put, equal to or greater than the exercise price, or in the case of a call, less than or equal to the exercise price,
a fund will lose the premium that it paid for the option. Also, where a put or call option is purchased as a hedge against
price movements in the underlying security or instrument, the price of the put or call option may move more or
less than the price of the underlying security or instrument.
The
value of options may be adversely affected if the market for such options becomes less liquid or smaller. A fund’s ability
to close out its position as a purchaser or seller of an OTC option or exchange listed put or call option is dependent, in
part, upon the liquidity of the option market. There can be no assurance that a liquid market will exist when a fund seeks
to close out an option position either, in the case of a written call option, by buying the option, or, in the case of
a purchased put option, by selling the option. The possible reasons for the absence of a liquid options market on an
exchange include, but are not limited to the following: (i) insufficient trading interest in certain options; (ii) restrictions on
transactions imposed by an exchange; (iii) trading halts, suspensions or other restrictions imposed with respect to
particular classes or series of options or underlying securities, including reaching daily price limits; (iv) interruption of
the normal operations of the OCC or an exchange; (v) inadequacy of the facilities the OCC or an exchange to handle current
trading volume; or (vi) a decision by one or more exchanges to discontinue the trading of options (or a particular class
or series of options), in which event the relevant market for that option on that exchange would cease to exist, although
outstanding options on that exchange would generally continue to be exercisable in accordance with their terms.
A fund’s ability to terminate OTC options is more limited than with exchange-traded options and may involve the
risk that broker-dealers participating in such transactions will not fulfill their obligations. If a fund were unable to close
out a covered call option that it had written on a security, it would not be able to sell the underlying security unless
the option expired without exercise.
Special risks are presented
by internationally traded options. Because of the differences in trading hours between the
US and various foreign countries, and because different holidays are observed in different countries, foreign options markets
may be open for trading during hours or on days when US markets are closed. As a result, option premiums may
not reflect the current prices of the underlying interests in the US.
The hours of trading
for options may not conform to the hours during which the underlying securities are traded. To the
extent that the options markets close before the markets for the underlying securities, significant price and rate movements
can take place in the underlying markets that cannot be reflected in the options markets. Call options are
marked-to-market daily and their value will be affected by changes in the value of and dividend rates of the underlying securities,
an increase in interest rates, changes in the actual or perceived volatility of the stock market and the underlying securities
and the remaining time to the options’ expiration. Additionally, the exercise price of an option may be adjusted downward
before the option’s expiration as a result of the occurrence of certain corporate events affecting the underlying security,
such as extraordinary dividends, stock splits, merger or other extraordinary distributions or events. A reduction in
the exercise price of an option would reduce a fund’s capital appreciation potential on the underlying security.
The number of call options
a fund can write is limited by the number of shares of underlying securities that the fund holds.
Furthermore, a fund’s options transactions will be subject to limitations established by each of the exchanges, boards
of trade or other trading facilities on which such options are traded. These limitations govern the maximum number
of options in each class that may be written or purchased by a single investor or group of investors acting in concert,
regardless of whether the options are written or purchased on the same or different exchanges, boards of trade
or other trading facilities or are held or written in one or more accounts or through one or more brokers. Thus, the
number of options that a fund may write or purchase may be affected by options written or purchased by other investment
advisory clients of the Advisor. An exchange, board of trade or other trading facility may order the liquidation of
positions found to be in excess of these limits, and it may impose certain other sanctions.
General Characteristics of Futures
Contracts and Options on Futures Contracts. A futures contract
is an agreement between two parties to buy or
sell a financial instrument or commodity for a set price on a future date. Futures are generally
bought and sold on the commodities exchanges where they are listed with payment of initial and variation margin
as described below. A futures contract generally obligates the purchaser to take delivery from the seller of the
specific type of financial instrument or commodity underlying the contract at a specific future time for a set price. The
purchase of a futures contract enables a fund, during the term of the contract, to lock in the price at which it may purchase
a security, currency or commodity and protect against a rise in prices pending the purchase of portfolio securities.
A futures contract generally obligates the seller to deliver to the buyer the specific type of financial instrument underlying
the contract at a specific future time for a set price. The sale of a futures contract enables a fund to lock in
a price at which it may sell a security, currency or commodity and protect against declines in the value of portfolio
securities.
Options on futures contracts are similar to options on securities except that an option on a futures contract gives
the purchaser the right in return for the premium paid to assume a position in a futures contract and obligates the
seller to deliver such position.
Although most futures
contracts call for actual delivery or acceptance of the underlying financial instrument or commodity, the
contracts are usually closed out before the settlement date without making, or taking, actual delivery. Futures contracts
on financial indices, currency exchange instruments and certain other instruments provide for the delivery of
an amount of cash equal to a specified dollar amount times the difference between the underlying instruments value
(i.e., the index) at the open or close of the last trading day of the contract and futures contract price. A futures contract
sale is closed out by effecting a futures contract purchase for the same aggregate amount of the specific type
of underlying financial instrument and the same delivery date. If the sale price exceeds the offsetting purchase price,
the seller would be paid the difference and would realize a gain. If the offsetting purchase price exceeds the sale
price, the seller would pay the difference and would realize a loss. Similarly, a futures contract purchase is closed out
by effecting a futures contract sale for the same aggregate amount of the specific type of underlying financial instrument
or commodity and the same delivery date. If the offsetting sale price exceeds the purchase price, the purchaser
would realize a gain, whereas if the purchase price exceeds the offsetting sale price, the purchaser would realize
a loss. There can be no assurance that a fund will be able to enter into a closing transaction.
When a purchase or sale
of a futures contract is made, a fund may be subject to initial margin deposit requirements set
by the exchange on which the contract is traded, requiring the fund to deposit initial margin consisting of cash, US
Government Securities or other liquid assets with the financial intermediary as security for its obligations under the
contract. In addition, brokers may establish initial margin deposit requirements in excess of those required by the exchange.
The margin deposits made are marked to market daily and a fund may be required to make subsequent deposits
of cash, US Government securities or other liquid assets, called “variation
margin”
or “maintenance
margin,”
which reflects the price fluctuations of the
futures contract. The purchase of an option on a futures contract involves payment
of a premium for the option without any further obligation on the part of a fund. The sale of an option on a futures
contract involves receipt of a premium for the option and the obligation to deliver (by physical or cash settlement) the
underlying futures contract. If a fund exercises an option on a futures contract it will be obligated to post initial margin
(and potential subsequent variation margin) for the resulting futures position just as it would for any position.
There are several risks
associated with futures contracts and options on futures contracts. The prices of financial instruments
or commodities subject to futures contracts (and thereby the futures contract prices) may correlate imperfectly with
the behavior of the cash price of a fund’s securities or other assets (and the currencies in which they are denominated). Also,
prices of futures contracts may not move in tandem with the changes in prevailing interest rates, market movements and/or
currency exchange rates against which a fund seeks a hedge. Additionally, there is no assurance that a liquid secondary
market will exist for futures contracts and related options in which a fund may invest. In the event a liquid market
does not exist, it may not be possible to close out a futures position and, in the event of adverse price movements, a
fund would continue to be required to make daily payments of variation margin. The absence of a liquid market in futures
contracts might cause a fund to make or take delivery of the instruments or commodities underlying futures contracts
at a time when it may be disadvantageous to do so. The inability to close out positions and futures positions could
also have an adverse impact on a fund’s ability to effectively hedge its positions.
The risk of loss in trading
futures contracts in some strategies can be substantial, due both to the relatively low margin deposits
required, and the extremely high degree of leverage involved in futures pricing. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss (as well as gain) to the investor. Thus,
a purchase or sale of a futures contract may result in losses in excess of the amount invested in the contract.
Futures contracts and
options thereon which are purchased or sold on non-US commodities exchanges may have greater
price volatility than their US counterparts. Furthermore, non-US commodities exchanges may be less regulated and
under less governmental scrutiny than US exchanges. Brokerage commissions, clearing costs and other transaction costs
may be higher on non-US exchanges.
In
the event of the bankruptcy of a broker through which a fund engages in transactions in futures or options thereon, a
fund could experience delays and/or losses in liquidating open positions purchased or sold through the broker and/or incur
a loss on all or part of its margin deposits with the broker.
Currency Transactions.
A fund may engage in currency transactions for any purpose consistent with its investment strategy,
policies and restrictions, including, without limitation, for hedging purposes or to seek to enhance returns. Certain
currency transactions may expose a fund to the effects of leverage. Currency transactions include forward currency
contracts, exchange listed currency futures, exchange listed and OTC options on currencies, and currency swaps.
A forward currency contract involves a privately negotiated obligation to purchase or sell (with delivery generally required)
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. Forward contracts are generally traded in an interbank
market directly between currency traders (usually large commercial banks) and their customers. The parties to
a forward contract may agree to offset or terminate the contract before its maturity, or may hold the contract to maturity
and complete the contemplated currency exchange. A currency swap is an agreement to exchange cash flows
based on the notional difference among two or more currencies and operates similarly to an interest rate swap, which
is described below.
A fund may engage in
currency derivative transactions to seek to enhance returns by taking a net long or net short position
in one or more currencies, in which case the fund may have currency exposure that is different (in some cases,
significantly different) from the currency exposure of its other portfolio investments or the currency exposure of
its performance index. These overweight or underweight currency positions may increase the fund's exposure to the
effects of leverage, which may cause the fund to be more volatile. A fund may realize a loss on a currency derivative in
an amount that exceeds the capital invested in such derivative, regardless of whether the fund entered into the transaction
to enhance returns or for hedging purposes.
“Transaction
hedging”
is entering into a currency transaction with respect to specific assets or liabilities of a fund, which
will generally arise in connection with the purchase or sale of its portfolio securities or the receipt of income therefrom.
Entering into a forward contract for the purchase or sale of an amount of foreign currency involved in an underlying
security transaction may “lock
in”
the US dollar price of the security. Forward contracts may also be used in
anticipation of future purchases and sales of securities, even if specific securities have not yet been selected. “Position
hedging”
is entering into a currency transaction with respect to portfolio security positions denominated or generally quoted
in that currency. Position hedging may protect against a decline in the value of existing investments denominated in
the foreign currency. While such a transaction would generally offset both positive and negative currency fluctuations, such
currency transactions would not offset changes in security values caused by other factors.
A fund may also “cross-hedge”
currencies by entering into transactions to purchase or sell one or more currencies that
are expected to decline in value relative to other currencies to which a fund has or to which a fund expects to have
portfolio exposure. This type of investment technique will generally reduce or eliminate exposure to the currency that
is sold, and increase the exposure to the currency that is purchased. As a result, a fund will assume the risk of fluctuations
in the value of the currency purchased at the same time that it is protected against losses from a decline in
the hedged currency.
To reduce the effect
of currency fluctuations on the value of existing or anticipated holdings of portfolio securities, a fund
may also engage in “proxy
hedging.”
Proxy hedging is often used when the currency to which a fund is exposed is
difficult to hedge or to hedge against the dollar. Proxy hedging entails entering into a commitment or option to sell a
currency whose changes in value are generally considered to be correlated to a currency or currencies in which some
or all of a fund’s securities are or are expected to be denominated. Proxy hedges may result in losses if the currency
used to hedge does not perform similarly to the currency in which the hedged securities are denominated.
Currency hedging involves
some of the same risks and considerations as other transactions with similar instruments. Currency
transactions can result in losses to a fund if the currency being hedged fluctuates in value to a degree or in a
direction that is not anticipated. Further, there is the risk that the perceived correlation between various currencies may
not be present or may not be present during the particular time that a fund is engaging in proxy hedging.
Currency
transactions are subject to additional special risks that may not apply to other portfolio transactions. Because currency
control is of great importance to the issuing governments and influences economic planning and policy, purchases
and sales of currency and related instruments can be negatively affected by government exchange controls, blockages,
and manipulations or exchange restrictions imposed by governments. These can result in losses to a fund if
it is unable to deliver or receive currency or funds in settlement of obligations and could also cause hedges it has entered
into to be rendered useless, resulting in full currency exposure as well as incurring transaction costs. Currency exchange
rates, bid/ask spreads and liquidity may fluctuate based on factors that may, or may not be, related to that country’s
economy.
Swap Agreements and Options on Swap
Agreements. A fund may engage in swap transactions, including,
but not limited to, swap agreements on interest
rates, currencies, indices, credit and event linked swaps, total return and other
swaps and related caps, floors and collars. In a standard swap transaction, two parties agree to exchange the returns
(or differentials in rates of return) earned or realized on a predetermined financial instrument or instruments, which
may be adjusted for an interest factor. The gross return to be exchanged or “swapped”
between the parties is generally calculated
with respect to a “notional
amount”
which is generally equal to the return on or increase in value of
a particular dollar amount invested at a particular interest rate in such financial instrument or instruments.
“Interest
rate swaps”
involve the exchange by a fund with another party of their respective commitments to pay or receive
interest (e.g., an exchange of floating rate payments for fixed rate payments with respect to a notional amount of
principal). A “currency
swap”
is an agreement to exchange cash flows on a notional amount of two or more currencies based
on the relative value differential among them. An “index
swap”
is an agreement to swap cash flows on a notional amount
based on changes in the values of the reference indices. The purchase of a cap entitles the purchaser to receive
payments on a notional principal amount from the party selling such cap to the extent that a specified index exceeds
a predetermined interest rate or amount. The purchase of a floor entitles the purchaser to receive payments on
a notional principal amount from the party selling such floor to the extent that a specified index falls below a predetermined interest
rate or amount. A collar is a combination of a cap and a floor that preserves a certain return within a predetermined range
of interest rates or values.
A “credit
default swap”
is a contract between a buyer and a seller of protection against a pre-defined credit event. The
buyer of protection pays the seller a fixed regular fee provided that no event of default on an underlying reference obligation,
which can be a single debt instrument or an index of debt instruments, has occurred. If a credit event occurs,
the seller typically pays the buyer the full notional value, or “par
value,”
of the reference obligation in exchange for
the reference obligation upon settlement. Credit default swaps are used as a means of “buying”
credit protection, i.e., attempting to mitigate
the risk of default or credit quality deterioration in some portion of a fund’s holdings, or “selling”
credit protection, i.e., attempting to gain exposure to an underlying issuer’s or group of issuers’ credit quality characteristics
without directly investing in that issuer or group of issuers. When a fund is a seller of credit protection, it
effectively adds leverage to its portfolio because, in addition to its net assets, a fund would typically be subject to investment
exposure on the notional amount of the swap. A fund will only sell credit protection with respect to securities in
which it would be authorized to invest directly.
If a fund is a buyer
of a credit default swap and no credit event occurs, a fund will lose its investment and recover nothing.
However, if a fund is a buyer and a credit event occurs, a fund will typically receive the full notional value of the
reference obligation, whose value may have deteriorated at the time the transaction settles. As a seller, a fund receives
a fixed rate of income through the term of the contract (typically between six months and three years), provided that
there is no default event. If a credit event occurs, the seller typically pays the buyer the full notional value of the reference
obligation.
Credit default swaps
involve greater risks than if a fund had invested in the reference obligation directly. In addition to
the risks applicable to derivatives generally, credit default swaps involve special risks because they may be difficult to
value, may be highly susceptible to liquidity and credit risk, and may pay a return to the party that has paid the premium
only in the event of an actual default by the issuer or issuers of the underlying obligation (as opposed to a credit
downgrade or other indication of financial difficulty).
A
fund may use credit default swaps to gain exposure to particular issuers or particular markets through investments in
portfolios of credit default swaps, such as Markit’s North American High Yield CDX Index, the CDX.NA.HY Index, or
Markit’s North American Commercial Mortgage-Backed Securities CMBX Index, the CMBX.NA Index. A fund can be
a buyer or seller of protection based on these, or similar indexes. Contracts on these indexes are generally the same
as contracts on single debt instruments, although there may be some differences, including that the contracts may
be structured as pay as you go contracts.
“Total
return”
swaps are contracts in which one party agrees to make periodic payments to another party based on the
change in market value of the assets underlying the contract, which may include a specific security, basket of securities
or securities indices during the specified period, in return for periodic payments based on a fixed or variable interest
rate or the total return of other underlying assets. Total return swap agreements may be used to obtain exposure to
a security or market without owning or taking physical custody of such security or investing directly in such market. Total
return swaps may add leverage to a fund because, in addition to its net assets, a fund would be subject to investment
exposure on the notional amount of the swap.
Swaps typically involve
a small investment of cash relative to the magnitude of risks assumed. As a result, swaps can
be highly volatile and may have a considerable impact on a fund’s performance. Depending on how they are used, swaps
may increase or decrease the overall volatility of a fund’s investments and its share price and yield. A fund will usually
enter into swaps on a net basis, i.e., the two payment streams are netted out in a cash settlement on the payment
date or dates specified in the instrument, with a fund receiving or paying, as the case may be, only the net amount
of the two payments.
A fund bears the risk
of loss of the amount expected to be received under a swap in the event of the default or bankruptcy
of a Counterparty. In addition, if the Counterparty’s creditworthiness declines, the value of a swap may decline,
potentially resulting in losses for a fund. A fund may also suffer losses if it is unable to terminate outstanding swaps
(either by assignment or other disposition) or reduce its exposure through offsetting transactions (i.e., by entering into
an offsetting swap with the same party or similarly creditworthy party).
A fund may also enter
into swap options. A swap option is a contract that gives a counterparty the right (but not the obligation)
in return for payment of a premium, to enter into a new swap agreement or to shorten, extend, cancel or otherwise
modify an existing swap agreement, at some future time on specified terms. Depending on the terms, a fund
will generally incur greater risk when it writes a swap option than when it purchases a swap option. When a fund
purchases a swap option, it risks losing the amount of the premium it has paid should it decide to let the option expire.
The Dodd-Frank Wall Street
Reform and Consumer Protection Act (Dodd-Frank Act) and related regulations
have imposed several recent
requirements on swap market participants, including registration and business
conduct requirements on dealers that enter into
swaps or non-deliverable forward currency contracts with certain clients and the imposition of
central clearing and a corresponding exchange-trading execution requirement for certain swap contracts. Central clearing
and a corresponding exchange-trading execution requirement are required
for certain
swap transactions, including some interest rate
swaps and credit default index swaps. In a cleared transaction,
a fund will enter into the transaction with
a counterparty, and performance of the transaction will be effected by a central clearinghouse. A clearing arrangement reduces
a fund's exposure to the credit risk of the counterparty, but subjects the fund to the credit risk of the clearinghouse and
a member of the clearinghouse through which the fund holds its cleared position. A fund will be required to post specific
levels of margin which may be greater than the margin a fund would have been required to post in the OTC market.
In addition, uncleared OTC swap transactions will be subject to regulatory collateral requirements that could render
entering into swaps in the OTC market prohibitively expensive. These regulations (or choice to no longer use a
particular derivative instrument that triggers additional regulations) could cause a fund to change the derivative investments that
it utilizes or to incur additional expenses.
In the event of a counterparty’s
(or its affiliate’s) insolvency, a fund’s ability to exercise remedies, such as the termination of
transactions, netting of obligations and realization on collateral, could be stayed or eliminated under special resolution regimes
adopted in the United States, the European Union and various other jurisdictions. Such regimes generally
provide
government authorities with broad authority to intervene when a financial institution is experiencing financial difficulty.
In the European Union, the regulatory authorities could reduce, eliminate or convert to equity the liabilities to
a fund of a counterparty subject to such proceedings (sometimes referred to as a “bail
in”).
Contracts for Difference.
A contract for difference offers exposure to price changes in an underlying security without ownership
of such security, typically by providing investors the ability to trade on margin. A fund may purchase contracts for
difference (CFD). A CFD is a privately negotiated contract between two parties, buyer and seller, stipulating that the
seller will pay to or receive from the buyer the difference between the notional value of the underlying instrument at
the opening of the contract and that instrument’s notional value at the end of the contract. The underlying instrument may
be a single security, stock basket or index. A CFD can be set up to take either a short or long position on the underlying
instrument. The buyer and seller are typically both required to post margin, which is adjusted daily. The buyer
will also pay to the seller a financing rate on the notional amount of the capital employed by the seller less the margin
deposit. A CFD is usually terminated at the buyer’s initiative. The seller of the CFD will simply match the exposure of
the underlying instrument in the open market and the parties will exchange whatever payment is due.
As is the case with owning
any financial instrument, there is the risk of loss associated with buying a CFD. For example, if
a fund buys a long CFD and the underlying security is worth less at the end of the contract, the fund would be required
to make a payment to the seller and would suffer a loss. Also, there may be liquidity risk if the underlying instrument
is illiquid because the liquidity of a CFD is based on the liquidity of the underlying instrument. A further risk
is that adverse movements in the underlying security will require the buyer to post additional margin. CFDs also carry
counterparty risk, i.e., the risk that the counterparty to the CFD transaction may be unable or unwilling to make payments
or to otherwise honor its financial obligations under the terms of the contract. If the counterparty were to do
so, the value of the contract, and of a fund’s shares, may be reduced. CFDs are regulated as swaps by the CFTC.
Participatory Notes or Participation
Notes. Participatory notes or participation notes are issued
by banks or broker-dealers (often associated
with non-US-based brokerage firms) and are designed to replicate the performance of certain securities or
markets. Typically, purchasers of participatory notes are entitled to a return measured by the change in value of an identified
underlying security or basket of securities. The price, performance, and liquidity of the participatory note are
all linked directly to the underlying security. The holder of a participatory note may be entitled to receive any dividends paid
in connection with the underlying security, which may increase the return of a participatory note, but typically does
not receive voting or other rights as it would if it directly owned the underlying security. A fund’s ability to redeem or
exercise a participatory note generally is dependent on the liquidity in the local trading market for the security underlying
the note. Participatory notes are commonly used when a direct investment in the underlying security is restricted
due to country-specific regulations.
Participatory notes are
a type of equity-linked derivative, which are generally traded over-the-counter and, therefore, will
be subject to the same risks as other over-the-counter derivatives. The performance results of participatory notes will
not replicate exactly the performance of the securities or markets that the notes seek to replicate due to transaction costs
and other expenses. Investments in participatory notes involve the same risks associated with a direct investment in
the shares of the companies the notes seek to replicate. Participatory notes constitute general unsecured contractual obligations
of the banks or broker-dealers that issue them. Consequently, a purchaser of a participatory note is relying on
the creditworthiness of such banks or broker-dealers and has no rights under the note against the issuer of the security
underlying the note. In addition, there is no guarantee that a liquid market for a participatory note will exist or
that the issuer of the note will be willing to repurchase the note when a fund wishes to sell it. Because a participatory note
is an obligation of the issuer of the note, rather than a direct investment in shares of the underlying security, a fund
may suffer losses potentially equal to the full value of the participatory note if the issuer of the note fails to perform
its obligations.
Commodity-Linked Derivatives.
A fund may invest in instruments with principal and/or coupon payments linked to the
value of commodities, commodity futures contracts, or the performance of commodity indices such as “commodity-linked”
or “index-linked”
notes.
The
values of commodity-linked notes will rise and fall in response to changes in the underlying commodity or related index
or investment. These notes expose a fund economically to movements in commodity prices, but a particular note
has many features of a debt obligation. These notes also are subject to credit and interest rate risks that in general affect
the value of debt securities. Therefore, at the maturity of the note, a fund may receive more or less principal than
it originally invested. A fund might receive interest payments on the note that are more or less than the stated coupon
interest rate payments.
Commodity-linked notes
may involve leverage, meaning that the value of the instrument will be calculated as a multiple of
the upward or downward price movement of the underlying commodity future or index. The prices of commodity-linked instruments
may move in different directions than investments in traditional equity and debt securities in periods of rising
inflation. Of course, there can be no guarantee that a fund’s commodity-linked investments would not be correlated with
traditional financial assets under any particular market conditions.
Commodity-linked notes
may be wholly principal protected, partially principal protected or offer no principal protection. With
a wholly principal protected instrument, a fund will receive at maturity the greater of the par value of the note or
the increase in value of the underlying index. Partially protected instruments may suffer some loss of principal up to
a specified limit if the underlying index declines in value during the term of the instrument. For instruments without principal
protection, there is a risk that the instrument could lose all of its value if the index declines sufficiently. The Advisor’s
decision on whether and to what extent to use principal protection depends in part on the cost of the protection. In
addition, the ability of a fund to take advantage of any protection feature depends on the creditworthiness of the issuer
of the instrument.
Commodity-linked notes
are generally hybrid instruments which are excluded from regulation under the CEA and the rules
thereunder. Additionally, from time to time a fund may invest in other hybrid instruments that do not qualify for exemption
from regulation under the CEA.
In order to qualify for
the special tax treatment accorded regulated investment companies and their shareholders, a fund
must, among other things, derive at least 90% of its income from certain specified sources (qualifying income). Income
from certain commodity-related investments
does not constitute qualifying income to a fund. The tax treatment of
commodity-linked notes and certain other derivative instruments in which a fund might invest is not certain, in particular
with respect to whether income and gains from such instruments constitutes qualifying income. If the fund treats
income from a particular instrument as qualifying income and the income is later determined not to constitute qualifying
income, and, together with any other nonqualifying income, causes the fund’s nonqualifying income to exceed
10% of its gross income in any taxable year, a fund will fail to qualify as a regulated investment company unless
it is eligible to and does pay a tax at the fund level. Certain funds (including DWS Enhanced Commodity Strategy Fund
and DWS RREEF Real Assets Fund) have obtained private letter rulings from the IRS confirming that the income and
gain earned through a wholly-owned Subsidiary that invests in certain types of commodity-linked derivatives constitute qualifying
income under the Code. See “Taxes”
in Appendix II-H
of this SAI.
Combined Transactions.
A fund may enter into multiple transactions, including multiple options transactions, multiple futures
transactions, multiple currency transactions (including forward currency contracts) and multiple interest rate transactions
and any combination of futures, options, currency and interest rate transactions (component transactions), instead
of a single derivative, as part of a single or combined strategy when, in the opinion of the Advisor, it is in the best
interests of a fund to do so. A combined transaction will usually contain elements of risk that are present in each of
its component transactions. Although combined transactions are normally entered into based on the Advisor’s judgment that
the combined strategies will reduce risk or otherwise more effectively achieve the desired portfolio management goal,
it is possible that the combination will instead increase such risks or hinder achievement of the portfolio management objective.
Direct Debt Instruments.
Direct debt instruments are interests in amounts owed by a corporate, governmental or other
borrower to lenders (direct loans), to suppliers of goods or services (trade claims or other receivables) or to other
parties. When a fund participates in a direct loan it will be lending money directly to an issuer. Direct loans generally
do not have an underwriter or agent bank, but instead, are negotiated between a company’s management team
and a lender or group of lenders. Direct loans typically offer better security and structural terms than other types
of
high yield securities. Direct debt obligations are often the most senior obligations in an issuer’s capital structure or
are well-collateralized so that overall risk is lessened. Trade claims are unsecured rights of payment arising from obligations
other than borrowed funds. Trade claims include vendor claims and other receivables that are adequately documented
and available for purchase from high-yield broker-dealers. Trade claims typically sell at a discount. In addition to
the risks otherwise associated with low-quality obligations, trade claims have other risks, including the possibility that
the amount of the claim may be disputed by the obligor. Trade claims normally are be considered illiquid and pricing
can be volatile. Direct debt instruments involve a risk of loss in case of default or insolvency of the borrower. A
fund will rely primarily upon the creditworthiness of the borrower and/or the collateral for payment of interest and repayment
of principal. The value of a fund’s investments may be adversely affected if scheduled interest or principal payments
are not made. Because most direct loans will be secured, there will be a smaller risk of loss with direct loans
than with an investment in unsecured high yield bonds or trade claims. Investment in the indebtedness of borrowers whose
creditworthiness is poor involves substantially greater risks and may be highly speculative. Borrowers that are in
bankruptcy or restructuring may never pay off their indebtedness or may pay only a small fraction of the amount owed.
Investments in direct debt instruments also involve interest rate risk and liquidity risk. However, interest rate risk
is lessened by the generally short-term nature of direct debt instruments and their interest rate structure, which typically
floats. To the extent the direct debt instruments in which a fund invests are considered illiquid, the lack of a liquid
secondary market (1) will have an adverse impact on the value of such instruments, (2) will have an adverse impact
on a fund’s ability to dispose of them when necessary to meet a fund’s liquidity needs or in response to a specific
economic event, such as a decline in creditworthiness of the issuer, and (3) may make it more difficult for a fund
to assign a value to these instruments for purposes of valuing a fund’s portfolio and calculating its net asset value.
In order to lessen liquidity risk, a fund anticipates investing primarily in direct debt instruments that are quoted and
traded in the high yield market. Trade claims may also present a tax risk to a fund.
Dollar Roll Transactions.
Dollar roll transactions consist of the sale by a fund to a bank or broker-dealer (counterparty) of
mortgage-backed securities together with a commitment to purchase from the counterparty similar, but not identical, securities
at a future date, at the same price. The counterparty receives all principal and interest payments, including prepayments,
made on the security while it is the holder. A fund receives a fee from the counterparty as consideration for
entering into the commitment to purchase. Dollar rolls may be renewed over a period of several months with a different
purchase and repurchase price fixed and a cash settlement made at each renewal without physical delivery of
securities. Moreover, the transaction may be preceded by a firm commitment agreement pursuant to which a fund agrees
to buy a security on a future date.
A dollar roll involves
costs to a fund. For example, while a fund receives a fee as consideration for agreeing to repurchase the
security, a fund forgoes the right to receive all principal and interest payments while the counterparty holds the security.
These payments to the counterparty may exceed the fee received by a fund, in which case the use of this technique
will result in a lower return than would have been realized without the use of dollar rolls. Further, although a
fund can estimate the amount of expected principal prepayment over the term of the dollar roll, a variation in the actual
amount of prepayment could increase or decrease the cost of the dollar roll. A “covered
roll”
is a specific type of dollar roll for which
there is an offsetting cash position or a cash equivalent security position which matures on or before
the forward settlement date of the dollar roll transaction. A fund may enter into both covered and uncovered rolls.
The entry into dollar
rolls involves potential risks of loss that are different from those related to the securities underlying the
transactions. A fund will be exposed to counterparty risk. For example, if the counterparty becomes insolvent, a fund’s
right to purchase from the counterparty might be restricted. Additionally, the value of such securities may change adversely
before a fund is able to purchase them. Similarly, a fund may be required to purchase securities in connection with
a dollar roll at a higher price than may otherwise be available on the open market. Since, as noted above, the counterparty
is required to deliver a similar, but not identical security to a fund, the security that a fund is required to buy
under the dollar roll may be worth less than the identical security. Finally, there can be no assurance that a fund’s use
of the cash that it receives from a dollar roll will provide a return that exceeds transaction costs associated with the
dollar roll.
Energy Infrastructure
Companies. These are companies that own and operate assets that
are used in the energy infrastructure sector,
including assets used in exploring, developing, producing, generating, transporting (including marine),
transmitting, terminal operation, storing, gathering, processing, refining, distributing, mining or marketing of
natural gas, natural gas liquids, crude oil, refined petroleum products (including biodiesel and ethanol), coal or electricity, or
that provide energy infrastructure related services. Energy infrastructure companies operate, among other things, assets
used in exploring, developing, producing, generating, transporting, transmitting, storing, gathering, processing, refining,
distributing, mining, marketing or generation of natural gas, natural gas liquids, crude oil, refined petroleum products
(including biodiesel and ethanol), coal or electricity.
Environmental, Social and Governance
(ESG) Considerations. Although a fund does not seek to implement
a specific ESG strategy unless disclosed in
its Prospectus, portfolio management may consider ESG factors as part of the
investment process for actively managed funds. ESG factors are considered together with more traditional subjects of
investment analysis such as market position, growth prospects, and business strategy, as part of a fund’s overall fundamental
research process. When evaluating ESG factors, portfolio management may rely on data obtained from a
variety of sources, including company annual reports and sustainability reports, as well as other publicly available information.
For most asset classes and market segments, portfolio management also has access to ESG research and
assessments,
including research provided by internal DWS analysts which consider ESG risks and opportunities, as
well as access to proprietary grades
and additional information from DWS’s proprietary ESG tool. For funds that do
not seek to implement a specific ESG strategy, portfolio management may consider those ESG factors it deems financially
material when making investment decisions, and the materiality of ESG considerations in a fund’s process will
differ from strategy to strategy, from sector to sector, and from portfolio manager to portfolio manager, and, in some
cases, ESG considerations may not represent a material component of a fund’s investment process. Certain funds
(“ESG-dedicated
funds”)
incorporate specific ESG considerations into their investment objectives, strategies, and/or
processes, as described in a fund’s Prospectus. Because investors can differ in their views of what constitutes positive
or negative ESG characteristics, a fund may invest in issuers that do not reflect the beliefs and values with respect
to ESG of any particular investor. ESG considerations may affect a fund’s exposure to certain companies or industries,
and an ESG-dedicated fund may forego certain investment opportunities. While portfolio management views ESG
considerations as having the potential to contribute to a fund’s long-term performance, there is no guarantee that
such results will be achieved.
As portfolio management
weighs the ESG attributes of a potential investment, they may use the DWS proprietary ESG
tool. The DWS proprietary ESG tool uses multiple external data providers and public data sources, and provides automated
analysis of multiple ESG factors or issues, including a number of proprietary DWS ESG grades.
The DWS proprietary ESG tool covers most listed
asset classes but there is limited information on high yield, municipal bonds, emerging
markets, IPOs and certain other types of securities due to incomplete vendor coverage. Through the ESG tool,
portfolio management may also access issuer-specific contextual analysis that provides additional information about
an issuer’s ESG risks and opportunities, risk mitigation actions or plans and other characteristics. An additional DWS
internal review process allows for changes to an ESG grade.
An internal review may occur, for example, if it is deemed
that information is not reflected in the existing ESG grade
because new information or insights have emerged that
the ESG data providers have not yet processed. Additional examples of information that may be considered in such
internal reviews
include, but are not limited to, the announcement of new (or withdrawal from previously announced) climate-related
commitments, or the resolution of legacy (or involvement in new) controversies. Portfolio management may
use their discretion in considering application of internal reviews
on a given ESG grade.
Eurodollar Obligations.
Eurodollar bank obligations are US dollar-denominated certificates of deposit and time deposits issued
outside the US capital markets by foreign branches of US banks and US branches of foreign banks. Eurodollar obligations
are subject to the same risks that pertain to domestic issues, notably credit risk, market risk and liquidity risk.
Additionally, Eurodollar obligations are subject to certain sovereign risks. One such risk is the possibility that a sovereign
country might prevent capital, in the form of dollars, from flowing across its borders. Other risks include: adverse
political and economic developments; the extent and quality of government regulation of financial markets and
institutions; the imposition of foreign withholding taxes, and the expropriation or nationalization of foreign issues.
Exchange-Traded
Notes (ETNs). A fund may invest in exchange-traded notes, or
ETNs, to the extent that such investments are
consistent with the fund’s investment objective, policies, strategies and restrictions and the limitations of the 1940
Act. ETNs are senior, unsecured, unsubordinated debt securities issued by a bank or other issuer, the returns of
which are linked to the performance of a particular market index, benchmark or strategy factor, minus applicable fees.
ETNs typically do not make periodic interest payments and principal typically is not protected. ETNs are traded on
an exchange during normal trading hours. However, investors can also hold ETNs until maturity. At maturity, the issuer
pays to the investor a cash amount equal to the principal amount, subject to the day’s market index, benchmark or
strategy factor. ETNs are subject to credit risk, including the credit risk of the issuer, and the value of the ETN may drop
due to a downgrade in the issuer’s credit rating, regardless of the performance of the underlying market index, benchmark
or strategy. The value of an ETN may also be influenced by time to maturity, level of supply and demand for
the ETN, volatility and lack of liquidity in the underlying assets, changes in the applicable interest rates, and economic, legal,
political or geographic events that affect the underlying assets. When a fund invests in an ETN, it will bear its proportionate
share of any fees and expenses borne by the ETN. An ETN that is tied to a specific market index, benchmark or
strategy may not be able to replicate and maintain the composition and relative weighting of securities, commodities or
other components in the applicable market index, benchmark or strategy. Although an ETN is listed on an exchange, there
can be no assurance that a secondary market will exist for an ETN. In addition, ETNs that use leverage may, at times,
be relatively illiquid and thus may be difficult to buy or sell at a fair price. There may be times when an ETN trades
at a premium or discount to its net asset value.
ETNs are also subject
to tax risk. The U.S. federal income tax consequences of investing in ETNs are uncertain and may
be less favorable than a direct investment in the underlying holdings. There can be no assurance that the IRS will
accept, or a court will uphold, how a fund characterizes and treats ETNs for tax purposes. Among other issues, the
Code could recharacterize all or a portion of any long-term capital gain that a fund recognizes with respect to ETNs as
ordinary income.
Fixed Income Securities.
Fixed income securities, including corporate debt obligations, generally expose a fund to the
following types of risk: (1) interest rate risk (the potential for fluctuations in bond prices due to changing interest rates);
(2) income risk (the potential for a decline in a fund’s income due to falling market interest rates); (3) credit risk (the
possibility that a bond issuer will fail to make timely payments of either interest or principal to a fund); (4) prepayment risk
or call risk (the likelihood that, during periods of falling interest rates, securities with high stated interest rates will
be prepaid, or “called”
prior to maturity, requiring a fund to invest the proceeds at generally lower interest rates); and
(5) extension risk (the likelihood that as interest rates increase, slower than expected principal payments may extend
the average life of fixed income securities, which will have the effect of locking in a below-market interest rate,
increasing the security’s duration and reducing the value of the security).
In periods of declining
interest rates, the yield (income from a fixed income security held by a fund over a stated period
of time) of a fixed income security may tend to be higher than prevailing market rates, and in periods of rising interest
rates, the yield of a fixed income security may tend to be lower than prevailing market rates. In addition, when interest
rates are falling, the inflow of net new money to a fund will likely be invested in portfolio instruments producing lower
yields than the balance of a fund’s portfolio, thereby reducing the yield of a fund. In periods of rising interest rates,
the opposite can be true. The net asset value of a fund can generally be expected to change as general levels of
interest rates fluctuate. The value of fixed income securities in a fund’s portfolio generally varies inversely with changes
in interest rates. Prices of fixed income securities with longer effective maturities are more sensitive to interest rate
changes than those with shorter effective maturities.
Corporate debt obligations
generally offer less current yield than securities of lower quality, but lower-quality securities generally
have less liquidity, greater credit and market risk, and as a result, more price volatility.
In a low or negative
interest rate environment, debt instruments may trade at negative yields, which means the purchaser of
the instrument may receive at maturity less than the total amount invested. In addition, in a negative interest rate environment,
if a bank charges negative interest, instead of receiving interest on deposits, a depositor must pay the bank
fees to keep money with the bank. To the extent a fund holds a negatively-yielding debt instrument or has a bank
deposit with a negative interest rate, the fund would generate a negative return on that investment.
In
response to market volatility and economic uncertainty in connection with the COVID-19 pandemic, the US government and
certain foreign central banks took steps to stabilize markets by, among other things, reducing interest rates, including pursuing
negative interest rate policies in some instances. More recently, the
US Federal Reserve
and certain foreign central banks have raised
interest rates in
response to increased inflation.
A rising interest rate environment may cause
investors to move out of fixed-income and related securities on a large scale, which could adversely affect the price
and liquidity of such securities and could also result in increased redemptions from a fund. Recent increased
inflation
may cause fixed-income securities and related markets to experience heightened levels of interest rate volatility and
liquidity risk. A sharp rise in interest rates could cause a fund’s share price to decline.
These considerations
may limit a fund’s ability to locate fixed-income instruments containing the desired risk/return profile.
Changing interest rates could have unpredictable effects on the markets, may expose fixed-income and related markets
to heightened volatility and potential illiquidity, and may increase interest rate risk for a fund.
Foreign Currencies.
Because investments in foreign securities usually will involve currencies of foreign countries, and
because a fund may hold foreign currencies and forward contracts, futures contracts and options on foreign currencies and
foreign currency futures contracts, the value of the assets of a fund as measured in US dollars may be affected favorably
or unfavorably by changes in foreign currency exchange rates and exchange control regulations, and a fund may
incur costs and experience conversion difficulties and uncertainties in connection with conversions between various
currencies. Fluctuations in exchange rates may also affect the earning power and asset value of the foreign entity
issuing the security.
The strength or weakness
of the US dollar against these currencies is responsible for part of a fund’s investment performance.
If the dollar falls in value relative to the Japanese yen, for example, the dollar value of a Japanese stock held
in the portfolio will rise even though the price of the stock remains unchanged. Conversely, if the dollar rises in value
relative to the yen, the dollar value of the Japanese stock will fall. Many foreign currencies have experienced significant
devaluation relative to the dollar.
Although a fund values
its assets daily in terms of US dollars, it may not convert its holdings of foreign currencies into
US dollars on a daily basis. Investors should be aware of the costs of currency conversion. Although foreign exchange dealers
do not charge a fee for conversion, they realize a profit based on the difference (the spread) between the prices
at which they are buying and selling various currencies. Thus, a dealer may offer to sell a foreign currency to a fund
at one rate, while offering a lesser rate of exchange should a fund desire to resell that currency to the dealer. A fund
will conduct its foreign currency exchange transactions either on a spot (i.e., cash) basis at the spot rate prevailing in
the foreign currency exchange market, or through entering into options or forward or futures contracts to purchase or
sell foreign currencies.
Foreign Investment.
Foreign securities are normally denominated and traded in foreign currencies. As a result, the value
of a fund’s foreign investments and the value of its shares may be affected favorably or unfavorably by changes in
currency exchange rates relative to the US dollar. There may be less information publicly available about a foreign issuer
than about a US issuer, and foreign issuers may not be subject to accounting, auditing and financial reporting standards
and practices comparable to those in the US. The securities of some foreign issuers are less liquid and at times
more volatile than securities of comparable US issuers. Foreign brokerage commissions and other fees are also
generally higher than in the US. Foreign settlement procedures and trade regulations may involve certain risks (such
as delay in payment or delivery of securities or in the recovery of a fund’s assets held abroad) and expenses not
present in the settlement of investments in US markets. Payment for securities without delivery may be required in
certain foreign markets.
In addition, foreign
securities may be subject to the risk of nationalization or expropriation of assets, imposition of currency
exchange controls or restrictions on the repatriation of foreign currency, confiscatory taxation, political or financial
instability and diplomatic developments which could affect the value of a fund’s investments in certain foreign countries.
Governments of many countries have exercised and continue to exercise substantial influence over many aspects
of the private sector through the ownership or control of many companies, including some of the largest in these
countries. As a result, government actions in the future could have a significant effect on economic conditions which
may adversely affect prices of certain portfolio securities. There is also generally less government supervision
and
regulation of stock exchanges, brokers, and listed companies than in the US. Dividends or interest on, or proceeds from
the sale of, foreign securities may be subject to foreign withholding taxes, and special US tax considerations may
apply (see Taxes). Moreover, foreign economies may differ favorably or unfavorably from the US economy in such respects
as growth of gross national product, rate of inflation, capital reinvestment, resource self-sufficiency and balance of
payments position.
The foreign countries
in which a fund invests may become subject to economic and trade sanctions or embargoes imposed
by the US or foreign governments or the United Nations. Such sanctions or other actions could result in the devaluation
of a country’s currency or a decline in the value and liquidity of securities of issuers in that country. In addition,
such sanctions could result in a freeze on an issuer’s securities which would prevent a fund from selling securities
it holds. The value of the securities issued by companies that operate in, or have dealings with these countries may
be negatively impacted by any such sanction or embargo and may reduce a fund’s returns. The risks related to sanctions
or embargoes are greater in emerging and frontier market countries.
Legal remedies available
to investors in certain foreign countries may be more limited than those available with respect to
investments in the US or in other foreign countries. The laws of some foreign countries may limit a fund’s ability to
invest in securities of certain issuers organized under the laws of those foreign countries.
Many foreign countries
are heavily dependent upon exports, particularly to developed countries, and, accordingly, have
been and may continue to be adversely affected by trade barriers, managed adjustments in relative currency values,
and other protectionist measures imposed or negotiated by the US and other countries with which they trade. These
economies also have been and may continue to be negatively impacted by economic conditions in the US and other
trading partners, which can lower the demand for goods produced in those countries.
China investment. Investments
in the Greater China region are subject to special risks, such as less developed or less
efficient trading markets, restrictions on monetary repatriation and possible seizure, nationalization or expropriation of
assets. Investments in Taiwan may be adversely affected by its political and economic relationship with the People’s Republic
of China (“China”
or the “PRC”).
In addition, the willingness of the Chinese government to support the Chinese
and Hong Kong economies and markets is uncertain and changes in government policy could significantly affect
the markets in both Hong Kong and China.
Increasing trade tensions
between China and its trading partners, including the United States, have resulted in tariffs and
other limitations, and may in the future result in additional measures or actions that could have an adverse effect on
an investment in the Greater China region.
Investments in equity
securities of companies based in the PRC and listed and traded on the Shanghai Stock Exchange and
Shenzhen Stock Exchange (“A-Shares”)
may be made through the Shanghai – Hong Kong and Shenzhen – Hong Kong
Stock Connect programs (“Stock
Connect”).
Stock Connect is a securities trading and clearing program between either
the Shanghai Stock Exchange or Shenzhen Stock Exchange and The Stock Exchange of Hong Kong Limited (“SEHK”),
China Securities Depository and Clearing Corporation Limited and Hong Kong Securities Clearing Company Limited.
Stock Connect is designed to permit mutual stock market access between mainland China and Hong Kong by
allowing investors to trade and settle shares on each market via their local exchanges. Trading through Stock Connect is
subject to a daily quota (“Daily
Quota”),
which limits the maximum daily net purchases on any particular day by Hong
Kong investors (and foreign investors trading through Hong Kong) trading PRC listed securities and PRC investors trading
Hong Kong listed securities trading through the relevant Stock Connect. Accordingly, a fund’s direct investments in
A-Shares may be limited by the Daily Quota that limits total purchases through Stock Connect. The Daily Quota may
restrict a fund’s ability to invest in A-Shares through Stock Connect on a timely basis, which could affect the fund’s
performance.
Stock Connect is generally
available only on business days when both the mainland Chinese and the Hong Kong markets are
open. Therefore, due to differences in trading days, a fund may
not be able to trade its A-Shares and may also be subject to
the risk of price fluctuations in A-Shares on days when Stock Connect is not trading.
Investments
made through Stock Connect are subject to trading, clearance and settlement procedures that are untested in
the PRC, which could pose risks to a fund. Because of the way in which A-Shares are held in Stock Connect, the precise
nature and rights of a fund are not well defined under the law of the PRC and a fund may not be able to exercise
the rights of a shareholder and may be limited in their ability to pursue claims against the issuers of a security. Eligible
securities invested through Stock Connect generally may not be sold, purchased or otherwise transferred other
than through Stock Connect in accordance with applicable rules. The list of securities eligible to be traded through Stock
Connect may change from time to time. When a security is recalled from the list of securities eligible for trading on
Stock Connect, a fund may only sell, but not buy, the securities, which could adversely affect the fund’s investment strategy.
Current tax regulations in PRC, including a temporary exemption from PRC income tax and PRC business tax
for capital gains realized from trading on Stock Connect, are subject to change. Any such change could have an adverse
effect on a fund’s returns.
European investment.
European financial markets have recently experienced volatility and have been adversely affected by
concerns about economic downturns, credit rating downgrades, rising government debt level and possible default on
or restructuring of government debt in several European countries. Most countries in Western Europe are members of
the European Union (EU), which faces major issues involving its membership, structure, procedures and policies. European
countries that are members of the Economic and Monetary Union of the European Union ((EMU), comprised of
the EU members that have adopted the Euro currency) are subject to restrictions on inflation rates, interest rates, deficits,
and debt levels, as well as fiscal and monetary controls. European countries are significantly affected by fiscal and
monetary controls implemented by the EMU, and it is possible that the timing and substance of these controls may
not address the needs of all EMU member countries. In addition, the fiscal policies of a single member state can
impact and pose economic risks to the EU as a whole. Investing in Euro-denominated securities also risks exposure to
a currency that may not fully reflect the strengths and weaknesses of the disparate economies that comprise Europe. There
is continued concern over member state-level support for the Euro, which could lead to certain countries leaving the
EMU, the implementation of currency controls, or potentially the dissolution of the Euro. The dissolution of the Euro
would have significant negative effects on European financial markets.
In a referendum held
on June 23, 2016, citizens of the United Kingdom voted to leave the EU, creating economic, political
and legal uncertainty. Consequently, the United Kingdom government, pursuant to the Treaty of Lisbon (the Treaty),
gave notice of its withdrawal in March 2017 and began negotiations with the EU Council to agree to terms for
the United Kingdom’s withdrawal from the EU. The Treaty provided for an initial two-year negotiation period, which was
extended by agreement of the parties. On January 31, 2020, the United Kingdom officially withdrew from the EU
pursuant to a withdrawal agreement, providing for a transition period in which the United Kingdom negotiated and
finalized a trade deal with the EU, the EU-UK Trade and Cooperation Agreement (the Trade Agreement). As a result, as
of January 1, 2021 the United Kingdom is no longer part of the EU customs union and single market, nor is it subject
to EU policies and international agreements. The Trade Agreement, among other things, provides for zero tariffs
and zero quotas on all goods that comply with appropriate rules of origin and establishes the treatment and level
of access the United Kingdom and EU have agreed to grant each other’s service suppliers and investors. The Trade
Agreement also covers digital trade, intellectual property, public procurement, aviation and road transport, energy, fisheries,
social security coordination, law enforcement and judicial cooperation in criminal matters, thematic cooperation and
participation in EU programs. Even with the Trade Agreement in place, the United Kingdom’s withdrawal from the
EU may create new barriers to trade in goods and services and to cross-border mobility and exchanges.
The United Kingdom has
one of the largest economies in Europe, and member countries of the EU are substantial trading
partners of the United Kingdom. The City of London’s economy is dominated by financial services and uncertainty remains
regarding the treatment of cross-border trade in financial services. While the Trade Agreement includes certain provisions
to support cross-border trade in financial services, it is not comprehensively addressed in the Trade Agreement and
the parties continue to discuss ‘equivalence’ rights to allow market access for cross-border financial services. In March
2021, the EU and the United Kingdom reached a memorandum of understanding, establishing a framework for
voluntary regulatory cooperation on financial services, although the memorandum of understanding has not yet been
formally signed or entered into force. The United Kingdom has only received two equivalence decisions from the
EU, both of which were time-limited and only one of which, relating to United Kingdom central counterparties, is still
in force. Without access to the EU single market, certain financial services in the United Kingdom may move outside
of the United Kingdom as a result of its withdrawal from the EU. In addition, financial services firms in the
United
Kingdom may need to move staff and comply with two separate sets of rules or lose business to financial services
firms in the EU. Furthermore, the withdrawal from the EU creates the potential for decreased trade, the possibility
of capital outflows, devaluation of the pound sterling, the cost of higher corporate bond spreads due to continued
uncertainty, and the risk that all the above could damage business and consumer spending as well as foreign direct
investment. As a result of the withdrawal from the EU, the British economy and its currency may be negatively impacted
by changes to its economic and political relations with the EU. Additional member countries seeking to withdraw
from the EU would likely cause additional market disruption globally and introduce new legal and regulatory uncertainties.
The long-term impact
of the United Kingdom’s withdrawal from the EU is still unknown and could have adverse economic and
political effects on the United Kingdom, the EU and its member countries, and the global economy, including financial
markets and asset valuations.
Additionally, the manner
in which the EU responded to the global recession and sovereign debt issues raised questions about
its ability to react quickly to rising borrowing costs and a potential default by Greece and other countries on their
sovereign debt and also revealed a lack of cohesion in dealing with the fiscal problems of member states. Many European
countries continue to suffer from high unemployment rates. Since 2010, several countries, including Greece, Italy,
Spain, Ireland and Portugal, agreed to at least one series of multi-year bailout loans from the European Central Bank,
International Monetary Fund, and other institutions. To address budget deficits and public debt concerns, a number
of European countries have imposed strict austerity measures and comprehensive financial and labor market reforms.
In addition, social unrest, including protests against the austerity measures and domestic terrorism, could decrease
tourism, lower consumer confidence, and otherwise impede financial recovery in Europe.
Emerging markets.
In general, the Advisor considers “emerging
markets”
to include any country that is defined as an
emerging market or developing economy by The International Bank for Reconstruction and Development (the World Bank),
the International Finance Corporation or the United Nations or its authorities. The risks described above, including the
risks of nationalization or expropriation of assets, typically are increased in connection with investments in “emerging
markets.”
For example, political and economic structures in these countries may be in their infancy and developing rapidly,
and such countries may lack the social, political and economic stability characteristic of more developed countries (including
amplified risk of war and terrorism). Certain of these countries have in the past failed to recognize private property
rights and have at times nationalized and expropriated the assets of private companies. Investments in emerging markets
may be considered speculative.
The currencies of certain
emerging market countries have experienced devaluations relative to the US dollar, and future
devaluations may adversely affect the value of assets denominated in such currencies. In addition, currency hedging
techniques may be unavailable in certain emerging market countries. Many emerging market countries have experienced
substantial, and in some periods extremely high, rates of inflation or deflation for many years, and future inflation
may adversely affect the economies and securities markets of such countries.
In addition, unanticipated
political or social developments may affect the value of investments in emerging markets and
the availability of additional investments in these markets. Any change in the leadership or politics of emerging market
countries, or the countries that exercise a significant influence over those countries, may halt the expansion of
or reverse the liberalization of foreign investment policies now occurring and adversely affect existing investment opportunities.
The small size, limited trading volume and relative inexperience of the securities markets in these countries may
make investments in securities traded in emerging markets illiquid and more volatile than investments in securities traded
in more developed countries. For example, limited market size may cause prices to be unduly influenced by traders
who control large positions. In addition, a fund may be required to establish special custodial or other arrangements before
making investments in securities traded in emerging markets. There may be little financial or accounting information available
with respect to issuers of emerging market securities, and it may be difficult as a result to assess the value of
prospects of an investment in such securities. Investors in emerging markets companies may face limited avenues for
recourse due to limited corporate governance standards and difficulty in pursuing legal actions such as fraud claims.
The
risk also exists that an emergency situation may arise in one or more emerging markets as a result of which trading
of securities may cease or may be substantially curtailed and prices for a fund’s securities in such markets may
not be readily available. Subject to the limitations of Section
22(e) of the 1940 Act, a fund may suspend redemption of
its shares for any period during which an emergency exists.
Frontier market countries.
Frontier market countries generally have smaller economies and less developed capital markets
than traditional emerging or developing markets, and, as a result, the risks of investing in emerging or developing market
countries are magnified in frontier market countries. The economies of frontier market countries are less correlated to
global economic cycles than those of their more developed counterparts and their markets have low trading volumes and
the potential for extreme price volatility and illiquidity. This volatility may be further heightened by the actions of a
few major investors. For example, a substantial increase or decrease in cash flows of mutual funds investing in these
markets could significantly affect local stock prices and, therefore, the price of fund shares. These factors make investing
in frontier market countries significantly riskier than in other countries and any one of them could cause the price
of a fund’s shares to decline.
Governments of many frontier
market countries in which a fund may invest may exercise substantial influence over many
aspects of the private sector. In some cases, the governments of such frontier market countries may own or control
certain companies. Accordingly, government actions could have a significant effect on economic conditions in
a frontier market country and on market conditions, prices and yields of securities in a fund’s portfolio. Moreover, the
economies of frontier market countries may be heavily dependent upon international trade and, accordingly, have been
and may continue to be, adversely affected by trade barriers, exchange controls, managed adjustments in relative currency
values and other protectionist measures imposed or negotiated by the countries with which they trade. These
economies also have been and may continue to be adversely affected by economic conditions in the countries with
which they trade.
Investment in equity
securities of issuers operating in certain frontier market countries may be restricted or controlled to
varying degrees. These restrictions or controls may at times limit or preclude foreign investment in equity securities of
issuers operating in certain frontier market countries and increase the costs and expenses of a fund. Certain frontier market
countries require governmental approval prior to investments by foreign persons, limit the amount of investment by
foreign persons in a particular issuer, limit the investment by foreign persons only to a specific class of securities of
an issuer that may have less advantageous rights than the classes available for purchase by domiciliaries of the countries
and/or impose additional taxes on foreign investors. Certain frontier market countries may also restrict investment opportunities
in issuers in industries deemed important to national interests.
Frontier market countries
may require governmental approval for the repatriation of investment income, capital or the proceeds
of sales of securities by foreign investors, such as a fund. In addition, if deterioration occurs in a frontier market
country’s balance of payments, the country could impose temporary restrictions on foreign capital remittances. A
fund could be adversely affected by delays in, or a refusal to grant, any required governmental approval for repatriation of
capital, as well as by the application to a fund of any restrictions on investments. Investing in local markets in frontier
market countries may require a fund to adopt special procedures, seek local government approvals or take other
actions, each of which may involve additional costs to a fund.
There may be no centralized
securities exchange on which securities are traded in frontier market countries. Also, securities
laws in many frontier market countries are relatively new and unsettled. Therefore, laws regarding foreign investment
in frontier market securities, securities regulation, title to securities, and shareholder rights may change quickly
and unpredictably.
Banks in frontier market
countries used to hold a fund’s securities and other assets in that country may lack the same operating
experience as banks in developed markets. In addition, in certain countries there may be legal restrictions or
limitations on the ability of a fund to recover assets held by a foreign bank in the event of the bankruptcy of the bank.
Settlement systems in frontier markets may be less well organized than in the developed markets. As a result, there
is greater risk than in developed countries that settlements will take longer and that cash or securities of a fund may
be in jeopardy because of failures of or defects in the settlement systems.
Certain
of the foregoing risks may also apply to some extent to securities of US issuers that are denominated in foreign
currencies or that are traded in foreign markets, or securities of US issuers having significant foreign operations.
Supranational Entities.
Supranational entities are international organizations designated or supported by governmental entities
to promote economic reconstruction or development and international banking institutions and related government agencies.
Examples include the International Bank for Reconstruction and Development (the World Bank), The Asian Development
Bank and the InterAmerican Development Bank. Obligations of supranational entities are backed by the
guarantee of one or more foreign governmental parties which sponsor the entity.
Funding Agreements.
Funding agreements are contracts issued by insurance companies that provide investors the right
to receive a variable rate of interest and the full return of principal at maturity. Funding agreements also include a
put option that allows a fund to terminate the agreement at a specified time prior to maturity. Funding agreements generally
offer a higher yield than other variable securities with similar credit ratings. The primary risk of a funding agreement
is the credit quality of the insurance company that issues it.
Gold or Precious Metals.
Gold and other precious metals held by or on behalf of a fund may be held on either an allocated
or an unallocated basis inside or outside the US. Placing gold or precious metals in an allocated custody account
gives a fund a direct interest in specified gold bars or precious metals, whereas an unallocated deposit does not
and instead gives a fund a right only to compel the counterparty to deliver a specific amount of gold or precious metals,
as applicable. Consequently, a fund could experience a loss if the counterparty to an unallocated depository arrangement
becomes bankrupt or fails to deliver the gold or precious metals as requested. An allocated gold or precious metals
custody account also involves the risk that the gold or precious metals will be stolen or damaged while in transit.
Both allocated and unallocated arrangements require a fund as seller to deliver, either by book entry or physically, the
gold or precious metals sold in advance of the receipt of payment. These custody risks would apply to a wholly-owned subsidiary
of a fund to the extent the subsidiary holds gold or precious metals.
In addition, in order
to qualify for the special tax treatment accorded regulated investment companies and their shareholders, a
fund must, among other things, derive at least 90% of its income from certain specified sources (qualifying income). Capital
gains from the sale of gold or other precious metals will not constitute qualifying income. As a result, a fund may
not be able to sell or otherwise dispose of all or a portion of its gold or precious metal holdings without realizing significant
adverse tax consequences, including paying a tax at the fund level, or the failure to qualify as a regulated investment
company under Subchapter M of the Code. Rather than incur those tax consequences, a fund may choose to
hold some amount of gold or precious metal that it would otherwise sell.
Greenfield Projects.
Greenfield projects are energy-related projects built by private joint ventures formed by energy companies.
Greenfield projects may include the creation of a new pipeline, processing plant or storage facility or other energy
infrastructure asset that is integrated with the company’s existing assets. A fund may invest in the equity of greenfield
projects and also may invest in the secured debt of greenfield projects. However, an investment also may be
structured as pay-in-kind securities with minimal or no cash interest or dividends until construction is completed, at
which time interest payments or dividends would be paid in cash. This leverages the organizational and operating expertise
of large, publicly traded companies and provides a fund with the opportunity to earn higher returns. Greenfield projects
involve less investment risk than typical private equity financing arrangements. The primary risk involved with greenfield
projects is execution risk or construction risk. Changing project requirements, elevated costs for labor and materials,
and unexpected construction hurdles all can increase construction costs. Financing risk exists should changes in
construction costs or financial markets occur. Regulatory risk exists because changes in regulation could occur during
construction or the necessary permits may not be secured prior to beginning construction.
High Yield Fixed Income Securities
– Junk Bonds. A fund may purchase debt securities which
are rated below investment-grade (junk bonds),
that is, rated below the fourth highest credit rating category by Moody’s, S&P and Fitch,
or unrated securities judged to be of equivalent quality as determined by the Advisor.
These securities usually
entail greater risk (including the possibility of default or bankruptcy of the issuers of such securities),
generally involve greater volatility of price and risk to principal and income, and may be less liquid, than securities
in the higher rating categories. The lower the ratings of such debt securities, the more their risks render
them
like equity securities. Securities rated D may be in default with respect to payment of principal or interest. Investments in
high yield securities are described as “speculative”
by ratings agencies. Securities ranked in the lowest investment grade
category may also be considered speculative by certain ratings agencies. See “Ratings
of Investments”
in this SAI for a more complete description
of the ratings assigned by ratings organizations and their respective characteristics.
Issuers of such high
yielding securities often are highly leveraged and may not have more traditional methods of financing available
to them. Therefore, the risk associated with acquiring the securities of such issuers generally is greater than is
the case with higher rated securities. For example, during an economic downturn or a sustained period of rising interest
rates, highly leveraged issuers of high yield securities may experience financial stress. During such periods, such
issuers may not have sufficient revenues to meet their interest payment obligations. The issuer’s ability to service its
debt obligations may also be adversely affected by specific corporate developments, or the issuer’s inability to meet
specific projected business forecasts, or the unavailability of additional financing. The risk of loss from default by
the issuer is significantly greater for the holders of high yield securities because such securities are generally unsecured and
are often subordinated to other creditors of the issuer. Prices and yields of high yield securities will fluctuate over time
and, during periods of economic uncertainty, volatility of high yield securities may adversely affect a fund’s net asset
value. In addition, investments in high yield zero coupon or pay-in-kind bonds, rather than income-bearing high yield
securities, may be more speculative and may be subject to greater fluctuations in value due to changes in interest rates.
A fund may have difficulty
disposing of certain high yield securities because they may have a thin trading market. Because
not all dealers maintain markets in all high yield securities, a fund anticipates that such securities could be sold
only to a limited number of dealers or institutional investors. The lack of a liquid secondary market may have an adverse
effect on the market price and a fund’s ability to dispose of particular issues and may also make it more difficult
for a fund to obtain accurate market quotations for purposes of valuing a fund’s assets. Market quotations generally
are available on many high yield issues only from a limited number of dealers and may not necessarily represent firm
bids of such dealers or prices for actual sales. Adverse publicity and investor perceptions may decrease the values and
liquidity of high yield securities. These securities may also involve special registration responsibilities, liabilities and
costs, and liquidity and valuation difficulties. Even though such securities do not pay current interest in cash, a fund
nonetheless is required to accrue interest income on these investments and to distribute the interest income on
a current basis. Thus, a fund could be required at times to liquidate other investments in order to satisfy its distribution requirements.
Credit quality in the
high-yield securities market can change suddenly and unexpectedly, and even recently issued credit
ratings may not fully reflect the actual risks posed by a particular high-yield security.
Prices for below investment-grade
securities may be affected by legislative and regulatory developments. Also, Congress has
from time to time considered legislation which would restrict or eliminate the corporate tax deduction for interest payments
on these securities and regulate corporate restructurings. Such legislation may significantly depress the prices
of outstanding securities of this type.
Illiquid Securities.
For funds other than money market funds, illiquid securities are investments that a fund reasonably expects
cannot be sold or disposed of in current market conditions in seven calendar days or less without the sale or
disposition significantly changing the market value of the investment, as determined pursuant to the fund’s liquidity risk
management program (LRM Program) adopted pursuant to Rule 22e-4 under the 1940 Act. Under a fund’s LRM Program,
the fund may not hold more than 15% of its net assets in illiquid securities. The LRM Program administrator is
responsible for determining the liquidity classification of a fund’s investments and monitoring compliance with the 15%
limit on illiquid securities. For money market funds operated in accordance with Rule 2a-7 under the 1940 Act, limitations
on investment in illiquid securities include that a fund may not hold more than 5% of its total assets in illiquid
securities, defined as securities that cannot be sold or disposed of in the ordinary course of business within seven
calendar days at approximately the value ascribed to them by the fund. Money market funds are not subject to
the requirements of Rule 22e-4 under the 1940 Act and therefore are not subject to the LRM Program. Historically, illiquid
securities have included securities subject to contractual or legal restrictions on resale because they have not been
registered under the 1933 Act, securities which are otherwise not readily marketable and repurchase agreements having
a maturity of longer than seven days. Securities which have not been registered under the 1933 Act are referred
to
as private placements or restricted securities and are purchased directly from the issuer or in the secondary market. Non-publicly
traded securities (including Rule 144A Securities) may involve a high degree of business and financial risk
and may result in substantial losses. These securities may be less liquid than publicly traded securities, and it may
take longer to liquidate these positions than would be the case for publicly traded securities. Companies whose securities
are not publicly traded may not be subject to the disclosure and other investor protection requirements applicable
to companies whose securities are publicly traded. Certain securities may be deemed to be illiquid as a result
of the Advisor’s receipt from time to time of material, non-public information about an issuer, which may limit the
Advisor’s ability to trade such securities for the account of any of its clients, including a fund. In some instances, these
trading restrictions could continue in effect for a substantial period of time. Limitations on resale may have an adverse
effect on the marketability of portfolio securities and a mutual fund might be unable to dispose of illiquid securities
promptly or at reasonable prices and might thereby experience difficulty satisfying redemptions within seven days.
An investment in illiquid securities is subject to the risk that should a fund desire to sell any of these securities when
a ready buyer is not available at a price that is deemed to be representative of their value, the value of a fund’s net
assets could be adversely affected.
Mutual funds do not typically
hold a significant amount of illiquid securities because of the potential for delays on resale
and uncertainty in valuation. A mutual fund might also have to register such illiquid securities in order to dispose of
them, resulting in additional expense and delay. A fund selling its securities in a registered offering may be deemed to
be an “underwriter”
for purposes of Section 11 of the 1933 Act. In such event, a fund may be liable to purchasers of
the securities under Section 11 if the registration statement prepared by the issuer, or the prospectus forming a part
of it, is materially inaccurate or misleading, although a fund may have a due diligence defense. Adverse market conditions
could impede such a public offering of securities.
A large institutional
market has developed for certain securities that are not registered under the 1933 Act, including repurchase
agreements, commercial paper, non-US securities, municipal securities and corporate bonds and notes. Institutional
investors depend on an efficient institutional market in which the unregistered security can be readily resold
or on an issuer’s ability to honor a demand for repayment. The fact that there are contractual or legal restrictions on
resale of such investments to the general public or to certain institutions may not be indicative of their liquidity.
Impact of Large Redemptions and Purchases
of Fund Shares. From time to time, shareholders of a fund (which
may include affiliated and/or non-affiliated
registered investment companies that invest in a fund) may make relatively large
redemptions or purchases of fund shares. These transactions may cause a fund to have to sell securities or invest
additional cash, as the case may be. While it is impossible to predict the overall impact of these transactions over
time, there could be adverse effects on a fund’s performance to the extent that a fund may be required to sell securities
or invest cash at times when it would not otherwise do so. These transactions could also accelerate the realization
of taxable income if sales of securities resulted in capital gains or other income and could also increase transaction
costs, which may impact a fund’s expense ratio and adversely affect a fund’s performance.
Income Trusts.
A fund may invest in income trusts, including business trusts and oil royalty trusts. Income trusts are operating
businesses that have been put into a trust. They pay out the bulk of their free cash flow to unitholders. The businesses
that are sold into these trusts are usually mature and stable income-producing companies that lend themselves to
fixed (monthly or quarterly) distributions. These trusts are regarded as equity investments with fixed-income attributes or
high-yield debt with no fixed maturity date. These trusts typically offer regular income payments and a significant premium
yield compared to other types of fixed income investments.
Business Trusts.
A business trust is an income trust where the principal business of the underlying corporation or other
entity is in the manufacturing, service or general industrial sectors. Each business represented is typically characterized by
long-life assets or businesses that have exhibited a high degree of stability. Investments in business trusts are subject
to various risks, including risks related to the underlying operating companies controlled by such trusts. These risks
may include lack of or limited operating histories and increased susceptibility to interest-rate risks.
Oil Royalty
Trusts. A royalty trust typically controls an operating company
which purchases oil and gas properties using the
trust’s capital. The royalty trust then receives royalties and/or interest payments from its operating company and distributes
them as income to its unitholders. Units of the royalty trust represent an economic interest in the underlying assets
of the trust.
A fund may invest in
oil royalty trusts that are traded on stock exchanges. Oil royalty trusts are income trusts that own
or control oil and gas operating companies. Oil royalty trusts pay out substantially all of the cash flow they receive from
the production and sale of underlying crude oil and natural gas reserves to unitholders in the form of monthly dividends
(distributions). As a result of distributing the bulk of their cash flow to unitholders, royalty trusts are effectively precluded
from internally originating new oil and gas prospects. Therefore, these royalty trusts typically grow through acquisition
of producing companies or those with proven reserves of oil and gas, funded through the issuance of additional
equity or, where the trust is able, additional debt. Consequently, oil royalty trusts are considered less exposed to
the uncertainties faced by a traditional exploration and production corporation. However, they are still exposed to commodity
risk and reserve risk, as well as operating risk.
The operations and financial
condition of oil royalty trusts, and the amount of distributions or dividends paid on their securities,
is dependent on oil prices. Prices for commodities vary and are determined by supply and demand factors, including
weather and general economic and political conditions. A decline in oil prices could have a substantial adverse effect
on the operations and financial conditions of the trusts. Such trusts are also subject to the risk of an adverse change
in the regulations of the natural resource industry and other operational risks relating to the energy sector. In addition,
the underlying operating companies held or controlled by the trusts are usually involved in oil exploration; however,
such companies may not be successful in holding, discovering, or exploiting adequate commercial quantities of
oil, the failure of which will adversely affect their values. Even if successful, oil and gas prices have fluctuated widely during
the most recent years and may continue to do so in the future. The combination of global demand growth and depleting
reserves, together with current geopolitical instability, will likely continue to support strong crude oil prices over
the long term. However, there is no guarantee that these prices will not decline. Declining crude oil prices may cause
a fund to incur losses on its investments. In addition, the demand in and supply to the developing markets could
be affected by other factors such as restrictions on imports, increased taxation, and creation of government monopolies,
as well as social, economic and political uncertainty and instability. Furthermore, there is no guarantee that
non-conventional sources of natural gas will not be discovered which would adversely affect the oil industry.
Moreover, as the underlying
oil and gas reserves are produced, the remaining reserves attributable to the royalty trust are
depleted. The ability of a royalty trust to replace reserves is therefore fundamental to its ability to maintain distribution levels
and unit prices over time. Certain royalty trusts have demonstrated consistent positive reserve growth year-over-year and,
as such, certain royalty trusts have been successful to date in this respect and are thus currently trading at unit prices
significantly higher than those of five or ten years ago. Oil royalty trusts manage reserve depletion through reserve
additions resulting from internal capital development activities and through acquisitions. When a fund invests in
foreign oil royalty trusts, it will also be subject to foreign securities risks.
Indexed Securities.
A fund may invest in indexed securities, the value of which is linked to currencies, interest rates, commodities,
indices or other financial indicators (reference instruments). Most indexed securities have maturities of
three years or less.
Indexed securities differ
from other types of debt securities in which a fund may invest in several respects. First, the interest
rate or, unlike other debt securities, the principal amount payable at maturity of an indexed security may vary based
on changes in one or more specified reference instruments, such as an interest rate compared with a fixed interest
rate or the currency exchange rates between two currencies (neither of which need be the currency in which the
instrument is denominated). The reference instrument need not be related to the terms of the indexed security. For
example, the principal amount of a US dollar denominated indexed security may vary based on the exchange rate of
two foreign currencies. An indexed security may be positively or negatively indexed; that is, its value may increase or
decrease if the value of the reference instrument increases. Further, the change in the principal amount payable or
the interest rate of an indexed security may be a multiple of the percentage change (positive or negative) in the value
of the underlying reference instrument(s).
Investment
in indexed securities involves certain risks. In addition to the credit risk of the security’s issuer and the normal
risks of price changes in response to changes in interest rates, the principal amount of indexed securities may decrease
as a result of changes in the value of reference instruments. Further, in the case of certain indexed securities in
which the interest rate is linked to a reference instrument, the interest rate may be reduced to zero, and any further declines
in the value of the security may then reduce the principal amount payable on maturity. Also, indexed securities may
be more volatile than the reference instruments underlying the indexed securities. Finally, a fund’s investments in
certain indexed securities may generate taxable income in excess of the interest paid on the securities to a fund, which
may cause a fund to sell investments to obtain cash to make income distributions (including at a time when it may
not be advantageous to do so).
Industrial Development and Pollution
Control Bonds. Industrial Development and Pollution Control Bonds
(which are types of private activity bonds),
although nominally issued by municipal authorities, are generally not secured by the
taxing power of the municipality, but are secured by the revenues of the authority derived from payments by the industrial
user. Consequently, the credit quality of these securities depends upon the ability of the user of the facilities financed
by the bonds and any guarantor to meet its financial obligations. Under federal tax legislation, certain types of
Industrial Development Bonds and Pollution Control Bonds may no longer be issued on a tax-exempt basis, although previously
issued bonds of these types and certain refundings of such bonds are not affected.
Inflation.
Inflation creates uncertainty over the future real value of an investment (the value after adjusting for inflation). The
real value of certain assets or real income from investments will be less in the future as inflation decreases the value
of money. As inflation increases, the present value of a fund's assets and distributions may decline. This risk is more
prevalent with respect to debt securities held by a fund. Inflation rates may change frequently and drastically as
a result of various factors, including unexpected shifts in the domestic or global economy. Moreover, a fund's investments may
not keep pace with inflation, which may result in losses to fund shareholders or adversely affect the real value of
shareholders' investment in a fund. Fund shareholders' expectation of future inflation can also impact the current value
of a fund’s portfolio, resulting in lower asset values and potential losses. This risk may be elevated compared to
historical market conditions because of recent monetary policy measures and the current interest rate environment.
Inflation-Indexed Bonds.
A fund may purchase inflation-indexed securities issued by the US Treasury, US government agencies
and instrumentalities other than the US Treasury, and entities other than the US Treasury or US government agencies
and instrumentalities.
Inflation-indexed bonds
are fixed income securities or other instruments whose principal value is periodically adjusted according
to the rate of inflation. Two structures are common. The US Treasury and some other issuers use a structure that
accrues inflation on either a current or lagged basis into the principal value of the bond. Most other issuers pay out
the Consumer Price Index accruals as part of a semi-annual coupon.
Inflation-indexed securities
issued by the US Treasury have maturities of approximately five, ten or twenty years, although it
is possible that securities with other maturities will be issued in the future. The US Treasury securities pay interest on
a semi-annual basis, equal to a fixed percentage of the inflation-adjusted principal amount. For example, if a fund purchased
an inflation-indexed bond with a par value of $1,000 and a 3% real rate of return coupon (payable 1.5% semi-annually),
and the rate of inflation over the first six months was 1%, the mid-year par value of the bond would be
$1,010 and the first semi-annual interest payment would be $15.15 ($1,010 times 1.5%). If the rate of inflation during
the second half of the year resulted in the whole year’s inflation equaling 3%, the end of year par value of the bond
would be $1,030 and the second semi-annual interest payment would be $15.45 ($1,030 times 1.5%).
If the periodic adjustment
rate measuring inflation falls, the principal value of inflation-indexed bonds will be adjusted downward,
and, consequently, the interest payable on these securities (calculated with respect to a smaller principal amount)
will be reduced. Repayment of the original bond principal on maturity (as adjusted for inflation) is guaranteed in
the case of US Treasury inflation-indexed bonds, even during a period of deflation, although the inflation-adjusted principal
received could be less than the inflation-adjusted principal that had accrued to the bond at the time of purchase. However,
the current market value of the bonds is not guaranteed and will fluctuate. A fund may also invest in other inflation
related bonds that may or may not provide a similar guarantee. If a guarantee of principal is not provided, the
adjusted
principal value of the bond repaid at maturity may be less than the original principal. In addition, if a fund purchases
inflation-indexed bonds offered by foreign issuers, the rate of inflation measured by the foreign inflation index
may not be correlated to the rate of inflation in the US.
The value of inflation-indexed
bonds is expected to change in response to changes in real interest rates. Real interest rates,
in turn, are tied to the relationship between nominal interest rates and the rate of inflation. Therefore, if the rate
of inflation rises at a faster rate than nominal interest rates, real interest rates might decline, leading to an increase in
value of inflation-indexed bonds. In contrast, if nominal interest rates increased at a faster rate than inflation, real interest
rates might rise, leading to a decrease in value of inflation-indexed bonds. There can be no assurance, however, that
the value of inflation-indexed bonds will be directly correlated to changes in interest rates. In the event of sustained deflation,
it is possible that the amount of semiannual interest payments, the inflation-adjusted principal of the security and
the value of the stripped components, will decrease. If any of these possibilities are realized, a fund’s net asset value
could be negatively affected.
While these securities
are expected to provide protection from long-term inflationary trends, short-term increases in inflation
may lead to a decline in value. If interest rates rise due to reasons other than inflation (for example, due to changes
in currency exchange rates), investors in these securities may not be protected to the extent that the increase is
not reflected in the bond’s inflation measure.
The periodic adjustment
of US inflation-indexed bonds is generally linked to the Consumer Price Index for Urban Consumers (CPI-U),
which is calculated monthly by the US Bureau of Labor Statistics. The CPI-U is a measurement of changes in
the cost of living, made up of components such as housing, food, transportation and energy. Inflation-indexed bonds issued
by a foreign government are generally adjusted to reflect a comparable inflation index calculated by the applicable government.
There can be no assurance that the CPI-U or any foreign inflation index will accurately measure the real rate
of inflation in the prices of goods and services. Moreover, there can be no assurance that the rate of inflation in a
foreign country will be correlated to the rate of inflation in the US. Finally, income distributions of a fund are likely to
fluctuate more than those of a conventional bond fund.
The taxation of inflation-indexed
US Treasury securities is similar to the taxation of conventional bonds. Both interest payments
and the difference between original principal and the inflation-adjusted principal will be treated as interest income
subject to taxation. Interest payments are taxable when received or accrued. The inflation adjustment to the principal
is subject to tax in the year the adjustment is made, not at maturity of the security when the cash from the repayment
of principal is received. If an upward adjustment has been made (which typically should happen), investors in
non-tax-advantaged accounts will pay taxes on this amount currently. Decreases in the indexed principal can be deducted
only from current or previous interest payments reported as income.
Inflation-indexed US
Treasury securities therefore have a potential cash flow mismatch to an investor, because investors must
pay taxes on the inflation-adjusted principal before the repayment of principal is received. It is possible that, particularly
for high income tax bracket investors, inflation-indexed US Treasury securities would not generate enough income
in a given year to cover the tax liability they could create. This is similar to the current tax treatment for zero-coupon bonds
and other discount securities. If inflation-indexed US Treasury securities are sold prior to maturity, capital losses or
gains are realized in the same manner as traditional bonds.
Inflation-indexed securities
are designed to offer a return linked to inflation, thereby protecting future purchasing power of
the money invested in them. However, inflation-indexed securities provide this protected return only if held to maturity. In
addition, inflation-indexed securities may not trade at par value. Real interest rates (the market rate of interest less the
anticipated rate of inflation) change over time as a result of many factors, such as what investors are demanding as
a true value for money. When real rates do change, inflation-indexed securities prices will be more sensitive to these
changes than conventional bonds, because these securities were sold originally based upon a real interest rate that
is no longer prevailing. Should market expectations for real interest rates rise, the price of inflation-indexed securities held
by a fund may fall, resulting in a decrease in the share price of a fund.
Interest Rate
Strategies. In addition to a fund’s main investment strategy,
certain funds seek to enhance returns by employing
a rules-based methodology to identify interest rate trends across developed markets using derivatives (contracts whose
value are based on, for example, indices, currencies or securities), in particular buying and selling interest rate futures
contracts. The success of the interest rate futures strategies depends, in part, on the effectiveness and implementation of
the Advisor’s proprietary models. If the Advisor’s analysis proves to be incorrect, losses to a fund may be significant, possibly
exceeding the amounts invested in the interest rate futures contracts. The risk of loss is heightened during periods
of rapid increases in interest rates.
Interfund Borrowing and Lending Program.
The DWS funds have received exemptive relief from the SEC, which permits
the funds to participate in an interfund lending program. The interfund lending program allows the participating funds
to borrow money from and loan money to each other for temporary or emergency purposes. The program is subject
to a number of conditions designed to ensure fair and equitable treatment of all participating funds, including the
following: (1) no fund may borrow money through the program unless it receives a more favorable interest rate than
a rate approximating the lowest interest rate at which bank loans would be available to any of the participating funds
under a loan agreement; and (2) no fund may lend money through the program unless it receives a more favorable return
than that available from an investment in repurchase agreements and, to the extent applicable, money market cash
sweep arrangements. In addition, a fund may participate in the program only if and to the extent that such participation is
consistent with a fund’s investment objectives and policies (for instance, money market funds would normally participate only
as lenders and tax exempt funds only as borrowers). Interfund loans and borrowings have a maximum duration of
seven days. Loans may be called on one day’s notice. A fund may have to borrow from a bank at a higher interest rate
if an interfund loan is called or not renewed. Any delay in repayment to a lending fund could result in a lost investment opportunity
or additional costs. The program is subject to the oversight and periodic review of the Board.
Inverse Floaters.
A fund may invest in inverse floaters. Inverse floaters are debt instruments with a floating rate of interest
that bears an inverse relationship to changes in short-term market interest rates. A fund's investments in inverse
floaters are treated as derivative transactions subject to the requirements of Rule 18f-4 under the 1940 Act. Investments
in this type of security involve special risks as compared to investments in, for example, a fixed rate municipal
security. The debt instrument in which a fund invests may be a tender option bond trust (the trust), which can
be established by a fund, a financial institution or a broker, consisting of underlying municipal obligations with intermediate
to long maturities and a fixed interest rate. Other investors in the trust usually consist of money market fund
investors receiving weekly floating interest rate payments who have put options with the financial institutions. A
fund may enter into shortfall and forbearance agreements by which a fund agrees to reimburse the trust, in certain circumstances,
for the difference between the liquidation value of the fixed rate municipal security held by the trust and
the liquidation value of the floating rate notes. A fund could lose money and its NAV could decline as a result of investments
in inverse floaters if movements in interest rates are incorrectly anticipated. Moreover, the markets for inverse
floaters may be less developed and may have less liquidity than the markets for more traditional municipal securities,
especially during periods of instability in the credit markets. An inverse floater may exhibit greater price volatility
than a fixed-rate obligation of similar credit quality. When a fund holds inverse floating rate securities, an increase
in market interest rates will adversely affect the income received from such securities and the net asset value
of a fund’s shares.
Investment Companies and Other Pooled
Investment Vehicles. A fund may acquire securities of other registered
investment companies and other pooled investment
vehicles (collectively, investment funds) to the extent that such investments
are consistent with its investment objective, policies, strategies and restrictions and the limitations of the
1940 Act. Pursuant to the 1940 Act, a fund’s investment in investment companies is limited to, subject to certain exceptions:
(i) 3% of the total outstanding voting stock of any one investment company; (ii) 5% of the fund’s total assets
with respect to any one investment company; and (iii) 10% of the fund’s total assets with respect to investment companies
in the aggregate. In October 2020, the SEC adopted certain regulatory changes and took other actions related
to the ability of an investment company to invest in the securities of another investment company. These changes
include, among other things, the rescission of certain SEC exemptive orders permitting investments in excess of
the statutory limits and the withdrawal of certain related SEC staff no-action letters, and the adoption of Rule 12d1-4 under
the 1940 Act. Rule 12d1-4, which became effective on January 19, 2021, permits a fund to invest in other investment
companies beyond the statutory limits, subject to certain conditions. The rescission of the applicable exemptive orders
and the withdrawal of the applicable no-action letters was effective on January 19, 2022. Since such time, an
investment
company may no longer rely on the aforementioned exemptive orders and no-action letters and is subject instead
to Rule 12d1-4 and other applicable rules under Section 12(d)(1). To the extent allowed by law or regulation, each
fund may invest its assets in the securities of investment companies that are money market funds, including those
advised by the Advisor or otherwise affiliated with the Advisor, in excess of the limits discussed above. A money market
fund that is operated in accordance with Rule 2a-7 under the 1940 Act may acquire shares of other money market
mutual funds to the extent consistent with its investment policies and restrictions set forth in its prospectus. Investment
funds may include mutual funds, closed-end funds, and exchange-traded funds (ETFs) and hedge funds (including
investment funds managed by the Advisor and its affiliates). A fund will indirectly bear its proportionate share
of any management fees and other expenses paid by such other investment funds.
Because a fund may acquire
securities of funds managed by the Advisor or an affiliate of the Advisor, the Advisor may have
a conflict of interest in selecting funds. The Advisor considers such conflicts of interest as part of its investment process
and has established practices designed to minimize such conflicts. The Advisor, any subadvisor and any affiliates of
the Advisor, as applicable, earn fees at varying rates for providing services to underlying affiliated funds. The Advisor and
any subadvisor may, therefore, have a conflict of interest in selecting underlying affiliated funds advised by the Advisor
or an affiliate and in determining whether to invest in an unaffiliated fund from which they will not receive any
fees. However, the Advisor and any subadvisor to a fund will select investments that it believes are appropriate to
meet the fund’s investment objectives.
ETFs and closed-end funds
trade on a securities exchange and their shares may trade at a premium or discount to their
net asset value. A fund will incur brokerage costs when it buys and sells shares of ETFs and closed-end funds. ETFs
that seek to track the composition and performance of a specific index may not replicate exactly the performance of
their specified index because of trading costs and operating expenses incurred by the ETF. At times, there may not
be an active trading market for shares of some ETFs and closed-end funds and trading of ETF and closed-end fund
shares may be halted or delisted by the listing exchange.
To the extent consistent
with its investment objective, policies, strategies and restrictions, a fund may invest in commodity-related
ETFs. Certain commodity-related ETFs may not be registered as investment companies under the 1940
Act and shareholders of such commodity-related ETFs, including the investing affiliated fund, will not have the regulatory
protections provided to investors in registered investment companies. Commodity-related ETFs may invest in
commodities directly (such as purchasing gold) or they may seek to track a commodities index by investing in commodity-linked
derivative instruments. Commodity-related ETFs are subject to the risks associated with the commodities or
commodity-linked derivative instruments in which they invest. A fund’s ability to invest in commodity-related ETFs may
be limited by its intention to qualify as a regulated investment company under the Code. In addition, under recent amendments
to rules of the Commodity Futures Trading Commission (CFTC), a fund’s investment in commodity-related ETFs
may subject the fund and/or the Advisor to certain registration, disclosure and reporting requirements of the CFTC.
The Advisor will monitor a fund’s use of commodity-related ETFs to determine whether the fund and/or the Advisor
will need to comply with CFTC rules.
To the extent consistent
with its investment objective, policies, strategies and restrictions, a fund may seek exposure to
alternative asset classes or strategies through investment in private funds, including hedge funds. A fund may substitute
derivative instruments, including warrants and swaps, whose values are tied to the value of underlying hedge
funds in lieu of a direct investment in hedge funds. A derivative instrument whose value is tied to one or more hedge
funds or hedge fund indices will be subject to the market and other risks associated with the underlying assets held
by the hedge fund. Hedge funds are not subject to the provisions of the 1940 Act or the reporting requirements of
the Securities Exchange Act of 1934, as amended, and their advisors may not be subject to the Investment Advisers Act
of 1940, as amended. Investments in hedge funds are illiquid and may be less transparent than an investment in a
registered investment company. There are no market quotes for securities of hedge funds and hedge funds generally value
their interests no more frequently than monthly or quarterly, in some cases. An investment in a derivative instrument based
on a hedge fund may be subject to some or all of the structural risks associated with a direct investment in a hedge
fund.
Investment-Grade
Bonds. A fund may purchase “investment-grade”
bonds, which are those rated within the top four
credit ratings categories by Moody’s, S&P, or Fitch, or, if unrated, judged to be of equivalent quality as determined by
the Advisor. Moody’s considers bonds it rates Baa to have speculative elements as well as investment-grade characteristics. To
the extent that a fund invests in higher-grade securities, a fund will not be able to avail itself of opportunities for higher
income which may be available at lower grades.
IPO Risk.
Securities issued through an initial public offering (IPO) can experience an immediate drop in value if the demand
for the securities does not continue to support the offering price. Information about the issuers of IPO securities is
also difficult to acquire since they are new to the market and may not have lengthy operating histories. A fund may engage
in short-term trading in connection with its IPO investments, which could produce higher trading costs and adverse
tax consequences.
Lending of Portfolio Securities.
To generate additional income, a fund may lend a percentage of its investment securities to
approved institutional borrowers who need to borrow securities in order to complete certain transactions, such as covering
short sales, avoiding failures to deliver securities or completing arbitrage operations, in exchange for collateral in
the form of cash or US government securities. By lending its investment securities, a fund attempts to increase its
net investment income through the receipt of interest on the loan. Any gain or loss in the market price of the securities
loaned that might occur during the term of the loan would belong to a fund. A fund may lend its investment securities
so long as the terms, structure and the aggregate amount of such loans are not inconsistent with the 1940 Act
or the rules and regulations or interpretations of the SEC thereunder, which currently require that: (a) the borrower pledge
and maintain with a fund collateral consisting of liquid, unencumbered assets having a value at all times not less
than 100% of the value of the securities loaned; (b) the borrower add to such collateral whenever the price of the
securities loaned rises or the value of non-cash collateral declines (i.e., the borrower “marks
to the market”
on a daily basis); (c) the loan be made subject
to termination by a fund at any time; and (d) a fund receives a reasonable return
on the loan (consisting of the return achieved on investment of the cash collateral, less the rebate owed to borrowers,
plus distributions on the loaned securities and any increase in their market value).
A fund may pay reasonable
fees in connection with loaned securities, pursuant to written contracts, including fees paid
to a fund’s custodian and fees paid to a securities lending agent, including a securities lending agent that is an affiliate
of the Advisor. Voting rights may pass with the loaned securities, but if an event occurs that the Advisor determines to
be a material event affecting an investment on loan, the loan must be called and the securities voted. Pursuant to an
exemptive order granted by the SEC, cash collateral received by a fund may be invested in a money market fund managed
by the Advisor (or one of its affiliates).
A fund is subject to
all investment risks associated with the reinvestment of any cash collateral received, including, but
not limited to, interest rate, credit and liquidity risk associated with such investments. To the extent the value or return
of a fund’s investments of the cash collateral declines below the amount owed to a borrower, a fund may incur losses
that exceed the amount it earned on lending the security. If the borrower defaults on its obligation to return securities
lent because of insolvency or other reasons, a fund could experience delays and costs in recovering the securities
lent or gaining access to collateral. If a fund is not able to recover securities lent, a fund, through its securities lending
agent, may sell the collateral and purchase a replacement investment in the market, incurring the risk that the
value of the replacement security is greater than the value of the collateral. In the event of a counterparty’s (or its
affiliate’s) insolvency, a fund’s ability to exercise remedies, such as the termination of transactions, netting of obligations
and realization on collateral, could be stayed
or eliminated under special resolution regimes adopted in the United States,
the European Union and various other jurisdictions. Such regimes generally provide government authorities with
broad authority to intervene when a financial institution is experiencing financial difficulty. However, loans will be
made only to borrowers selected by a fund’s delegate after a commercially reasonable review of relevant facts and
circumstances, including the creditworthiness of the borrower. A fund also bears the risk that the contractual obligations
of its securities lending agent and/or the borrower may not cover all potential losses to the fund in connection with
a securities lending transaction. See “Part
II: Appendix II-H - Taxes - Taxation of US Shareholders - Dividends and distributions
- Securities lending”
for more information.
Master Limited
Partnerships (MLPs). Master Limited Partnerships, or MLPs, are
entities that receive partnership taxation treatment
under the Code and whose interests or “units”
are traded on securities exchanges like shares of corporate
stock. Due to their partnership structure, MLPs generally do not pay income taxes. To be treated as a partnership for
US federal income tax purposes, an MLP must derive at least 90% of its gross income for each taxable year from qualifying
sources, including activities such as exploration, development, mining, production, processing, refining, transportation,
storage and certain marketing of mineral or natural resources.
A fund may invest in
upstream MLPs, downstream MLPs, midstream MLPs, coal MLPs, propane MLPs, or other MLPs
with assets that are used in the energy infrastructure sector. Midstream MLPs are generally engaged in the treatment,
gathering, compression, processing, transportation, transmission, fractionation, storage and terminalling of
natural gas, natural gas liquids, crude oil, refined products or coal. Midstream MLPs also may operate ancillary businesses
including marketing of energy products and logistical services. Upstream MLPs are primarily engaged in the
exploration, recovery, development and production of crude oil, natural gas, and natural gas liquids. Downstream MLPs
are primarily engaged in the processing, treatment, and refining of natural gas liquids and crude oil. Coal MLPs are
engaged in the owning, leasing, managing, production and sale of various grades of steam and metallurgical grades of
coal. Propane MLPs are engaged in the distribution of propane to homeowners for space and water heating and to
commercial, industrial and agricultural customers. The MLPs in which a fund may invest might also own other assets
that are used in the energy infrastructure sector, including assets used in exploring, developing, producing, generating,
transporting, transmitting, storing, gathering, processing, refining, distributing, mining or marketing of natural
gas, natural gas liquids, crude oil, refined products, coal or electricity, or may provide energy-related services such
as refining and distribution of specialty refined products. MLPs may also engage in owning, managing and transporting alternative
energy assets, including alternative fuels such as ethanol, hydrogen and biodiesel.
MLPs are generally organized
under state law as limited partnerships or limited liability companies. An MLP consists of
a general partner and limited partners (or in the case of MLPs organized as limited liability companies, a managing member
and members). The general partner or managing member typically controls the operations and management of
the MLP, has an ownership stake in the MLP and may be eligible to receive an incentive distribution. The limited partners
or members, through their ownership of limited partner or member interests, provide capital to the entity, are
intended to have no role in the operation and management of the entity, and receive cash distributions. Equity securities
issued by MLPs generally consist of common units, subordinated units, and preferred units.
MLP common units are
typically listed and traded on US securities exchanges, including the NYSE and the NASDAQ Stock
Market (NASDAQ). A fund may purchase such common units through open market transactions and underwritten offerings,
but may also acquire common units through direct placements and privately negotiated transactions. Holders of
MLP common units have limited control and voting rights. Holders of MLP common units are typically entitled to receive
a minimum quarterly distribution (MQD) from the issuer, and typically have a right, to the extent that an MLP fails
to make a previous MQD, to recover in future distributions the amount by which the MQD was short (arrearage rights).
Generally, an MLP must pay (or set aside for payment) the MQD to holders of common units before any distributions may
be paid to subordinated unitholders. In addition, incentive distributions are typically not paid to the general partner or
managing member unless the quarterly distributions on the common units exceed specified threshold levels above the
MQD. In the event of a liquidation, common unitholders are intended to have a preference with respect to the remaining
assets of the issuer over holders of subordinated units. MLPs also issue different classes of common units that
may have different voting, trading and distribution rights.
MLP subordinated units,
which, like common units, represent limited partner or member interests, are not typically listed
or traded on an exchange. A fund may purchase outstanding subordinated units through negotiated transactions directly
with holders of such units or newly issued subordinated units directly from the issuer. Holders of such subordinated units
are generally entitled to receive a distribution only after the MQD and any arrearages from prior quarters have been
paid to holders of common units. Holders of subordinated units typically have the right to receive distributions before
any incentive distributions are payable to the general partner or managing member. Subordinated units generally do
not provide arrearage rights. Most MLP subordinated units are convertible into common units after the passage of
a specified period of time or upon the achievement by the issuer of specified financial goals. MLPs also issue different
classes of subordinated units that may have different voting, trading, and distribution rights.
MLP
convertible subordinated units are typically issued by MLPs to founders, corporate general partners of MLPs, entities
that sell assets to MLPs, and institutional investors. Convertible subordinated units increase the likelihood that,
during the subordination period, there will be available cash to be distributed to common unitholders. MLP convertible subordinated
units generally are not entitled to distributions until holders of common units have received their specified MQD,
plus any arrearages, and may receive less than common unitholders in distributions upon liquidation. Convertible subordinated
unitholders generally are entitled to MQD prior to the payment of incentive distributions to the general partner,
but are not entitled to arrearage rights. Therefore, MLP convertible subordinated units generally entail greater risk
than MLP common units. Convertible subordinated units are generally convertible automatically into senior common units
of the same issuer at a one-to-one ratio upon the passage of time or the satisfaction of certain financial tests. Convertible
subordinated units do not trade on a national exchange or over-the-counter (OTC), and there is no active market
for them. The value of a convertible subordinated unit is a function of its worth if converted into the underlying common
units. Convertible subordinated units generally have similar voting rights as do MLP common units. Distributions may
be paid in cash or in-kind.
MLP preferred units are
not typically listed or traded on an exchange. A fund may purchase MLP preferred units through negotiated
transactions directly with MLPs, affiliates of MLPs and institutional holders of such units. Holders of MLP preferred
units can be entitled to a wide range of voting and other rights, depending on the structure of each separate security.
The general partner or
managing member interest in an MLP is typically retained by the original sponsors of an MLP such
as its founders, corporate partners and entities that sell assets to the MLP. The holder of the general partner or managing
member interest can be liable in certain circumstances for amounts greater than the amount of the holder’s investment
in the general partner or managing member. General partner or managing member interests often confer direct
board participation rights in, and in many cases control over the operations of, the MLP. General partner or managing
member interests can be privately held or owned by publicly traded entities. General partner or managing member
interests receive cash distributions, typically in an amount of up to 2% of available cash, which is contractually defined
in the partnership or limited liability company agreement. In addition, holders of general partner or managing member
interests typically receive incentive distribution rights (IDRs), which provide them with an increasing share of
the entity’s aggregate cash distributions upon the payment of per common unit distributions that exceed specified threshold
levels above the MQD. Incentive distributions to a general partner are designed to encourage the general partner,
who controls and operates the partnership, to maximize the partnership’s cash flow and increase distributions to
the limited partners. Due to the IDRs, general partners of MLPs have higher distribution growth prospects than their
underlying MLPs, but quarterly incentive distribution payments would also decline at a greater rate than the decline
rate in quarterly distributions to common and subordinated unitholders in the event of a reduction in the MLP’s quarterly
distribution. The ability of the limited partners or members to remove the general partner or managing member without
cause is typically very limited. In addition, some MLPs permit the holder of IDRs to reset, under specified circumstances,
the incentive distribution levels and receive compensation in exchange for the distribution rights given up
in the reset.
Debt securities issued
by MLPs may include those rated below investment grade. Investments in such securities may
not offer the tax characteristics of equity securities of MLPs.
Investments in MLPs are
generally subject to many of the risks that apply to partnerships. For example, holders of the
units of MLPs may have limited control and limited voting rights on matters affecting the partnership. There may be
fewer corporate protections afforded investors in an MLP than investors in a corporation. Conflicts of interest may exist
among unitholders, subordinated unitholders and the general partner of an MLP, including those arising from incentive
distribution payments. MLPs that concentrate in a particular industry or region are subject to risks associated with
such industry or region. MLPs holding credit-related investments are subject to interest rate risk and the risk of default
on payment obligations by debt issuers. Investments held by MLPs may be illiquid. MLP units may trade infrequently and
in limited volume, and they may be subject to more abrupt or erratic price movements than securities of larger or
more broadly based companies. Holders of MLP units could potentially become subject to liability for all the obligations of
an MLP, if a court determines that the rights of the unitholders to take certain action under the limited partnership agreement
would constitute “control”
of the business of that MLP, or if a court or governmental agency determines that
the MLP is conducting business in a state without complying with the limited partnership statute of that state.
MLP Limited
Liability Company Common Units. Some energy infrastructure companies
in which a fund may invest have been organized
as limited liability companies (MLP LLCs). Such MLP LLCs are treated in the same manner as MLPs
for federal income tax purposes. A fund may invest in common units or other securities of such MLP LLCs. MLP
LLC common units represent an equity ownership interest in an MLP LLC, entitling the holders to a share of the
MLP LLC’s success through distributions and/or capital appreciation. Similar to MLPs, MLP LLCs typically do not pay
federal income tax at the entity level and are required by their operating agreements to distribute a large percentage of
their current operating earnings. MLP LLC common unitholders generally have first right to an MQD prior to distributions to
subordinated unitholders and typically have arrearage rights if the MQD is not met. In the event of liquidation, MLP LLC
common unitholders have first right to the MLP LLC’s remaining assets after bondholders, other debt holders and
preferred unitholders, if any, have been paid in full. MLP LLC common units trade on a national securities exchange or
OTC. In contrast to MLPs, MLP LLCs have no general partner and there are generally no incentives that entitle management
or other unitholders to increased percentages of cash distributions as distributions reach higher target levels.
In addition, MLP LLC common unitholders typically have voting rights with respect to the MLP LLC, whereas MLP
common units have limited voting rights.
MLP Affiliates.
A fund may invest in equity and debt securities issued by affiliates of MLPs, including the general partners
or managing members of MLPs and companies that own MLP general partner interests and are energy infrastructure
companies. Such issuers may be organized and/or taxed as corporations and therefore may not offer the
advantageous tax characteristics of MLP units. A fund may purchase such other MLP equity securities through market
transactions, but may also do so through direct placements.
MLP I-Units.
I-Units represent an indirect ownership interest in an MLP and are issued by an MLP affiliate. The MLP affiliate
uses the proceeds from the sale of I-Units to purchase limited partnership interests in its affiliated MLP. Thus, I-Units
represent an indirect interest in an MLP. I-Units have limited voting rights and are similar in that respect to MLP
common units. I-Units differ from MLP common units primarily in that instead of receiving cash distributions, holders
of I-Units will receive distributions of additional I-Units in an amount equal to the cash distributions received by
common unitholders. I-Units are traded on the NYSE. Issuers of MLP I-Units are treated as corporations and not partnerships
for tax purposes.
Private Investment in Public Equities
(PIPEs). A fund may elect to invest in PIPEs and other unregistered
or otherwise restricted securities issued by
public MLPs and similar entities, including unregistered MLP preferred units. Most such
private securities are expected to be liquid within six to nine months of funding, but may also have significantly longer
or shorter restricted periods. PIPEs involve the direct placement of equity securities to a purchaser such as a fund.
Equity issued in this manner is often unregistered and therefore less liquid than equity issued through a public offering.
Such private equity offerings provide issuers greater flexibility in structure and timing as compared to public offerings.
Below are some of the reasons MLPs choose to issue equity through private placements.
MLPs typically distribute
all of their available cash at the end of each quarter, and therefore generally finance acquisitions through
the issuance of additional equity and debt securities. PIPEs allow MLPs to structure the equity funding to close
concurrently with an acquisition, thereby eliminating or reducing the equity funding risk. This avoids equity overhang issues
and can ease rating agency concerns over interim excessive leverage associated with an acquisition.
Generally an MLP unit
price declines when investors know the MLP will be issuing public equity in the near term. An
example of this is when an MLP closes a sizeable acquisition funded under its credit facility or with another form of
debt financing. In this situation, equity investors will typically wait for the public offering to provide additional liquidity, and
therefore the demand for units is reduced, and the unit price falls. Issuing units through a PIPE in conjunction with
the acquisition eliminates this equity overhang.
Public equity offerings
for MLPs are typically allocated primarily to retail investors. Private placements allow issuers to
access new pools of equity capital. In addition, institutional investors, such as the Fund, that participate in PIPEs are
potential investors for future equity financings.
Certain
acquisitions and organic development projects require a more structured form of equity. For example, organic projects
that require significant capital expenditures that do not generate near-term cash flow may require a class of equity
that does not pay a distribution for a certain period. The public equity market is generally not an efficient venue to
raise this type of specialized equity. Given the significant number of organic projects that have been announced by
MLPs, the private placement of PIPEs are believed to be likely to remain an important funding component in the MLP
sector.
Some issuers prefer the
certainty of a private placement at a specified fixed discount, compared to the uncertainty of
a public offering. The underwriting costs of a public equity issuance in the MLP space can significantly reduce gross equity
proceeds, and the unit price of the issuance can decline during the marketing of a public deal, resulting in increased
cost to an issuer. The cost of a PIPE can be competitive with that of a public issuance while providing greater certainty
of funding.
Unlike public equity
offerings, private placements are typically more time-efficient for management teams, with negotiations, due
diligence and marketing required only for a small targeted group of sophisticated institutional investors.
Financial sponsors, founding
partners and/or parent companies typically own significant stakes in MLPs in the form of
subordinated units. As these units are not registered, monetization alternatives are limited. PIPEs provide liquidity in
these situations.
Many MLPs rely on the
private placement market as a source of equity capital. Given the limitations in raising equity from
a predominantly retail investor base and the tax and administrative constraints to significant institutional participation, PIPEs
have been a popular financing alternative with many MLPs.
Micro-Cap Companies.
Micro-capitalization company stocks have customarily involved more investment risk than large
company stocks. There can be no assurance that this will continue to be true in the future. Micro-capitalization companies
may have limited product lines, markets or financial resources; may lack management depth or experience; and
may be more vulnerable to adverse general market or economic developments than large companies. The prices of
micro-capitalization company securities are often more volatile than prices associated with large company issues, and
can display abrupt or erratic movements at times, due to limited trading volumes and less publicly available information.
Also, because micro-capitalization
companies normally have fewer shares outstanding and these shares trade less frequently
than large companies, it may be more difficult for a fund to buy and sell significant amounts of such shares without
an unfavorable impact on prevailing market prices.
Some of the companies
in which a fund may invest may distribute, sell or produce products which have recently been brought
to market and may be dependent on key personnel. The securities of micro-capitalization companies are often traded
over-the-counter and may not be traded in the volumes typical on a national securities exchange. Consequently, in
order to sell this type of holding, a fund may need to discount the securities from recent prices or dispose of the securities
over a long period of time.
Mining and Exploration Risks.
The business of mining by its nature involves significant risks and hazards, including environmental
hazards, industrial accidents, labor disputes, discharge of toxic chemicals, fire, drought, flooding and natural
acts. The occurrence of any of these hazards can delay production, increase production costs and result in liability
to the operator of the mines. A mining operation may become subject to liability for pollution or other hazards against
which it has not insured or cannot insure, including those in respect of past mining activities for which it was not
responsible.
Exploration for gold
and other precious metals is speculative in nature, involves many risks and frequently is unsuccessful. There
can be no assurance that any mineralisation discovered will result in an increase in the proven and probable reserves
of a mining operation. If reserves are developed, it can take a number of years from the initial phases of drilling
and identification of mineralisation until production is possible, during which time the economic feasibility of
production
may change. Substantial expenditures are required to establish ore reserves properties and to construct mining
and processing facilities. As a result of these uncertainties, no assurance can be given that the exploration programs
undertaken by a particular mining operation will actually result in any new commercial mining.
Mortgage-Backed Securities.
Mortgage-backed securities represent direct or indirect participations in or obligations collateralized
by and payable from mortgage loans secured by real property, which may include subprime mortgages. A
fund may invest in mortgage-backed securities issued or guaranteed by (i) US Government agencies or instrumentalities such
as the Government National Mortgage Association (GNMA) (also known as Ginnie Mae), the Federal National Mortgage
Association (FNMA) (also known as Fannie Mae) and the Federal Home Loan Mortgage Corporation (FHLMC) (also
known as Freddie Mac) or (ii) other issuers, including private companies.
GNMA is a government-owned
corporation that is an agency of the US Department of Housing and Urban Development. It
guarantees, with the full faith and credit of the United States, full and timely payment of all monthly principal and interest
on its mortgage-backed securities. Until recently, FNMA and FHLMC were government-sponsored corporations owned
entirely by private stockholders. Both issue mortgage-related securities that contain guarantees as to timely payment
of interest and principal but that are not backed by the full faith and credit of the US government. The value of
the companies’ securities fell sharply in 2008 due to concerns that the firms did not have sufficient capital to offset losses.
In mid-2008, the US Treasury was authorized to increase the size of home loans that FNMA and FHLMC could purchase
in certain residential areas and, until 2009, to lend FNMA and FHLMC emergency funds and to purchase the
companies’ stock. In September 2008, the US Treasury announced that FNMA and FHLMC had been placed in conservatorship
by the Federal Housing Finance Agency (FHFA), a newly created independent regulator created under the
Federal Housing Finance Regulatory Reform Act of 2008 (Reform Act). In addition to placing the companies in conservatorship,
the US Treasury announced three additional steps that it intended to take with respect to FNMA and
FHLMC. First, the US Treasury has entered into senior preferred stock purchase agreements (“SPSPAs”)
under which, if the FHFA determines that FNMA’s
or FHLMC’s liabilities have exceeded its assets under generally accepted accounting
principles, the US Treasury will contribute cash capital to the company in an amount equal to the difference between
liabilities and assets. The SPSPAs are designed to provide protection to the senior and subordinated debt and
the mortgage-backed securities issued by FNMA and FHLMC. Second, the US Treasury established a new secured lending
credit facility that is available to FNMA and FHLMC, which terminated on December 31, 2009. Third, the US Treasury
initiated a temporary program to purchase FNMA and FHLMC mortgage-backed securities, which terminated on
December 31, 2009. No assurance can be given that the US Treasury initiatives discussed above with respect to the
debt and mortgage-backed securities issued by FNMA and FHLMC will be successful, or, with respect to initiatives that
have expired, that the US Treasury would undertake similar initiatives in the future.
FHFA, as conservator
or receiver for FNMA and FHLMC, has the power to repudiate any contract entered into by FNMA
or FHLMC prior to FHFA’s appointment as conservator or receiver, as applicable, if FHFA determines, in its sole
discretion, that performance of the contract is burdensome and that repudiation of the contract promotes the orderly
administration of FNMA’s or FHLMC’s affairs. The Reform Act requires FHFA to exercise its right to repudiate any
contract within a reasonable period of time after its appointment as conservator or receiver. FHFA, in its capacity as
conservator, has indicated that it has no intention to repudiate the guaranty obligations of FNMA or FHLMC because FHFA
views repudiation as incompatible with the goals of the conservatorship. However, in the event that FHFA, as conservator
or if it is later appointed as receiver for FNMA or FHLMC, were to repudiate any such guaranty obligation, the
conservatorship or receivership estate, as applicable, would be liable for actual direct compensatory damages in accordance
with the provisions of the Reform Act. Any such liability could be satisfied only to the extent of FNMA’s or
FHLMC’s assets available therefor.
In the event of repudiation,
the payments of interest to holders of FNMA or FHLMC mortgage-backed securities would be
reduced if payments on the mortgage loans represented in the mortgage loan groups related to such mortgage-backed securities
are not made by the borrowers or advanced by the servicer. Any actual direct compensatory damages for repudiating
these guaranty obligations may not be sufficient to offset any shortfalls experienced by such mortgage-backed security
holders. Further, in its capacity as conservator or receiver, FHFA has the right to transfer or sell any asset or liability
of FNMA or FHLMC without any approval, assignment or consent. Although FHFA has stated that it has no
present
intention to do so, if FHFA, as conservator or receiver, were to transfer any such guaranty obligation to another party,
holders of FNMA or FHLMC mortgage-backed securities would have to rely on that party for satisfaction of the guaranty
obligation and would be exposed to the credit risk of that party.
In addition, certain
rights provided to holders of mortgage-backed securities issued by FNMA and FHLMC under the operative
documents related to such securities may not be enforced against FHFA, or enforcement of such rights may
be delayed, during the conservatorship or any future receivership. The operative documents for FNMA and FHLMC mortgage-backed
securities may provide (or with respect to securities issued prior to the date of the appointment of the
conservator may have provided) that upon the occurrence of an event of default on the part of FNMA or FHLMC, in
its capacity as guarantor, which includes the appointment of a conservator or receiver, holders of such mortgage-backed securities
have the right to replace FNMA or FHLMC as trustee if the requisite percentage of mortgage-backed securities holders
consent. The Reform Act prevents mortgage-backed security holders from enforcing such rights if the event of
default arises solely because a conservator or receiver has been appointed. The Reform Act also provides that no person
may exercise any right or power to terminate, accelerate or declare an event of default under certain contracts to
which FNMA or FHLMC is a party, or obtain possession of or exercise control over any property of FNMA or FHLMC, or
affect any contractual rights of FNMA or FHLMC, without the approval of FHFA, as conservator or receiver, for a period
of forty-five (45) or ninety (90) days following the appointment of FHFA as conservator or receiver, respectively.
On June 3, 2019, under
the Federal Housing Finance Agency’s “Single
Security Initiative”
intended to maximize liquidity for both Fannie
Mae and Freddie Mac mortgage-backed securities in the TBA security market, Fannie Mae and Freddie Mac
expect to start issuing uniform mortgage-backed securities (“UMBS”)
in place of their current separate offerings of
TBA-eligible mortgage-backed securities. The issuance of UMBS may not achieve the intended results and may have
unanticipated or adverse effects on the market for mortgage-backed securities.
The market value and
yield of these mortgage-backed securities can vary due to market interest rate fluctuations and early
prepayments of underlying mortgages. These securities represent ownership in a pool of federally insured mortgage loans
with a maximum maturity of 30 years. A decline in interest rates may lead to a faster rate of repayment of the underlying
mortgages, and may expose a fund to a lower rate of return upon reinvestment. To the extent that such mortgage-backed
securities are held by a fund, the prepayment right will tend to limit to some degree the increase in
net asset value of a fund because the value of the mortgage-backed securities held by a fund may not appreciate as
rapidly as the price of non-callable debt securities. Mortgage-backed securities are subject to the risk of prepayment and
the risk that the underlying loans will not be repaid. Because principal may be prepaid at any time, mortgage-backed securities
may involve significantly greater price and yield volatility than traditional debt securities. At times, a fund may
invest in securities that pay higher than market interest rates by paying a premium above the securities’ par value. Prepayments
of these securities may cause losses on securities purchased at a premium. Unscheduled payments, which
are made at par value, will cause a fund to experience a loss equal to any unamortized premium.
When interest rates rise,
mortgage prepayment rates tend to decline, thus lengthening the life of a mortgage-related security
and increasing the price volatility of that security, affecting the price volatility of a fund’s shares. The negative effect
of interest rate increases on the market-value of mortgage backed securities is usually more pronounced than it
is for other types of fixed-income securities potentially increasing the volatility of a fund.
Interests in pools of
mortgage-backed securities differ from other forms of debt securities, which normally provide for
periodic payment of interest in fixed amounts with principal payments at maturity or specified call dates. Instead, these
securities provide a monthly payment which consists of both interest and principal payments. In effect, these payments
are a “pass-through”
of the monthly payments made by the individual borrowers on their mortgage loans, net
of any fees paid to the issuer or guarantor of such securities. Additional payments are caused by repayments of principal
resulting from the sale of the underlying property, refinancing or foreclosure, net of fees or costs which may be
incurred. Some mortgage-related securities (such as securities issued by GNMA) are described as “modified
pass-through.”
These securities entitle the holder to receive
all interest and principal payments owed on the mortgage pool, net of certain
fees, at the scheduled payment dates regardless of whether or not the mortgagor actually makes the payment.
Commercial
banks, savings and loan institutions, private mortgage insurance companies, mortgage bankers and other secondary
market issuers also create pass-through pools of conventional mortgage loans. Such issuers may, in addition, be
the originators and/or servicers of the underlying mortgage loans as well as the guarantors of the mortgage-related securities.
Pools created by such non-governmental issuers generally offer a higher rate of interest than government and
government-related pools because there are no direct or indirect government or agency guarantees of payments. However,
timely payment of interest and principal of these pools may be supported by various forms of insurance or guarantees,
including individual loan, title, pool and hazard insurance and letters of credit. The insurance and guarantees are
issued by governmental entities, private insurers and the mortgage poolers. Such insurance and guarantees and the
creditworthiness of the issuers thereof will be considered in determining whether a mortgage-related security meets
a fund’s investment quality standards. There can be no assurance that the private insurers or guarantors can meet
their obligations under the insurance policies or guarantee arrangements. A fund may buy mortgage-related securities
without insurance or guarantees. Although the market for such securities is becoming increasingly liquid, securities
issued by certain private organizations may not be readily marketable.
Due to prepayments of
the underlying mortgage instruments, mortgage-backed securities do not have a known actual maturity.
In the absence of a known maturity, market participants generally refer to an estimated average life. An average
life estimate is a function of an assumption regarding anticipated prepayment patterns. The assumption is based
upon current interest rates, current conditions in the relevant housing markets and other factors. The assumption is
necessarily subjective, and thus different market participants could produce somewhat different average life estimates with
regard to the same security. There can be no assurance that the average estimated life of portfolio securities will
be the actual average life of such securities.
Fannie Mae Certificates.
Fannie Mae is a federally chartered corporation organized and existing under the Federal National
Mortgage Association Charter Act of 1938. The obligations of Fannie Mae are obligations solely of Fannie Mae
and are not backed by the full faith and credit of the US government.
Each Fannie Mae Certificate
will represent a pro rata interest in one or more pools of FHA Loans, VA Loans or conventional mortgage
loans (i.e., mortgage loans that are not insured or guaranteed by any governmental agency) of the following types:
(1) fixed-rate level payment mortgage loans; (2) fixed-rate growing equity mortgage loans; (3) fixed-rate graduated payment
mortgage loans; (4) variable rate mortgage loans; (5) other adjustable rate mortgage loans; and (6) fixed-rate and
adjustable mortgage loans secured by multifamily projects.
Freddie Mac Certificates.
Freddie Mac is a federally chartered corporation of the United States created pursuant to the
Emergency Home Finance Act of 1970, as amended (FHLMC Act). The obligations of Freddie Mac are obligations solely
of Freddie Mac and are not backed by the full faith and credit of the US government.
Freddie Mac Certificates
represent a pro rata interest in a group of conventional mortgage loans (Freddie Mac Certificate group)
purchased by Freddie Mac. The mortgage loans underlying the Freddie Mac Certificates will consist of fixed-rate or
adjustable rate mortgage loans with original terms to maturity of between ten and thirty years, substantially all of which
are secured by first liens on one- to four-family residential properties or multifamily projects. Each mortgage loan
must meet the applicable standards set forth in the FHLMC Act. A Freddie Mac Certificate group may include whole
loans, participating interests in whole loans and undivided interests in whole loans and participations comprising another
Freddie Mac Certificate group.
Ginnie Mae Certificates.
The National Housing Act of 1934, as amended (Housing Act), authorizes Ginnie Mae to guarantee the
timely payment of the principal of and interest on certificates that are based on and backed by a pool of mortgage loans
insured by the Federal Housing Administration under the Housing Act, or Title V of the Housing Act of 1949 (FHA
Loans), or guaranteed by the Department of Veterans Affairs under the Servicemen’s Readjustment Act of 1944, as
amended (VA Loans), or by pools of other eligible mortgage loans. The Housing Act provides that the full faith and credit
of the US government is pledged to the payment of all amounts that may be required to be paid under any Ginnie
Mae guaranty. In order to meet its obligations under such guaranty, Ginnie Mae is authorized to borrow from the
US Treasury with no limitations as to amount.
The
Ginnie Mae Certificates in which a fund invests will represent a pro rata interest in one or more pools of the following
types of mortgage loans: (1) fixed-rate level payment mortgage loans; (2) fixed-rate graduated payment mortgage loans;
(3) fixed-rate growing equity mortgage loans; (4) fixed-rate mortgage loans secured by manufactured (mobile) homes;
(5) mortgage loans on multifamily residential properties under construction; (6) mortgage loans on completed multifamily
projects; (7) fixed-rate mortgage loans as to which escrowed funds are used to reduce the borrower’s monthly
payments during the early years of the mortgage loans (“buy
down”
mortgage loans); (8) mortgage loans that provide
for adjustments in payments based on periodic changes in interest rates or in other payment terms of the
mortgage loans; and (9) mortgage backed serial notes.
Multiple Class Mortgage-Backed Securities.
A fund may invest in multiple class mortgage-backed securities including collateralized
mortgage obligations (CMOs) and real estate mortgage investment conduits (REMIC Certificates). These securities
may be issued by US government agencies and instrumentalities such as Fannie Mae or Freddie Mac or by
trusts formed by private originators of, or investors in, mortgage loans, including savings and loan associations, mortgage
bankers, commercial banks, insurance companies, investment banks and special purpose subsidiaries of the
foregoing. In general, CMOs are debt obligations of a legal entity that are collateralized by a pool of mortgage loans
or mortgage-backed securities the payments on which are used to make payments on the CMOs or multiple class
mortgage-backed securities. REMIC Certificates represent beneficial ownership interests in a REMIC trust, generally consisting
of mortgage loans or Fannie Mae, Freddie Mac or Ginnie Mae guaranteed mortgage-backed securities. To the
extent that a CMO or REMIC Certificate is collateralized by Ginnie Mae guaranteed mortgage-backed securities, holders
of the CMO or REMIC Certificate receive all interest and principal payments owed on the mortgage pool, net of
certain fees, regardless of whether the mortgagor actually makes the payments, as a result of the GNMA guaranty, which
is backed by the full faith and credit of the US government. The obligations of Fannie Mae or Freddie Mac under their
respective guaranty of the REMIC Certificates are obligations solely of Fannie Mae or Freddie Mac, respectively.
Fannie Mae REMIC Certificates
are issued and guaranteed as to timely distribution of principal and interest by Fannie Mae.
These certificates are obligations solely of Fannie Mae and are not backed by the full faith and credit of the US government.
In addition, Fannie Mae will be obligated to distribute the principal balance of each class of REMIC Certificates in
full, whether or not sufficient funds are otherwise available.
Freddie Mac guarantees
the timely payment of interest on Freddie Mac REMIC Certificates and also guarantees the payment
of principal as payments are required to be made on the underlying mortgage participation certificates (PCs). These
certificates are obligations solely of Freddie Mac and are not backed by the full faith and credit of the US government. PCs
represent undivided interests in specified level payment residential mortgages or participations therein purchased by
Freddie Mac and placed in a PC pool. With respect to principal payments on PCs, Freddie Mac generally guarantees ultimate
collection of all principal of the related mortgage loans without offset or deduction. Freddie Mac also guarantees timely
payment of principal of certain PCs.
CMOs and REMIC Certificates
are issued in multiple classes. Each class of CMOs or REMIC Certificates, often referred to
as a “tranche,”
is issued at a specific adjustable or fixed interest rate and must be fully retired no later than its final distribution
date. Principal prepayments on the underlying mortgage loans or the mortgage-backed securities underlying the
CMOs or REMIC Certificates may cause some or all of the classes of CMOs or REMIC Certificates to be retired substantially
earlier than their final distribution dates. Generally, interest is paid or accrues on all classes of CMOs or REMIC
Certificates on a monthly basis.
The principal of and
interest on the mortgage-backed securities may be allocated among the several tranches in various ways.
In certain structures (known as sequential pay CMOs or REMIC Certificates), payments of principal, including any
principal prepayments, on the mortgage-backed securities generally are applied to the classes of CMOs or REMIC Certificates
in the order of their respective final distribution dates. Thus, no payment of principal will be made on any class
of sequential pay CMOs or REMIC Certificates until all other classes having an earlier final distribution date have been
paid in full. Additional structures of CMOs and REMIC Certificates include, among others, “parallel
pay”
CMOs and REMIC Certificates. Parallel pay CMOs
or REMIC Certificates are those which are structured to apply principal payments
and prepayments of the mortgage-backed securities to two or more classes concurrently on a proportionate or
disproportionate basis. These simultaneous payments are taken into account in calculating the final distribution date
of each class.
A
wide variety of REMIC Certificates may be issued in parallel pay or sequential pay structures. These securities include accrual
certificates (Z Bonds), which only accrue interest at a specified rate until all other certificates having an earlier final
distribution date have been retired and are converted thereafter to an interest-paying security, and planned amortization class
(PAC) certificates, which are parallel pay REMIC Certificates that generally require that specified amounts of principal
be applied on each payment date to one or more classes of REMIC Certificates (PAC Certificates), even though
all other principal payments and prepayments of the mortgage-backed securities are then required to be applied to
one or more other classes of the PAC Certificates. The scheduled principal payments for the PAC Certificates generally have
the highest priority on each payment date after interest due has been paid to all classes entitled to receive interest currently.
Shortfalls, if any, are added to the amount payable on the next payment date. The PAC Certificate payment schedule
is taken into account in calculating the final distribution date of each class of PAC. In order to create PAC tranches,
one or more tranches generally must be created that absorb most of the volatility in the underlying mortgage-backed securities.
These tranches tend to have market prices and yields that are much more volatile than other PAC classes.
The prices of certain
CMOs and REMIC Certificates, depending on their structure and the rate of prepayments, may be
volatile. Some CMOs may also not be as liquid as other securities. In addition, the value of a CMO or REMIC Certificate,
including those collateralized by mortgage-backed securities issued or guaranteed by US government agencies or
instrumentalities, may be affected by other factors, such as the availability of information concerning the pool and its
structure, the creditworthiness of the servicing agent for the pool, the originator of the underlying assets, or the entities
providing credit enhancement. The value of these securities also can depend on the ability of their servicers to
service the underlying collateral and is, therefore, subject to risks associated with servicers' performance, including mishandling
of documentation. A fund is permitted to invest in other types of mortgage-backed securities that may be
available in the future to the extent consistent with its investment policies and objective.
Impact of Sub-Prime Mortgage Market.
A fund may invest in mortgage-backed, asset-backed and other fixed-income securities
whose value and liquidity may be adversely affected by the critical downturn in the sub-prime mortgage lending
market in the US. Sub-prime loans, which have higher interest rates, are made to borrowers with low credit ratings
or other factors that increase the risk of default. Concerns about widespread defaults on sub-prime loans have also
created heightened volatility and turmoil in the general credit markets. As a result, a fund’s investments in certain fixed-income
securities may decline in value, their market value may be more difficult to determine, and a fund may have
more difficulty disposing of them.
Municipal Leases, Certificates of Participation
and Other Participation Interests. A municipal lease is an obligation
in the form of a lease or installment purchase
contract that is issued by a state or local government to acquire equipment and
facilities. Income from such obligations is generally exempt from state and local taxes in the state of issuance (as
well as regular Federal income tax). Municipal leases frequently involve special risks not normally associated with general
obligation or revenue bonds, such as non-payment and the risk of bankruptcy of the issuer. Leases and installment purchase
or conditional sale contracts (which normally provide for title to the leased asset to pass eventually to the governmental
issuer) have evolved as a means for governmental issuers to acquire property and equipment without meeting
the constitutional and statutory requirements for the issuance of debt. The debt issuance limitations are deemed
to be inapplicable because of the inclusion in many leases or contracts of “non-appropriation”
clauses that relieve the governmental issuer
of any obligation to make future payments under the lease or contract unless money is
appropriated for such purpose by the appropriate legislative body on a yearly or other periodic basis. Thus, a fund’s investment
in municipal leases will be subject to the special risk that the governmental issuer may not appropriate funds
for lease payments.
In addition, such leases
or contracts may be subject to the temporary abatement of payments in the event the issuer is
prevented from maintaining occupancy of the leased premises or utilizing the leased equipment. Although the obligations may
be secured by the leased equipment or facilities, the disposition of the property in the event of non-appropriation or
foreclosure might prove difficult, time consuming and costly, and result in an unsatisfactory or delayed recoupment of
a fund’s original investment.
Certificates of participation
represent undivided interests in municipal leases, installment purchase contracts or other instruments.
The certificates are typically issued by a trust or other entity that has received an assignment of the payments
to be made by the state or political subdivision under such leases or installment purchase contracts.
Certain
municipal lease obligations and certificates of participation may be deemed illiquid for the purpose of a fund’s limitation
on investments in illiquid securities.
A fund may purchase participations
in municipal securities held by a commercial bank or other financial institution, provided
the participation interest is fully insured. Such participations provide a fund with the right to a pro rata undivided interest
in the underlying municipal securities. In addition, such participations generally provide a fund with the right to
demand payment, on not more than seven days notice, of all or any part of a fund’s participation interest in the underlying
municipal security, plus accrued interest.
Each participation is
backed by an irrevocable letter of credit or guarantee of the selling bank that the Advisor has determined
meets the prescribed quality standards of a fund. Therefore, either the credit of the issuer of the municipal obligation
or the selling bank, or both, will meet the quality standards of the particular fund. A fund has the right to sell
the participation back to the bank after seven days’ notice for the full principal amount of a fund’s interest in the municipal
obligation plus accrued interest, but only (i) as required to provide liquidity to a fund, (ii) to maintain a high quality
investment portfolio or (iii) upon a default under the terms of the municipal obligation. The selling bank will receive
a fee from a fund in connection with the arrangement.
Participation interests
in municipal securities are subject to the same general risks as participation interests in bank loans,
as described in the Bank Loans section above. Such risks include credit risk, interest rate risk, and liquidity risk, as
well as the potential liability associated with being a lender. If a fund purchases a participation, it may only be able to
enforce its rights through the participating lender, and may assume the credit risk of both the lender and the borrower.
Municipal Securities.
Municipal obligations are issued by or on behalf of states, territories and possessions of the United
States and their political subdivisions, agencies and instrumentalities and the District of Columbia to obtain funds
for various public purposes. The interest on these obligations is generally exempt from regular federal income tax
in the hands of most investors. The two principal classifications of municipal obligations are “notes”
and “bonds.”
Municipal notes and bonds have different maturities
and a fund may acquire “notes”
and “bonds”
with maturities that meets its particular investment policies
and restrictions set forth in its prospectus.
Municipal notes are generally
used to provide for short-term capital needs. Municipal notes include: Tax Anticipation Notes,
Revenue Anticipation Notes, Bond Anticipation Notes, and Construction Loan Notes. Tax Anticipation Notes are
sold to finance working capital needs of municipalities. They are generally payable from specific tax revenues expected
to be received at a future date, such as income, sales, property, use and business taxes. Revenue Anticipation Notes
are issued in expectation of receipt of other types of revenue, such as federal revenues available under federal revenue
sharing programs. Bond Anticipation Notes are sold to provide interim financing until long-term bond financing can
be arranged. In most cases, the long-term bonds provide the funds needed for the repayment of the notes. Construction Loan
Notes are sold to provide construction financing. After the projects are successfully completed and accepted, many
projects receive permanent financing through the Federal Housing Administration under Fannie Mae (Federal National
Mortgage Association) or Ginnie Mae (Government National Mortgage Association). These notes are secured by
mortgage notes insured by the Federal Housing Authority; however, the proceeds from the insurance may be less than
the economic equivalent of the payment of principal and interest on the mortgage note if there has been a default. The
obligations of an issuer of municipal notes are generally secured by the anticipated revenues from taxes, grants or
bond financing. An investment in such instruments, however, presents a risk that the anticipated revenues will not be
received or that such revenues will be insufficient to satisfy the issuer’s payment obligations under the notes or that
refinancing will be otherwise unavailable. There are, of course, a number of other types of notes issued for different purposes
and secured differently from those described above.
Municipal bonds, which
meet longer-term capital needs and generally have maturities of more than one year when issued,
have two principal classifications: “general
obligation”
bonds and “revenue”
bonds. Issuers of general obligation bonds include
states, counties, cities, towns and regional districts. The proceeds of these obligations are used to fund
a wide range of public projects including the construction or improvement of schools, highways and roads, water and
sewer systems and a variety of other public purposes. The basic security behind general obligation bonds is the issuer’s
pledge of its full faith, credit, and taxing power for the payment of principal and interest. The taxes that can be
levied for the payment of debt service may be limited or unlimited as to rate, amount or special assessments.
The
principal security for a revenue bond is generally the net revenues derived from a particular facility or group of facilities
or, in some cases, from the proceeds of a special excise or other specific revenue source. Revenue bonds have
been issued to fund a wide variety of capital projects including: electric, gas, water and sewer systems; highways, bridges
and tunnels; port and airport facilities; colleges and universities; and hospitals. Although the principal security behind
these bonds varies widely, many provide additional security in the form of a debt service reserve fund whose monies
may also be used to make principal and interest payments on the issuer’s obligations. Housing finance authorities have
a wide range of security including partially or fully-insured, rent-subsidized or collateralized mortgages, and the net
revenues from housing or other public projects. In addition to a debt service reserve fund, some authorities provide further
security in the form of a state’s ability (without obligation) to make up deficiencies in the debt reserve fund. Lease
rental bonds issued by a state or local authority for capital projects are secured by annual lease rental payments from
the state or locality to the authority sufficient to cover debt service on the authority’s obligations.
Some issues of municipal
bonds are payable from United States Treasury bonds and notes or agency obligations held in
escrow by a trustee, frequently a commercial bank. The interest and principal on these US Government securities are
sufficient to pay all interest and principal requirements of the municipal securities when due. Some escrowed Treasury
securities are used to retire municipal bonds at their earliest call date, while others are used to retire municipal bonds
at their maturity.
Securities purchased
for a fund may include variable/floating rate instruments, variable mode instruments, put bonds, and
other obligations which have a specified maturity date but also are payable before maturity after notice by the holder
(demand obligations). Demand obligations are considered for a fund’s purposes to mature at the demand date.
In addition, there are
a variety of hybrid and special types of municipal obligations as well as numerous differences in
the security of municipal obligations both within and between the two principal classifications (i.e., notes and bonds) discussed
above.
An entire issue of municipal
securities may be purchased by one or a small number of institutional investors such as a
fund. Thus, such an issue may not be said to be publicly offered. Unlike the equity securities of operating companies or
mutual funds which must be registered under the 1933 Act prior to offer and sale unless an exemption from such registration
is available, municipal securities, whether publicly or privately offered, may nevertheless be readily marketable. A
secondary market exists for municipal securities which have been publicly offered as well as securities which have not
been publicly offered initially but which may nevertheless be readily marketable. Municipal securities purchased for
a fund are subject to the limitations on holdings of securities which are not readily marketable based on whether it
may be sold in a reasonable time consistent with the customs of the municipal markets (usually seven days) at a desirable
price (or interest rate). A fund believes that the quality standards applicable to its investments enhance marketability.
In addition, stand-by commitments, participation interests and demand obligations also enhance marketability.
The municipal securities
market can be susceptible to increases in volatility and decreases in liquidity. Liquidity can decline
unpredictably in response to overall economic conditions or credit tightening. Increases in volatility and decreases in
liquidity may be caused by a rise in interest rates (or the expectation of a rise in interest rates). Municipal bonds may
be more susceptible to downgrades or defaults during recessions or similar periods of economic stress, which in
turn could affect the market values and marketability of many or all municipal obligations of issuers in a state, territory, commonwealth
or possession. Since some municipal obligations may be secured
or guaranteed by banks and other institutions,
the risk to a fund could increase if the banking or financial sector suffers an economic downturn and/or if
the credit ratings of the institutions issuing the guarantee are downgraded or at risk of being downgraded by a national
rating organization. If such events were to occur, the value of the security could decrease or the value could be
lost entirely, and it may be difficult or impossible for a fund to sell the security at the time and the price that normally prevails
in the market. In light of the uncertainty surrounding the magnitude, duration, reach, costs and effects of the pandemic,
as well as actions that have been or could be taken by governmental authorities or other third parties, it is
difficult to predict the level of financial stress and duration of such stress states and municipalities may experience.
In addition to being
downgraded, provisions of the federal bankruptcy statutes relating to the adjustment of debts of political
subdivisions and authorities of states of the US provide that, in certain circumstances, such subdivisions or authorities
may be authorized to initiate bankruptcy proceedings without prior notice to or consent of creditors, which
proceedings
could result in material and adverse modification or alteration of the rights of holders of obligations issued by
such subdivisions or authorities. The reorganization of such subdivisions’ or authorities’ debts may include extending debt
maturities, reducing the amount of principal or interest, refinancing the debt or taking other measures, which may
significantly affect the rights of creditors and the value of the securities issued by the political subdivisions and authorities
and the value of the fund's investments.
Litigation challenging
the validity under state constitutions of present systems of financing public education has been initiated
or adjudicated in a number of states, and legislation has been introduced to effect changes in public school finances
in some states. In other instances there has been litigation challenging the issuance of pollution control revenue
bonds or the validity of their issuance under state or federal law which litigation could ultimately affect the validity
of those municipal securities or the tax-free nature of the interest thereon.
In some cases, municipalities
may issue bonds relying on proceeds from litigation settlements. These bonds may be further
secured by debt service reserve funds established at the time the bonds were issued. Bonds that are supported in
whole or in part by expected litigation proceeds are subject to the risk that part or all of the expected proceeds may
not be received. For example, a damage award could be overturned or reduced by a court, or the terms of a settlement
or damage award may allow for reduced or discontinued payments if certain conditions are met. As a result,
bonds that rely on proceeds from litigation settlements are subject to an increased risk of nonpayment or default.
Puerto Rico Risk.
Adverse political and economic conditions and developments affecting any territory or Commonwealth of
the US may, in turn, negatively affect the value of the fund’s holdings in such obligations. In recent years, Puerto Rico
has experienced a recession and difficult economic conditions, which may negatively affect the value of a fund’s holdings
in Puerto Rico municipal obligations. Pending or future legislation, including legislation that would allow Puerto Rico
to restructure its municipal debt obligations, thus increasing the risk that Puerto Rico may never pay off municipal indebtedness,
or may pay only a small fraction of the amount owed, could also impact the value of a fund’s investments in
Puerto Rico municipal securities.
In June 2016, the Puerto
Rico Oversight, Management, and Economic Stability Act (PROMESA) was signed into law. Among
other things, PROMESA established a federally-appointed Oversight Board to oversee Puerto Rico’s financial operations
and provides Puerto Rico a path to restructuring its debts. In May 2017, petitions were approved by the Oversight
Board and filed under Title III of PROMESA to restructure debt and other obligations of the Commonwealth of
Puerto Rico and the Puerto Rico Sales Tax Financing Corporation (COFINA), two of the largest issuers of Puerto Rico
debt. Additional Puerto Rican instrumentalities could in the future file petitions under Title III or other provisions of
PROMESA. It is unclear at this time how the proceedings under PROMESA will be resolved.
Insured Municipal Securities.
A fund may purchase municipal securities that are insured under policies issued by certain insurance
companies. Insured municipal securities typically receive a higher credit rating which means that the issuer of
the securities pays a lower interest rate. In purchasing such insured securities, the Advisor gives consideration both
to the insurer and to the credit quality of the underlying issuer. The insurance reduces the credit risk for a particular municipal
security by supplementing the creditworthiness of the underlying bond and provides additional security for payment
of the principal and interest of a municipal security. Certain of the insurance companies that provide insurance for
municipal securities provide insurance for other types of securities, including some involving subprime mortgages. The
value of subprime mortgage securities has declined recently and some may default, increasing a bond insurer’s risk
of having to make payments to holders of subprime mortgage securities. Because of this risk, the ratings of some insurance
companies have been, or may be, downgraded and it is possible that an insurance company may become insolvent.
If an insurance company’s rating is downgraded or the company becomes insolvent, the prices of municipal securities
insured by the insurance company may decline.
Letters of Credit.
Municipal obligations, including certificates of participation, commercial paper and other short-term obligations
may be backed by an irrevocable letter of credit of a bank which assumes the obligation for payment of principal
and interest in the event of default by the issuer.
Pre-Refunded
Municipal Securities. Pre-refunded municipal securities are subject
to interest rate risk, market risk and limited
liquidity. The principal of and interest on municipal securities that have been pre-refunded are no longer paid from
the original revenue source for the securities. Instead, after pre-refunding of the principal of and interest on these securities
are typically paid from an escrow fund consisting of obligations issued or guaranteed by the US Government. The
assets in the escrow fund are derived from the proceeds of refunding bonds issued by the same issuer as the pre-refunded
municipal securities. Issuers of municipal securities use this advance refunding technique to obtain more favorable
terms with respect to securities that are not yet subject to call or redemption by the issuer. For example, advance
refunding enables an issuer to refinance debt at lower market interest rates, restructure debt to improve cash
flow or eliminate restrictive covenants in the indenture or other governing instrument for the pre-refunded municipal securities.
However, except for a change in the revenue source from which principal and interest payments are made, the
pre-refunded municipal securities remain outstanding on their original terms until they mature or are redeemed by
the issuer. Pre-refunded municipal securities are usually purchased at a price which represents a premium over their
face value.
Municipal Trust Receipts.
Municipal trust receipts (MTRs) are sometimes called municipal asset-backed securities, floating
rate trust certificates, or municipal securities trust receipts. MTRs are typically structured by a bank, broker-dealer or
other financial institution by depositing municipal securities into a trust or partnership, coupled with a conditional right
to sell, or put, the holder’s interest in the underlying securities at par plus accrued interest to a financial institution. MTRs
may be issued as fixed or variable rate instruments. These trusts are organized so that the purchaser of the MTR
would be considered to be investing for federal income tax purposes in the underlying municipal securities. This structure
is intended to allow the federal income tax exempt status of interest generated by the underlying asset to pass
through to the purchaser. A fund’s investments in MTRs are subject to similar risks as other investments in municipal
debt obligations, including interest rate risk, credit risk, prepayment risk and security selection risk. Additionally, investments
in MTRs raise certain tax issues that may not be presented by direct investments in municipal bonds. There
is some risk that certain legal issues could be resolved in a manner that could adversely affect the performance of
a fund or shareholder investment returns. The Advisor expects that it would invest in MTRs for which a legal opinion has
been given to the effect that the income from an MTR is tax-exempt for federal income tax purposes to the same extent
as the underlying bond(s), although it is possible that the IRS will take a different position and there is a risk that
the interest paid on such MTRs would be deemed taxable.
Obligations of Banks and Other Financial
Institutions. A fund may invest in US dollar-denominated fixed
rate or variable rate obligations of US or foreign
financial institutions, including banks. Obligations of domestic and foreign financial
institutions in which a fund may invest include (but are not limited to) certificates of deposit, bankers’ acceptances, bank
time deposits, commercial paper, and other US dollar-denominated instruments issued or supported by the credit of
US or foreign financial institutions, including banks, commercial and savings banks, savings and loan associations and
other institutions.
Certificates of deposit
are negotiable certificates evidencing the obligations of a bank to repay funds deposited with it
for a specified period of time. Banker’s acceptances are credit instruments evidencing the obligations of a bank to pay
a draft drawn on it by a customer. These instruments reflect the obligation both of the bank and of the drawer to pay
the face amount of the instrument upon maturity. Time deposits are non-negotiable deposits maintained in a banking
institution for a specified period of time at a stated interest rate. Time deposits that may be held by a fund will
not benefit from insurance from the Bank Insurance Fund or the Savings Association Insurance Fund administered by
the Federal Deposit Insurance Corporation. Fixed time deposits may be withdrawn on demand, but may be subject to
early withdrawal penalties that vary with market conditions and the remaining maturity of the obligation.
Obligations of foreign
branches of US banks and foreign banks may be general obligations of the parent bank in addition to
the issuing bank or may be limited by the terms of a specific obligation and by government regulation. Investments in
obligations of foreign banks may entail risks that are different in some respects from those of investments in obligations of
US domestic banks because of differences in political, regulatory and economic systems and conditions. These risks
include the possibility that these obligations may be less marketable than comparable obligations of United States banks,
and the selection of these obligations may be more difficult because there may be less publicly available information concerning
foreign banks. Other risks include future political and economic developments, currency blockage, the possible
imposition of withholding taxes on interest payments, possible seizure or nationalization of foreign deposits,
difficulty
or inability to pursue legal remedies and obtain or enforce judgments in foreign courts, possible establishment of
exchange controls or the adoption of other foreign governmental restrictions that might affect adversely the payment of
principal and interest on bank obligations. Foreign branches of US banks and foreign banks may also be subject to less
stringent reserve requirements and to different accounting, auditing, reporting and record keeping standards than
those applicable to domestic branches of US banks.
Participation Interests.
A fund may purchase from financial institutions participation interests in securities in which a
fund may invest. A participation interest gives a fund an undivided interest in the security in the proportion that a fund’s
participation interest bears to the principal amount of the security. These instruments may have fixed, floating or
variable interest rates. For certain participation interests, a fund will have the right to demand payment, on not more
than seven days’ notice, for all or any part of a fund’s participation interests in the security, plus accrued interest. As
to these instruments, a fund generally intends to exercise its right to demand payment only upon a default under the
terms of the security.
Preferred Stock.
Preferred stock is an equity security, but possesses certain attributes of debt securities. Holders of preferred
stock normally have the right to receive dividends at a fixed rate when and as declared by the issuer’s board of
directors, but do not otherwise participate in amounts available for distribution by the issuing corporation. Dividends on
preferred stock may be cumulative, and, in such cases, all cumulative dividends usually must be paid prior to dividend payments
to common stockholders. Preferred stock has a preference (i.e., ranks higher) in liquidation (and generally dividends)
over common stock, but is subordinated (i.e., ranks lower) in liquidation to fixed income securities. Because of
this preference, preferred stocks generally entail less risk than common stocks. As a general rule, the market value of
preferred stocks with fixed dividend rates and no conversion rights moves inversely with interest rates and perceived credit
risk, with the price determined by the dividend rate. Some preferred stocks are convertible into other securities (e.g.,
common stock) at a fixed price and ratio or upon the occurrence of certain events. The market price of convertible preferred
stocks generally reflects an element of conversion value. Because many preferred stocks lack a fixed maturity date,
these securities generally fluctuate substantially in value when interest rates change; such fluctuations often exceed
those of long-term bonds of the same issuer. Some preferred stocks pay an adjustable dividend that may be based
on an index, formula, auction procedure or other dividend rate reset mechanism. In the absence of credit deterioration, adjustable
rate preferred stocks tend to have more stable market values than fixed rate preferred stocks.
All preferred stocks
are also subject to the same types of credit risks as corporate bonds. In addition, because preferred stock
is subordinate to debt securities and other obligations of an issuer, deterioration in the credit rating of the issuer will
cause greater changes in the value of a preferred stock than in a more senior debt security with similar yield characteristics.
Preferred stocks may be rated by S&P and Moody’s although there is no minimum rating which a preferred
stock must have to be an eligible investment for a fund.
In summary, there are a number of special
risks associated with investing in preferred stocks, including:
Credit and Subordination Risk.
Credit risk is the risk that a preferred stock in a fund’s portfolio will decline in price or the
issuer of the preferred stock will fail to make dividend, interest, or principal payments when due because the issuer
experiences a decline in its financial status. As noted above, preferred stocks are generally subordinated to bonds
and other debt instruments in a company’s capital structure in terms of having priority to corporate income, claims
to corporate assets, and liquidation payments and, therefore, will be subject to greater credit risk than more senior
debt instruments.
Interest Rate Risk.
Interest rate risk is the risk that a preferred stock will decline in value because of changes in market interest
rates. As described above, when market interest rates rise, the market value of a preferred stock generally will
generally fall. Preferred stocks with longer periods before maturity may be more sensitive to interest rate changes.
Deferral and Omission Risk.
Preferred stocks may have provisions that permit the issuer, at its discretion, to defer or omit
distributions for a stated period without any adverse consequences to the issuer. In certain cases, deferring or omitting
distributions may be mandatory. If a fund owns a preferred stock that is deferring its distributions, the fund may
be required to report income for tax purposes although it has not yet received such income.
Call, Reinvestment,
and Income Risk. During periods of declining interest rates,
an issuer may be able to exercise an option
to redeem its outstanding preferred stock at par earlier than scheduled, which is generally known as call risk. If
this occurs, a fund may be forced to reinvest in lower yielding securities. This is known as reinvestment risk. Preferred stocks
frequently have call features that allow the issuer to repurchase the stock prior to its stated maturity. An issuer may
redeem an obligation if the issuer can refinance the obligation at a lower cost due to declining interest rates or an
improvement in the credit standing of the issuer, or in the event of regulatory changes affecting the capital treatment of
its outstanding preferred stock. Another risk associated with a declining interest rate environment is that the income from
a fund’s portfolio may decline over time when the fund invests the proceeds from share sales at market interest rates
that are below the portfolio’s current earnings rate.
Liquidity Risk. Certain
preferred stocks may be substantially less liquid than many other stocks, such as common stocks
or US Government securities. Illiquid preferred stocks involve the risk that the stock may not be able to be sold
at the time desired by a fund or at prices approximating the value at which the fund is carrying the stock on its books.
Limited Voting Rights Risk. Generally,
traditional preferred stocks offer no voting rights with respect to the issuer unless
preferred dividends have been in arrears for a specified number of periods, at which time the preferred stock holders
may elect a number of directors to the issuer’s board. Generally, once all the arrearages have been paid, the preferred
stock holders no longer have voting rights.
Special Redemption Rights Risk.
In certain varying circumstances, an issuer of preferred stock may redeem the stock prior
to a specified date. For instance, for certain types of preferred stocks, a redemption may be triggered by a change in
US federal income tax or securities laws. As with call provisions, a redemption by the issuer may negatively impact the
return of the preferred stock held by a fund.
Lastly, dividends from
certain preferred stocks may not be eligible for the corporate dividends-received deduction or for
treatment.
Private Activity Bonds. Certain
types of municipal securities, generally referred to as industrial development bonds (and
referred to under current tax law as private activity bonds), are issued by or on behalf of public authorities to obtain
funds for privately-operated housing facilities, airport, mass transit or port facilities, sewage disposal, solid waste disposal
or hazardous waste treatment or disposal facilities and certain local facilities for water supply, gas or electricity. Other
types of industrial development bonds, the proceeds of which are used for the construction, equipment, repair or
improvement of privately operated industrial or commercial facilities, may constitute municipal securities, although the
current federal tax laws place substantial limitations on the size of such issues. The interest from certain private activity
bonds owned by a fund (including a fund’s distributions attributable to such interest) may be a preference item
for purposes of the federal alternative
minimum tax (“AMT”).
The credit quality of such bonds depends upon the ability of
the user of the facilities financed by the bonds and any guarantor to meet its financial obligations.
Privatized Enterprises. A
fund may invest in foreign securities which may include securities issued by enterprises that
have undergone or are currently undergoing privatization. The governments of certain foreign countries have, to varying
degrees, embarked on privatization programs contemplating the sale of all or part of their interests in state enterprises.
A fund’s investments in the securities of privatized enterprises may include privately negotiated investments in
a government or state-owned or controlled company or enterprise that has not yet conducted an initial equity offering, investments
in the initial offering of equity securities of a state enterprise or former state enterprise and investments in
the securities of a state enterprise following its initial equity offering.
In certain jurisdictions,
the ability of foreign entities, such as a fund, to participate in privatizations may be limited by local
law, or the price or terms on which a fund may be able to participate may be less advantageous than for local investors.
Moreover, there can be no assurance that governments that have embarked on privatization programs will continue
to divest their ownership of state enterprises, that proposed privatizations will be successful or that governments will
not re-nationalize enterprises that have been privatized.
In
the case of the enterprises in which a fund may invest, large blocks of the stock of those enterprises may be held by
a small group of stockholders, even after the initial equity offerings by those enterprises. The sale of some portion or
all of those blocks could have an adverse effect on the price of the stock of any such enterprise.
Prior to making an initial
equity offering, most state enterprises or former state enterprises go through an internal reorganization
of management. Such reorganizations are made in an attempt to better enable these enterprises to compete
in the private sector. However, certain reorganizations could result in a management team that does not function
as well as an enterprise’s prior management and may have a negative effect on such enterprise. In addition, the
privatization of an enterprise by its government may occur over a number of years, with the government continuing to
hold a controlling position in the enterprise even after the initial equity offering for the enterprise.
Prior to privatization,
most of the state enterprises in which a fund may invest enjoy the protection of and receive preferential
treatment from the respective sovereigns that own or control them. After making an initial equity offering, these
enterprises may no longer have such protection or receive such preferential treatment and may become subject to
market competition from which they were previously protected. Some of these enterprises may not be able to operate
effectively in a competitive market and may suffer losses or experience bankruptcy due to such competition.
Put Bonds. A
fund may invest in “put”
bonds (including securities with variable interest rates) that may be sold back to
the issuer of the security at face value at the option of the holder prior to their stated maturity. The option to “put”
the bond back to the issuer before the stated
final maturity can cushion the price decline of the bond in a rising interest rate
environment. However, the premium paid, if any, for an option to put will have the effect of reducing the yield otherwise
payable on the underlying security.
Real Estate Investment Trusts (REITs).
A REIT invests primarily in income-producing real estate or makes
loans to persons involved in the real estate
industry. REITs are sometimes informally categorized into equity REITs, mortgage REITs
and hybrid REITs. Equity REITs buy real estate and pay investors income from the rents received from the real estate
owned by the REIT and from any profits on the sale of its properties. Mortgage REITs lend money to building developers
and other real estate companies and pay investors income from the interest paid on those loans. Hybrid REITs
engage in both owning real estate and making loans. Investment in REITs may subject a fund to risks associated with
the direct ownership of real estate, such as decreases in real estate values, delays in completion of construction, overbuilding,
increased competition and other risks related to local or general economic conditions, increases in operating costs
and property taxes, changes in zoning laws, casualty or condemnation losses, possible environmental liabilities, regulatory
limitations on rent and fluctuations in rental income. Equity REITs generally experience these risks directly through
fee or leasehold interests, whereas mortgage REITs generally experience these risks indirectly through mortgage interests,
unless the mortgage REIT forecloses on the underlying real estate. Changes in interest rates may also affect
the value of a fund’s investment in REITs. For instance, during periods of declining interest rates, certain mortgage REITs
may hold mortgages that the mortgagors elect to prepay, which prepayment may diminish the yield on securities issued
by those REITs. Conversely, during periods of rising interest rates, mortgage prepayment rates tend to decline, thus
lengthening the life of mortgages that may be held by mortgage REITs, which may increase the price volatility of
securities issued by those REITs.
Certain REITs have relatively
small market capitalizations, which may tend to increase the volatility of the market price of
their securities. Furthermore, REITs are dependent upon specialized management skills, have limited diversification and
are, therefore, subject to risks inherent in operating and financing a limited number of projects. REITs are also subject
to heavy cash flow dependency, defaults by borrowers or lessees and the possibility of failing to qualify for tax-free
pass-through of income under the Code, and to maintain exemption from the registration requirements of the
1940 Act. By investing in REITs indirectly through a fund, a shareholder will bear not only his or her proportionate share
of the expenses of a fund, but also, indirectly, similar expenses of the REITs. In addition, REITs depend generally on
their ability to generate cash flow to make distributions to shareholders.
Repurchase Agreements.
A fund may invest in repurchase agreements pursuant to its investment guidelines. In a repurchase
agreement, a fund acquires ownership of a security (Obligation) and simultaneously commits to resell that
security to the seller, typically a bank or broker/dealer, at a specified time and price.
In
accordance with current SEC guidance, DWS Government & Agency Securities Portfolio, Government Cash Management Portfolio,
DWS Government Money Market VIP, DWS Central Cash Management Government Fund, DWS Treasury Portfolio,
DWS ESG Liquidity Fund and DWS Money Market Prime Series may also transfer uninvested cash balances into
a single joint account (a Joint Account). The daily aggregate balance of a Joint Account will be invested in one or more
repurchase agreements. The Board has established and periodically reviews procedures applicable to transactions involving
Joint Accounts.
A repurchase agreement
provides a means for a fund to earn income on funds for periods as short as overnight. The repurchase
price may be higher than the purchase price, the difference being income to a fund, or the purchase and repurchase
prices may be the same, with interest at a stated rate due to a fund together with the repurchase price upon
repurchase. In either case, the income to a fund is unrelated to the interest rate on the Obligation itself. Obligations will
be held by the custodian or in the Federal Reserve Book Entry System.
The SEC has finalized
new rules requiring the central clearing of certain repurchase transactions involving U.S. Treasuries. Historically,
such transactions have not been required to be cleared and voluntary clearing of such transactions has generally
been limited. The new clearing requirements could increase the fund’s costs of executing certain investment strategies.
It is not clear whether
a court would consider the Obligation purchased by a fund subject to a repurchase agreement as
being owned by a fund or as being collateral for a loan by a fund to the seller. In the event of the commencement of
bankruptcy or insolvency proceedings with respect to the seller of the Obligation before repurchase of the Obligation under
a repurchase agreement, a fund may encounter delay and incur costs before being able to sell the security. Delays
may involve loss of interest or decline in price of the Obligation. If the court characterizes the transaction as a
loan and a fund has not perfected a security interest in the Obligation, a fund may be required to return the Obligation to
the seller’s estate and be treated as an unsecured creditor of the seller. As an unsecured creditor, a fund would be
at risk of losing some or all of the principal and income involved in the transaction. As with any unsecured debt obligation
purchased for a fund, the Advisor seeks to reduce the risk of loss through repurchase agreements by analyzing the
creditworthiness of the obligor, in this case the seller of the Obligation. Apart from the risk of bankruptcy or insolvency proceedings,
there is also the risk that the seller may fail to repurchase the Obligation, in which case a fund may incur a
loss if the proceeds to a fund of the sale to a third party are less than the repurchase price. However, if the market value
(including interest) of the Obligation subject to the repurchase agreement becomes less than the repurchase price
(including interest), a fund will direct the seller of the Obligation to deliver additional securities so that the market value
(including interest) of all securities subject to the repurchase agreement will equal or exceed the repurchase price.
Reverse Repurchase Agreements.
A fund may enter into “reverse
repurchase agreements,”
which are repurchase agreements in which a fund,
as the seller of the securities, agrees to repurchase such securities at an agreed time and
price. Under a reverse repurchase agreement, a fund continues to receive any principal and interest payments on
the underlying security during the term of the agreement. A fund’s obligations under reverse repurchase agreements are
generally treated as derivatives transactions subject to the requirements of Rule 18f-4, except for DWS money market
funds in which a fund’s obligations under reverse repurchase agreements are treated as borrowings requiring the
necessary asset coverage under Section 18(f) of the 1940 Act. Such transactions may increase fluctuations in the market
value of fund assets and its yield.
The SEC has finalized
new rules requiring the central clearing of certain repurchase transactions involving U.S. Treasuries. Historically,
such transactions have not been required to be cleared and voluntary clearing of such transactions has generally
been limited. The new clearing requirements could increase the fund’s costs of executing certain investment strategies.
Securities as a Result of Exchanges
or Workouts. Consistent with a fund’s investment objectives,
policies and restrictions, a fund may hold various
instruments received in an exchange or workout of a distressed security (i.e., a low-rated debt
security that is in default or at risk of becoming in default). Such instruments may include, but are not limited to,
equity securities, warrants, rights, participation interests in sales of assets and contingent-interest obligations.
Securities with
Put Rights. The right of a fund to exercise a put is unconditional
and unqualified. A put is not transferable by
a fund, although a fund may sell the underlying securities to a third party at any time. If necessary and advisable, a
fund may pay for certain puts either separately in cash or by paying a higher price for portfolio securities that are acquired
subject to such a put (thus reducing the yield to maturity otherwise available for the same securities).
The ability of a fund
to exercise a put will depend on the ability of a counterparty to pay for the underlying securities at
the time the put is exercised. In the event that a counterparty should default on its obligation to repurchase an underlying
security, a fund might be unable to recover all or a portion of any loss sustained from having to sell the security
elsewhere.
The acquisition of a
put will not affect the valuation by a fund of the underlying security. The actual put will be valued at
zero in determining net asset value of a fund. Where a fund pays directly or indirectly for a put, its cost will be reflected
in realized gain or loss when the put is exercised or expires. If the value of the underlying security increases, the
potential for unrealized or realized gain is reduced by the cost of the put.
Short Sales.
When a fund takes a long position, it purchases a stock outright. When a fund takes a short position, it sells
at the current market price a stock it does not own but has borrowed in anticipation that the market price of the stock
will decline. To complete, or close out, the short sale transaction, a fund buys the same stock in the market and returns
it to the lender. The price at such time may be more or less than the price at which the security was sold by a
fund. Until the security is replaced, a fund is required to pay the lender amounts equal to any dividends or interest, which
accrue during the period of the loan. To borrow the security, a fund may also be required to pay a premium, which
would increase the cost of the security sold. The proceeds of the short sale will be retained by the broker, to the
extent necessary to meet the margin requirements, until the short position is closed out. A fund may also be required
to deposit additional collateral with the broker (in addition to the short sale proceeds held by the broker), which
may be as much as 50% of the value of the securities sold short, to meet short sale margin requirements. A fund
makes money when the market price of the borrowed stock goes down and a fund is able to replace it for less than
it earned by selling it short. Alternatively, if the price of the stock goes up after the short sale and before the short
position is closed, a fund will lose money because it will have to pay more to replace the borrowed stock than it
received when it sold the stock short.
A fund may not always
be able to close out a short position at a particular time or at an acceptable price. A lender may
request that the borrowed securities be returned to it on short notice, and a fund may have to buy the borrowed securities
at an unfavorable price. If this occurs at a time that other short sellers of the same security also want to close
out their positions, a “short
squeeze”
can occur. A short squeeze occurs when demand is greater than supply for
the stock sold short. A short squeeze makes it more likely that a fund will have to cover its short sale at an unfavorable price.
If that happens, a fund will lose some or all of the potential profit from, or even incur a loss as a result of, the short
sale.
Until a fund closes its
short position or replaces the borrowed security, a fund’s short positions will count towards its derivatives
exposure for purposes of Rule 18f-4. Depending on the arrangements made with the broker or custodian, a
fund may or may not receive any payments (including interest) on collateral it has deposited with the broker.
Short sales involve the
risk that a fund will incur a loss by subsequently buying a security at a higher price than the price
at which a fund previously sold the security short. Any loss will be increased by the amount of compensation, interest
or dividends, and transaction costs a fund must pay to a lender of the security. In addition, because a fund’s loss
on a short sale stems from increases in the value of the security sold short, the extent of such loss, like the price of
the security sold short, is theoretically unlimited. By contrast, a fund’s loss on a long position arises from decreases in
the value of the security held by a fund and therefore is limited by the fact that a security’s value cannot drop below zero.
The use of short sales,
in effect, leverages a fund’s portfolio, which could increase a fund’s exposure to the market, magnify
losses and increase the volatility of returns.
Although
a fund’s share price may increase if the securities in its long portfolio increase in value more than the securities underlying
its short positions, a fund’s share price may decrease if the securities underlying its short positions increase in
value more than the securities in its long portfolio.
In addition, a fund’s
short selling strategies may limit its ability to fully benefit from increases in the equity markets. Also,
there is the risk that the counterparty to a short sale may fail to honor its contractual terms, causing a loss to a fund.
The SEC and other (including non-US) regulatory authorities have imposed, and may in the future impose, restrictions on
short selling, either on a temporary or permanent basis, which may include placing limitations on specific companies and/or
industries with respect to which a fund may enter into short positions. Any such restrictions may hinder a fund in,
or prevent it from, fully implementing its investment strategies, and may negatively affect performance.
Short Sales Against the Box.
A fund may make short sales of common stocks if, at all times when a short position is
open, a fund owns the stock or owns preferred stocks or debt securities convertible or exchangeable, without payment of
further consideration, into the shares of common stock sold short. Short sales of this kind are referred to as short sales
“against
the box.”
The broker/dealer that executes a short sale generally invests cash proceeds of the sale until they
are paid to a fund. Arrangements may be made with the broker/dealer to obtain a portion of the interest earned by
the broker on the investment of short sale proceeds. A fund’s short positions “against
the box”
will count towards its derivatives exposure
for purposes of Rule 18f-4. Uncertainty regarding the tax effects of short sales of appreciated investments
may limit the extent to which a fund may enter into short sales against the box. A fund will incur transaction costs
in connection with short sales against the box.
Short-Term Securities.
In order to meet anticipated redemptions, to hold pending the purchase of additional securities for
a fund’s portfolio, or, in some cases, for temporary defensive purposes, a fund may invest a portion (up to 100%) of
its assets in money market and other short-term securities. When a fund is invested for temporary defensive purposes, it
may not achieve or pursue its investment objective.
Examples of short-term securities include:
•
Securities
issued or guaranteed by the US government and its agencies and instrumentalities;
•
Certificates
of deposit and euro dollar certificates of deposit;
•
Short-term
notes, bonds, debentures or other debt instruments; and
Small Companies.
The Advisor believes that many small companies often may have sales and earnings growth rates that
exceed those of larger companies, and that such growth rates may, in turn, be reflected in more rapid share price appreciation
over time. Investing in smaller company stocks, however, involves greater risk than is customarily associated with
investing in larger, more established companies. For example, smaller companies can have limited product lines, markets,
or financial and managerial resources. Smaller companies may also be dependent on one or a few key persons, and
may be more susceptible to losses and risks of bankruptcy. Also, the securities of smaller companies may be thinly
traded (and therefore have to be sold at a discount from current market prices or sold in small lots over an extended
period of time or their stock values may fluctuate more sharply than other securities). Transaction costs in smaller
company stocks may be higher than those of larger companies.
Sovereign Debt.
Investments in sovereign debt can involve a high degree of risk. The governmental entity that controls the
repayment of sovereign debt may not be able or willing to repay the principal and/or interest when due in accordance with
the terms of such debt. A governmental entity’s willingness or ability to repay principal and interest due in a timely
manner may be affected by, among other factors, its cash flow situation, the extent of its foreign reserves,
the
availability of sufficient foreign exchange on the date a payment is due, the relative size of the debt service burden to
the economy as a whole, the governmental entity’s policy toward the International Monetary Fund, and the political constraints
to which a governmental entity may be subject. Governmental entities may also be dependent on expected disbursements
from foreign governments, multilateral agencies and others abroad to reduce principal and interest arrearages
on their debt. The commitment on the part of these governments, agencies and others to make such disbursements may
be conditioned on a governmental entity’s implementation of economic reforms and/or economic performance and
the timely service of such debtor’s obligations. Failure to implement such reforms, achieve such levels of economic performance
or repay principal or interest when due may result in the cancellation of such third parties’ commitments to
lend funds to the governmental entity, which may further impair such debtor’s ability or willingness to service its debts
in a timely manner. Consequently, governmental entities may default on their sovereign debt. Holders of sovereign debt
may be requested to participate in the rescheduling of such debt and to extend further loans to governmental entities.
There is no reliable bankruptcy proceeding by which sovereign debt on which governmental entities have defaulted
may be collected in whole or in part.
Special Information Concerning Master-Feeder
Fund Structure. The following applies to the extent that the
fund employs the master-feeder fund structure.
Unlike other open-end management investment companies (mutual funds) which
directly acquire and manage their own portfolio securities, a fund seeks to achieve its investment objective by investing
substantially all of its assets in a master portfolio (Portfolio), a separate registered investment company with the
same investment objective as a fund. Therefore, an investor’s interest in the Portfolio’s securities is indirect. In addition
to selling a beneficial interest to a fund, the Portfolio may sell beneficial interests to other mutual funds, investment
vehicles or institutional investors. Such investors will invest in the Portfolio on the same terms and conditions and
will pay a proportionate share of the Portfolio’s expenses. However, the other investors investing in the Portfolio are
not required to sell their shares at the same public offering price as a fund due to variations in sales commissions and
other operating expenses. Therefore, investors in a fund should be aware that these differences may result in differences
in returns experienced by investors in the different funds that invest in the Portfolio. Such differences in returns
are also present in other mutual fund structures.
Smaller funds investing
in the Portfolio may be materially affected by the actions of larger funds investing in the Portfolio. For
example, if a large fund withdraws from the Portfolio, the remaining funds may experience higher pro rata operating expenses,
thereby producing lower returns (however, this possibility exists as well for traditionally structured funds which
have large institutional investors). Also, the Portfolio may be required to sell investments at a price or time not advantageous
to the Portfolio in order to meet such a redemption. Additionally, the Portfolio may become less diverse, resulting
in increased portfolio risk. Also, funds with a greater pro rata ownership in the Portfolio could have effective voting
control of the operations of the Portfolio. Whenever a fund is requested to vote on a matter pertaining to the Portfolio,
the fund will vote its interests in the Portfolio without a meeting of shareholders of the fund if the proposal is
one that would not require the vote of shareholders of the fund as long as such action is permissible under applicable statutory
and regulatory requirements. In addition, whenever the fund is required to vote on a particular matter relating to
the Portfolio, the fund will hold a meeting of the shareholders of the fund and, at the meeting of the investors of the
Portfolio, will cast its vote in the same proportion as the votes of the fund’s shareholders even if all the fund’s shareholders
did not vote.
Certain changes in the
Portfolio’s investment objectives, policies or restrictions may require a fund to withdraw its interest
in the Portfolio. Any such withdrawal could result in a distribution “in
kind”
of portfolio securities (as opposed to a cash
distribution from the Portfolio). If securities are distributed, a fund could incur brokerage, tax or other charges in
converting the securities to cash. In addition, the distribution in kind may result in a less diversified portfolio of investments
or adversely affect the liquidity of a fund. Notwithstanding the above, there are other means for meeting redemption
requests, such as borrowing.
A fund may withdraw its
investment from the Portfolio at any time, if the Board determines that it is in the best interests of
the shareholders of a fund to do so. Upon any such withdrawal, the Board would consider what action might be taken,
including the investment of all the assets of a fund in another pooled investment entity having the same investment objective
as a fund or the retaining of an investment advisor to manage a fund’s assets in accordance with the investment policies
described herein with respect to the Portfolio.
Stable Net Asset
Value (for all money market funds except DWS ESG Liquidity Fund and Government Cash Management
Portfolio). A fund effects purchases and redemptions at its net
asset value per share. In fulfillment of its
responsibilities under Rule 2a-7 of the 1940 Act, the Board has approved policies reasonably designed, taking into account
current market conditions and a fund’s investment objective, to stabilize a fund’s net asset value per share, and
the Board will periodically review the Advisor’s operations under such policies at regularly scheduled Board meetings. In
addition to imposing limitations on the quality, maturity, diversity and liquidity of portfolio instruments held by a fund
as described in the prospectus, those policies include a weekly monitoring by the Advisor of unrealized gains and
losses in a fund and, when necessary, in an effort to avoid a material deviation of a fund’s net asset value per share
determined by reference to market valuations from a fund’s $1.00 price per share, taking corrective action, such as
adjusting the maturity of a fund, or, if possible, realizing gains or losses to offset in part unrealized losses or gains. The
result of those policies may be that the yield on shares of a fund will be lower than would be the case if the policies
were not in effect. Such policies also provide for certain action to be taken with respect to portfolio securities which
experience a downgrade in rating or suffer a default.
There is no assurance
that a fund’s net asset value per share will be maintained at $1.00. Pursuant to rules relating to
money market funds, a fund may be required to publicly disclose, among other things: (1) financial support payments from
DIMA or its affiliates to the fund for the purpose of stabilizing the value of the fund or (2) a deviation of the fund’s
net asset value per share determined by reference to market valuations from the fund’s $1.00 price per share by
0.25% or greater. To the extent a fund were to make such disclosures, it could cause significant redemptions from the
fund and further impair the fund’s ability to maintain a stable $1.00 share price. This risk may be heightened for a
fund to the extent it has a large proportion of institutional investors.
Stand-by Commitments.
A stand-by commitment is a right acquired by a fund, when it purchases a municipal obligation from
a broker, dealer or other financial institution (seller), to sell up to the same principal amount of such securities back
to the seller, at a fund’s option, at a specified price. Stand-by commitments are also known as “puts.”
The exercise by a fund of a stand-by commitment is subject to
the ability of the other party to fulfill its contractual commitment.
Stand-by commitments
acquired by a fund may have the following features: (1) they will be in writing and will be physically
held by a fund’s custodian; (2) a fund’s right to exercise them will be unconditional and unqualified; (3) they will
be entered into only with sellers which in the Advisor’s opinion present a minimal risk of default; (4) although stand-by
commitments will not be transferable, municipal obligations purchased subject to such commitments may be
sold to a third party at any time, even though the commitment is outstanding; and (5) their exercise price will be (i)
a fund’s acquisition cost (excluding any accrued interest which a fund paid on their acquisition), less any amortized market
premium or plus any amortized original issue discount during the period a fund owned the securities, plus (ii) all
interest accrued on the securities since the last interest payment date.
A fund expects that stand-by
commitments generally will be available without the payment of any direct or indirect consideration.
However, if necessary or advisable, a fund will pay for stand-by commitments, either separately in cash or
by paying a higher price for portfolio securities which are acquired subject to the commitments.
It is difficult to evaluate
the likelihood of use or the potential benefit of a stand-by commitment. Therefore, it is expected that
the Advisor will determine that stand-by commitments ordinarily have a “fair
value”
of zero, regardless of whether any direct or
indirect consideration was paid. However, if the market price of the security subject to the stand-by commitment
is less than the exercise price of the stand-by commitment, such security will ordinarily be valued at such
exercise price. Where a fund has paid for a stand-by commitment, its cost will be reflected as unrealized depreciation for
the period during which the commitment is held.
The IRS has issued a
favorable revenue ruling to the effect that, under specified circumstances, a regulated investment company
will be the owner of tax-exempt municipal obligations acquired subject to a put option. The IRS has also issued
private letter rulings to certain taxpayers (which do not serve as precedent for other taxpayers) to the effect that
tax-exempt interest received by a regulated investment company with respect to such obligations will be tax-exempt in
the hands of the company and may be distributed to its shareholders as exempt-interest dividends. The IRS has subsequently
announced that it will not ordinarily issue advance ruling letters as to the identity of the true owner of property
in cases involving the sale of securities or participation interests therein if the purchaser has the right to
cause
the security, or the participation interest therein, to be purchased by either the seller or a third party. A fund intends
to take the position that it owns any municipal obligations acquired subject to a stand-by commitment and that
tax-exempt interest earned with respect to such municipal obligations will be tax-exempt in its hands. There is no
assurance that the IRS will agree with such position in any particular case.
Structured Notes (including Equity-Linked
Notes (ELNs)). Structured notes are hybrid debt securities, the
interest rate or principal of which is determined
by reference to changes in value of a specific security or securities, reference rate,
or index. ELNs are a type of structured note that have their principal and/or interest based on the performance of
a single equity security, a basket of equity securities, or an equity index. ELNs may be designed to provide for protection
of principal in exchange for limited participation in the appreciation of the underlying equity securities or equity
index, or may not be principal protected. In addition, ELNs may be leveraged or unleveraged, and may trade on
a securities exchange, on over-the-counter markets or through privately negotiated transactions. Because ELNs are
structured to seek the characteristics of the underlying equity securities or equity index with written call options or
put options, the fund may not benefit fully from an increase in value of the underlying instrument. Correlation between the
price of an ELN and the underlying instruments may be imperfect. Indexed securities, similar to structured notes, are
typically, but not always, debt securities whose value at maturity or coupon rate is determined by reference to other
securities. The performance of a structured note or indexed security is based upon the performance of the underlying instrument.
The terms of a structured
note may provide that, in certain circumstances, no principal is due on maturity and, therefore, may
result in loss of investment. Structured notes may be indexed positively or negatively to the performance of the underlying
instrument such that the appreciation or deprecation of the underlying instrument will have a similar effect to
the value of the structured note at maturity or at the time of any coupon payment. In addition, changes in the interest
rate and value of the principal at maturity may be fixed at a specific multiple of the change in value of the underlying
instrument, making the value of the structured note more volatile than the underlying instrument. In addition, structured
notes may be less liquid and more difficult to price accurately than less complex securities or traditional debt
securities. Structured notes are also subject to counterparty risk, which is the risk that the issuer of the structured note
will default on its commitments. Structured notes, including ELNs, based on underlying equity instruments have the
risks inherent in the underlying equity instruments, including market risk, but are also exposed to risks applicable to
debt instruments, such as credit risk and interest rate risk.
The federal income tax
treatment of a structured note will depend on the particular features of the structured note and
in some cases may be uncertain. No assurance can be given that the IRS
will accept, or a court will uphold, how a fund characterizes
and treats structured notes for federal income tax purposes.
Subsidiary Companies.
A fund may gain exposure to the commodity markets in part by investing a portion of a fund’s assets
in a wholly-owned subsidiary (Subsidiary). Investments in a Subsidiary are expected to provide exposure to the
commodity markets within the limitations of the Code and IRS rulings (see “Taxes”
in Appendix II-H of this SAI). The Subsidiaries
are companies organized under the laws of the Cayman Islands, and each is overseen by its own board
of directors.
Among other investments,
the Subsidiaries are expected to invest in commodity-linked derivative instruments, such as
swaps and futures. The Subsidiaries will also invest in fixed income instruments, cash, cash equivalents and affiliated money
market funds. In monitoring compliance with its investment restrictions, including derivatives exposures for purposes
of Rule 18f-4, a fund will consider the assets of its Subsidiary to be assets of the fund.
To the extent that a
fund invests in its Subsidiary, a fund may be subject to the risks associated with those derivative instruments
and other securities, which are discussed elsewhere in a fund’s prospectus(es) and this SAI. While the Subsidiaries
may be considered similar to investment companies, they are not registered under the 1940 Act and are not
directly subject to all of the investor protections of the 1940 Act and other US regulations. Changes in the laws of
the US or the Cayman Islands could result in the inability of a fund or a Subsidiary to operate as intended or may subject
the fund or its advisor to new or additional regulatory requirements and could negatively affect a fund and its shareholders.
In
order to qualify for the special tax treatment accorded regulated investment companies and their shareholders, a fund
must, among other things, satisfy several diversification requirements, including the requirement that not more than
25% of the value of the fund's total assets may be invested in the securities (other than those of the US government or
other regulated investment companies) of any one issuer or of two or more issuers which the fund controls (as
defined in the Code)
and which are engaged in the same, similar or related trades or businesses. Therefore, so long as
a fund is subject to this limit, the fund may not invest any more than 25% of the value of its total assets in a Subsidiary.
Absent this diversification requirement, a fund would be permitted to invest more than 25% of the value of
its total assets in a Subsidiary.
In order to qualify for
the special tax treatment accorded regulated investment companies and their shareholders, a fund
must, among other things, derive at least 90% of its gross income from certain specified sources (qualifying income).
Income from certain commodity-related investments
does not constitute qualifying income to a fund. The tax
treatment of commodity-linked notes and certain other derivative instruments in which a fund might invest is not certain,
in particular with respect to whether income and gains from such instruments constitutes qualifying income. If
the Fund treats income from a particular instrument as qualifying income and the income is later determined not to
constitute qualifying income, and, together with any other nonqualifying income, causes the fund’s nonqualifying income
to exceed 10% of its gross income in any taxable year, a fund will fail to qualify as a regulated investment company
unless it is eligible to and does pay a tax at the fund level. Certain funds (including DWS Enhanced Commodity Strategy
Fund and DWS RREEF Real Assets Fund) have obtained private letter rulings from the IRS confirming that the
income and gain earned through a wholly-owned Subsidiary that invests in certain types of commodity-linked derivatives
constitute qualifying income under the Code.
Tax-Exempt Commercial Paper.
Issues of tax-exempt commercial paper typically represent short-term, unsecured, negotiable
promissory notes. These obligations are issued by state and local governments and their agencies to finance working
capital needs of municipalities or to provide interim construction financing and are paid from general revenues of
municipalities or are refinanced with long-term debt. In most cases, tax-exempt commercial paper is backed by letters
of credit, lending agreements, note repurchase agreements or other credit facility agreements offered by banks or
other institutions.
Tax-Exempt Custodial Receipts.
Tax-exempt custodial receipts (Receipts) evidence ownership in an underlying bond that
is deposited with a custodian for safekeeping. Holders of the Receipts receive all payments of principal and interest when
paid on the bonds. Receipts can be purchased in an offering or from a counterparty (typically an investment bank).
To the extent that any Receipt is illiquid, it is subject to a fund’s limitation on illiquid securities.
Tax-Exempt Pass-Through Securities.
Tax exempt pass-through certificates represent an interest in a pool or group of
fixed-rate long-term debt obligations issued by or on behalf of primarily not-for-profit institutions, the interest on which
is exempt from federal income taxation, including AMT.
Such fixed-rate long-term debt obligations may be private activity
bonds issued by states, municipalities or public authorities to provide funds, usually through a loan or lease arrangement,
to a non-profit corporation for the purpose of financing or refinancing the construction or improvement of
a facility to be used by the non-profit corporation. Distributions on tax exempt pass-through certificates may be adversely
affected by defaults in or prepayment of the underlying debt obligations. Certain tax exempt pass-through certificates
are issued in several classes with different levels of yields and credit protection. A fund may invest in lower classes
of tax exempt pass-through certificates that have less credit protection. Tax exempt pass-through certificates have
limited liquidity and certain transfer restrictions may apply. There currently is no trading market for tax exempt pass-through
certificates and there can be no assurance that such a market will develop.
Tender Option Bond Transactions.
A fund may leverage its assets through the use of proceeds through tender option bond
(TOB) transactions. In a TOB transaction, the fund typically transfers fixed-rate, long-term municipal bonds into a
special purpose entity (a ”TOB Trust”) that has been created for the purpose of repackaging such municipal bonds. The
TOB Trust issues short-term floating rate notes and a residual interest security “(TOB
Inverse Floater Residual Interests”).
The short term floating rate notes (“TOB
Floaters”)
are issued in a face amount equal to some fraction of
the par value of the underlying bonds. The TOB Floaters are sold to third parties, typically money market funds, and
the TOB Inverse Floater Residual Interests are held by the fund. The fund receives the proceeds from the sale of the
TOB Floaters as consideration for the transferred municipal bonds, and the fund uses the cash proceeds received
from
the sale of the TOB Floaters to make additional investments. The TOB Floaters pay an interest rate that resets periodically
at a reference rate, typically a short-term tax-exempt market rate, and can be tendered to the TOB Trust at
par, unless certain events occur. Typically, such tenders are funded through a remarketing of the tendered TOB Floaters
or a draw down on a liquidity facility. A fund, as the holder of the TOB Inverse Floater Residual Interests, has full
exposure to any increase or decrease in the value of the underlying bonds. The holder of the TOB Inverse Floater Residual
Interests receives interest in an amount equal to the interest paid on the underlying bonds, less the interest paid
on the TOB Floaters (and less certain expenses associated with the TOB Trust such as trustee, administrative and
liquidity fees). By holding the TOB Inverse Floater Residual Interests, a fund typically has the right to collapse the TOB
Trust by causing the holders of the TOB Floaters to tender their notes at par and have the TOB Trust administrator transfer
the underlying bonds to the fund. In connection with these investments, a fund may enter into shortfall and forbearance
agreements whereby the fund agrees to reimburse the TOB Trust, in certain circumstances, for the difference between
the liquidation value of the underlying bonds held by the TOB Trust and the liquidation value of the TOB Floaters plus
any shortfalls in interest cash flows. This could potentially expose the fund to losses in excess of the value of the
fund’s investment in the TOB Inverse Floater Residual Interests.
The value of TOB Inverse
Floater Residual Interests may decrease significantly when interest rates increase. The market for
TOB Inverse Floater Residual Interests may be more volatile and less liquid than other municipal bonds of comparable maturity.
Moreover, the TOB Trust could be terminated for reasons outside of a fund’s control, resulting in a reduction of
leverage and disposal of portfolio investments at inopportune times and prices. Investments in TOB Inverse Floater Residual
Interests generally involve greater risk than investments in fixed-rate bonds.
The final rules implementing
Section 619 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Volcker
Rule”)
preclude banking entities from sponsoring and/or providing services to existing TOB Trusts. In response to
these rules, investment market participants have developed TOB Trust structures that are intended to ensure that banking
entities do not sponsor TOB Trusts in violation of the Volcker Rule.
DWS municipal bond fund
TOB Trusts are structured to be in compliance with the Volcker Rule. A Volcker-compliant TOB
Trust structure is similar to pre-Volcker TOB Trust structures, with certain key differences. The basic features of a Volcker-compliant
TOB Trust structure are as follows:
•
Portfolio
management continues to make certain basic investment determinations, such as which bonds are placed in
the TOB Trust, the amount of leverage for any given transaction, whether the transaction is structured as non-recourse or
recourse, etc.
•
Similar
to pre-Volcker TOB Trust structures, the fund continues to be the holder of the TOB Inverse Floater Residual Interests.
•
Unlike
pre-Volcker TOB Trust structures, a bank or financial institution no longer serves as the sponsor, depositor, or
trust administrator nor does it have any discretionary decision making authority with respect to the TOB Trust.
•
Consistent
with pre-Volcker TOB Trust structures, a bank or financial institution serves as the trustee, liquidity provider,
and remarketing agent.
•
A
third-party administrative agent retained by the fund performs certain of the roles and responsibilities historically provided
by banking entities in pre-Volcker TOB Trust structures, including certain historical sponsor/ administrative roles
and responsibilities.
The ultimate impact of
the Volcker Rule on the TOB market and the municipal market generally is not yet certain. Such changes
could make early unwinds of TOB Trusts more likely, may make the use of TOB Trusts more expensive, and may
make it more difficult to use TOB Trusts in general. The new rules may also expose the fund to additional risks, including,
but not limited to, compliance, securities law and operational risks.
Third Party Puts.
A fund may purchase long-term fixed rate bonds that have been coupled with an option granted by
a third party financial institution allowing a fund at specified intervals to tender (put) the bonds to the institution and
receive the face value thereof (plus accrued interest). These third party puts are available in several different forms, may
be represented by custodial receipts or trust certificates and may be combined with other features such as interest rate
swaps. A fund receives a short-term rate of interest (which is periodically reset), and the interest rate differential between
that rate and the fixed rate on the bond is retained by the financial institution. The financial institution granting the
option does not provide credit enhancement, and in the event that there is a default in the payment of principal or
interest, or downgrading of a bond to below investment grade, or a loss of the bond’s tax-exempt status, the put option
will terminate automatically. As a result, a fund would be subject to the risks associated with holding such a long-term
bond and the weighted average maturity of that fund’s portfolio would be adversely affected.
These bonds coupled with
puts may present the same tax issues as are associated with Stand-By Commitments. As
with any Stand-By Commitments acquired by a fund, a fund intends to take the position that it is the owner of any
municipal obligation acquired subject to a third-party put, and that tax-exempt interest earned with respect to such
municipal obligations will be tax-exempt in its hands. There is no assurance that the IRS will agree with such position
in any particular case. Additionally, the federal income tax treatment of certain other aspects of these investments, including
the treatment of tender fees and swap payments, in relation to various regulated investment company tax provisions
is unclear. However, the Advisor seeks to manage a fund’s portfolio in a manner designed to minimize any adverse
impact from these investments.
To Be Announced (TBA) Purchase Commitments.
Similar to When-Issued or Delayed-Delivery securities, a TBA purchase
commitment is a security that is purchased or sold for a fixed price with the underlying securities to be announced
at a future date. However, the seller does not specify the particular securities to be delivered. Instead, a fund
agrees to accept any securities that meets the specified terms. For example, in a TBA mortgage-backed transaction, a
fund and seller would agree upon the issuer, interest rate and terms of the underlying mortgages, but the seller would
not identify the specific underlying security until it issues the security. TBA purchase commitments involve a risk
of loss if the value of the underlying security to be purchased declines prior to delivery date. The yield obtained for
such securities may be higher or lower than yields available in the market on delivery date. Unsettled TBA purchase commitments
are valued at the current market value of the underlying securities.
Trust Preferred Securities.
A fund may invest in Trust Preferred Securities, which are hybrid instruments issued by a
special purpose trust (Special Trust), the entire equity interest of which is owned by a single issuer. The proceeds of
the issuance to a fund of Trust Preferred Securities are typically used to purchase a junior subordinated debenture, and
distributions from the Special Trust are funded by the payments of principal and interest on the subordinated debenture.
If payments on the underlying
junior subordinated debentures held by the Special Trust are deferred by the debenture issuer,
the debentures would be treated as original issue discount (OID) obligations for the remainder of their term. As
a result, holders of Trust Preferred Securities, such as a fund, would be required to accrue daily for federal income tax
purposes their share of the stated interest and the OID on the
debentures (regardless of whether a fund receives any
cash distributions from the Special Trust), and the value of Trust Preferred Securities would likely be negatively affected.
Interest payments on the underlying junior subordinated debentures typically may only be deferred if dividends are
suspended on both common and preferred stock of the issuer. The underlying junior subordinated debentures generally
rank slightly higher in terms of payment priority than both common and preferred securities of the issuer, but
rank below other subordinated debentures and debt securities. Trust Preferred Securities may be subject to mandatory prepayment
under certain circumstances. The market values of Trust Preferred Securities may be more volatile than those
of conventional debt securities. Trust Preferred Securities may be issued in reliance on Rule 144A under the 1933
Act, and, unless and until registered, are restricted securities. There can be no assurance as to the liquidity of Trust
Preferred Securities and the ability of holders of Trust Preferred Securities, such as a fund, to sell their holdings.
US Government Securities.
A fund may invest in obligations issued or guaranteed as to both principal and interest by
the US Government, its agencies, instrumentalities or sponsored enterprises which include: (a) direct obligations of
the US Treasury; and (b) securities issued or guaranteed by US Government agencies.
Examples
of direct obligations of the US Treasury are Treasury bills, notes, bonds and other debt securities issued by the
US Treasury. These instruments are backed by the “full
faith and credit”
of the United States. They differ primarily in
interest rates, the length of maturities and the dates of issuance. Treasury bills have original maturities of one year or
less. Treasury notes have original maturities of one to ten years and Treasury bonds generally have original maturities of
greater than ten years.
Some agency securities
are backed by the full faith and credit of the United States (such as Maritime Administration Title
XI Ship Financing Bonds and Agency for International Development Housing Guarantee Program Bonds) and others
are backed only by the rights of the issuer to borrow from the US Treasury (such as Federal Home Loan Bank Bonds
and Federal National Mortgage Association Bonds), while still others, such as the securities of the Federal Farm Credit
Bank, are supported only by the credit of the issuer. With respect to securities supported only by the credit of the
issuing agency or by an additional line of credit with the US Treasury, there is no guarantee that the US Government will
provide support to such agencies and such securities may involve risk of loss of principal and interest.
US Government securities
may include “zero
coupon”
securities that have been stripped by the US Government of their
unmatured interest coupons and collateralized obligations issued or guaranteed by a US Government agency or instrumentality.
Because interest on zero coupon securities is not distributed on a current basis but is, in effect, compounded, zero
coupon securities tend to be subject to greater risk than interest-paying securities of similar maturities.
Interest rates on US
Government securities may be fixed or variable. Interest rates on variable rate obligations are adjusted
at regular intervals, at least annually, according to a formula reflecting then current specified standard rates, such
as 91-day US Treasury bill rates. These adjustments generally tend to reduce fluctuations in the market value of the
securities.
The government guarantee
of the US Government securities in a fund’s portfolio does not guarantee the net asset value
of the shares of a fund. There are market risks inherent in all investments in securities and the value of an investment
in a fund will fluctuate over time. Normally, the value of investments in US Government securities varies inversely
with changes in interest rates. For example, as interest rates rise the value of investments in US Government securities
will tend to decline, and as interest rates fall the value of a fund’s investments in US Government securities will
tend to increase. In addition, the potential for appreciation in the event of a decline in interest rates may be limited or
negated by increased principal prepayments with respect to certain mortgage-backed securities, such as GNMA Certificates.
Prepayments of high interest rate mortgage-backed securities during times of declining interest rates will
tend to lower the return of a fund and may even result in losses to a fund if some securities were acquired at a premium.
Moreover, during periods of rising interest rates, prepayments of mortgage-backed securities may decline, resulting
in the extension of a fund’s average portfolio maturity. As a result, a fund’s portfolio may experience greater volatility
during periods of rising interest rates than under normal market conditions.
Because of the rising
US Government debt burden and potential limitations caused by the statutory debt ceiling, it is
possible that the US Government may not be able to meet its financial obligations or that securities issued by the US
Government may experience credit downgrades. In the past, US sovereign credit has experienced downgrades and
there can be no guarantee that it will not experience further downgrades in the future by rating agencies. Such a
credit event may adversely impact the financial markets and the fund. From time to time, uncertainty regarding the status
of negotiations in the US Government to increase the statutory debt ceiling and/or failure to increase the statutory debt
ceiling could increase the risk that the US Government may default on payments on certain US Government securities,
cause the credit rating of the US Government to be downgraded or increase volatility in financial markets, result
in higher interest rates, reduce prices of US Treasury securities and/or increase the costs of certain kinds of debt.
Variable and Floating Rate Instruments.
Debt instruments purchased by a fund may be structured to have variable or
floating interest rates. The interest rate on variable and floating rate securities may be reset daily, weekly or on some
other reset period and may have a floor or ceiling on interest rate changes. The interest rate of variable rate securities
ordinarily is determined by reference to or is a percentage of an objective standard such as a bank’s prime rate,
the 90-day US Treasury Bill rate, or the rate of return on commercial paper or bank certificates of deposit. Generally, the
changes in the interest rate on variable rate securities reduce the fluctuation in the market value of such securities.
Accordingly,
as interest rates decrease or increase, the potential for capital appreciation or depreciation is less than for
fixed-rate obligations. A fund may purchase variable rate securities on which stated minimum or maximum rates, or
maximum rates set by state law, limit the degree to which interest on such instruments may fluctuate; to the extent it
does, increases or decreases in value of such instruments may be somewhat greater than would be the case without such
limits. Because the adjustment of interest rates on the variable rate securities is made in relation to movements of
the applicable rate adjustment index, the instruments are not comparable to long-term fixed interest rate securities. Accordingly,
interest rates on the variable rate securities may be higher or lower than current market rates for fixed rate
obligations of comparable quality with similar final maturities. A money market fund determines the maturity of variable
rate securities in accordance with Rule 2a-7, which allows a fund to consider certain of such instruments as having
maturities shorter than the maturity date on the face of the instrument.
The Advisor will consider
the earning power, cash flows and other liquidity ratios of the issuers and guarantors of such
instruments and, if the instrument is subject to a demand feature (described below), will continuously monitor the
issuer’s financial ability to meet payment on demand. Where necessary to ensure that a variable or floating rate instrument
is equivalent to the quality standards applicable to a fund’s fixed income investments, the issuer’s obligation to
pay the principal of the instrument will be backed by an unconditional bank letter or line of credit, guarantee or commitment
to lend. Any bank providing such a bank letter, line of credit, guarantee or loan commitment will meet a
fund’s investment quality standards relating to investments in bank obligations. The Advisor will also monitor the creditworthiness
of issuers of such instruments to determine whether a fund should continue to hold the investments.
The absence of an active
secondary market for certain variable and floating rate notes could make it difficult to dispose of
the instruments, and a fund could suffer a loss if the issuer defaults or during periods in which a fund is not entitled to
exercise its demand rights. When a reliable trading market for the variable and floating rate instruments held by a fund
does not exist and a fund may not demand payment of the principal amount of such instruments within seven days,
the instruments may be deemed illiquid and therefore subject to a fund’s limitation on investments in illiquid securities.
Variable Rate Demand Securities.
A fund may purchase variable rate demand securities, which are variable rate securities that
permit a fund to demand payment of the unpaid principal balance plus accrued interest upon a specified number of
days’ notice to the issuer or its agent. The demand feature may be backed by a bank letter of credit or guarantee issued
with respect to such instrument. A bank that issues a repurchase commitment may receive a fee from a fund for
this arrangement. The issuer of a variable rate demand security may have a corresponding right to prepay in its discretion
the outstanding principal of the instrument plus accrued interest upon notice comparable to that required for
the holder to demand payment.
Variable Rate Master Demand Notes.
A fund may purchase variable rate master demand notes, which are unsecured instruments
that permit the indebtedness thereunder to vary and provide for periodic adjustments in the interest rate. Because
variable rate master demand notes are direct lending arrangements between a fund and the issuer, they are
not ordinarily traded. Although no active secondary market may exist for these notes, a fund will purchase only those
notes under which it may demand and receive payment of principal and accrued interest daily or may resell the note
at any time to a third party. These notes are not typically rated by credit rating agencies.
Variable Rate Preferred Securities.
A fund may purchase certain variable rate preferred securities (VRPs) issued by closed-end
municipal bond funds, which, in turn, invest primarily in portfolios of tax-exempt municipal bonds. A fund may
invest in securities issued by single-state or national closed-end municipal bond funds. VRPs are issued by closed-end funds
to leverage returns for common shareholders. Under the 1940 Act, a closed-end fund that issues preferred shares
must maintain an asset coverage ratio of at least 200% immediately after the time of issuance and at the time of
certain distributions on repurchases of its common stock. It is anticipated that the interest on the VRPs will be exempt
from federal income tax and, with respect to any such securities issued by single-state municipal bond funds, exempt
from the applicable state’s income tax, although interest on VRPs may be subject to the federal AMT.
The VRPs will pay a variable dividend rate,
determined either daily or weekly, typically through a remarketing process, and will
typically include a demand feature that provides a fund with a contractual right to tender the securities to either a
liquidity provider or back to the closed-end municipal bond fund. A fund could lose money if the liquidity provider fails
to honor its obligation, becomes insolvent, or files for bankruptcy. If the tender is directly to the closed-end
municipal
bond
fund a fund could lose money if the closed-end municipal bond fund fails to honor its obligation, becomes insolvent, or
files for bankruptcy. In certain instances, a fund may not have the right to put the securities back to the closed-end municipal
bond fund or demand payment or redemption directly from the closed-end municipal bond fund. If the VRPs were
offered under an exemption from registration under the 1933 Act (e.g. Regulation D) the VRPs would not be freely
transferable and, therefore, a fund may only transfer the securities to another investor in compliance with certain exemptions
under the 1933 Act, including Rule 144A. If the VRPs were to be registered under the 1933 Act, the VRPs would
be freely transferable.
A fund’s purchase
of VRPs issued by closed-end municipal bond funds is subject to the restrictions set forth under the
heading “Investment
Companies and Other Pooled Investment Vehicles.”
Warrants.
The holder of a warrant has the right, until the warrant expires, to purchase a given number of shares of a particular
issuer at a specified price. Such investments can provide a greater potential for profit or loss than an equivalent investment
in the underlying security. Prices of warrants do not necessarily move, however, in tandem with the prices of
the underlying securities and are, therefore, considered speculative investments. Warrants pay no dividends and confer
no rights other than a purchase option. Thus, if a warrant held by a fund were not exercised by the date of its expiration,
a fund would lose the entire purchase price of the warrant.
When-Issued and Delayed-Delivery Securities.
A fund may purchase securities on a when-issued or delayed-delivery basis.
Delivery of and payment for these securities can take place a month or more after the date of the purchase commitment.
The payment obligation and the interest rate that will be received on when-issued and delayed-delivery securities
are fixed at the time the buyer enters into the commitment. Due to fluctuations in the value of securities purchased
or sold on a when-issued or delayed-delivery basis, the yields obtained on such securities may be higher or
lower than the yields available in the market on the dates when the investments are actually delivered to the buyers. When-issued
securities may include securities purchased on a “when,
as and if issued”
basis, under which the issuance of the security
depends on the occurrence of a subsequent event, such as approval of a merger, corporate reorganization or
debt restructuring. The value of such securities is subject to market fluctuation during this period and no interest or
income, as applicable, accrues to a fund until settlement takes place.
At the time a fund makes
the commitment to purchase securities on a when-issued or delayed delivery basis, it will record
the transaction, reflect the value each day of such securities in determining its net asset value and, if applicable, calculate
the maturity for the purposes of average maturity from that date. At the time of settlement a when-issued security
may be valued at less than the purchase price. Rule 18f-4 under the 1940 Act permits a fund to invest in a security
on a when-issued or delayed-delivery basis and the transaction will be deemed not to involve a senior security, provided
that the fund intends to physically settle the transaction and the transaction will settle within 35 days of its trade
date. If a fund chooses to dispose of the right to acquire a when-issued security prior to its acquisition, it could, as
with the disposition of any other portfolio obligation, incur a gain or loss due to market fluctuation. When a fund engages
in when-issued or delayed-delivery transactions, it relies on the other party to consummate the trade and is,
therefore, exposed to counterparty risk. Failure of the seller to do so may result in a fund’s incurring a loss or missing
an opportunity to obtain a price considered to be advantageous.
Yankee Bonds.
Yankee Bonds are US dollar-denominated bonds sold in the US by non-US issuers. As compared with bonds
issued in the US, such bond issues normally pay interest but are less actively traded. Investing in the securities of
foreign companies involves more risks than investing in securities of US companies. Their value is subject to economic and
political developments in the countries where the companies operate and to changes in foreign currency values. Values
may also be affected by foreign tax laws, changes in foreign economic or monetary policies, exchange control regulations
and regulations involving prohibitions on the repatriation of foreign currencies. In many foreign countries, there
is less publicly available information about foreign issuers, and there is less government regulation and supervision of
foreign stock exchanges, brokers and listed companies. Also in many foreign countries, companies are not subject to
uniform accounting, auditing, and financial reporting standards comparable to those applicable to domestic issuers. Security
trading practices and custody arrangements abroad may offer less protection to a fund’s investments and there
may be difficulty in enforcing legal rights outside the United States. Settlement of transactions in some foreign markets
may be delayed or may be less frequent than in the United States which could affect the liquidity of a fund’s portfolio.
Additionally, in some foreign countries, there is the possibility of expropriation or confiscatory taxation, limitations
on
the removal of securities, property, or other fund assets, political or social instability or diplomatic developments which
could affect investments in foreign securities. In addition, the relative performance of various countries’ fixed income
markets historically has reflected wide variations relating to the unique characteristics of each country’s economy. Year-to-year
fluctuations in certain markets have been significant, and negative returns have been experienced in various markets
from time to time.
Yields and Ratings.
The yields on certain obligations in which a fund may invest (such as commercial paper and bank obligations),
are dependent on a variety of factors, including general market conditions, conditions in the particular market
for the obligation, the financial condition of the issuer, the size of the offering, the maturity of the obligation and
the ratings of the issue. The ratings of Moody’s, S&P and Fitch represent their opinions as to the quality of the securities
that they undertake to rate. Ratings, however, are general and are not absolute standards of quality or value. Consequently,
obligations with the same rating, maturity and interest rate may have different market prices. See “Ratings
of Investments”
for descriptions of the ratings provided by certain recognized rating organizations.
Zero Coupon Securities and Deferred
Interest Bonds. A fund may invest in zero coupon securities that
are “stripped”
US Treasury notes and bonds and in deferred
interest bonds. Zero coupon securities are the separate income or principal components
of a debt instrument. Zero coupon and deferred interest bonds are debt obligations which are issued at a
significant discount from face value. The original discount approximates the total amount of interest the bonds will accrue
and compound over the period until maturity or the first interest accrual date at a rate of interest reflecting the
market rate of the security at the time of issuance. Zero coupon securities are redeemed at face value at their maturity
date without interim cash payments of interest or principal. The amount of this discount is accrued over the life
of the security, and the accrual constitutes the income earned on the security for both accounting and federal income
tax purposes. Because of these features, the market prices of zero coupon securities are generally more volatile
than the market prices of securities that have similar maturity but that pay interest periodically.
While zero coupon bonds
do not require the periodic payment of interest, deferred interest bonds generally provide for
a period of delay before the regular payment of interest begins. Although this period of delay is different for each deferred
interest bond, a typical period is approximately one-third of the bond’s term to maturity. Such investments benefit
the issuer by mitigating its initial need for cash to meet debt service, but some also provide a higher rate of return
to attract investors who are willing to defer receipt of such cash.
A fund will accrue income
on such investments for tax and accounting purposes, as required, which will generally be prior
to the receipt of the corresponding cash payments. Because a fund is required to distribute to shareholders substantially
all of its net investment income, including such accrued income, to avoid federal income and excise taxes,
a fund may be required to liquidate portfolio securities to satisfy a fund’s distribution obligations (including at a
time when it may not be advantageous to do so). Under many market conditions, investments in zero coupon, step-coupon and
pay-in-kind securities may be illiquid, making it difficult for a fund to dispose of them or to determine their current value.
Part II:
Appendix II-H—Taxes
The following is intended
to be a general summary of certain federal income tax consequences of investing in a fund. This
discussion does not address all aspects of taxation (including state, local, and foreign taxes) that may be relevant to
particular shareholders in light of their own investment or tax circumstances, or to particular types of shareholders (including
insurance companies, tax-advantaged retirement plans, financial institutions or broker-dealers, foreign corporations, and
persons who are not citizens or residents of the US) that are subject to special treatment under the federal income tax
laws. Current and prospective investors are therefore advised to consult with their tax advisors before making an investment
in a fund. This summary is based on the laws in effect on the date of this SAI and on existing judicial and administrative
interpretations thereof, all of which are subject to change, possibly with retroactive effect.
Feeder Funds. Certain
funds (Feeder Funds) invest all or substantially all of their assets in either the Deutsche DWS Equity
500 Index Portfolio or the Government Cash Management Portfolio (each, a Master Portfolio), which are partnerships for
federal income tax purposes. For a discussion of the federal income tax treatment of a Master Portfolio, please see
the registration statement for that Master Portfolio. The amount and character of a Feeder Fund’s income, gains, losses,
deductions and other tax items will generally be determined at the Master Portfolio level and the Feeder Fund will
be allocated, and is required to take into account, its share of its Master Portfolio’s income, gains, losses and other
tax items for each taxable year. Consequently, references herein to a fund’s income, gains, losses and other tax
items, as well as its activities, investment and holdings, as applied to a Feeder Fund, generally include the tax items,
activities, investments and holdings realized, recognized, conducted or held, as applicable, either by the Feeder Fund
directly or through its Master Portfolio. See “Investments
in the Master Portfolios”
for more information.
Taxation of a fund and its Investments
Qualification as a regulated investment
company. A fund has elected (or in the case of a new fund, intends
to elect) to be treated, and intends to qualify
each year, as a regulated investment company under Subchapter M of the Code.
If a fund qualifies for treatment as a regulated investment company that is accorded special tax treatment, such
fund will not be subject to federal income tax on income distributed in a timely manner to its shareholders in the
form of dividends (including Capital Gain Dividends, as defined below). In order to qualify for the special tax treatment accorded
regulated investment companies and their shareholders under the Code, a fund must, among other things:
(a) derive at least 90%
of its gross income for each taxable year from (i) dividends, interest, payments with respect to
certain securities loans, gains from the sale or other disposition of stock, securities or foreign currencies, or 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 (ii) net income derived from interests in “qualified
publicly traded partnerships”
(as defined below);
(b) diversify its holdings
so that, at the end of each quarter of its taxable year, (i) at least 50% of the market value of its
total assets are represented by cash and cash items, US Government securities, securities of other regulated investment
companies, and other securities limited in respect of any one issuer to a value not greater than 5% of the
value of a fund's total assets and not more than 10% of the outstanding voting securities of such issuer, and (ii) not
more than 25% of the value of its assets are invested, including through corporations in which the fund owns a 20%
or more voting interest, (x) in the securities (other than those of the US Government or other regulated investment companies)
of any one issuer or of two or more issuers which the fund controls and which are engaged in the same, similar,
or related trades or businesses, or (y) in the securities of one or more qualified publicly traded partnerships (as
defined below); and
(c) distribute with respect
to each taxable year at least 90% of the sum of its investment company taxable income (as
that term is defined in the Code without regard to the deduction for dividends paid; investment company taxable income
generally consists of taxable ordinary income and the excess, if any, of net short-term capital gains over net long-term
capital losses) and net tax-exempt interest income, if any, for such year.
In
general, for purposes of the 90% gross income requirement described in paragraph (a) above, income derived from a
partnership will be treated as qualifying income only to the extent such income is attributable to items of income of
the partnership which would be qualifying income if realized directly by a fund. However, 100% of net income derived
from an interest in a “qualified
publicly traded partnership”
(generally, a partnership (x) the interests in which are
traded on an established securities market or readily tradable on a secondary market or the substantial equivalent thereof,
and (y) that derives less than 90% of its gross income from the qualifying income described in paragraph (a)(i)
above) will be treated as qualifying income.
For purposes of the diversification
test in paragraph (b) above, the term “outstanding
voting securities of such issuer”
will include the equity securities of a qualified
publicly traded partnership. It is possible that certain partnerships in which
a fund may invest will be master limited partnerships constituting qualified publicly traded partnerships. Such investments
will be limited by a fund's intention to qualify as a regulated investment company under the Code. In addition,
although the passive loss rules of the Code do not generally apply to regulated investment companies, such rules
do apply to a regulated investment company with respect to items attributable to an interest in a qualified publicly traded
partnership. Fund investments in partnerships, including in qualified publicly traded partnerships, may result in
a fund being subject to state, local or foreign income, franchise or withholding taxes.
Pursuant to current IRS
guidance, a Feeder Fund investing in a Master Portfolio will be treated as holding directly the underlying
assets of the Master Portfolio for purposes of the diversification test in (b) above.
In addition, for purposes
of the diversification test in paragraph (b) above, the identification of the issuer (or, in some cases,
issuers) of a particular fund investment can depend on the terms and conditions of that investment. In some cases,
identification of the issuer (or issuers) is uncertain under current law, and an adverse determination or future guidance
by the IRS with respect to issuer identification for a particular type of investment may adversely affect a fund’s
ability to meet the diversification test in paragraph (b) above.
Failure to qualify as a regulated investment
company. If a fund were to fail to meet the income, diversification
or distribution tests described above, the fund
could in some cases cure such failure, including by paying a fund-level tax,
paying interest, making additional distributions or disposing of certain assets. If a fund were ineligible to or otherwise did
not cure such failure for any year, the fund would fail to qualify as a “regulated
investment company”
for such year. All of the fund's taxable income
would be subject to federal income tax at regular corporate rates (without any deduction
for distributions to its shareholders), and all distributions from earnings and profits, including any distributions of
net tax-exempt income and net long-term capital gains, would be taxable to shareholders as ordinary income. Some portions
of such distributions, however, could be eligible (i) to be treated as qualified dividend income in the case of shareholders
taxed as individuals and other noncorporate shareholders and (ii) for the dividends-received deduction in
the case of corporate shareholders provided, in both cases, the shareholder meets certain holding period and other requirements
in respect of the fund's shares (as described below). In addition, a fund could be required to recognize unrealized
gains, pay substantial taxes and interest and make substantial distributions before requalifying as a regulated investment
company that is accorded special federal income tax treatment.
A fund is subject to
a 4% nondeductible excise tax on amounts that have been retained rather than distributed, as required,
under a prescribed formula. The formula requires payment to shareholders during a calendar year of distributions representing
at least 98% of a fund's taxable ordinary income for the calendar year and at least 98.2% of the excess of
its capital gains over capital losses realized during the one-year period ending October 31 of such year (or the last day
of a fund’s taxable year if a fund’s taxable year ends in November or December and a fund makes an election to use
such later date), as well as amounts that were neither distributed by nor taxed to a fund during the prior calendar year.
For purposes of the required excise tax distribution, ordinary gains and losses from the sale, exchange or other taxable
disposition of property that would be taken into account after October 31 (or later if the fund is permitted to so
elect and does so elect) are treated as arising on January 1 of the following calendar year. Also for purposes of the
excise tax, a fund will be treated as having distributed any ordinary income or capital gain net income on which it
has been subject to corporate income tax in the taxable year ending within the calendar year. Although a fund's distribution
policies should enable it to avoid this excise tax, a fund may retain (and be subject to income or excise tax
on) a portion of its capital gain or other income if it appears to be in the interest of such fund.
Special tax provisions
that apply to certain investments. Certain of a fund's investment
practices are subject to special and complex
federal income tax provisions, including rules relating to short sales, constructive sales, “straddle”
and “wash
sale”
transactions and section 1256 contracts (as defined below), that may, among other things: (i) disallow, suspend
or otherwise limit the allowance of certain losses or deductions; (ii) convert lower taxed long-term capital gains
into higher taxed short-term capital gains or ordinary income; (iii) convert an ordinary loss or a deduction into a capital
loss; (iv) cause a fund to recognize income or gain without a corresponding receipt of cash; and/or (v) adversely alter
the characterization of certain fund investments. Moreover, the straddle rules and short sale rules may require the
capitalization of certain related expenses of a fund.
Certain debt obligations.
Some debt obligations with a fixed maturity date of more than one year from the date of issuance
(and zero-coupon debt obligations with a fixed maturity date of more than one year from the date of issuance) that
are acquired by a fund will be treated as debt obligations that are issued originally at a discount. Generally, the amount
of the original issue discount (OID) is treated as interest income and required to be accrued (and required to be
distributed by a fund) over the term of the debt security, even though payment of that amount is not received until a
later time, upon partial or full repayment or disposition of the debt security. In addition, payment-in-kind debt securities will
give rise to income which is required to be distributed and, in the case of a taxable obligation, is taxable, even though
a fund holding the security receives no interest payment in cash on the security during the year.
Some debt obligations
with a fixed maturity date of more than one year from the date of issuance that are acquired by
a fund in the secondary market may be treated as having “market
discount.”
Very generally, market discount is the excess
of the stated redemption price of a debt obligation (or in the case of an obligation issued with OID, its “revised
issue price”)
over the purchase price of such obligation. Generally, any gain recognized on the disposition of,
and any partial payment of principal on, a debt security having market discount is treated as interest income to the
extent the gain, or principal payment, does not exceed the “accrued
market discount”
on such debt security. Alternatively, a fund
may elect to accrue market discount currently, in which case a fund will be required to distribute the
accrued market discount over the term of the debt security, even though payment of that amount is not received until
a later time, upon partial or full repayment or disposition of the debt security. The rate at which the market discount accrues
will depend upon which of the permitted accrual methods a fund elects.
Some debt obligations
with a fixed maturity date of one year or less from the date of issuance that are acquired by a
fund may be treated as having OID or, in certain cases, “acquisition
discount”
(very generally, the excess of the stated redemption
price over the purchase price). A fund will be required to accrue the OID or acquisition discount and
thus distribute it over the term of the debt security, even though payment of that amount is not received until a later
time, upon partial or full repayment or disposition of the debt security. The rate at which OID or acquisition discount accrues
will depend upon which of the permitted accrual methods a fund elects.
If a fund holds the foregoing
kinds of securities, it may be required to pay out as an income distribution each year an amount
which is greater than the total amount of cash interest a fund actually received. Such distributions may be made
from the cash assets of a fund or by liquidation of portfolio securities that it might otherwise have continued to
hold. A fund may realize gains or losses from such liquidations. In the event a fund realizes net gains from such transactions,
its shareholders may receive larger distributions than they would have received in the absence of such transactions.
These investments may also affect the character of income recognized by a fund.
A portion of the OID
accrued on certain high yield discount obligations may not be deductible to the issuer and,
in such
cases, will instead generally
be treated as a dividend paid by the issuer
to the extent of the issuer’s earnings and
profits. In such cases, dividend payments by a fund may be eligible
for qualified dividend income treatment or, if
the issuer of the high yield discount obligations is a corporation,
the dividends received deduction for corporations to
the extent attributable to the deemed dividend portion of such OID.
Investments in debt obligations
that are at risk of or in default present special tax issues for a fund. Federal income tax
rules are not entirely clear about issues such as whether and, if so, to what extent a fund should recognize market discount
on such a debt obligation, when a fund may cease to accrue interest, OID or market discount, when and to what
extent deductions may be taken for bad debts or worthless securities, how payments received on obligations in
default should be allocated between principal and income and whether exchanges of debt obligations in a workout
context
are taxable. These and other issues will be addressed by a fund, when, as and if it invests in such securities, in
order to seek to ensure that it distributes sufficient income to preserve its eligibility for treatment as a regulated investment
company and does not become subject to federal income or excise tax.
Very generally, where
a fund purchases a bond at a price that exceeds the redemption price at maturity (i.e., a premium), the
premium is amortizable over the remaining term of the bond. In the case of a taxable bond, if a fund makes an election
applicable to all such bonds it purchases, which election is irrevocable without consent of the IRS, the fund reduces
the current taxable income from the bond by the amortized premium and reduces its tax basis in the bond by
the amount of such offset; upon the disposition or maturity of such bonds acquired on or after January 4, 2013, the
fund is permitted to deduct any remaining premium allocable to a prior period. In the case of a tax-exempt bond, tax
rules require such a fund to reduce its tax basis by the amount of amortized premium.
Derivatives.
In addition to the special rules described below in respect of options transactions and futures, a fund's transactions
in other derivative instruments (e.g. forward contracts and swap agreements), as well as any of its other hedging,
short sale or similar transactions, may 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 a fund (i.e., may affect whether gains or losses are ordinary or capital), accelerate recognition of income
to a fund and defer fund losses. These rules could therefore affect the character, amount and timing of distributions to
shareholders. These provisions may also: (i) require a fund to mark to market annually certain types of the positions in
its portfolio (i.e., treat them as if they were closed out at the end of each year); or (ii) cause a fund to recognize income
without receiving cash with which to pay dividends or make distributions in amounts necessary to satisfy the distribution
requirements described above in order to avoid certain income and excise taxes. A fund may be required to
liquidate other investments (including when it is not advantageous to do so) to meet its distribution requirements, which
may also accelerate the recognition of gain by the fund. A fund will monitor its transactions, make the appropriate tax
elections and make the appropriate entries in its books and records when it acquires any foreign currency, forward contract,
option, futures contract or hedged investment in order to mitigate the effect of these rules and prevent disqualification
of a fund from treatment as a regulated investment company.
In general, option premiums
received by a fund are not immediately included in the income of a fund. Instead, the premiums
are recognized when the option contract expires, the option is exercised by the holder, or a fund transfers or
otherwise terminates the option (e.g., through a closing transaction). If a call option written by a fund is exercised and
a fund sells or delivers the underlying stock, a fund generally will recognize capital gain or loss equal to (a) the sum
of the strike price and the option premium received by a fund minus (b) a fund’s basis in the stock. Such gain or loss
generally will be short-term or long-term depending upon the holding period of the underlying stock. If securities are
purchased by a fund pursuant to the exercise of a put option written by it, a fund generally will subtract the premium received
from its cost basis in the securities purchased. The gain or loss with respect to any termination of a fund’s obligation
under an option other than through the exercise of the option and related sale or delivery of the underlying stock
generally will be short-term gain or loss depending on whether the premium income received by a fund is greater or
less than the amount paid by a fund (if any) in terminating the transaction. Thus, for example, if an option written by
a fund expires unexercised, a fund generally will recognize short-term gain equal to the premium received.
A fund's options activities
may include transactions constituting straddles for federal income tax purposes that trigger the
federal income tax straddle rules contained primarily in Section 1092 of the Code. Such straddles include, for example,
positions in a particular security, or an index of securities, and one or more options that offset the former position,
including options that are “covered”
by a fund's long position in the subject security. Very generally, where applicable,
Section 1092 requires: (i) that losses be deferred on positions deemed to be offsetting positions with respect to
“substantially
similar or related property,”
to the extent of unrealized gain in the latter; and (ii) that the holding period of
such a straddle position that has not already been held for the long-term holding period be terminated and begin anew
once the position is no longer part of a straddle. The straddle rules apply in modified form to so-called “qualified
covered calls.”
Very generally, where a taxpayer writes an option on a single stock that is “in
the money”
but not “deep
in the money,”
the holding period on the stock will not be terminated, as it would be under the general straddle rules,
but will be suspended during the period that such calls are outstanding. These straddle rules could cause gains that
would otherwise constitute long-term capital gains to be treated as short-term capital gains, and distributions
that
would otherwise constitute “qualified
dividend income”
(as discussed below) or qualify for the dividends-received deduction
(as discussed below) to fail to satisfy the holding period requirements and therefore to be taxed at ordinary income
tax rates or to fail to qualify for the dividends-received deduction, as the case may be.
In summary, a fund's
options activities can cause a substantial portion of the fund's income to consist of short-term capital
gains, taxable to shareholders at ordinary income rates when distributed to them.
A fund's investment in
so-called “section
1256 contracts,”
which include certain futures contracts as well as listed non-equity
options written or purchased by a fund on US exchanges (including options on futures contracts, equity indices
and debt securities), are subject to special federal income tax rules. All section 1256 contracts held by a fund at
the end of its taxable year are required to be marked to their market value, and any unrealized gain or loss on those positions
will be included in a fund's income as if each position had been sold for its fair market value at the end of the
taxable year. The resulting gain or loss will be combined with any gain or loss realized by a fund from positions in section
1256 contracts closed during the taxable year. Provided such positions were held as capital assets and were neither
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 (although
certain foreign currency gains and losses from such contracts may be treated as ordinary in character), regardless
of the period of time the positions were actually held by a fund.
As a result of entering
into swap contracts, a fund may make or receive periodic net payments. A fund may also make or
receive a payment when a swap is terminated prior to maturity through an assignment of the swap or other closing transaction.
Periodic net payments will generally constitute ordinary income or deductions, while termination of a swap
will generally result in capital gain or loss (which will be a long-term capital gain or loss if a fund has been a party
to the swap for more than one year). With respect to certain types of swaps, a fund may be required to currently recognize
income or loss with respect to future payments on such swaps or may elect under certain circumstances to
mark such swaps to market annually for federal income tax purposes as ordinary income or loss. The federal income tax
treatment of many types of credit default swaps is uncertain under current law.
In general, gain or loss
on a short sale is recognized when a fund closes the sale by delivering the borrowed property to
the lender, not when the borrowed property is sold. Gain or loss from a short sale is generally treated as capital gain
or loss to the extent that the property used to close the short sale constitutes a capital asset in a fund's hands. Except
with respect to certain situations where the property used by a fund to close a short sale has a long-term holding
period on the date of the short sale, special rules would generally treat the gains on short sales as short-term capital
gains. These rules may also terminate the running of the holding period of “substantially
identical property”
held by a fund. Moreover, a loss on a short
sale will be treated as a long-term capital loss if, on the date of the short sale,
“substantially
identical property”
has been held by a fund for more than a year. In general, a fund will not be permitted
to deduct payments made to reimburse the lender of securities for dividends paid on borrowed stock if the
short sale is closed on or before the 45th day after the short sale is entered into.
Income from certain commodity-related
investments does not constitute qualifying income to a fund. The federal income
tax treatment of commodity-linked notes and certain other derivative instruments in which a fund might invest is
not certain, in particular with respect to whether income and gains from such instruments constitutes qualifying income.
If a fund treats income from a particular instrument as qualifying income and the income is later determined not
to constitute qualifying income, and, together with any other nonqualifying income, causes the fund's nonqualifying income
to exceed 10% of its gross income in any taxable year, the fund will fail to qualify as a regulated investment company
unless it is eligible to and does pay a tax at the fund level. Certain funds (including DWS Enhanced Commodity Strategy
Fund, DWS Global Macro Fund and DWS RREEF Real Assets Fund) obtain exposure to commodities through a
wholly owned subsidiary that invests in certain types of commodity-linked derivatives and other commodities-related investments.
The income and gain earned through such subsidiaries is expected to constitute qualifying income under the
Code. See “Investment
in Wholly Owned Foreign Subsidiary”
for more information.
Because the rules described
above and other federal income tax rules applicable to these types of transactions are in
some cases uncertain under current law, an adverse determination or future guidance by the IRS with respect to these
rules (which determination or guidance could be retroactive) may affect whether a fund has made sufficient
distributions,
and otherwise satisfied the relevant requirements, to maintain its qualification as a regulated investment company
and avoid a fund-level tax. A fund intends to limit its activities in options, futures contracts, forward contracts, short
sales, swaps and related transactions to the extent necessary to meet the requirements for qualification and treatment
as a regulated investment company under the Code.
REITs.
A fund’s investments in equity securities of REITs may result in a fund’s receipt of cash in excess of the REIT’s earnings;
if a fund distributes these amounts, the distributions could constitute a return of capital to fund shareholders for
federal income tax purposes. In addition, such investments in REIT equity securities also may require a fund to accrue
and distribute income not yet received. To generate sufficient cash to make the requisite distributions, a fund may
be required to sell securities in its portfolio (including when it is not advantageous to do so) that it otherwise would
have continued to hold. Dividends received by a fund from a REIT will not qualify for the corporate dividends-received deduction
and generally will not constitute qualified dividend income.
Under a notice issued
by the IRS in October 2006 and Treasury regulations that have yet to be issued but may apply retroactively,
a portion of a fund’s income from a residual interest in a real estate mortgage investment conduit (REMIC) or
an equity interest in a taxable mortgage pool (TMP) including such income received indirectly through a REIT or other
pass-through entity (referred to in the Code as an “excess
inclusion”)
will be subject to federal income tax in all
events. This notice also provides, and the regulations are expected to provide, that excess inclusion income of a regulated
investment company will be allocated to shareholders of the regulated investment company in proportion to
the dividends received by such shareholders, with the same consequences as if the shareholders held the related REMIC
or TMP interest directly (see “Taxation
of US Shareholders – Dividends and distributions – Additional considerations”
and see also “Tax-exempt
Shareholders”
for a summary of certain federal income tax consequences to shareholders of
distributions reported as excess inclusion income).
For taxable years beginning
after December 31, 2017 and before January 1, 2026, qualified REIT dividends (i.e., REIT dividends
other than capital gain dividends and portions of REIT dividends designated as qualified dividend income) are
eligible for a 20% federal income tax deduction in the case of individuals, trusts and estates. A fund that receives qualified
REIT dividends may elect to pass the special character of this income through to its shareholders. To be eligible
to treat distributions from a fund as qualified REIT dividends, a shareholder must hold shares of the fund for more
than 45 days during the 91-day period beginning on the date that is 45 days before the date on which the shares become
ex-dividend with respect to such dividend and the shareholder must not be under an obligation (whether pursuant
to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related
property. If a fund does not elect to pass the special character of this income through to shareholders or if a shareholder
does not satisfy the above holding period requirements, the shareholder will not be entitled to the 20% deduction
for the shareholder’s share of the fund’s qualified REIT dividend income while direct investors in REITs may
be entitled to the deduction.
Standby commitments.
A fund may purchase municipal securities together with the right to resell the securities to the
seller at an agreed upon price or yield within a specified period prior to the maturity date of the securities. Such a
right to resell is commonly known as a “put”
and is also referred to as a “standby
commitment.”
A fund may pay for a standby commitment either
in cash or in the form of a higher price for the securities which are acquired subject to
the standby commitment, thus increasing the cost of securities and reducing the yield otherwise available. Additionally, a
fund may purchase beneficial interests in municipal securities held by trusts, custodial arrangements or partnerships and/or
combined with third-party puts or other types of features such as interest rate swaps; those investments may require
a fund to pay “tender
fees”
or other fees for the various features provided. The IRS has issued a revenue ruling
to the effect that, under specified circumstances, a regulated investment company will be the owner of tax-exempt municipal
obligations acquired subject to a put option. The IRS has also issued private letter rulings to certain taxpayers (which
do not serve as precedent for other taxpayers) to the effect that tax-exempt interest received by a regulated investment
company with respect to such obligations will be tax-exempt in the hands of the company and may be distributed
to its shareholders as exempt-interest dividends. The IRS has subsequently announced that it will not ordinarily issue
advance ruling letters as to the identity of the true owner of property in cases involving the sale of securities or
participation interests therein if the purchaser has the right to cause the security, or the participation interest therein, to
be purchased by either the seller or a third party. A fund, where relevant, intends to take the position that it is the owner
of any municipal obligations acquired subject to a standby commitment or other third party put and that tax-exempt
interest
earned with respect to such municipal obligations will be tax-exempt in its hands. There is no assurance that the
IRS will agree with such position in any particular case. If a fund is not viewed as the owner of such municipal obligations,
it will not be permitted to treat the exempt interest paid on such obligations as belonging to it. This may affect
the fund’s eligibility to pay exempt-interest dividends to its shareholders. Additionally, the federal income tax treatment
of certain other aspects of these investments, including the treatment of tender fees paid by a fund, in relation
to various regulated investment company tax provisions is unclear. However, the Advisor intends to manage a
fund's portfolio in a manner designed to minimize any adverse impact from the tax rules applicable to these investments.
As described herein,
in certain circumstances a fund may be required to recognize taxable income or gain even though no
corresponding amounts of cash are received concurrently. A fund may therefore be required to obtain cash to satisfy
its distribution requirements by selling securities at times when it might not otherwise be desirable to do so or
by borrowing the necessary cash, thereby incurring interest expense. In certain situations, a fund will, for a taxable year,
defer all or a portion of its capital losses and currency losses realized after October 31 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 31 may affect the federal
income tax character of shareholder distributions.
Foreign investments.
Income (including, in some cases, capital gains) from investments in foreign stocks or securities may
be subject to foreign taxes, including withholding and other taxes imposed by foreign jurisdictions. Tax conventions between
certain countries and the US may reduce or eliminate such taxes. It is not possible to determine a fund’s effective
rate of foreign tax in advance since the amount of a fund's assets to be invested in various countries is not known.
Payment of such taxes will reduce a fund's yield on those investments.
If a fund is liable for
foreign taxes and if more than 50% of the value of a fund's total assets at the close of its taxable year
consists of stocks or securities of foreign corporations (including foreign governments), a fund may make an election
pursuant to which certain foreign taxes paid by a fund would be treated as having been paid directly by shareholders of
a fund. Pursuant to such election, shareholders may be able to claim a credit or deduction on their federal income tax
returns for their pro rata portions of qualified taxes paid by a fund to foreign countries in respect of foreign securities that
such fund has held for at least the minimum period specified in the Code. In such a case, shareholders will include in
gross income from foreign sources their pro rata shares of such taxes paid by a fund. Each shareholder of a fund will
be notified whether the foreign taxes paid by a fund will “pass
through”
for that year and, if so, such notification will
report the shareholder's portion of (i) the foreign taxes paid by a fund and (ii) a fund's foreign source income. Certain
fund of funds also may qualify to pass through to shareholders foreign taxes paid by underlying funds in which the
fund of funds invests. See Fund-of-Funds Structure, below.
A shareholder’s
ability to claim an offsetting foreign tax credit or deduction in respect of foreign taxes paid by a fund is
subject to certain limitations imposed by the Code, which may result in the shareholder not receiving a full credit or
deduction (if any) for the amount of such taxes. Shareholders who do not itemize on their federal income tax returns may
claim a credit (but not a deduction) for such foreign taxes. The amount of foreign taxes that a shareholder may claim
as a credit in any year will generally be subject to a separate limitation for “passive
income,”
which includes, among other types of income,
dividends, interest and certain foreign currency gains. Because capital gains realized by
a fund on the sale of foreign securities will be treated as US source income, the available credit of foreign taxes paid
with respect to such gains may be restricted. Shareholders that are not subject to federal income tax, and those who
invest in a fund through tax-advantaged accounts (including those who invest through individual retirement accounts or
other tax-advantaged retirement plans), generally will receive no benefit from any tax credit or deduction passed through
by a fund.
If a fund does not satisfy
the requirements for passing through to its shareholders their proportionate shares of any foreign
taxes paid by a fund, shareholders generally will not be entitled to claim a credit or deduction with respect to foreign
taxes incurred by a fund and will not be required to include such taxes in their gross income.
A fund’s transactions
in foreign currencies, foreign-currency-denominated debt obligations and certain foreign currency options,
futures contracts and forward contracts (and similar instruments) may in certain instances give rise to ordinary income
or loss to the extent such income or loss results from fluctuations in the value of the foreign currency concerned.
Under
section 988 of the Code, gains or losses attributable to fluctuations in exchange rates between the time a fund accrues
income or receivables or expenses or other liabilities denominated in a foreign currency and the time a 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 US dollar and the currencies in which the instruments are denominated. Similarly,
gains or losses on foreign currency, foreign currency forward contracts and certain foreign currency options or
futures contracts, to the extent attributable to fluctuations in exchange rates between the acquisition and disposition dates,
are also treated as ordinary income or loss unless a fund elects otherwise. Any such ordinary income treatment may
accelerate or increase fund distributions to shareholders, and increase the distributions taxed to shareholders as
ordinary income. Any net ordinary losses so created cannot be carried forward by a fund to offset income or gains earned
in subsequent taxable years. With regard to forward contracts entered into beginning January 15, 2015 the DWS
CROCI®
International Fund has elected to treat eligible currency gains and losses derived from forward contracts as
capital gains and losses; not all currency gains and losses are eligible for this treatment.
Investment in passive foreign investment
companies (PFICs). If a fund purchases shares in certain foreign
investment entities, called “passive
foreign investment companies”
(PFICs), it may be subject to federal income tax on a portion of
any “excess
distribution”
or gain from the disposition of such shares, which tax cannot be eliminated by making distributions
to fund shareholders. Such excess distributions and gains will be considered ordinary income. Additional charges
in the nature of interest may be imposed on a fund in respect of deferred taxes arising from such distributions or
gains.
However, a fund may elect
to avoid the imposition of that tax. For example, a fund may in certain cases elect to treat the
PFIC as a “qualified
electing fund”
under the Code (i.e., make a “QEF
election”),
in which case a fund would be required to include
in income each year its share of the ordinary earnings and net capital gains of the qualified electing fund,
even if such amounts were not distributed to a fund. In order to make this election, a fund would be required to
obtain certain annual information from the PFICs in which it invests, which may be difficult or not possible to obtain.
Alternatively, a fund
may make a mark-to-market election that will result in a fund being treated as if it had sold (and, solely
for purposes of this mark-to-market election, repurchased) its PFIC stock at the end of such fund’s taxable year. In
such case, a 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 QEF and mark-to-market elections must be made separately for
each PFIC owned by a fund and, once made, would be effective for all subsequent taxable years, unless revoked with
the consent of the IRS. By making the election, a fund could potentially ameliorate the adverse federal income tax
consequences with respect to its ownership of shares in a PFIC, but in any particular year may be required to recognize
income in excess of the distributions it receives from PFICs and its proceeds from dispositions of PFIC stock.
A fund may have to distribute this “phantom”
income and gain to satisfy the 90% distribution requirement and/or
to avoid imposition of the 4% excise tax. Making either of these elections therefore may require a fund to liquidate
other investments (including when it is not advantageous to do so) to meet its distribution requirement, which
also may accelerate the recognition of gain and affect a fund's total return. A fund will make the appropriate tax
elections, if possible, and take any additional steps that are necessary to mitigate the effect of these rules. Because it
is not always possible to identify a foreign corporation as a PFIC, a fund may incur the tax and interest charges described
above in some instances. Dividends paid by PFICs will not be eligible to be treated as “qualified
dividend income.”
Investment in Wholly Owned Foreign
Subsidiary. Certain funds may invest a portion of their assets
(but not more than 25% of the value of the fund’s
total assets as of the end of each quarter of such fund’s taxable year) in a wholly owned
foreign subsidiary that will invest in certain types of commodity-linked derivatives and other commodities-related investments
(each a “Subsidiary”).
Each Subsidiary was formed under the laws of the Cayman Islands and is classified as
a corporation for federal income tax purposes.
For federal income tax
purposes, each Subsidiary will be treated as a controlled foreign corporation and the applicable fund
will be treated as a “US
shareholder”
of the Subsidiary. As a result, each fund will be required to include in gross income
for federal income tax purposes all of its Subsidiary’s “subpart
F income”
and any “global
intangible low-taxed income”
(“GILTI”),
whether or not such income is distributed by the Subsidiary. It is expected that all or substantially
all
of each Subsidiary’s income will be “subpart
F income.”
Each fund's recognition of its Subsidiary's “subpart
F income”
and GILTI will
increase the fund's basis in its shares of the Subsidiary. Distributions by a Subsidiary to the applicable
fund will be tax-free, to the extent of the Subsidiary's previously undistributed “subpart
F income”
and GILTI and will
correspondingly reduce the fund’s basis in its shares of the Subsidiary. “Subpart
F income”
and GILTI are
generally treated as ordinary income, regardless of the character of a Subsidiary’s underlying income. Therefore, each
fund’s investment in its Subsidiary may cause the fund to realize more ordinary income than would be the case if
the fund invested directly in the investments held by its Subsidiary. If a net loss is realized by a Subsidiary, such loss
is not generally available to offset other income earned by the applicable fund; such net losses generally cannot be
carried forward by the Subsidiary to offset income or gain realized by it in future years.
As noted above, to qualify
as a regulated investment company, a fund must derive at least 90% of its gross income each
taxable year from certain specified sources. Income from direct investments in commodities and certain commodity-related
investments generally does not constitute qualifying income. The IRS, however, has issued regulations under
which each of the
subpart F income and GILTI of
a regulated investment company attributable to the regulated investment
company’s investment in a controlled foreign corporation is qualifying income to the regulated investment company
to the extent that such income is derived with respect to the regulated investment company’s business of investing
in stock, securities or currencies. Each fund that invests in a Subsidiary expects its subpart F income attributable to
its investment in its Subsidiary to be derived with respect to the fund’s business of investing in stock, securities or
currencies. Accordingly, each fund expects its subpart F income attributable to its investment in its Subsidiary to be
treated as qualifying income. The IRS, however, may assert that a fund’s income attributable to its Subsidiary is not
qualifying income. In such a case, a fund could fail to qualify as a regulated investment company, could be limited in
its ability to implement its current investment strategies and may need to significantly change its investment strategies, which
could adversely affect the fund. A fund also may incur transaction and other costs.
Investments in MLP Equity Securities.
A fund may invest to a limited degree in MLPs and other entities that are treated
as qualified publicly traded partnerships for federal income tax purposes. Net income derived from a qualified publicly
traded partnership is included in the sources of income from which a regulated investment company must derive
at least 90% of its gross income. However, no more than 25% of the value of a regulated investment company’s total
assets at the end of each fiscal quarter may be invested in securities of qualified publicly traded partnerships. If
an MLP in which a fund invests is treated as a partnership for federal income tax purposes, a fund will be required to
take into account a fund’s allocable share of the income, gains, losses, deductions, expenses and tax credits recognized by
each such MLP regardless of whether the MLP distributes cash to a fund. Income allocated to a fund from an MLP
may include income recognized as a result of the cancellation of the MLP’s debt. Because a fund may recognize income
from an MLP in excess of the cash distributions received from the MLP, a fund may be required to sell other securities
or may have to use leverage in order to satisfy the distribution requirements to qualify as a regulated investment company
and to avoid federal income and excise taxes. The longer that a fund holds a particular MLP investment, the more
likely it is that such MLP could generate net taxable income allocable to a fund equal to or in excess of the distributions
the MLP makes to a fund.
Distributions to a fund
from an MLP that that is taxed as a partnership for federal income tax purposes are not taxable unless
the cash amount (or in certain cases, the fair market value of marketable securities) distributed exceeds a fund’s
basis in its MLP interest. A fund’s basis in its equity securities in an MLP taxed as a partnership generally is equal
to the amount a fund paid for the equity securities (i) increased by a fund’s allocable share of the MLP’s net income
and certain MLP debt, if any, and (ii) decreased by a fund’s allocable share of the MLP’s net losses and distributions received
by a fund from the MLP. Although any distributions by an MLP to a fund in excess of a fund’s allocable share of
such MLP’s net income may create a temporary economic benefit to a fund, such distribution will decrease a fund’s basis
in its MLP interest and will therefore increase the amount of gain (or decrease the amount of loss) that will be recognized
on the sale of an equity security in the MLP by a fund. A portion of any gain or loss recognized by a fund on
a disposition of an MLP equity security where the MLP is taxed as a partnership may be taxed as ordinary income or
loss to the extent attributable to assets of the MLP that give rise to depreciation recapture, intangible drilling and development
cost recapture or other “unrealized
receivables”
or “inventory
items”
under the Code. Any such gain may exceed net
taxable gain realized on the disposition and will be recognized even if there is a net taxable loss on the
disposition.
For
taxable years beginning after December 31, 2017 and before January 1, 2026, “qualified
publicly traded partnership income”
is treated as “qualified
business income”
that is eligible for a 20% federal income tax deduction in the case of
individuals, trusts and estates. The Code currently does not contain a provision permitting a regulated investment company
to pass the special character of this income through to shareholders. As a result, direct investors in MLPs that
are publicly traded partnerships taxed as partnerships may be entitled to this deduction while investors that invest in
a fund that invests in such MLPs will not.
Investments in the Master Portfolios.
Special tax considerations apply to a Feeder Fund investing in a Master Portfolio. As
noted above, each Master Portfolio is treated as a partnership for federal income tax purposes. For federal income tax
purposes, a Feeder Fund generally will be allocated its distributive share (as determined in accordance with the governing
instruments of the applicable Master Portfolio, as well as with the Code, the Treasury regulations thereunder, and
other applicable authority) of the income, gains, losses, deductions, credits, and other tax items of its Master Portfolio
so as to reflect the Feeder Fund’s interests in the Master Portfolio. A Master Portfolio may modify its partner allocations
to comply with applicable tax regulations, including, without limitation, the income tax regulations under Sections
704, 734, 743, 754, and 755 of the Code. It also may make special allocations of specific tax items, including gross
income, gain, deduction, or loss. These modified or special allocations could result in a Feeder Fund, as a partner, receiving
more or less items of income, gain, deduction, or loss (and/or income, gain, deduction, or loss of a different character)
than it would in the absence of such modified or special allocations. A Feeder Fund will be required to include
in its income its share of its Master Portfolio’s tax items, including gross income, gain, deduction, or loss, for any
taxable year regardless of whether or not the Master Portfolio distributes any cash to the Feeder Fund in such year.
A Master Portfolio is
not required, and generally does not expect, to make distributions (other than distributions in redemption
of Master Portfolio interests) to its investors each year. Accordingly, the income recognized by a Feeder Fund
in respect of its investment in a Master Portfolio could exceed amounts distributed (if any) by the Master Portfolio to
the Feeder Fund in a particular taxable year, and thus the Feeder Fund could be required to redeem a portion of its interests
in the Master Portfolio in order to obtain sufficient cash to satisfy its annual distribution requirements (described above)
and to otherwise avoid fund-level federal income and excise taxes.
A Feeder Fund’s
receipt of a non-liquidating cash (or in certain cases, marketable securities) distribution from a Master Portfolio
generally will result in recognized gain (but not loss) only to the extent that the amount of the distribution exceeds
the Feeder Fund’s adjusted basis in its interests of the Master Portfolio before the distribution. A Feeder Fund
that receives a liquidating cash (or in certain cases, marketable securities) distribution from a Master Portfolio generally
will recognize capital gain to the extent of the difference between the proceeds received by the Feeder Fund
and the Feeder Fund’s adjusted tax basis in interests of such Master Portfolio; however, the Feeder Fund generally will
recognize ordinary income, rather than capital gain, to the extent that the Feeder Fund’s allocable share of “unrealized
receivables”
(including any accrued but untaxed market discount) and substantially appreciated inventory, if any, exceeds the
Feeder Fund’s share of the basis in those unrealized receivables and substantially appreciated inventory. Any capital loss
realized on a liquidating cash (or in certain cases, marketable securities) distribution may be recognized by a Feeder
Fund only if it redeems all of its Master Portfolio interests for cash (or in certain cases, marketable securities). A
Feeder Fund generally will not recognize gain or loss on an in-kind distribution of property from a Master Portfolio, including
on an in-kind redemption of Master Portfolio interests. However, certain exceptions to this general rule may apply.
Taxation of US Shareholders
Dividends and distributions. A
fund intends to distribute substantially all of its investment company taxable income (computed
without regard to the dividends-paid deduction) and net capital gain (that is, the excess of net realized long-term
capital gains over net realized short-term capital losses), if any, to shareholders each year. Unless a shareholder instructs
the Trust/Corporation to pay such dividends and distributions in cash, they will be automatically reinvested in
additional shares of a fund.
Dividends
and other distributions by a fund are generally treated under the Code as received by the shareholders at the
time the dividend or distribution is made, whether you receive them in cash or reinvest them in additional shares. However,
any dividend or distribution declared by a fund in October, November or December of any calendar year and
payable to shareholders of record on a specified date in such a month shall be deemed to have been received by
each shareholder on December 31 of such calendar year and to have been paid by a fund not later than such December 31,
provided such dividend is actually paid by a fund on or before January 31 of the following calendar year. Dividends and
distributions received by a retirement plan qualifying for tax-exempt treatment under the Code will not be subject to
current federal income taxation. However, withdrawals from such retirement plans may be subject to federal income tax.
If a fund retains for
investment an amount equal to all or a portion of its net capital gain, it will be subject to federal income
tax at the fund level at regular corporate rates on the amount retained. In that event, a fund may designate such
retained amount as undistributed capital gains in a notice to its shareholders who (i) will be required to include in
income for federal income tax purposes, as long-term capital gains, their proportionate shares of the undistributed amount,
and (ii) will be entitled to credit their proportionate shares of the federal income tax paid by a fund on the undistributed
amount against their federal income tax liabilities, if any, and to claim refunds to the extent their credits exceed
their liabilities. The tax basis of shares owned by a fund shareholder, for federal income tax purposes, will be increased
by an amount equal to the difference between the amount of undistributed capital gains included in the shareholder’s
gross income and the federal income tax deemed paid by the shareholder under clause (ii) of the preceding sentence.
Organizations or persons not subject to federal income tax on such capital gains will be entitled to a refund of
their pro rata share of such taxes paid by a fund upon filing appropriate returns or claims for refund with the IRS.
For federal income tax
purposes, distributions of investment income (other than “exempt-interest
dividends,”
see below) are generally taxable to shareholders
as ordinary income. Taxes on distributions of capital gains are determined by
how long a fund owned (or is deemed to have owned) the investments that generated them, rather than how long a
shareholder has owned his, her or its shares. In general, the fund will recognize long-term capital gain or loss on investments
it has owned (or is deemed to have owned) for more than one year, and short-term capital gain or loss on
investments it has owned (or is deemed to have owned) for one year or less. Distributions of net capital gains that
are properly reported by a fund as capital gain dividends (Capital Gain Dividends) will be taxable as long-term capital
gains includible in and taxed at the reduced rates applicable to net capital gain. Distributions from capital gains are
generally made after applying any available capital loss carryovers. Except as discussed below, all other dividends of
a fund (including dividends from short-term capital gains) from current and accumulated earnings and profits are generally
subject to federal income tax as ordinary income.
Section 1411 of the Code
generally imposes a 3.8% Medicare contribution tax on the net investment income of certain individuals,
trusts and estates to the extent their income exceeds certain threshold amounts. For these purposes, “net
investment income”
generally includes, among other things, (i) distributions paid by a fund of net investment income
and capital gains (other than exempt-interest dividends, described below) as described above, and (ii) any net gain
from the sale, redemption, exchange or other taxable disposition of a fund's shares. Shareholders are advised to
consult their tax advisors regarding the possible implications of this additional tax on their investment in a fund.
Qualified dividend income.
Distributions reported by a fund as derived from “qualified
dividend income”
will be taxed to individuals and other noncorporate
shareholders at the reduced federal income tax rates generally applicable to net
capital gains, provided certain holding period and other requirements are met at both the shareholder and fund levels.
Dividends subject to these special rules are not actually treated as capital gains, however, and thus are not included
in the computation of an individual's net capital gain and generally cannot be offset by capital losses.
If 95% or more of a fund's
gross income (excluding net long-term capital gain over net short-term capital loss) in a taxable
year is attributable to qualified dividend income received by a fund, 100% of the dividends paid by a fund (other
than distributions reported by a fund as Capital Gain Dividends) to individuals and other noncorporate shareholders during
such taxable year will be eligible to be treated as qualified dividend income. If less than 95% of a fund’s gross income
is attributable to qualified dividend income, then only the portion of the fund’s dividends that is attributable to
qualified dividend income and reported as such by the fund will be eligible to be treated as qualified dividend income.
For
these purposes, qualified dividend income generally means income from dividends received by a fund from US corporations
and certain foreign corporations. Dividend income received by a fund and distributed to a fund shareholder may
not be treated as qualified dividend income by the shareholder unless a fund satisfies certain holding period and other
requirements with respect to the stock in its portfolio generating such dividend income and the shareholder meets
certain holding period and other requirements with respect to a fund's shares. A dividend will not be treated as
qualified dividend income (at either a fund or shareholder level) (1) if the dividend is received with respect to any share
of stock held for fewer than 61 days during the 121-day period beginning on the date which is 60 days before the
date on which such share becomes ex-dividend with respect to such dividend (or, in the case of certain preferred stock,
91 days during the 181-day period beginning 90 days before such date), (2) to the extent that the recipient is under
an obligation (whether pursuant to a short sale or otherwise) to make related payments with respect to positions in
substantially similar or related property, (3) if the recipient elects to have the dividend income treated as investment income
for purposes of the limitation on deductibility of investment interest, or (4) if the dividend is received from a foreign
corporation that is (a) not eligible for the benefits of a comprehensive income tax treaty with the US (with the exception
of dividends paid on stock of such a foreign corporation readily tradable on an established securities market in
the US) or (b) treated as a passive foreign investment company or surrogate foreign corporation that is not treated as
a domestic corporation under Section 7874(b) of the Code. For purposes of determining the holding period for stock
on which a dividend is received, such holding period is reduced for any period the recipient has an option to sell,
is under a contractual obligation to sell or has made (and not closed) a short sale of substantially identical stock or
securities, and in certain other circumstances.
Qualified dividend income
does not include any dividends received from tax-exempt corporations or interest from fixed
income securities. Also, dividends received by a fund from a REIT or another regulated investment company are
generally qualified dividend income only to the extent the dividend distributions are made out of qualified dividend income
received by such REIT or other regulated investment company.
Dividends-received deduction.
If dividends from domestic corporations constitute a portion of a fund's gross income, a
portion of the income distributions of a fund may be eligible for the 50% dividends-received deduction generally available
to corporations to the extent of the amount of eligible dividends received by a fund from domestic corporations for
the taxable year. A dividend received by a fund will not be treated as a dividend eligible for the dividends-received deduction
(i) if it has been received with respect to any share of stock that the fund has held for less than 46 days (91
days in the case of certain preferred stock) during the 91-day period beginning on the date which is 45 days before the
date on which such share becomes ex-dividend with respect to such dividend (during the 181-day period beginning 90
days before such date in the case of certain preferred stock) or (ii) to the extent that the fund is under an obligation (pursuant
to a short sale or otherwise) to make related payments with respect to positions in substantially similar or related
property. Moreover, the dividends-received deduction may otherwise be disallowed or reduced (i) if a corporate shareholder
fails to satisfy the foregoing requirements with respect to its shares of a fund or (ii) by application of various
provisions of the Code (for instance, the dividends-received deduction is reduced in the case of a dividend received
on debt-financed portfolio stock (generally, stock acquired with borrowed funds)). For purposes of determining the
holding period for stock on which a dividend is received, such holding period is reduced for any period the recipient has
an option to sell, is under a contractual obligation to sell or has made (and not closed) a short sale of substantially identical
stock or securities, and in certain other circumstances.
Distributions from REITs
do not qualify for the deduction for dividends-received. Shareholders will be informed of the portion
of fund dividends that so qualifies.
Capital gains.
In determining its net capital gain, including in connection with determining the amount available to support
a Capital Gain Dividend, its taxable income and its earnings and profits, a fund may elect to treat any post-October capital
loss (defined as any net capital loss attributable to the portion of the taxable year after October 31 or, if there is
no such loss, the net long-term capital loss or net short-term capital loss attributable to such portion of the taxable year)
and late-year ordinary loss (generally, the sum of its (i) net ordinary losses from the sale, exchange or other taxable
disposition of property, attributable to the portion of the taxable year after October 31 and its (ii) other net ordinary
losses attributable to the portion of the taxable year after December 31) as if incurred in the succeeding taxable
year.
Capital
gains distributions may be reduced if a fund has capital loss carryforwards available. Capital losses in excess of
capital gains (“net
capital losses”)
are not permitted to be deducted against a fund’s net investment income. Instead, subject
to certain limitations, a fund may carry forward a net capital loss from any taxable year to offset capital gains, if
any, realized during a subsequent taxable year. Any such carryforward losses will retain their character as short-term or
long-term. Capital loss carryforwards are reduced to the extent they offset current-year net realized capital gains, whether
the fund retains or distributes such gains. Any capital loss carryforwards and any post-October loss deferrals to
which a fund is entitled are disclosed in a fund's annual reports to shareholders.
Additional considerations.
Certain of a fund’s investments in derivative instruments and foreign currency-denominated instruments,
and any of a fund’s transactions in foreign currencies and hedging activities, are likely to produce a difference between
its book income and the sum of its taxable income and net tax-exempt income. If there are differences between
a fund’s book income and the sum of its taxable income and net tax-exempt income, a fund may be required to
distribute amounts in excess of its book income or a portion of fund distributions may be treated as a return of capital
to shareholders. If a fund’s book income exceeds the sum of its taxable income (including realized capital gains)
and net tax-exempt income, the distribution of such excess generally will be treated as (i) a dividend to the extent
of a fund’s remaining earnings and profits, (ii) thereafter, as a return of capital to the extent of the recipient’s basis
in its shares, and (iii) thereafter, as gain from the sale or exchange of a capital asset. If a fund’s book income is less
than the sum of its taxable income and net tax-exempt income, a fund could be required to make distributions exceeding
its book income to qualify for treatment as a regulated investment company.
Distributions to shareholders
reported as excess inclusion income (see Special tax provisions that apply to certain investments
– REITs) (i) may constitute “unrelated
business taxable income”
(UBTI) for those shareholders who would otherwise
be exempt from federal income tax, such as individual retirement accounts, 401(k) accounts, Keogh plans, pension
plans and certain charitable entities, thereby potentially requiring such an entity that is allocated excess inclusion income,
and otherwise might not be required to file a federal income tax return, to file a tax return and pay tax on such
income, (ii) cannot be offset by net operating losses (subject to a limited exception for certain thrift institutions), (iii)
will not be eligible for reduced US withholding tax rates for non-US shareholders (including non-US shareholders eligible
for the benefits of a US income tax treaty), and (iv) may cause a fund to be subject to tax if certain “disqualified
organizations,”
as defined in the Code, are fund shareholders. A shareholder will be subject to federal income tax on such
inclusions notwithstanding any exemption from such income tax otherwise available under the Code. See Tax-exempt shareholders
below.
All distributions by
a fund result in a reduction in the net asset value of a fund's shares. Should a distribution reduce the
net asset value below a shareholder's cost basis, such distribution would nevertheless be taxable to the shareholder as
ordinary income, qualified dividend income or capital gain as described above, even though, from an investment standpoint,
it may constitute a partial return of capital. In particular, investors should be careful to consider the tax implications
of buying shares just prior to a distribution. The price of shares purchased at that time includes the amount of
the forthcoming distribution. Those purchasing fund shares just prior to a distribution will receive a partial return of
capital upon the distribution, which nevertheless may be taxable to them for federal income tax purposes.
After the end of each
calendar year, a fund will inform shareholders of the federal income tax status of dividends and distributions
paid (or treated as paid) during such calendar year.
Exempt-interest dividends.
Any dividends paid by a fund that are reported by a fund as exempt-interest dividends will not
be subject to regular federal income tax. A fund will be qualified to pay exempt-interest dividends to its shareholders if,
at the end of each quarter of a fund's taxable year, at least 50% of the total value of a fund's assets consists of obligations
of a state or political subdivision thereof the interest on which is exempt from federal income tax under Code
section 103(a). Distributions that a fund reports as exempt-interest dividends are treated as interest excludable from
shareholders' gross income for federal income tax purposes but may result in liability for federal alternative minimum tax
purposes and for state and local tax purposes for both individual and corporate shareholders. For example, if a fund
invests in “private
activity bonds,”
certain shareholders may be subject to AMT
on the part of a fund's distributions derived from interest on
such bonds.
Certain
funds of funds may also qualify to pay exempt-interest dividends to shareholders, to the extent of exempt-interest dividends
received from underlying funds in which the fund of funds invests. See Fund-of-Funds structure, below.
Interest on indebtedness
incurred directly or indirectly to purchase or carry shares of a fund will not be deductible to the
extent it is deemed related to exempt-interest dividends paid by a fund. The portion of interest that is not deductible is
equal to the total interest paid or accrued on the indebtedness, multiplied by the percentage of a fund's total distributions (not
including Capital Gain Dividends) paid to the shareholder that are exempt-interest dividends. Under rules used by
the IRS to determine when borrowed funds are considered incurred for the purpose of purchasing or carrying particular
assets, the purchase of shares may be considered to have been made with borrowed funds even though such
funds are not directly traceable to the purchase of shares. In addition, the Code may require a shareholder that receives
exempt-interest dividends to treat as taxable income a portion of certain otherwise non-taxable social security and
railroad retirement benefit payments. A portion of any exempt-interest dividend paid by a fund that represents income
derived from certain revenue or private activity bonds held by a fund may not retain its tax-exempt status in the
hands of a shareholder who is a “substantial
user”
of a facility financed by such bonds, or a “related
person”
thereof. Moreover, some or all of the exempt-interest
dividends distributed by a fund may be a specific preference item,
or a component of an adjustment item, for purposes of the federal AMT.
The receipt of dividends and distributions from
a fund may affect a foreign corporate shareholder's federal “branch
profits”
tax liability and the federal “excess
net passive income”
tax liability of a shareholder that is a Subchapter S corporation. Shareholders should consult their own
tax advisors as to whether they are (i) “substantial
users”
with respect to a facility or “related”
to such users within the meaning of the Code
or (ii) subject to a federal AMT,
the federal “branch
profits”
tax or the federal “excess
net passive income”
tax.
Shareholders that are
required to file tax returns are required to report tax-exempt interest income, including exempt-interest dividends,
on their federal income tax returns. A fund will inform shareholders of the federal income tax status of its distributions
after the end of each calendar year, including the amounts, if any, that qualify as exempt-interest dividends and
any portions of such amounts that constitute tax preference items under the federal AMT.
Shareholders who have not held shares of a fund
for a full taxable year may have designated as tax-exempt or as a tax preference item a percentage
of their distributions which is different from the percentage of a fund’s income that was tax-exempt or comprising
tax preference items during the period of their investment in a fund. Shareholders should consult their tax
advisors for more information.
Securities lending.
Securities lending activities may result in adverse tax consequences for the shareholders of a fund. While
securities are loaned by a fund, the borrower will pay the fund amounts equal to any dividends or interest paid on
the borrowed securities in lieu of the dividends or interest. For federal income tax purposes, payments made in lieu
of dividends are not considered dividend income and, in turn, do not qualify for the preferential tax rates on qualified dividends
for individuals or the dividends-received deduction for corporations. Additionally, in the case of a fund that loans
tax-exempt securities, any payments made in lieu of tax-exempt interest will be considered taxable income to the
fund, and thus, to the shareholders, even though such interest may be tax-exempt when paid to the borrower of the
securities. A fund will not be able to pass-through to its shareholders foreign taxes withheld on payments made in
lieu of dividends or interest. You should consult your financial intermediary or tax advisor to discuss how securities lending
affects your particular circumstances.
Transactions in fund shares.
Upon the sale or exchange of his, her or its shares, a shareholder generally will realize a
taxable gain or loss equal to the difference between the amount realized and his, her or its basis in the shares. A redemption
of shares by a fund generally will be treated as a sale for this purpose. Such gain or loss will be treated as
capital gain or loss if the shares are capital assets in the shareholder's hands, and will be long-term capital gain or loss
if the shares are held for more than one year and short-term capital gain or loss if the shares are held for one year
or less. Except in the case of DWS ESG Liquidity Fund, 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 a fund, within a 61-day period beginning thirty (30) days before and ending thirty (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 upon a taxable disposition of a fund's shares held by a shareholder for six months or less will be treated
as long-term, rather than short-term, to the extent of any capital gain dividends received (or deemed received) by
the shareholder with respect to the shares. Any loss realized by a shareholder on the sale of fund shares held by the
shareholder for six months or less will be disallowed to the extent of any exempt-interest dividends received by the
shareholder with respect to such shares, unless a fund declares exempt-interest dividends on a daily basis in an amount
equal to at least 90% of its net tax-exempt interest and distributes such dividends on a monthly or more frequent
basis. A shareholder's ability to utilize capital losses may be limited under the Code. If a shareholder incurs a
sales charge in acquiring shares of a fund, disposes of those shares within 90 days and then acquires by January 31
of the calendar year following the calendar year in which the disposition occurred 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 or 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 a shareholder from immediately deducting
the sales charge by shifting his, her or its investment within a family of mutual funds.
The sale or other disposition
of shares of a fund by a retirement plan qualifying for tax-exempt treatment under the Code
will not be subject to federal income tax. However, withdrawals from such retirement plans may be subject to federal
income tax. Because the federal income tax treatment of a sale or exchange of fund shares depends on your purchase
price and your personal tax position, you should keep your regular account statements to use in determining your
federal income tax liability.
Under US Treasury regulations,
a shareholder of a money market fund may elect a simplified method for determining gain
or loss on fund shares. This simplified method is called the NAV method. Under the NAV method, gain or loss on
fund shares is not computed on every sale or redemption. Instead, gain or loss is based on the aggregate value of
a shareholder’s fund shares during the computation period. A shareholder’s gain or loss generally equals (i) the aggregate
fair market value of the shareholder’s shares in the fund at the end of the computation period, (ii) minus the
aggregate fair market value of the shareholder’s shares at the end of the prior computation period, (iii) minus the shareholder’s
“net
investment”
in the fund for the computation period. A shareholder’s net investment is the aggregate cost
of fund shares purchased during the computation period (including reinvested dividends) minus the aggregate amount
received in taxable redemptions of fund shares during the same period. The computation period may be the shareholder’s
taxable year or a shorter period, as long as all computation periods contain days from only one taxable year
and every day during the taxable year falls within one and only one computation period. Any capital gain or loss realized
under the NAV method will be a short-term capital gain or loss. Shareholders should consult their own tax advisor
to determine if the NAV method is appropriate for their individual circumstances.
Cost basis reporting.
A fund or, for a shareholder that purchased fund shares through a financial intermediary, the financial
intermediary, is generally required to report to the IRS, and furnish to such shareholder “cost
basis”
and “holding
period”
information for fund shares the shareholder acquired on or after January 1, 2012 and redeemed on or
after that date (covered shares). These requirements do not apply to investments through a tax-advantaged arrangement or
to shares of money market funds. For covered shares, the fund or the financial intermediary, as appropriate, will report
the following information to the IRS and to the shareholder on Form 1099-B: (i) the adjusted basis of such shares;
(ii) the gross proceeds received on the redemption; and (iii) whether any gain or loss with respect to the redeemed shares
is long-term or short-term.
With respect to fund
shares in accounts held directly with a fund, the fund will calculate and report cost basis using a
fund’s default method of average cost, unless the shareholder instructs the fund to use a different calculation method. Please
visit the DWS Web site at dws.com (the Web site does not form a part of this Statement of Additional Information) for
more information.
Shareholders who hold
fund shares through a financial intermediary should contact the financial intermediary regarding the
cost basis reporting default method used by the financial intermediary and the reporting elections available.
Shareholders
should contact a tax advisor regarding the application of the cost basis reporting rules to their particular situation,
including whether to elect a cost basis calculation method or use a fund’s default method of average cost.
Tax-exempt shareholders.
A fund generally serves to “block”
(that is, prevent the attribution to shareholders of) UBTI
from being realized by tax-exempt shareholders. Notwithstanding this “blocking”
effect, a tax-exempt shareholder could recognize
UBTI by virtue of its investment in a fund if shares in a fund constitute debt-financed property in the hands
of the tax-exempt shareholder within the meaning of Code Section 514(b).
Furthermore, a tax-exempt
shareholder may recognize UBTI if a fund recognizes “excess
inclusion income”
derived from direct or indirect investments
in REMIC residual interests or TMPs if the amount of such income recognized by a
fund exceeds a fund’s investment company taxable income (after taking into account deductions for dividends paid by
a fund). Any investment in residual interests of a Collateralized Mortgage Obligation (CMO) that has elected to be treated
as a REMIC likewise can create complex tax problems, especially if a fund has state or local governments or other
tax-exempt organizations as shareholders.
In addition, special
tax consequences apply to charitable remainder trusts (CRTs) that invest in regulated investment companies
that invest directly or indirectly in residual interests in REMICs or equity interests in TMPs. Under legislation enacted
in December 2006, if a CRT (defined in section 664 of the Code) realizes any UBTI for a taxable year, it must pay
an excise tax annually of an amount equal to such UBTI. Under IRS guidance issued in October 2006, a CRT will not
recognize UBTI as a result of investing in a fund that recognizes “excess
inclusion income.”
Rather, if at any time during any taxable year
a CRT (or one of certain other tax-exempt shareholders, such as the US, a state or political subdivision,
or an agency or instrumentality thereof, and certain energy cooperatives) is a record holder of a share in a
fund that recognizes “excess
inclusion income,”
then a fund will be subject to a tax on that portion of its “excess
inclusion income”
for the taxable year that is allocable to such shareholders at the highest federal corporate income tax
rate. The extent to which this IRS guidance remains applicable in light of the December 2006 legislation is unclear. To
the extent permitted under the 1940 Act and the Code, a fund may elect to specially allocate any such tax to the applicable
CRT, or other shareholder, and thus reduce such shareholder’s distributions for the year by the amount of the
tax that relates to such shareholder’s interest in a fund. CRTs and other tax-exempt investors are urged to consult their
tax advisors concerning the consequences of investing in a fund.
Backup withholding and other tax considerations
A fund generally is required
to withhold federal income tax on distributions (including exempt-interest dividends) and redemption
proceeds payable to shareholders who fail to provide a fund with their correct taxpayer identification number or
to make required certifications, who have underreported dividend or interest income, or who have been notified (or
when a fund is notified) by the IRS that they are subject to backup withholding. The backup withholding tax rate is
currently 24%. Corporate shareholders and certain other shareholders specified in the Code generally are exempt from
such backup withholding. Backup withholding is not an additional tax. Any amounts withheld may be credited against
the shareholder’s federal income tax liability.
Special tax rules apply
to investments through defined contribution plans and other tax-qualified plans. Shareholders should
consult their tax advisors to determine the suitability of shares of a fund as an investment through such plans and
the precise effect of an investment on their particular tax situation.
A fund’s shareholders
may be subject to state and local taxes on distributions received from a fund and on redemptions of
a fund’s shares. Rules of state and local taxation of dividend and capital gains distributions from regulated investment companies
often differ from rules for federal income taxation described above. You are urged to consult your tax advisor as
to the consequences of these and other state and local tax rules affecting an investment in a fund.
If a shareholder recognizes
a loss with respect to a fund’s shares of $2 million or more for an individual shareholder or
$10 million or more for a corporate shareholder, the shareholder must file with the IRS a disclosure statement on Form
8886. Direct shareholders of portfolio securities are in many cases excepted from this reporting requirement, but
under current guidance shareholders of a regulated investment company are not excepted. The fact that a loss
is
reportable under these regulations does not affect the legal determination of whether the taxpayer’s treatment of the
loss is proper. Shareholders should consult their tax advisors to determine the applicability of these regulations in
light of their individual circumstances.
Shareholder Reporting Obligations With
Respect to Foreign Bank and Financial Accounts. Shareholders
that are US persons and own, directly or indirectly,
more than 50% of a fund by vote or value could be required to report annually
their “financial
interest”
in a fund’s “foreign
financial accounts,”
if any, on FinCen Form 114, Report of Foreign Bank
and Financial Accounts. Shareholders should consult a tax advisor regarding the applicability to them of this reporting
requirement.
Other Reporting and Withholding Requirements
Sections 1471-1474 of
the Code and the US Treasury and IRS guidance issued thereunder (collectively, the Foreign Account
Tax Compliance Act or FATCA) generally require a fund to obtain information sufficient to identify the status of
each of its shareholders under FATCA or under an applicable intergovernmental agreement (an IGA) between the US
and a foreign government. If a shareholder fails to provide the requested information or otherwise fails to comply with
FATCA or an IGA, a fund may be required to withhold under FATCA at a rate of 30% with respect to that shareholder on
ordinary dividends, gross proceeds of share redemptions or exchanges and certain Capital Gain Dividends. Proposed Treasury
Regulations, however, generally eliminate withholding under FATCA on gross proceeds, which include certain Capital
Gains Dividends and gross proceeds from a sale, redemption or exchange of fund shares. Taxpayers generally may
rely on these proposed Treasury Regulations until final Treasury Regulations are issued. If a payment by a fund is
subject to FATCA withholding, a fund is required to withhold even if such payment would otherwise be exempt from
withholding under the rules applicable to foreign shareholders described below (e.g., Capital Gain Dividends). Each
prospective investor is urged to consult its tax advisor regarding the applicability of FATCA and any other reporting requirements
with respect to the prospective investor’s own situation, including investments through an intermediary.
Taxation of non-US shareholders.
In general, dividends other than Capital Gain Dividends and exempt-interest dividends paid
by a fund to a shareholder that is not a “US
person”
within the meaning of the Code (non-US shareholder) are subject
to withholding of federal income tax at a rate of 30% (or lower applicable treaty rate) even if they are funded by
income or gains (such as portfolio interest, short-term capital gains, or foreign-source dividend and interest income) that,
if paid to a non-US shareholder directly, would not be subject to withholding. Distributions properly reported as Capital
Gain Dividends and exempt-interest dividends generally are not subject to withholding of federal income tax.
However, a fund is not
required to withhold any amounts (i) with respect to distributions from US-source interest income
of types similar to those not subject to federal income tax if earned directly by an individual non-US shareholder, to
the extent such distributions are properly reported by a fund (interest-related dividends), and (ii) with respect to distributions
of net short-term capital gains in excess of net long-term capital losses, to the extent such distributions are
properly reported by the fund (short-term capital gain dividends). The exception to withholding for interest-related dividends
does not apply to distributions to a non-US shareholder (A) that has not provided a satisfactory statement that
the beneficial owner is not a US person, (B) to the extent that the dividend is attributable to certain interest on an
obligation if the non-US shareholder is the issuer or is a 10% shareholder of the issuer, (C) that is within certain foreign
countries that have inadequate information exchange with the US, or (D) to the extent the dividend is attributable to
interest paid by a person that is a related person of the non-US shareholder and the non-US shareholder is a controlled foreign
corporation. The exception to withholding for short-term capital gain dividends does not apply to (A) distributions to
an individual non-US shareholder who is present in the US for a period or periods aggregating 183 days or more during
the year of the distribution and (B) distributions subject to special rules regarding the disposition of US real property
interests (USRPIs) as defined below. Depending on the circumstances, a fund may make designations of interest-related
and/or short-term capital gain dividends with respect to all, some or none of its potentially eligible dividends
and/or treat such dividends, in whole or in part, as ineligible for these exemptions from withholding. A fund does
not currently intend to make designations of interest-related dividends.
A non-US shareholder
is not, in general, subject to federal income tax on gains (and is not allowed a deduction for losses)
realized on the sale of shares of a fund or on Capital Gain Dividends unless: (i) such gain or dividend is effectively connected
with the conduct by the non-US shareholder of a trade or business within the US; (ii) in the case of a
non-US
shareholder that is an individual, the shareholder is present in the US for a period or periods aggregating 183 days
or more during the year of the sale or the receipt of the Capital Gain Dividend and certain other conditions are met;
or (iii) the shares constitute USRPIs or the Capital Gain Dividends are attributable to gains from the sale or exchange of
USRPIs in accordance with the rules set forth below.
The 30% withholding tax
does not apply to dividends paid to a non-US shareholder who provides a Form W-8ECI, certifying
that the dividends are effectively connected with the non-US shareholder's conduct of a trade or business within
the US. Instead, foreign shareholders with respect to whom income from a fund is effectively connected with a
trade or business conducted by the foreign shareholder within the US will in general be subject to federal income tax
on the income derived from a fund at the graduated rates applicable to US citizens, residents or domestic corporations, whether
such income is received in cash or reinvested in shares of a fund and, in the case of a foreign corporation, may
also be subject to a branch profits tax. If a foreign shareholder is eligible for the benefits of a tax treaty, any effectively
connected income or gain will generally be subject to federal income tax on a net basis only if it is also attributable
to a permanent establishment maintained by the shareholder in the US. More generally, foreign shareholders who
are residents in a country with an income tax treaty with the US may obtain different tax results than those described
herein and are urged to consult their tax advisors.
In order to qualify for
any exemption from withholding tax or a reduced rate of withholding tax under an applicable income
tax treaty, a non-US shareholder will need to comply with applicable certification requirements relating to its non-US
status (including, in general, furnishing an IRS Form W-8BEN or substitute form). In the case of shares held through
an intermediary, the intermediary may withhold tax even if a fund reports a dividend as an interest-related dividend
or short-term capital gain dividend. Non-US shareholders should contact their intermediaries with respect to
the application of these rules to their accounts.
A non-US shareholder
who fails to provide an IRS Form W-8BEN or other applicable form may be subject to backup withholding
at the appropriate rate.
In general, except as
noted in this subsection, federal withholding tax will not apply to any gain or income realized by
a non-US shareholder in respect of any distributions of net long-term capital gains over net short-term capital losses, exempt-interest
dividends, or upon the sale or other disposition of shares of a fund.
Special rules apply to
distributions to certain non-US shareholders from a fund if a fund is either a “US
real property holding corporation”
(USRPHC) or would be a USRPHC but for the operation of the exceptions to the definition thereof described
below. Additionally, special rules apply to the sale of shares in a fund if a fund is a USRPHC or former USRPHC. Very
generally, a USRPHC is a domestic corporation that holds US real property interests (USRPIs) the fair market value
of which equals or exceeds 50% of the sum of the fair market values of the corporation's USRPIs plus interests in
real property located outside the US and other assets. USRPIs are defined as any interest in US real property or any
interest (other than a creditor) in a USRPHC or former USRPHC. If a fund holds (directly or indirectly) significant interests
in REITs, it may be a USRPHC. The special rules discussed in the next paragraph also apply to distributions from
a fund if it would be a USRPHC absent exclusions from USRPI treatment for interests in domestically controlled REITs
or regulated investment companies and not-greater-than-10% interests in publicly traded classes of stock in REITs
or not-greater-than-5% interests in publicly traded classes of stock in regulated investment companies.
If a fund is a USRPHC
or would be a USRPHC but for the exceptions from the definition of USRPI (described above), under
a “look-through”
rule, distributions by a fund that are attributable directly or indirectly to: (a) gain realized on the
disposition of USRPIs by a fund; and (b) distributions received by a fund from a lower-tier regulated investment company
or REIT that a fund is required to treat as USRPI gain in its hands will retain their character as gains realized from
USRPIs in the hands of a fund's non-US shareholders and will be subject to federal withholding tax. In addition, such
distributions could result in the foreign shareholder being required to file a US tax return and pay tax on the distributions
at regular federal income tax rates. The consequences to a non-US shareholder, including the rate of such
withholding and character of such distributions (e.g., ordinary income or USRPI gain) will vary depending on the extent
of the non-US shareholder’s current and past ownership of a fund.
In
addition, if a fund is a USRPHC or former USRPHC, a fund may be required to withhold US tax upon a redemption of
shares by a greater-than-5% shareholder that is a non-US shareholder, and that shareholder would be required to file
a US income tax return for the year of the disposition of the USRPI and pay any additional tax due on the gain. However,
no such withholding is generally required with respect to amounts paid in redemption of shares of a fund if
a fund was a domestically controlled qualified investment entity, or, in certain other limited cases, if a fund (whether or
not domestically controlled) held substantial investments in regulated investment companies that were domestically controlled
qualified investment entities.
Non-US shareholders are
also subject to “wash
sale”
rules to prevent the avoidance of the tax-filing and payment obligations
discussed above through the sale and repurchase of fund shares.
Shares of a fund held
by a non-US shareholder at death will be considered situated within the US and will be subject to
the US estate tax.
The tax consequences
to a foreign shareholder entitled to claim the benefits of an applicable tax treaty may be different from
those described herein. Foreign shareholders should consult their own tax advisors with respect to the particular tax
consequences to them of an investment in a fund, including the applicability of foreign taxes.
Investments in Underlying Funds.
Generally, the character of the income or gains that a fund receives from other mutual
funds, Exchange Traded Funds or other investment companies that qualify as regulated investment companies under
the Code (collectively, “underlying
funds”)
will pass through to the fund’s shareholders. However, to the extent that
an underlying fund realizes net losses on its investments for a given taxable year, a fund will not be able to benefit from
those losses until (i) the underlying fund realizes gains that it can reduce by those losses, or (ii) the fund recognizes its
share of those losses (so as to offset income or gains from other investments) when it disposes of shares of the underlying
fund. Moreover, even when a fund does make such a disposition, a portion of its loss may be recognized as
a long-term capital loss.
In addition, in certain
circumstances, the “wash
sale”
rules under Section 1091 of the Code may apply to a fund’s sales
of underlying fund shares that have generated losses. A wash sale occurs if shares of an underlying fund are sold
by a fund at a loss and the fund acquires additional shares of that same underlying fund or other substantially identical
stock or securities 30 days before or after the date of the sale. The wash sale rules could defer losses in the fund’s
hands on sales of underlying fund shares (to the extent such sales are wash sales) for extended (and, in certain cases,
potentially indefinite) periods of time.
A fund’s sale of
shares of an underlying fund, including those resulting from changes in the fund’s allocation of assets, could
cause the fund to recognize taxable gains. A portion of such gains may be short-term capital gains, which will be
taxable as ordinary income when distributed to a fund’s shareholders.
As a result of the foregoing
rules, and certain other special rules, it is possible that the amounts of net investment income
and net capital gain that a fund will be required to distribute to shareholders will be greater than such amounts would
have been had the fund invested directly in the securities held by the underlying funds, rather than investing in
shares of the underlying funds. For similar reasons, the character of distributions from a fund (e.g., long-term capital gain,
exempt interest, eligibility for dividends-received deduction, etc.) will not necessarily be the same as it would have
been had the fund invested directly in the securities held by the underlying funds.
If a fund receives dividends
from an underlying fund, and the underlying fund reports such dividends as “qualified
dividend income,”
then the fund is permitted, in turn, to report a portion of its distributions as “qualified
dividend income,”
provided the fund meets the holding period and other requirements with respect to shares of the underlying fund.
If a fund receives dividends
from an underlying fund, and the underlying fund reports such dividends as eligible for the
dividends-received deduction, then the fund is permitted, in turn, to report a portion of its distributions as eligible for
the dividends-received deduction, provided the fund meets the holding period and other requirements with respect to
shares of the underlying fund.
If
a fund receives tax credit bond credits from an underlying fund, and the underlying fund made an election to pass through
such tax credits to its shareholders, then the fund is permitted in turn to elect to pass through its proportionate share
of those tax credits to its shareholders, provided that the fund meets the shareholder notice and other requirements.
If at the close of each
quarter of a fund’s taxable year, at least 50% of its total assets consists of interests in other regulated
investment companies, a fund will be a “qualified
fund of funds.”
In that case, the fund is permitted to elect to
pass through to its shareholders foreign income and other similar taxes paid by the fund or by an underlying fund that
itself elected to pass such taxes through to shareholders, so that shareholders of the qualified fund of funds will be
eligible to claim a tax credit or deduction for such taxes.
A qualified fund of funds
(defined above) is permitted to distribute exempt-interest dividends and thereby pass through to
its shareholders the tax-exempt character of interest on tax-exempt obligations and exempt-interest dividends it receives
from underlying funds.
Variable annuity funds.
Certain special tax considerations apply to the variable annuity funds (Deutsche
DWS Variable Series I, Deutsche DWS Variable Series II and
Deutsche DWS Investments VIT Funds). These funds intend to comply
with the separate diversification requirements
imposed by Section 817(h) of the Code and the regulations thereunder on
certain insurance company separate accounts. These requirements limit the percentage of total assets used to fund
variable contracts that an insurance company separate account may invest in any single investment. Because Section
817(h) and those regulations treat the assets of a regulated investment company owned exclusively by insurance company
separate accounts and certain other permitted investors as assets of the separate accounts investing in that
regulated investment company, these regulations are imposed on the assets of the variable annuity funds in addition
to the diversification requirements imposed on the funds by the 1940 Act and Subchapter M of the Code. Specifically,
the regulations provide that, except as permitted by the “safe
harbor”
described below (and, in general, during a one
year start-up period), as of the end of each calendar quarter or within thirty (30) days thereafter no more than
55% of the total assets of a separate account may be represented by any one investment, no more than 70% by
any two investments, no more than 80% by any three investments, and no more than 90% by any four investments. For
this purpose, all securities of the same issuer are generally considered a single investment, and each US Government agency
and instrumentality is considered a separate issuer. Section 817(h) provides, as a safe harbor, that a separate account
will be treated as being adequately diversified if the diversification requirements under Subchapter M are satisfied
and no more than 55% of the value of the account’s total assets is attributable to cash and cash items (including receivables),
US Government securities and securities of other regulated investment companies. In addition, a separate account
is considered adequately diversified if the account invests all its assets in a regulated investment company that
is a government money market fund as defined in Rule 2a-7 under the 1940 Act and the regulated investment company
is owned exclusively by insurance company separate accounts and certain other permitted investors.
Failure by a variable
annuity fund to qualify as a regulated investment company or to satisfy the Section 817(h) requirements by
failing to comply with the “55%-70%-80%-90%”
diversification test or the safe harbor described above could cause
the variable contracts to lose their favorable tax status and require a contract holder to include in ordinary income any
income accrued under the contracts for the current and all prior taxable years. Under certain circumstances described in
the applicable Treasury regulations, inadvertent failure to satisfy the Section 817(h) diversification requirements may
be corrected, but such a correction could require a payment to the IRS with respect to the period or periods during
which the investments of the account did not meet the diversification requirements. The amount of any such payment
could be based on the tax contract holders would have incurred if they were treated as receiving the income on
the contract for the period during which the diversification requirements were not satisfied. Any such failure could also
result in adverse tax consequences for the insurance company issuing the contracts.
The 4% excise tax described
above does not apply to any regulated investment company whose sole shareholders are
tax-exempt pension trusts, separate accounts of life insurance companies funding variable contracts and certain other
tax-exempt entities and other regulated investment companies that qualify for this exception to the excise tax. In
determining the sole shareholders of a regulated investment company for purposes of this exception to the excise tax,
shares attributable to an investment in the regulated investment company (not exceeding $250,000) made in connection
with the organization of the regulated investment company are not taken into account.
The
IRS has indicated that too great a degree of investor control over the investment options underlying variable contracts may
result in the loss of tax-deferred treatment for such contracts. The Treasury Department has issued rulings addressing the
circumstances in which a variable contract owner’s control of the investments of the separate account may cause the
contract owner, rather than the insurance company, to be treated as the owner of the assets held by the separate account,
and is likely to issue additional rulings in the future. If the contract owner is considered the owner of the securities
underlying the separate account, income and gains produced by those securities would be included currently in
the contract owner’s gross income.
In determining whether
an impermissible level of investor control is present, one factor the IRS considers when a separate
account invests in one or more regulated investment companies is whether a regulated investment company's investment
strategies are sufficiently broad to prevent a contract holder from being deemed to be making particular investment
decisions through its investment in the separate account. Current IRS guidance indicates that typical regulated investment
company investment strategies, even those with a specific sector or geographical focus, are generally considered
sufficiently broad to prevent a contract holder from being deemed to be making particular investment decisions
through its investment in a separate account. For example, the IRS has issued a favorable ruling concerning a
separate account offering sub-accounts (each funded through a single regulated investment company) with the following investment
strategies: money market, bonds, large company stock, international stock, small company stock, mortgage-backed securities,
health care industry, emerging markets, telecommunications, financial services, South American stock, energy,
and Asian markets. Each variable annuity fund has an investment objective and strategies that are not materially narrower
than the investment strategies described in this IRS ruling.
The above discussion
addresses only one of several factors that the IRS considers in determining whether a contract holder
has an impermissible level of investor control over a separate account. Contract holders should consult with their
insurance companies, their tax advisors, as well as the prospectus relating to their particular contract for more information
concerning this investor control issue.
In the event that additional
rules, regulations or other guidance are issued by the IRS or the Treasury Department concerning
this issue, such guidance could affect the treatment of a variable annuity fund as described above, including retroactively.
In addition, there can be no assurance that a variable annuity fund will be able to continue to operate as
currently described, or that a variable annuity fund will not have to change its investment objective or investment policies
in order to prevent, on a prospective basis, any such rules and regulations from causing variable contract owners
to be considered the owners of the shares of the variable annuity fund.
The preceding is only a summary of
certain material federal income tax consequences affecting a fund and its
shareholders. Current and prospective shareholders are advised to consult their own tax advisors with respect
to the particular tax consequences to them of an investment in a fund, including federal, state, local and
foreign tax consequences.
Part II:
Appendix II-I—Proxy
Voting Policy and Guidelines—DWS
Americas
DWS investment advisors
(“DWS”)1
registered with the SEC
have adopted and implemented the following Proxy Voting
Policy and Guidelines – DWS Americas (“Policy
and Guidelines”).
The Policy and Guidelines are reasonably designed
to ensure that proxies are voted in the best economic interest of DWS’s
advisory clients2
with voting rights
(i.e., equity securities)
and in accordance with its fiduciary duties and local regulation. The Policy and Guidelines apply to
DWS when on behalf of client accounts, it has taken on the responsibility to vote, or provide recommendations relating
to proxies.
The guidelines attached
as Attachment A represent a set of recommendations (the “Guidelines”)
that were determined by the DWS Proxy Voting
Sub-Committee (“the
PVSC”).
These Guidelines were developed and approved by the PVSC to
provide DWS with a comprehensive list of recommendations that represent how DWS will generally vote proxies for
its clients. The Guidelines are closely aligned with, although not identical to, those of its proxy voting agent, Institutional Shareholder
Services (“ISS”).
As a fiduciary,
DWS owes its clients a duty of loyalty and duty of care. As a
result, DWS has a fiduciary obligation to vote
proxies in the best economic interest of clients taking into
consideration reasonable costs without
considering any relationship that it or its parent or affiliates may have with an issuer. In addition, the organizational
structures and documents of the various DWS legal entities allow, where necessary or appropriate, the
execution by individual DWS subsidiaries of the proxy voting rights independently of any parent or affiliated company.
Capitalised terms have the meaning ascribed
to them in the Glossary.
DWS’s
Proxy Voting Responsibilities
Proxy votes are the property
of DWS’s advisory clients.As such, DWS’s authority
and responsibility to vote such proxies depend
upon its contractual relationships with its clients or other delegated authority. DWS has delegated responsibility for
effecting its advisory clients’ proxy votes to ISS, an
independent third-party proxy voting specialist. ISS analyses and
votes DWS’s advisory clients’ proxies in accordance with the Guidelines or DWS’s specific instructions. Where a
client has given specific instructions as to how a proxy should be voted, DWS will notify ISS to carry out those instructions.
Where no specific instruction exists, DWS will follow the procedures in voting the proxies set forth in this
document. Certain Taft-Hartley clients may direct DWS to have ISS vote their proxies in accordance with Taft-Hartley Voting
Guidelines.
1
These include DWS Investment Management Americas, Inc. (“DIMA”),
DBX Advisors LLC (“DBX”)
and RREEF Americas L.L.C. (“RREEF”)
as well as DWS registered investment advisors based outside of the U.S. who provide services to U.S.
accounts based on delegation from DIMA, DBX or RREEF.
2
For purposes of this document, “clients”
refers to persons or entities: (i) for which DWS serves as investment advisor or
sub-advisor; (ii) for which DWS votes proxies; and (iii) that have an economic or beneficial ownership interest in the
portfolio securities of issuers soliciting such proxies.
Clients may in certain
instances contract with their custodial agent and notify DWS that they wish to engage in securities lending
transactions. In such cases, it is the responsibility of the custodian to deduct the number of shares that are on
loan so that they do not get voted twice. DWS generally does not recall shares during a particular proxy vote but
may recall shares under the limited circumstances
described below. DWS
maintains a list of U.S.
and Canadian
securities for certain clients that it does
not intend to lend through a securities lending program during a given proxy voting season
based on such factors as the overall ownership level to impact a vote, expected proxy votes on various matters or
potential revenue associated with the security being out on loan over the period. DWS
will also recall shares of securities on loan
during a particular proxy vote for all products that have adopted an environmental, social and governance
(“ESG”)
dedicated investment strategy. The handling of all recall requests is beyond DWS’s control and may not be satisfied
in time for DWS to vote the shares in question. When shares remain
on loan through a securities lending program, the portfolio management
teams will not be able to participate in the votes.
Proxy Voting Activities are Conducted in the Best Economic
Interest of Clients
DWS has adopted the following
Policies and Guidelines to ensure that proxies are voted in accordance with the best economic
interest of its clients, as determined by DWS in good faith after appropriate review. DWS believes that this
responsibility includes consideration
of the economic
effect
on
companies of
certain relevant ESG factors.
Portfolio managers or
research analysts in the DWS Investment Platform with appropriate standing (“Portfolio
Management”)3
review recommendations for the U.S. accounts
they manage from ISS on how to vote proxies based on its application of
the Guidelines. Portfolio Management and members of the PVSC may request that the PVSC consider voting a particular
proxy contrary to the Guidelines or recommendations from ISS based on its application of the Guidelines, if
they believe that it may not be in the best economic interest
of clients to vote the proxy in accordance with the Guidelines
or ISS recommendations.
The Proxy Voting Sub-Committee
The PVSC is an internal
working group established by the applicable DWS’s Investment Risk Oversight Committee pursuant
to written Terms of Reference. The PVSC is responsible for overseeing DWS’s proxy voting activities, including:
•
Adopting,
monitoring and updating the Guidelines that provide how DWS will generally vote proxies pertaining to
a comprehensive list of common proxy voting matters;
•
Making
decisions on how to vote proxies where: (i) the issues are not covered by specific client instruction or the
Guidelines; or (ii) where an exception to the Guidelines may be in the best economic interest of DWS’s clients;
•
Review
recommendations raised by Portfolio Management, the PVSC and others to vote a particular proxy contrary to
the Guidelines or recommendations from ISS based on its application of the Guidelines; and
•
Monitoring
DWS’s Proxy Vendor Oversight Group (“Proxy
Vendor Oversight”)
proxy voting activities (see below).
DWS’s Proxy Vendor
Oversight, a function of DWS’s Operations Group, is responsible for coordinating with ISS to administer
DWS’s proxy voting process and for voting proxies in accordance with any specific client instructions or, if
there are none, the Guidelines, and overseeing ISS’s
proxy responsibilities in this regard.
3
Portfolio Management also includes portfolio managers from DWS
registered investment advisors
based outside the U.S. who provided services to the U.S. accounts
based on a delegation from DIMA, DBX or RREEF.
Availability of Proxy Voting Policies and Proxy Voting
Record
Copies of this Policy
and Guidelines, as it may be updated from time to time are made available to clients as required by
law and otherwise at DWS’s discretion. Clients may also obtain information on how their proxies were voted by DWS
as required by law and otherwise at DWS’s discretion. Note, however, that DWS must not selectively disclose its
investment company clients’ proxy voting records. Proxy Vendor Oversight will make proxy voting reports available to
advisory clients upon request. The investment companies’ proxy voting records will be disclosed to shareholders by
means of publicly available annual filings of each company’s proxy voting record for the 12-month periods ending June
30, if so required by relevant law.
Procedures
The key aspects of DWS’s proxy voting
process are delineated below.
The DWS Proxy Voting Guidelines
The Guidelines set forth
the PVSC’s standard voting positions on a comprehensive list of common proxy voting matters. The
PVSC has developed and continues to update the Guidelines based on consideration of current corporate governance principles,
industry standards, client feedback, and the impact of the matter on issuers and the value of the investments.
The PVSC will review
the Guidelines as necessary to support the best economic interest
of DWS’s clients and, in any event, at
least annually. The PVSC will make changes to the Guidelines, whether as a result of the annual review or
otherwise, taking solely into account the best economic interest
of clients. Before changing the Guidelines, the PVSC
will thoroughly review and evaluate the proposed change and the reasons therefore, and the PVSC Chairperson(s) will
ask PVSC members whether anyone outside or within the DWS organization (including Deutsche Bank and its affiliates)
or any entity that identifies itself as an DWS advisory client has requested or attempted to influence the proposed
change and whether any member has a conflict of interest with respect to the proposed change. If any such
matter is reported to the PVSC Chairperson(s), the Chairperson(s) will promptly notify the Conflicts of Interest Management
Sub-Committee and will defer the approval, if possible. Lastly, the PVSC will fully document its rationale for
approving any change to the Guidelines.
The Guidelines may reflect
a voting position that differs from the actual practices of the public company(ies) within the
Deutsche Bank organization or of the investment companies for which DWS or an affiliate serves as investment advisor
or sponsor. Investment companies, particularly closed-end investment companies, are different from traditional operating
companies. These differences may call for differences in the actual practices of the investment company and
the voting positions of the investment company on the same or similar matters. Further, the manner in which DWS
votes proxies on behalf investment company proxies may differ from the voting recommendations made by a DWS-advised
or sponsored investment company soliciting proxies from its shareholders.
Proxy Voting Recommendations and Decisions Made on a
Case-by-Case Basis
Proxy Vendor Oversight
will refer to Portfolio Management and members of the PVSC for review and recommendations on
how to vote proxies prepared by ISS based upon the Guidelines. The proxies shall be voted on a case-by-case basis
based on ISS’s application of the Guidelines. Portfolio Management and members of PVSC may request that the
PVSC consider voting a particular proxy contrary to the Guidelines
if they believe that it may not be in the best economic interest
of clients to vote the proxy in accordance with the Guidelines.
Specific Proxy Voting Decisions Made by the PVSC
Proxy Vendor Oversight
will refer to the PVSC only proxy proposals: (i) that are not covered by specific client instructions or
the Guidelines; or (ii) that, in accordance with this Policy and Guidelines, have been appealed. The Proxy Vendor Oversight
team will present to Portfolio Management and members of the PVSC all proposals voted on a case-by-case basis
in accordance with the Guidelines which will include recommendations from ISS based on ISS’s application of the
Guidelines and, in certain instances as outlined in the Guidelines
or its Sustainability Proxy Voting Guidelines
(“Sustainability”)
Policy on social and sustainability issues. In addition,
DWS may in certain circumstance consider
the Coalition for Environmentally Responsible
Economies (“CERES”)
guidance
on environmental and social matters contained
in the CERES Roadmap 2030. Portfolio Management may
appeal a recommendation when they believe that
it may not be in the best economic interest of the client to vote in accordance with the recommendation, and such
appeal will be referred by the Proxy Vendor Oversight team to the PVSC for consideration.
The DWS Corporate Governance
Center (“CGC”)
provides support to the PVSC but does not make any voting recommendations
or determinations. The CGC will research recommendations from ISS based on the Sustainability Policy
or CERES Roadmap 2030 to assess whether such recommendations are in the best economic interest of clients and
will inform the PVSC Chairperson(s) of any such ISS recommendations that the CGC believes may not be in the best
economic interest of clients. The CGC will periodically provide a report to the PVSC that includes details of its
analysis
with respect to the ISS recommendations based on the Sustainability Policy or CERES Roadmap 2030 and how
DWS voted on each proxy. The CGC may also, at the PVSC’s request, provide research and analysis related to other
proxy matters.
Additionally, if Proxy
Vendor Oversight, the PVSC Chairperson(s), any member of the PVSC or Portfolio Management believes
that voting a particular proxy in accordance with the Guidelines may not be in the best economic interest
of clients, that individual may bring the matter
to the attention of the PVSC Chairperson(s) and/or Proxy Vendor Oversight.
If Proxy Vendor Oversight
refers a proxy proposal to the PVSC (or
Action Group) or the
PVSC (or Action Group)
determines that voting a particular proxy in
accordance with the Guidelines is not in the best economic interest
of clients, the PVSC (or
Action Group) will evaluate and instruct
the Proxy Vendor Oversight team to vote the proxy
in accordance with
its fiduciary duty and subject to the procedures below regarding
conflicts. Proxy Vendor Oversight shall periodically report
to the PVSC the details of any instructions received from any Action Group.
The PVSC endeavours to determine how to
vote particular proxies prior to the voting deadline.
Proxies that Cannot Be Voted or Instances When DWS Abstains
from Voting
In some cases, the PVSC
may determine that it is in the best economic interest
of its clients not to vote certain proxies,
or that it may not be feasible to vote certain proxies. If the conditions below are met with regard to a proxy proposal,
DWS will not vote on the issue:
•
Neither
the Guidelines nor specific client instructions cover an issue;
•
ISS
does not make a recommendation on the issue; or
•
There
is not sufficient time prior to the voting deadline to make a determination as to what voting decision would be
in the client’s best interest.
In addition, it is DWS’s
policy not to vote proxies of issuers subject to laws of those jurisdictions that impose restrictions upon
selling shares after proxies are voted, in order to preserve liquidity. In other cases, it may not be possible to vote
certain proxies, despite good faith efforts to do so. For example, some jurisdictions do not provide adequate notice
to shareholders so that proxies may be voted on a timely basis. Voting rights on securities that have been loaned
to third-parties transfer to those third-parties, with loan termination often being the only way to attempt to vote
proxies on the loaned securities. Lastly, the PVSC may determine that the costs to the client(s) associated with voting
a particular proxy or group of proxies outweighs the economic benefits expected from voting the proxy or group of
proxies.
There may be instances
when DWS holds a position in a private company requiring a voting decision. ISS
does not provide research and is unable to provide
a voting recommendation based on the Guidelines with respect
to private companies. As a
result, DWS will refer all private company proxies to portfolio management for a review based on information
that is available to them. Portfolio management will submit any recommendations to vote
“For”
or “Against”
proposals for private companies to the
PVSC for consideration. DWS will
vote to “Abstain”
for proposals for private companies
if portfolio management does
not have a recommendation to vote “For”
or “Against”
based on the available information.
Proxy Vendor Oversight
will coordinate with the PVSC Chairperson(s) regarding any specific proxies and any categories of
proxies that will not or cannot be voted. The reasons for not voting any proxy shall be documented.
Conflict of Interest Procedures
Procedures to Address Conflicts of Interest and Improper
Influence
In
the limited circumstances where the PVSC votes proxies,4
the PVSC will vote those proxies in accordance with what it,
in good faith, determines to be the best economic interest of DWS’s clients.5
As a matter of Compliance policy, the
PVSC and Proxy Vendor Oversight are structured to be independent from other parts
of Deutsche Bank. Members of the PVSC and the employee responsible for Proxy Vendor Oversight are employees of
DWS. As such, they may not be subject to the supervision or control of any employees of Deutsche Bank Corporate and
Investment Banking division (“CIB”).
Their compensation cannot be based upon their contribution to any business activity
outside of DWS without prior approval of Legal and Compliance. They can have no contact with employees of
Deutsche Bank outside of DWS regarding specific clients, business matters, or initiatives without the prior approval of
Legal and Compliance. They furthermore may not discuss proxy votes with any person outside of DWS (and within DWS
only on a need-to-know basis).
Conflict Review Procedures
The “Conflicts
of Interest Management Sub-Committee”
within DWS monitors for potential material conflicts of interest in
connection with proxy proposals that are to be evaluated by the PVSC. The Conflicts of Interest Management Sub-Committee members
include DWS Compliance, the chief compliance officers of the advisors and the DWS Funds. Promptly upon a
determination that a proxy vote shall be presented to the PVSC, the PVSC Chairperson(s) shall notify the Conflicts of
Interest Management Sub-Committee. The Conflicts of Interest Management Sub-Committee shall promptly collect and
review any information deemed reasonably appropriate to evaluate, in its reasonable judgment, if DWS or any person
participating in the proxy voting process has, or has the appearance of, a material conflict of interest. For the purposes
of this policy, a conflict of interest shall be considered “material”
to the extent that a reasonable person could
expect the conflict to influence, or appear to influence, the PVSC’s decision on the particular vote at issue. PVSC should
provide the Conflicts of Interest Management Sub-Committee a reasonable amount of time (no less than 24 hours
for the Americas/Europe and 48 hours for APAC) to perform all necessary and appropriate reviews. To the extent that
a conflicts review cannot be sufficiently completed by the Conflicts of Interest Management Sub-Committee the proxies
will be voted in accordance with the standard Guidelines.
4
As mentioned above, the PVSC votes proxies where: (i) neither
a specific client instruction nor a Guideline directs how
the proxy should be voted; or (ii) where voting in accordance with the Guidelines may not be in the best economic interest
of clients. Further, the PVSC will review recommendations for proxies if Portfolio Management or a member of
the PVSC recommends voting contrary to the ISS recommendation if they believe that it may not be in the best economic
interest of the client to vote in accordance with the Guidelines or ISS recommendation based on its application of
the Guidelines.
5
Proxy Vendor Oversight, who serves as the non-voting secretary
of the PVSC, may receive routine calls from proxy solicitors
and other parties interested in a particular proxy vote. Any contact that attempts to exert improper pressure or
influence shall be reported to the Conflicts of Interest Management Sub-Committee.
The information considered
by the Conflicts of Interest Management Sub-Committee may include without limitation information
regarding: (i) DWS client relationships; (ii) any relevant personal conflict known by the Conflicts of Interest Management
Sub-Committee or brought to the attention of that sub-committee; and (iii) any communications with members
of the PVSC (or anyone participating or providing information to the PVSC) and any person outside or within the
DWS organization (including Deutsche Bank and its affiliates) or any entity that identifies itself as an DWS advisory client
regarding the vote at issue. In the context of any determination, the Conflicts of Interest Management Sub-Committee may
consult with and shall be entitled to rely upon all applicable outside experts, including legal counsel.
Upon
completion of the investigation, the Conflicts of Interest Management Sub-Committee will document its findings and
conclusions. If the Conflicts of Interest Management Sub-Committee determines that: (i) DWS has a material conflict
of interest that would prevent it from deciding how to vote the proxies concerned without further client consent; or
(ii) certain individuals should be recused from participating in the proxy vote at issue, the Conflicts of Interest Management Sub-Committee
will so inform the PVSC Chairperson(s).
If notified that DWS
has a material conflict of interest as described above, the PVSC chairperson(s) will obtain instructions as
to how the proxies should be voted either from: (i) if time permits, the affected clients; or (ii) in accordance with the
standard Guidelines. If notified that certain individuals should be recused from the proxy vote at issue, the PVSC Chairperson(s)
shall do so in accordance with the procedures set forth below.
Note: Any DWS employee
who becomes aware of a potential, material conflict of interest in respect of any proxy vote
to be made on behalf of clients shall notify Compliance or the Conflicts of Interest Management Sub-Committee. Compliance
shall call a meeting of the Conflicts of Interest Management Sub-Committee to evaluate such conflict and
determine a recommended course of action.
Procedures to be followed by the PVSC
At the beginning of any discussion regarding
how to vote any proxy, the PVSC Chairperson(s) (or his or her delegate) will
inquire as to whether any PVSC member (whether voting or ex officio) or any person participating in the proxy voting
process has a personal conflict of interest or has knowledge of an actual or apparent conflict that has not been reported
to the Conflicts of Interest Management Sub-Committee.
The PVSC Chairperson(s)
also will inquire of these same parties whether they have actual knowledge regarding whether any
Director, officer, or employee outside or within the DWS organization (including Deutsche Bank and its affiliates) or
any entity that identifies itself as an DWS advisory client, has: (i) requested that DWS, Proxy Vendor Oversight (or any
member thereof), or a PVSC member vote a particular proxy in a certain manner; (ii) attempted to influence DWS, Proxy
Vendor Oversight (or any member thereof), a PVSC member or any other person in connection with proxy voting activities;
or (iii) otherwise communicated with a PVSC member, or any other person participating or providing information to
the PVSC regarding the particular proxy vote at issue and which incident has not yet been reported to the Conflicts of
Interest Management Sub-Committee.
If any such incidents
are reported to the PVSC Chairperson(s), the Chairperson(s) will promptly notify the Conflicts of
Interest Management Sub-Committee and, if possible, will delay the vote until the Conflicts of Interest Management Sub-Committee
can complete the conflicts review.
If a delay is not possible, the Conflicts of Interest Management Sub-Committee
will instruct the PVSC (i) whether anyone should be recused from the proxy voting process or (ii) whether
DWS should vote the proxy in accordance with the standard guidelines, seek instructions as to how to vote the
proxy at issue from ISS or, if time permits, the affected clients. These inquiries and discussions will be properly reflected
in the PVSC’s minutes.
Duty to Report.
Any DWS employee, including any PVSC member (whether voting or ex officio), that is aware of any actual
or apparent conflict of interest relevant to, or any attempt by any person outside or within the DWS organization (including
Deutsche Bank and its affiliates) or any entity that identifies itself as an DWS advisory client to influence how
DWS votes its proxies has a duty to disclose the existence of the situation to the PVSC Chairperson(s) (or his or
her designee) and the details of the matter to the Conflicts of Interest Management Sub-Committee. In the case of
any person participating in the deliberations on a specific vote, such disclosure should be made before engaging in
any activities or participating in any discussion pertaining to that vote.
The PVSC will recuse from participating
in a specific proxy vote any PVSC members (whether voting or ex officio) and/or
any other person who: (i) are personally involved in a material conflict of interest; or (ii) who, as determined by
the Conflicts of Interest Management Sub-Committee, have actual knowledge of a circumstance or fact that could affect
their independent judgment, in respect of such vote. The PVSC will also exclude from consideration the views
of
any person (whether requested or volunteered) if the PVSC or any member thereof knows, or if the Conflicts of Interest
Management Sub-Committee has determined, that such other person has a material conflict of interest with respect
to the particular proxy or has attempted to influence the vote in any manner prohibited by these policies.
If, after excluding all
relevant PVSC voting members pursuant to the paragraph above, there are three or more PVSC voting
members remaining, those remaining PVSC members will determine how to vote the proxy in accordance with
these Policies and Guidelines. If there are fewer than three PVSC voting members remaining, the PVSC Chairperson(s) will
vote the proxy in accordance with the standard Guidelines or will obtain instructions as to how to have the proxy voted
from, if time permits, the affected clients and otherwise from ISS.
Affiliated Investment Companies, Rule 12d1-4 and Affiliated
Public Companies
For investment companies for which DWS
or an affiliate serves as investment advisor
or principal underwriter, such proxies are voted
in the same proportion as the vote of all other shareholders (i.e., “mirror”
or “echo”
voting). In addition, if a registered investment
company (including an exchange traded fund) advised by DWS or
an affiliate together with DWS advisory clients,
in aggregate, (i) hold more than 25% of the outstanding voting securities of an investment company
that is not a registered closed-end fund or business development company, or (ii) hold more than 10% of the
outstanding voting securities of an investment company that is a registered closed-end fund or business development company,
then DWS will vote its holdings in such registered investment company’s securities in the same proportion as
the vote of all other holders of such securities (i.e., “mirror”
or “echo”
voting) as required by Rule 12d1-4 of the 1940 Act.
Master Fund proxies solicited from feeder Funds are voted in accordance with applicable provisions of Section 12
of 1940 Act.
Affiliated Public Companies
For proxies solicited by non-investment
company issuers of or within the DWS or Deutsche Bank organization (e.g., shares
of DWS or Deutsche Bank), these proxies will be voted in the same proportion as the vote of other shareholders (i.e.,
“mirror”
or “echo”
voting). In markets where mirror voting is not permitted, DWS will “Abstain”
from voting such shares.
Note: With respect to
affiliated registered investment companies that invest in the DWS Central Cash Management Government
Fund (registered under the 1940
Act), the affiliated registered investment companies are not required to
engage in echo voting with respect to proxies of the DWS Central Cash Management Government Fund and the investment
advisor
will use these Guidelines and may determine, with respect to proxies of the DWS Central Cash Management
Government Fund, to vote contrary to the positions in the Guidelines, consistent with the Fund’s best interest.
Other Procedures that Limit Conflicts of Interest
DWS and other entities
in the Deutsche Bank organization have adopted a number of policies, procedures, and internal controls
that are designed to avoid various conflicts of interest, including those that may arise in connection with proxy
voting, including but not limited to:
•
Code
of Conduct– DB Group;
•
Conflicts
of Interest Policy – DWS Group;
•
Code
of Ethics – DWS Group;
The PVSC expects that
these policies, procedures, and internal controls will greatly reduce the chance that the PVSC (or
its members) would be involved in, aware of, or influenced by an actual or apparent conflict of interest.
RECORDKEEPING
At a minimum, the following
records must be properly maintained and readily accessible in order to evidence compliance with
this Policy.
•
DWS
will maintain a record of each proxy vote cast by DWS that includes among other things, company name, meeting
date, proposals presented, vote cast, and shares voted.
•
Proxy
Vendor Oversight maintains records for each of the proxy ballots it votes. Specifically, the records include, but
are not limited to:
−
The
proxy statement (and any additional solicitation materials) and relevant portions of annual statements;
−
Any
additional information considered in the voting process that may be obtained from an issuing company, its
agents, or proxy research firms;
−
Analyst
worksheets created for stock option plan and share increase analyses; and
−
Proxy
Edge print-screen of actual vote election.
•
DWS
will: (i) retain this Policy and the Guidelines; (ii) maintain records of requests from Portfolio Management and
members of the PVSC to appeal a recommendation on how to vote a proxy; (iii) maintain minutes of the meeting
of the PVSC; (iv) maintain records of client requests for proxy voting information; and (v) retain any documents prepared
by Proxy Vendor Oversight,
the CGC or
the PVSC that were material to making a voting decision or that
memorialized the basis for a proxy voting decision.
•
The
PVSC also will create and maintain appropriate records documenting its compliance with this Policy, including records
of its deliberations and decisions regarding conflicts of interest and their resolution.
•
With
respect to DWS’s investment company clients, ISS will create and maintain records of each company’s proxy
voting record for the 12-month periods ending June 30. DWS will compile the following information for each
matter relating to a portfolio security considered at any shareholder meeting held during the period covered by
the report (and with respect to which the company was entitled to vote):
•
The
name of the issuer of the portfolio security;
•
The
exchange ticker symbol of the portfolio security (if symbol is available through reasonably practicable means);
•
The
Council on Uniform Securities Identification Procedures (“CUSIP”)
number for the portfolio security (if the number is available
through reasonably practicable means);
•
The
shareholder meeting date;
•
A
brief identification of the matter voted on;
•
Whether
the matter was proposed by the issuer or by a security holder;
•
Whether
the company cast its vote on the matter;
•
How
the company cast its vote (e.g., for or against proposal, or abstain; for or withhold regarding election of Directors);
and
•
Whether
the company cast its vote for or against Management.
Note:
This list is intended to provide guidance only in terms of the records that must be maintained in accordance with
this policy. In addition, please note that records must be maintained in accordance with the Records Management Policy
-
Deutsche Bank Group and applicable policies and procedures thereunder.
With respect to electronically
stored records, “properly
maintained”
is defined as complete, authentic (unalterable), usable
and backed-up. At a minimum, records should be retained for a period of not less than six years (or longer, if necessary
to comply with applicable regulatory requirements), the first three years in an appropriate DWS office.
OVERSIGHT RESPONSIBILITIES
Proxy Vendor Oversight
will review a reasonable sampling of votes based on its procedures on a regular basis to ensure
that ISS has cast the votes in a manner consistent with the Guidelines. Proxy Vendor Oversight will provide the
PVSC with a quarterly report of its review and identify any issues encountered during the period. Proxy Vendor Oversight
will also perform a post season review once a year on certain proposals to assess whether ISS voted consistent with
the Guidelines.
In addition, the PVSC
will, in cooperation with Proxy Vendor Oversight and DWS Compliance, consider, on at least an annual
basis, whether ISS has the capacity and competence to adequately analyze the matters for which it is responsible. This
includes whether ISS has effective polices, and methodologies and a review of ISS’s policies and procedures with
respect to conflicts.
The PVSC also monitors
the proxy voting process by reviewing summary proxy information presented by ISS to determine, among
other things, whether any changes should be made to the Guidelines. This review will take place at least quarterly and
is documented in the PVSC’s meeting minutes.
The PVSC, in cooperation
with Proxy Vendor Oversight and DWS Compliance, will review and document, no less frequently
than annually, the adequacy of the Guidelines, including whether the Guidelines continue to be reasonably designed
to ensure that DWS votes in the best interest of its clients.
|
|
|
A
sub-group of the PVSC (as defined below) that will
include
the Chairperson(s) and at least one other
member
of the PVSC. |
|
Institutional
Shareholder Services, Inc. |
|
Proxy
Voting Sub-Committee |
|
Securities
and Exchange Commission |
|
Investment
Company Act of 1940, as amended |
LIST OF ANNEXES AND ATTACHMENTS
Attachment A – DWS Proxy Voting Guidelines
– DWS Americas
Proxy Voting Guidelines – DWS Americas
TABLE OF CONTENTS
|
|
|
|
|
|
|
|
|
|
|
Problematic
Takeover Defenses, Capital
Structure
and Governance Structure |
|
Problematic
Audit-Related Practices |
|
Problematic
Compensation Practices |
|
Problematic
Pledging of Company Stock |
|
|
|
|
|
Voting
on Director Nominees in Contested
Elections
|
|
|
|
Proxy
Contests/Proxy Access |
|
Other
Board Related Proposals |
|
Adopt
Anti-Hedging/Pledging/Speculative
Investments
Policy |
|
|
|
|
|
|
|
|
|
Classification/Declassification
of the Board |
|
|
|
|
|
Director
and Officer Indemnification, Liability
Protection
and Exculpation |
|
Establish/Amend
Nominee Qualifications |
|
Establish
Other Board Committee Proposals |
|
Filling
Vacancies/Removal of Directors |
|
|
|
Majority
of Independent Directors/
Establishment
of Independent Committees |
|
Majority
Vote Standard for the Election of
Directors
|
|
|
|
Require
More Nominees than Open Seats |
|
Shareholder
Engagement Policy (Shareholder
Advisory
Committee) |
|
|
|
Auditor
Indemnification and Limitation of
Liability
|
|
|
|
Shareholder
Proposals Limiting Non-Audit
Services
|
|
Shareholder
Proposals on Audit Firm
Rotation
|
|
SHAREHOLDER
RIGHTS & DEFENSES |
|
Advance
Notice Requirements for
Shareholder Proposals/Nominations
|
|
Amend
Bylaws without Shareholder
Consent
|
|
Control
Share Acquisition Provisions |
|
Control
Share Cash-Out Provisions |
|
|
|
|
|
|
|
|
|
Shareholder
Litigation Rights |
|
Federal
Forum Selection Provisions |
|
Exclusive
Forum Provisions for State Law
Matters
|
|
|
|
Net
Operating Loss (NOL) Protective
Amendments
|
|
Poison
Pills (Shareholder Rights Plans) |
|
Shareholder
Proposals to Put Pill to a Vote
and/or
Adopt a Pill Policy |
|
Management
Proposals to Ratify a Poison Pill |
|
Management
Proposals to Ratify a Pill to
Preserve
Net Operating Losses (NOLs) |
|
Proxy
Voting Disclosure, Confidentiality, and
Tabulation
|
|
Ratification
Proposals: Management
Proposals
to Ratify Existing Charter or Bylaw
Provisions
|
|
Reimbursing
Proxy Solicitation Expenses |
|
Reincorporation
Proposals |
|
Shareholder
Ability to Act by Written Consent |
|
Shareholder
Ability to Call Special Meetings |
|
|
|
State
Antitakeover Statutes |
|
Supermajority
Vote Requirements |
|
Virtual
Shareholder Meetings |
|
|
|
|
|
Adjustments
to Par Value of Common Stock |
|
Common
Stock Authorization |
|
|
|
Issue
Stock for Use with Rights Plan |
|
|
|
Preferred
Stock Authorization |
|
|
|
|
|
Share
Issuance Mandates at U.S. Domestic
Issuers
Incorporated Outside the U.S. |
|
Share
Repurchase Programs |
|
Share
Repurchase Programs Shareholder
Proposals
|
|
Stock
Distributions: Splits and Dividends |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate
Reorganization/Debt
Restructuring/Prepackaged
Bankruptcy Plans/
Reverse
Leveraged Buyouts/Wrap Plans |
|
Formation
of Holding Company |
|
Going
Private and Going Dark Transactions
(LBOs
and Minority Squeeze-outs) |
|
|
|
|
|
|
|
Private
Placements/Warrants/Convertible
Debentures
|
|
Reorganization/Restructuring
Plan
(Bankruptcy)
|
|
Special
Purpose Acquisition Corporations
(SPACs)
|
|
Special
Purpose Acquisition Corporations
(SPACs)
- Proposals for Extensions |
|
|
|
Value
Maximization Shareholder Proposals |
|
|
|
|
|
Advisory
Votes on Executive
Compensation—Management
Proposals
(Say-on-Pay)
|
|
Frequency
of Advisory Vote on Executive
Compensation
(“Say
When on Pay”)
|
|
Voting
on Golden Parachutes in an
Acquisition,
Merger, Consolidation, or
Proposed
Sale |
|
Equity-Based
and Other Incentive Plans |
|
Further
Information on certain EPSC Factors: |
|
|
|
Amending
Cash and Equity Plans (including
Approval
for Tax Deductibility (162(m)) |
|
Specific
Treatment of Certain Award Types in
Equity
Plan Evaluations |
|
Operating
Partnership (OP) Units in Equity
Plan
Analysis of Real Estate Investment
Trusts
(REITs) |
|
|
|
401(k)
Employee Benefit Plans |
|
Employee
Stock Ownership Plans (ESOPs) |
|
Employee
Stock Purchase Plans—Qualified
Plans
|
|
Employee
Stock Purchase Plans—Non-
Qualified
Plans |
|
Option
Exchange Programs/Repricing
Options
|
|
Stock
Plans in Lieu of Cash |
|
Transfer
Stock Option (TSO) Programs |
|
|
|
Shareholder
Ratification of Director Pay
Programs
|
|
Equity
Plans for Non-Employee Directors |
|
Non-Employee
Director Retirement Plans |
|
Shareholder
Proposals on Compensation |
|
Bonus
Banking/Bonus Banking “Plus”
|
|
Compensation
Consultants-Disclosure of
Board
or Company’s Utilization |
|
Disclosure/Setting
Levels or Types of
Compensation
for Executives and Directors |
|
Golden
Coffins/Executive Death Benefits |
|
Hold
Equity Past Retirement or for a
Significant
Period of Time |
|
|
|
Pay
for Performance/Performance-Based
Awards
|
|
Pay
for Superior Performance |
|
Pre-Arranged
Trading Plans (10b5-1 Plans) |
|
Prohibit
Outside CEOs from Serving on
Compensation
Committees |
|
Recoupment
of Incentive or Stock
Compensation
in Specified Circumstances |
|
Severance
and Golden Parachute
Agreements
|
|
Share
Buyback Impact on Incentive Program
Metrics
|
|
Supplemental
Executive Retirement Plans
(SERPs)
|
|
|
|
Termination
of Employment Prior to
Severance
Payment/Eliminating Accelerated
Vesting
of Unvested Equity |
|
|
|
|
|
Amend
Quorum Requirements |
|
|
|
|
|
Change
Date, Time, or Location of Annual
Meeting
|
|
|
|
SOCIAL
AND ENVIRONMENTAL ISSUES |
|
|
|
Endorsement
of Principles |
|
|
|
|
|
|
|
|
|
|
|
Genetically
Modified Ingredients |
|
Reports
on Potentially Controversial
Business/Financial
Practices |
|
Pharmaceutical
Pricing, Access to
Medicines,
and Prescription Drug
Reimportation
|
|
Product
Safety and Toxic/Hazardous Materials |
|
Tobacco-Related
Proposals |
|
|
|
Say
on Climate (SoC) Management
Proposals
|
|
Say
on Climate (SoC) Shareholder Proposals |
|
Climate
Change/Greenhouse Gas (GHG)
Emissions
|
|
|
|
|
|
|
|
|
|
|
|
Gender
Identity, Sexual Orientation, and
Domestic
Partner Benefits |
|
Gender,
Race / Ethnicity Pay Gap |
|
Racial
Equity and/or Civil Rights Audit
Guidelines
|
|
Environment
and Sustainability |
|
Facility
and Workplace Safety |
|
General
Environmental Proposals and
Community
Impact Assessments |
|
|
|
Operations
in Protected Areas |
|
|
|
|
|
|
|
|
|
|
|
Data
Security, Privacy, and Internet Issues |
|
Environmental,
Social, and Governance (ESG)
Compensation-Related
Proposals |
|
Human
Rights, Human Capital
Management, and
International
Operations
|
|
|
|
|
|
Operations
in High Risk Markets |
|
|
|
|
|
Weapons
and Military Sales |
|
|
|
|
|
|
|
Political
Expenditures and Lobbying
Congruency
|
|
|
|
REGISTERED
INVESTMENT COMPANY
PROXIES
|
|
|
|
Closed
End Fund - Unilateral Opt-In to
Control Share
Acquisition Statutes |
|
Converting
Closed-end Fund to Open-end
Fund
|
|
|
|
Investment
Advisory Agreements |
|
Approving
New Classes or Series of
Shares
|
|
Preferred
Stock Proposals |
|
|
|
Changing
a Fundamental Restriction to a
Nonfundamental
Restriction |
|
Change
Fundamental Investment
Objective to
Nonfundamental |
|
|
|
Change
in Fund's Subclassification |
|
Business
Development Companies—
Authorization
to Sell Shares of Common
Stock at a Price
below Net Asset Value |
|
Disposition
of Assets/Termination/
Liquidation
|
|
Changes
to the Charter Document |
|
Changing
the Domicile of a Fund |
|
Authorizing
the Board to Hire and
Terminate Subadvisors
Without
Shareholder Approval
|
|
|
|
|
|
|
|
Shareholder
Proposals for Mutual Funds |
|
Establish
Director Ownership Requirement |
|
Reimburse
Shareholder for Expenses
Incurred
|
|
Terminate
the Investment Advisor |
|
INTERNATIONAL
PROXY VOTING |
|
|
NOTE:
Because of the unique oversight structure and regulatory scheme applicable to closed-end and open-end investment companies,
except as otherwise noted, these voting guidelines are not applicable to holdings of shares of closed-end and
open-end investment companies (except Real Estate Investment Trusts).
In voting proxies that
are noted case-by-case, DWS will vote such proxies based on recommendations from ISS based on
its application of the Guidelines.
DWS’s policy is
to generally vote for director nominees6,
except under the following circumstances (with new nominees
considered on case-by-case basis):
DWS’s policy is to generally vote
against7
or withhold from non-independent directors when (See Appendix 1 for Classification
of Directors):
•
Independent
directors comprise 50 percent or less of the board;
•
The
non-independent director serves on the audit, compensation, or nominating committee;
•
The
company lacks an audit, compensation, or nominating committee so that the full board functions as that committee;
or
•
The
company lacks a formal nominating committee, even if the board attests that the independent directors fulfill the
functions of such a committee.
6
A “new
nominee”
is a director who is being presented for election by shareholders for the first time. Recommendations on
new nominees who have served for less than one year are made on a case-by-case basis depending on the timing of
their appointment and the problematic governance issue in question.
7
In general, companies with a plurality vote standard use “Withhold”
as the contrary vote option in director elections; companies
with a majority vote standard use “Against”.
However, it will vary by company and the proxy must be checked to
determine the valid contrary vote option for the particular company.
Attendance at Board and Committee Meetings
DWS’s policy is to generally vote
against or withhold from directors (except nominees who served only part of the fiscal
year8)
who attend less than 75 percent of the aggregate of their board and committee meetings for the period for
which they served, unless an acceptable reason for absences is disclosed in the proxy or another SEC filing. Acceptable reasons
for director absences are generally limited to the following:
•
Medical
issues/illness;
•
Family
emergencies; and
•
Missing
only one meeting (when the total of all meetings is three or fewer).
In
cases of chronic poor attendance without reasonable justification, in addition to voting against the director(s) with poor
attendance, DWS’s policy is to generally vote against or withhold from appropriate members of the nominating/governance committees
or the full board.
If the proxy disclosure
is unclear and insufficient to determine whether a director attended at least 75 percent of the aggregate
of his/her board and committee meetings during his/her period of service, DWS’s policy is to generally vote
against or withhold from the director(s) in question.
DWS’s policy is to generally vote
against or withhold from individual directors who:
•
Sit
on more than four public company boards; or
•
Are
CEOs of public companies who sit on the boards of more than one public company besides their own—withhold only
at their outside board9
DWS’s policy is to generally vote
against or withhold from the chair of the nominating committee (or other directors on
a case-by-case basis) at companies where there are no women on the company's board. An exception will be made
if there was at least one woman on the board at the preceding annual meeting and the board makes a firm commitment
to return to a gender-diverse status within a year.
Racial and/or Ethnic Diversity:
For companies in the
Russell 3000 or S&P 1500 indices, DWS’s policy is to
generally vote against or withhold from the
chair of the nominating committee (or other directors on a case-by-case basis) where the board has no apparent racially
or ethnically diverse members10.
An exception will be made if (i) there was racial and/or ethnic diversity on the
board at the preceding annual meeting and the board makes a firm commitment to appoint at least one racial and/or
ethnic diverse member within a year; or (ii) there are no new nominees proposed for election to the board.
8
Nominees who served for only part of the fiscal year are generally exempted from the attendance policy.
9
Although all of a CEO’s subsidiary boards with publicly-traded common stock will be counted as separate boards, DWS
will not recommend a withhold vote for the CEO of a parent company board or any of the controlled (˃50 percent ownership)
subsidiaries of that parent but may do so at subsidiaries that are less than 50 percent controlled and boards outside
the parent/subsidiary relationships.
10
Aggregate diversity statistics provided by the board will only
be considered if specific to racial and/or ethnic diversity.
DWS’s policy is
to vote case-by-case for new nominees who are up for election to serve as a combined Chair and CEO,
taking into considerations the following:
•
A
majority independent board and/or the presence of independent directors on a key board committees;
•
A
clearly defined lead independent director serving as an appropriate counterbalance to a combined CEO/chair role.
DWS’s
policy is to generally vote for an incumbent director who is a combined Chair and CEO up for reelection.
DWS’s policy is
to generally vote case-by-case on individual directors, committee members, or the entire board of directors
as appropriate if:
•
The
board failed to act on a shareholder proposal that received the support of a majority of the shares cast in the previous
year or failed to act on a management proposal seeking to ratify an existing charter/bylaw provision that received
opposition of a majority of the shares cast in the previous year. Factors that will be considered are:
−
Disclosed
outreach efforts by the board to shareholders in the wake of the vote;
−
Rationale
provided in the proxy statement for the level of implementation;
−
The
subject matter of the proposal;
−
The
level of support for and opposition to the resolution in past meetings;
−
Actions
taken by the board in response to the majority vote and its engagement with shareholders;
−
The
continuation of the underlying issue as a voting item on the ballot (as either shareholder or management proposals);
and
−
Other
factors as appropriate.
•
The
board failed to act on takeover offers where the majority of shares are tendered;
or
•
At
the previous board election, any director received more than 50 percent withhold/against votes of the shares cast
and the company has failed to address the issue(s) that caused the high withhold/against vote.
DWS’s policy is
to generally vote case-by-case on Compensation Committee members (or, in exceptional cases, the full
board) and the Say on Pay proposal if:
•
The
company’s previous say-on-pay received the support of less than 70 percent of votes cast. Factors that will be
considered are:
The company's response, including:
•
Disclosure
of engagement efforts with major institutional investors, including the frequency and timing of engagements and
the company participants (including whether independent directors participated);
•
Disclosure
of the specific concerns voiced by dissenting shareholders that led to the say-on-pay opposition;
and
−
Disclosure
of specific and meaningful actions taken to address shareholders' concerns;
•
Other
recent compensation actions taken by the company;
•
Whether
the issues raised are recurring or isolated;
•
The
company's ownership structure; and
•
Whether
the support level was less than 50 percent, which would warrant the highest degree of responsiveness.
•
The
board implements an advisory vote on executive compensation on a less frequent basis than the frequency that
received the plurality of votes cast.
Accountability
Problematic Takeover Defenses, Capital Structure and
Governance Structure
DWS’s policy is to generally vote
against or withhold from all nominees (except new nominees, who should be considered case-by-case)
if:
•
The
company has a poison pill with a deadhand or slowhand feature11;
•
The
board makes a material adverse modification to an existing pill, including, but not limited to, extension, renewal, or
lowering the trigger, without shareholder approval; or
•
The
company has a long-term poison pill, (with a term of over one year) that was not approved by the public shareholders.12
DWS’s policy is
to generally vote case-by-case on nominees if the board adopts an initial short-term pill (with a term of
one year or less) without shareholder approval, taking into consideration:
•
The
disclosed rationale for the adoption;
•
The
company’s market capitalization (including absolute level and sudden changes);
•
A
commitment to put any renewal to a shareholder vote; and
•
Other
factors as relevant
DWS’s policy is to generally vote
for directors of a company employing a common stock structure with unequal voting rights.13
Classified Board Structure:
DWS’s policy is to generally vote
against or withhold directors individually, committee members, or the entire board (except
new nominees, who should be considered
case-by-case), if the company’s board is classified, and a continuing director
responsible for a problematic governance issue at the board/committee level that would warrant a withhold /
against vote recommendation is not up for election. All appropriate nominees (except new) may be held accountable.
11
If the short-term pill with a deadhand or slowhand feature is enacted but expires before the next shareholder vote, DWS
will generally still withhold or vote against nominees at the next shareholder meeting following its adoption.
12Approval
prior to, or in connection, with a company’s becoming publicly traded or in connection with a de-SPAC transaction,
is sufficient.
13This
generally includes classes of common stock that have additional votes per share than other shares; classes of
shares that are not entitled to vote on all the same ballot items or nominees; or stock with time-phased voting rights
(“loyalty
shares”).
Removal of
Shareholder Discretion on Classified Boards
DWS’s policy is
to generally vote against or withhold directors individually, committee members, or the entire board (except
new nominees, who should be considered case-by-case), if the company has opted into, or failed to opt out of,
state laws requiring a classified board structure.
Problematic Governance Structure
For companies that hold or held their
first annual meeting of public shareholders after February 1, 2015, DWS’s policy is
to generally vote against or withhold from directors individually, committee member, or the entire board (except new
nominees, who should be considered case-by-case) if, prior to or in connection with the company’s public offering, the
company or its board adopted the following bylaw or charter provisions that are considered to be materially adverse to
shareholder rights:
•
Supermajority
vote requirements to amend the bylaws or charter;
•
A
classified board structure; or
•
Other
egregious provisions.
A provision which specifies
that the problematic structure(s) will be sunset within seven years of the date of going public
will be considered a mitigating factor.
Unless the adverse provision
is reversed or removed, DWS’s policy is to generally vote case-by-case on director nominees in
subsequent years.
Unilateral Bylaw/Charter Amendments
DWS’s policy is to generally vote
against or withhold from directors individually, committee members, or the entire board
(except new nominees who should be considered case-by-case) if
the board amends the company's bylaws or charter
without shareholder approval in a manner that materially diminishes shareholders' rights or that could adversely impact
shareholders, considering the following factors:
•
The
board's rationale for adopting the bylaw/charter amendment without shareholder ratification;
•
Disclosure
by the company of any significant engagement with shareholders regarding the amendment;
•
The
level of impairment of shareholders' rights caused by the board's unilateral amendment to the bylaws/charter;
•
The
board's track record with regard to unilateral board action on bylaw/charter amendments or other entrenchment provisions;
•
The
company's ownership structure;
•
The
company's existing governance provisions;
•
The
timing of the board's amendment to the bylaws/charter in connection with a significant business development; and
•
Other
factors, as deemed appropriate, that may be relevant to determine the impact of the amendment on share-holders.
Unless the adverse amendment
is reversed or submitted to a binding shareholder vote, in subsequent years DWS’s policy
is generally to vote case-by-case on director nominees.
DWS’s
policy is to generally vote against (except new nominees, who should be considered case-by-case) if the directors:
•
Adopted
supermajority vote requirements to amend the bylaws or charter; or
•
Eliminated
shareholders' ability to amend bylaws.
•
Adopted
a fee-shifting provision; or
•
Adopted
another provision deemed egregious.
Restricting Binding Shareholder Proposals
DWS’s policy is to generally vote
against or withhold from the members of the governance committee if:
•
The
company’s governing documents impose undue restrictions on shareholders ability to amend the bylaws.
Such restrictions include
but are not limited to: outright prohibition on the submission of binding shareholder proposals or
share ownership requirements, subject matter restrictions, or time holding requirements in excess of Rule 14a-8 under
the Securities Exchange Act of 1934. DWS’s policy is to generally vote against or withhold on an ongoing basis in
such cases.
Submission of management
proposals to approve or ratify requirements in excess of the requirements under Rule 14a-8
for the submission of binding bylaw amendments will generally be viewed as insufficient restoration of shareholders’ rights.
DWS’s policy is to generally vote against or withhold on an ongoing basis until shareholders are provided with an
unfettered ability to amend the bylaws or a proposal providing for such unfettered right is submitted for shareholder approval.
Director Performance Evaluation
DWS’s policy is to generally vote
against or withhold from (the members of the governance committee) if the board lack
mechanisms to promote accountability and oversight, coupled with sustained poor performance relative to peers. Sustained
poor performance is measured by one-, three- and five-year total shareholder returns in the bottom half of a
company’s four-digit GICS industry group (Russell 3000 companies only). Take into consideration the company’s operational
metrics and other factors as warranted. Problematic provisions include but are not limited to:
•
A
classified board structure;
•
A
supermajority vote requirement;
•
Either
a plurality vote standard in uncontested director elections, or a majority vote standard in contested elections;
•
The
inability of shareholders to call special meetings;
•
The
inability of shareholders to act by written consent;
•
A
multi-class capital structure; and/or
•
A
non-shareholder-approved poison pill.
Management Proposals to Ratify Existing Charter or Bylaw
Provisions
DWS’s
policy is to generally vote against/withhold from individual directors, members of the governance committee, or
the full board, where boards ask shareholders to ratify existing charter or bylaw provisions considering the following factors:
•
The
presence of a shareholder proposal addressing the same issue on the same ballot;
•
The
board's rationale for seeking ratification;
•
Disclosure
of actions to be taken by the board should the ratification proposal fail;
•
Disclosure
of shareholder engagement regarding the board’s ratification request;
•
The
level of impairment to shareholders' rights caused by the existing provision;
•
The
history of management and shareholder proposals on the provision at the company’s past meetings;
•
Whether
the current provision was adopted in response to the shareholder proposal;
•
The
company's ownership structure; and
•
Previous
use of ratification proposals to exclude shareholder proposals.
Problematic Audit-Related Practices
DWS’s policy is to generally vote
against or withhold from the members of the Audit Committee if:
•
The
non-audit fees paid to the auditor are excessive;
•
The
company receives an adverse opinion on the company’s financial statements from its auditor; or
•
There
is persuasive evidence that the Audit Committee entered into an inappropriate indemnification agreement with
its auditor that limits the ability of the company, or its shareholders, to pursue legitimate legal recourse against
the audit firm.
DWS’s policy is to generally vote
case-by-case on members of the Audit Committee and potentially the full board if:
•
Poor
accounting practices are identified that rise to a level of serious concern, such as: fraud; misapplication of GAAP;
and material weaknesses identified in Section 404 disclosures. Examine the severity, breadth, chronological sequence,
and duration, as well as the company’s efforts at remediation or corrective actions, in determining whether
withhold/against votes are warranted.
Problematic Compensation Practices
In the absence of an
Advisory Vote on Executive Compensation (Say on Pay) ballot item or in egregious situations, DWS’s
policy is to generally vote against or withhold from the members of the Compensation Committee and potentially the
full board if:
•
There
is an unmitigated misalignment between CEO pay and company performance (pay for performance);
•
The
company maintains significant problematic pay practices; or
•
The
board exhibits a significant level of poor communication and responsiveness to shareholders.
DWS’s
policy is to generally vote against or withhold from the Compensation Committee chair, other committee members, or
potentially the full board if:
•
The
company fails to include a Say on Pay ballot item when required under SEC provisions, or under the company’s declared
frequency of say on pay; or
•
The
company fails to include a Frequency of Say on Pay ballot item when required under SEC provisions.
DWS’s policy is
to generally vote against members of the board committee responsible for approving/setting non-employee director
compensation if there is a pattern (i.e.,
two or more years) of awarding excessive non-employee director compensation
without disclosing a compelling rationale or other mitigating factors.
Problematic Pledging of Company Stock
DWS’s policy is
to generally vote against the members of the committee that oversees risks related to pledging, or the
full board, where a significant level of pledged company stock by executives or directors raises concerns.
The following factors will be considered:
•
The
presence of an anti-pledging policy, disclosed in the proxy statement, that prohibits future pledging activity;
•
The
magnitude of aggregate pledged shares in terms of total common shares outstanding, market value, and trading
volume;
•
Disclosure
of progress or lack thereof in reducing the magnitude of aggregate pledged shares over time;
•
Disclosure
in the proxy statement that shares subject to stock ownership and holding requirements do not include pledged
company stock; and
•
Any
other relevant factors.
For companies that are
significant greenhouse gas (GHG) emitters, through their operations or value chain14,
DWS’s policy is to generally vote case-by
case on the election of the incumbent chair of the responsible committee (or other directors)
in cases where DWS determines that the company is not taking the minimum steps needed to understand, assess
and mitigate the risks related to climate change to the company and the larger economy which may lead to regulatory
risks.
Minimum steps to understand and mitigate
those risks are considered to be the following.
•
Detailed
disclosure of climate-related risks, such as according to the framework established by the Task Force on
Climate-related Financial Disclosures (TCFD), including:
−
Board
governance measures;
−
Risk
management analyses; and
DWS’s policy is
to generally vote case-by-case on directors individually, committee members, or the entire board, due
to:
•
Material
failures of governance, stewardship, risk oversight15,
or fiduciary responsibilities at the company, including failures
to adequately manage or mitigate environmental, social and governance (ESG) risks;
•
Failure
to replace management as appropriate; or
•
Egregious
actions related to a director’s service on other boards that raise substantial doubt about his or her ability
to effectively oversee management and serve the best interests of shareholders at any company.
14Companies
defined as “significant
GHG emitters”
will be those on the current Climate Action 100+ Focus Group list.
15
Examples of failure of risk oversight include but are not limited to: bribery; large or serial fines or sanctions from regulatory
bodies; demonstrably poor oversight of environmental and social issues, including climate change; significant adverse
legal judgments or settlement; or hedging of company stock.
Voting on Director Nominees in Contested Elections
In cases where companies are targeted
in connection with public “vote-no”
campaigns, evaluate director nominees under
the existing governance policies for voting on director nominees in uncontested elections. Take into consideration the
arguments submitted by shareholders and other publicly available information.
Proxy Contests/Proxy Access
DWS’s policy is to generally vote
case-by-case on the election of directors in contested elections, considering the following
factors:
•
Long-term
financial performance of the company relative to its industry;
•
Management’s
track record;
•
Background
to the contested election;
•
Nominee
qualifications and any compensatory arrangements;
•
Strategic
plan of dissident slate and quality of the critique against management;
•
Likelihood
that the proposed goals and objectives can be achieved (both slates); and
•
Stock
ownership positions.
In the case of candidates
nominated pursuant to proxy access, DWS’s policy is to generally vote case-by-case considering any
applicable factors listed above or additional factors which may be relevant, including those that are specific to the
company, to the nominee(s) and/or to the nature of the election (such as whether there are more candidates than board
seats).
Other Board-Related Proposals
Adopt Anti-Hedging/Pledging/Speculative Investments Policy
DWS’s policy is to generally vote
for proposals seeking a policy that prohibits named executive officers from engaging in
derivative or speculative transactions involving company stock, including hedging, holding stock in a margin account, or
pledging stock as collateral for a loan. However, the company’s existing policies regarding responsible use of company stock
will be considered.
DWS believes Board refreshment
is best implemented through an ongoing program of individual director evaluations, conducted
annually, to ensure the evolving needs of the board are met and to bring in fresh perspectives, skills, and diversity
as needed.
DWS’s policy is to generally vote
case-by-case on management proposals regarding director term/tenure limits, considering:
•
The
rationale provided for adoption of the term/tenure limit;
•
The
robustness of the company’s board evaluation process;
•
Whether
the limit is of sufficient length to allow for a broad range of director tenures;
•
Whether
the limit would disadvantage independent directors compared to non-independent directors; and
•
Whether
the board will impose the limit evenly, and not have the ability to waive it in a discriminatory manner.
DWS’s policy is
to generally vote case-by-case on shareholder proposals asking for the company to adopt director term/tenure
limits, considering:
•
The
scope of the shareholder proposal; and
•
Evidence
of problematic issues at the company combined with, or exacerbated by, a lack of board refreshment.
DWS’s policy is to generally vote
against management and shareholder proposals to limit the tenure of independent directors
through mandatory retirement ages. DWS’s policy is to generally vote for proposals to remove mandatory age
limits.
DWS’s
policy is to generally vote for proposals seeking to fix the board size or designate a range for the board size. DWS’s
policy is to generally vote against proposals that give management the ability to alter the size of the board outside
of a specified range without shareholder approval.
Classification/Declassification of the Board
DWS’s policy is to generally vote
against proposals to classify (stagger) the board. DWS’s policy is to generally vote for
proposals to repeal classified boards and to elect all directors annually.
DWS’s policy is to generally vote
for proposals seeking disclosure on a CEO succession planning policy, considering, at
a minimum, the following factors:
•
The
reasonableness/scope of the request; and
•
The
company’s existing disclosure on its current CEO succession planning process.
DWS’s policy is to generally vote
against management proposals to eliminate cumulate voting, and for shareholder proposals
to restore or provide for cumulative voting, unless:
•
The
company has proxy access16,
thereby allowing shareholders to nominate directors to the company’s ballot; and
•
The
company has adopted a majority vote standard, with a carve-out for plurality voting in situations where there are
more nominees than seats, and a director resignation policy to address failed elections.
DWS’s policy is
to generally vote for proposals for cumulative voting at controlled companies (insider voting power ˃ 50%).
Director and Officer Indemnification, Liability Protection
and Exculpation
DWS’s policy is to generally vote
case-by-case on proposals on director and officer indemnification, liability protection and
exculpation17.
16 A
proxy access right that meets the recommended guidelines.
17Indemnification:
the condition of being secured against loss or damage.
Limited liability: a person’s
financial liability is limited to the fixed sum, or personal financial assets are not at risk if the
individual loses a lawsuit that results in financial award/damages to the plaintiff.
Exculpation: to eliminate
or limit the personal liability of a director or officer to the corporation or its shareholders for monetary
damages for breach of fiduciary duty as a director or officer.
DWS’s policy is
to consider the stated rationale for the proposed change. DWS will also consider, among other factors, the
extent to which the proposal would:
•
Eliminate
directors' and officers' liability for monetary damages for violating the duty of care;
•
Eliminate
directors’ and officers’ liability for monetary damages for violating the duty of loyalty;
•
Expand
coverage beyond just legal expenses to liability for acts that are more serious violations of fiduciary obligation than
mere carelessness; or
•
Expand
the scope of indemnification to provide for mandatory indemnification of company officials in connection with
acts that previously the company was permitted to provide indemnification for, at the discretion of the company's board
(i.e., “permissive
indemnification”),
but that previously the company was not required to indemnify.
DWS’s policy is
to generally vote for those proposals providing such expanded coverage in cases when a director’s or
officer’s legal defense was unsuccessful if both of the following apply:
•
If
the individual was found to have acted in good faith and in a manner that the individual reasonably believed was
in the best interests of the company; and
•
If
only the individual’s legal expenses would be covered.
Establish/Amend Nominee Qualifications
DWS’s policy is to generally vote
case-by-case on proposals that establish or amend director qualifications. Votes should
be based on the reasonableness of the criteria and the degree to which they may preclude dissident nominees from
joining the board.
DWS’s policy is
to generally vote case-by-case on shareholder resolutions seeking a director nominee who possesses a
particular subject matter expertise, considering:
•
The
company’s board committee structure, existing subject matter expertise, and board nomination provisions relative
to that of its peers;
•
The
company’s existing board and management oversight mechanisms regarding the issue for which board oversight is
sought;
•
The
company’s disclosure and performance relating to the issue for which board oversight is sought and any significant
related controversies; and
•
The
scope and structure of the proposal.
Establish Other Board Committee Proposals
•
DWS’s
policy is to generally vote against shareholder proposals to establish a new board committee, as such proposals
seek a specific oversight mechanism/structure that potentially limits a company’s flexibility to determine an
appropriate oversight mechanism for itself. However, the following factors will be considered:
•
Existing
oversight mechanisms (including current committee structure) regarding the issue for which board oversight is
sought;
•
Level
of disclosure regarding the issue for which board oversight is sought;
•
Company
performance related to the issue for which board oversight is sought;
•
Board
committee structure compared to that of other companies in its industry sector; and
•
The
scope and structure of the proposal.
Filling Vacancies/Removal of Directors
DWS’s policy is to generally vote
against proposals that provide that directors may be removed only for cause.
•
DWS’s
policy is to generally vote for proposals to restore shareholders’ ability to remove directors with or without cause.
•
DWS’s
policy is to generally vote against proposals that provide that only continuing directors may elect replacements to
fill board vacancies.
•
DWS’s
policy is to generally vote for proposals that permit shareholders to elect directors to fill board vacancies.
DWS’s policy is to generally vote
for shareholder proposals requiring that the board chair position be filled by an independent director,
taking into consideration the following:
•
The
scope and rationale of the proposal;
•
The
company's current board leadership structure;
•
The
company's governance structure and practices;
•
Company
performance; and
•
Any
other relevant factors that may be applicable.
The following factors will increase the
likelihood of a “for”
recommendation:
•
A
majority non-independent board and/or the presence of non-independent directors on key board committees;
•
A
weak or poorly defined lead independent director role that fails to serve as an appropriate counterbalance to a
combined CEO/chair role;
•
The
presence of an executive or non-independent chair in addition to the CEO, a recent recombination of the role of
CEO and chair, and/or departure from a structure with an independent chair;
•
Evidence
that the board has failed to oversee and address material risks facing the company;
•
A
material governance failure, particularly if the board has failed to adequately respond to shareholder concerns or
if the board has materially diminished shareholder rights; or
•
Evidence
that the board has failed to intervene when management’s interests are contrary to shareholders' interests.
Majority of Independent Directors/Establishment of Independent
Committees
DWS’s policy is to generally vote
for shareholder proposals asking that a majority or more of directors be independent unless
the board composition already meets the proposed threshold by DWS’s definition of Independent Director.
DWS’s policy is
to generally vote for shareholder proposals asking that board audit, compensation, and/or nominating committees
be composed exclusively of independent directors unless they currently meet that standard.
Majority Vote Standard for the Election of Directors
DWS’s policy is to generally vote
for management proposals to adopt a majority of votes cast standard for directors in
uncontested elections. DWS’s policy is to generally vote against such proposals if no carve-out for a plurality vote standard
in contested elections is included.
DWS’s policy is
to generally vote for precatory and binding shareholder resolutions requesting that the board change the
company’s bylaws to stipulate that directors need to be elected with an affirmative majority of votes cast, provided it
does not conflict with the state law where the company is incorporated. Binding resolutions need to allow for a carve-out
for a plurality vote standard when there are more nominees than board seats.
Companies are strongly
encouraged to also adopt a post-election policy (also known as a director resignation policy) that
will provide guidelines so that the company will promptly address the situation of a holdover director.
DWS’s policy is to generally vote
for management and shareholder proposals for proxy access with the following provisions:
•
Ownership
threshold: maximum requirement not more than three percent (3%)
of the voting power;
•
Ownership
duration: maximum requirement not longer than three (3) years
of continuous ownership for each member of the nominating group;
•
Aggregation:
minimal or no limits on the number of shareholders permitted to form a nominating group;
and
•
Cap:
cap on nominees of generally twenty-five percent (25%) of the board.
DWS will review for reasonableness
any other restrictions on the right of proxy access. DWS’s policy is to generally vote
against proposals that are more restrictive than these guidelines.
Require More Nominees than Open Seats
DWS’s policy is to generally vote
against shareholder proposals that would require a company to nominate more candidates than
the number of open board seats.
Shareholder Engagement Policy (Shareholder
Advisory Committee)
DWS’s policy is to generally vote
for shareholder proposals requesting that the board establish an internal mechanism/process, which
may include a committee, in order to improve communications between directors and shareholders, unless the
company has the following features, as appropriate:
•
Established
a communication structure that goes beyond the exchange requirements to facilitate the exchange of
information between shareholders and members of the board;
•
Effectively
disclosed information with respect to this structure to its shareholders;
•
Company
has not ignored majority-supported shareholder proposals or a majority withhold vote on a director nominee;
and
•
The
company has an independent chair or a lead director. This individual must be made available for periodic consultation and
direct communication with major shareholders.
Auditor Indemnification and Limitation of Liability
DWS’s policy is to generally vote
case-by-case on the issue of auditor indemnification and limitation of liability. Factors to
be assessed include, but are not limited to:
•
The
terms of the auditor agreement—the degree to which these agreements impact shareholders' rights;
•
The
motivation and rationale for establishing the agreements;
•
The
quality of the company’s disclosure; and
•
The
company’s historical practices in the audit area.
DWS’s policy is
to generally vote against or withhold from members of an audit committee in situations where there is
persuasive evidence that the audit committee entered into an inappropriate indemnification agreement with its auditor
that limits the ability of the company, or its shareholders, to pursue legitimate legal recourse against the audit firm.
DWS’s policy is to generally vote
for proposals to ratify auditors unless any of the following apply:
•
An
auditor has a financial interest in or association with the company, and is therefore not independent;
•
There
is reason to believe that the independent auditor has rendered an opinion that is neither accurate nor indicative of
the company’s financial position;
•
Poor
accounting practices are identified that rise to a serious level of concern, such as fraud or misapplication of GAAP;
or
•
Fees
for non-audit services (“Other”
fees) are excessive.
Non-audit fees are excessive if:
•
Non-audit
(“other”)
fees ˃ audit fees + audit-related fees + tax compliance/preparation fees
Tax compliance and preparation
include the preparation of original and amended tax returns and refund claims, and tax
payment planning. All other services in the tax category, such as tax advice, planning, or consulting, should be added
to “Other”
fees. If the breakout of tax fees cannot be determined, add all tax fees to “Other”
fees.
In circumstances where
“Other”
fees include fees related to significant one-time capital structure events (such as initial
public offerings, bankruptcy emergence, and spin-offs) and the company makes public disclosure of the amount and
nature of those fees that are an exception to the standard “non-audit
fee”
category, then such fees may be excluded from
the non-audit fees considered in determining the ratio of non-audit to audit/audit-related fees/tax compliance and
preparation for purposes of determining whether non-audit fees are excessive.
Shareholder Proposals Limiting Non-Audit Services
DWS’s policy is to generally vote
case-by-case on shareholder proposals asking companies to prohibit or limit their auditors
from engaging in non-audit services.
Shareholder Proposals on Audit Firm Rotation
DWS’s policy is to generally vote
case-by-case on shareholder proposals asking for audit firm rotation, taking into account:
•
The
tenure of the audit firm;
•
The
length of rotation specified in the proposal;
•
Any
significant audit-related issues at the company;
•
The
number of Audit Committee meetings held each year;
•
The
number of financial experts serving on the committee; and
•
Whether
the company has a periodic renewal process where the auditor is evaluated for both audit quality and competitive
price.
SHAREHOLDER RIGHTS &
DEFENSES
Advance Notice Requirements for Shareholder Proposals/Nominations
DWS’s policy is to generally vote
case-by-case on advance notice proposals, giving support to those proposals which allow
shareholders to submit proposals/nominations as close to the meeting date as reasonably possible and within the
broadest window possible, recognizing the need to allow sufficient notice for company, regulatory, and shareholder review.
To
be reasonable, the company’s deadline for shareholder notice of a proposal/nominations must be no earlier than 120
days prior to the anniversary of the previous year’s meeting and have a submittal window of no shorter than 30 days
from the beginning of the notice period. The submittal window is the period under which shareholders must file their
proposals/nominations prior to the deadline.
In general, support additional
efforts by companies to ensure full disclosure in regard to a proponent’s economic and voting
position in the company so long as the informational requirements are reasonable and aimed at providing shareholders with
the necessary information to review such proposals.
Amend Bylaws without Shareholder Consent
DWS’s policy is to generally vote
against proposals giving the board exclusive authority to amend the bylaws.
DWS’s policy is
to generally vote case-by-case on proposals giving the board the ability to amend the bylaws in addition to
shareholders, taking into account the following:
•
Any
impediments to shareholders' ability to amend the bylaws (i.e.,
supermajority voting requirements);
•
The
company's ownership structure and historical voting turnout;
•
Whether
the board could amend bylaws adopted by shareholders; and
•
Whether
shareholders would retain the ability to ratify any board-initiated amendments.
Control Share Acquisition Provisions
DWS’s policy is to generally vote
for proposals to opt out of control share acquisition statutes unless doing so would enable
the completion of a takeover that would be detrimental to shareholders.
DWS’s policy is
to generally vote against proposals to amend the charter to include control share acquisition provisions. DWS’s
policy is to generally vote for proposals to restore voting rights to the control shares.
Control share acquisition
statutes function by denying shares their voting rights when they contribute to ownership in
excess of certain thresholds. Voting rights for those shares exceeding ownership limits may only be restored by approval
of either a majority or supermajority of disinterested shares. Thus, control share acquisition statutes effectively require
a hostile bidder to put its offer to a shareholder vote or risk voting disenfranchisement if the bidder continues buying
up a large block of shares.
Control Share Cash - Out Provisions
DWS’s policy is to generally vote
for proposals to opt out of control share cash-out statutes.
Control share cash-out
statutes give dissident shareholders the right to “cash-out”
of their position in a company at the expense
of the shareholder who has taken a control position. In other words, when an investor crosses a preset threshold
level, remaining shareholders are given the right to sell their shares to the acquirer, who must buy them at the
highest acquiring price.
Disgorgement Provisions
DWS’s policy is to generally vote
for proposals to opt out of state disgorgement provisions.
Disgorgement provisions
require an acquirer or potential acquirer of more than a certain percentage of a company's stock
to disgorge, or pay back, to the company any profits realized from the sale of that company's stock purchased 24
months before achieving control status. All sales of company stock by the acquirer occurring within a certain period of
time (between 18 months and 24 months) prior to the investor's gaining control status are subject to these recapture-of-profits
provisions.
DWS’s policy is to generally vote
case-by-case on proposals to adopt fair price provisions (provisions that stipulate that
an acquirer must pay the same price to acquire all shares as it paid to acquire the control shares), evaluating factors
such as the vote required to approve the proposed acquisition, the vote required to repeal the fair price provision, and
the mechanism for determining the fair price.
DWS’s policy is
to generally vote against fair price provisions with shareholder vote requirements greater than a majority of
disinterested shares.
DWS’s policy is to generally vote
for proposals to opt out of state freeze-out provisions. Freeze-out provisions force an
investor who surpasses a certain ownership threshold in a company to wait a specified period of time before gaining control
of the company.
DWS’s policy is to generally vote
for proposals to adopt anti-greenmail charter or bylaw amendments or otherwise restrict
a company’s ability to make greenmail payments.
DWS’s policy is
to generally vote case-by-case on anti-greenmail proposals when they are bundled with other charter or
bylaw amendments.
Greenmail payments are
targeted share repurchases by management of company stock from individuals or groups seeking
control of the company. Since only the hostile party receives payment, usually at a substantial premium over the
market value of its shares, the practice discriminates against all other shareholders.
Shareholder Litigation Rights
Federal Forum Selection Provisions
Federal forum selection
provisions require that U.S federal courts be the sole forum for shareholders to litigate claims arising
under federal securities law.
DWS’s
policy is to generally vote for federal forum selection provisions in the charter or bylaws that specify “the
district courts of the United States”
as the exclusive forum for federal securities law matters, in the absence of serious concerns about
corporate governance or board responsiveness to shareholders.
DWS’s policy is
to generally vote against provisions that restrict the forum to a particular federal district court; unilateral adoption
(without a shareholder vote) of such a provision will generally be considered a one-time failure under the Unilateral
Bylaw/Charter Amendments policy.
Exclusive Forum Provisions for State Law Matters
Exclusive forum provisions
in the charter or bylaws restrict shareholders’ ability to bring derivative lawsuits against the
company, for claims arising out of state corporate law, to the courts of a particular state (generally the state of incorporation).
DWS’s policy is to generally vote
for charter or bylaw provisions that specify courts located within the state of Delaware as
the exclusive forum for corporate law matters for Delaware corporations, in the absence of serious concerns about corporate
governance or board responsiveness to shareholders.
For states other than
Delaware, DWS’s policy is to generally vote case-by-case on exclusive forum provisions, taking into
consideration:
•
The
company's stated rationale for adopting such a provision;
•
Disclosure
of past harm from duplicative shareholder lawsuits in more than one forum;
•
The
breadth of application of the charter or bylaw provision, including the types of lawsuits to which it would apply
and the definition of key terms; and
•
Governance
features such as shareholders' ability to repeal the provision at a later date (including the vote standard applied
when shareholders attempt to amend the charter or bylaws) and their ability to hold directors accountable through
annual director elections and a majority vote standard in uncontested elections.
DWS’s policy is
to generally vote against provisions that specify a state other than the state of incorporation as the exclusive
forum for corporate law matters, or that specify a particular local court within the state; unilateral adoption of
such provision will generally be considered a one-time failure under the Unilateral Bylaw/Charter Amendments policy.
Fee-shifting provisions
in the charter or bylaws require that a shareholder who sues a company unsuccessfully pay all
litigation expenses of the defendant corporation and its directors and officers.
DWS’s policy is to generally vote
against provisions that mandate fee-shifting whenever plaintiffs are not completely successful
on the merits (i.e.,
including cases where the plaintiffs are partially successful).
Unilateral adoption of
a fee-shifting provision will generally be considered an ongoing failure under the Unilateral Bylaw/Charter Amendments
policy.
Net Operating Loss (NOL) Protective Amendments
DWS’s
policy is to generally vote against proposals to adopt a protective amendment for the stated purpose of protecting a
company's net operating losses (NOL) if the effective term of the protective amendment would exceed the shorter of
three years and the exhaustion of the NOL.
DWS’s policy is
to generally vote case-by-case, considering the following factors, for management proposals to adopt an
NOL protective amendment that would remain in effect for the shorter of three years (or less) and the exhaustion of
the NOL:
•
The
ownership threshold (NOL protective amendments generally prohibit stock ownership transfers that would result
in a new 5-percent holder or increase the stock ownership percentage of an existing 5-percent holder);
•
Shareholder
protection mechanisms (sunset provision or commitment to cause expiration of the protective amendment upon
exhaustion or expiration of the NOL);
•
The
company's existing governance structure including: board independence, existing takeover defenses, track record
of responsiveness to shareholders, and any other problematic governance concerns; and
•
Any
other factors that may be applicable.
Poison Pills (Shareholder Rights Plans)
Shareholder Proposals to Put Pill to a Vote and/or Adopt
a Pill Policy
DWS’s policy is to generally vote
for shareholder proposals requesting that the company submit its poison pill to a shareholder
vote or redeem it unless the company has: (1) A shareholder-approved poison pill in place; or (2) The company
has adopted a policy concerning the adoption of a pill in the future specifying that the board will only adopt a
shareholder rights plan if either:
•
Shareholders
have approved the adoption of the plan; or
•
The
board, in its exercise of its fiduciary responsibilities, determines that it is in the best interest of shareholders under
the circumstances to adopt a pill without the delay in adoption that would result from seeking stockholder approval
(i.e., the “fiduciary
out”
provision). A poison pill adopted under this fiduciary out will be put to a shareholder ratification
vote within 12 months of adoption or expire. If the pill is not approved by a majority of the votes cast on
this issue, the plan will immediately terminate.
If the shareholder proposal
calls for a time period of less than 12 months for shareholder ratification after adoption, DWS’s
policy is to generally vote for the proposal, but add the caveat that a vote within 12 months would be considered sufficient
implementation.
Management Proposals to Ratify a Poison Pill
DWS’s policy is to generally vote
case-by-case on management proposals on poison pill ratification, focusing on the features
of the shareholder rights plan. Rights plans should contain the following attributes:
•
No
lower than a 20 percent trigger, flip-in or flip-over;
•
A
term of no more than three years;
•
No
deadhand, slowhand, no-hand, or similar feature that limits the ability of a future board to redeem the pill;
•
Shareholder
redemption feature (qualifying offer clause); if the board refuses to redeem the pill 90 days after a qualifying
offer is announced, 10 percent of the shares may call a special meeting or seek a written consent to vote
on rescinding the pill.
In addition, the rationale
for adopting the pill should be thoroughly explained by the company. In examining the request for
the pill, take into consideration the company’s existing governance structure, including: board independence, existing takeover
defenses, and any problematic governance concerns.
Management Proposals to Ratify a Pill to Preserve Net
Operating Losses (NOLs)
DWS’s policy is to generally vote
against proposals to adopt a poison pill for the stated purpose of protecting a company's net
operating losses (NOL) if the term of the pill would exceed the shorter of three years and the exhaustion of the NOL.
DWS’s policy is
to vote case-by-case on management proposals for poison pill ratification, considering the following factors,
if the term of the pill would be the shorter of three years (or less) and the exhaustion of the NOL:
•
The
ownership threshold to transfer (NOL pills generally have a trigger slightly below 5 percent);
•
Shareholder
protection mechanisms (sunset provision, or commitment to cause expiration of the pill upon exhaustion or
expiration of NOLs);
•
The
company's existing governance structure including: board independence, existing takeover defenses, track record
of responsiveness to shareholders, and any other problematic governance concerns; and
•
Any
other factors that may be applicable.
Proxy Voting Disclosure, Confidentiality, and Tabulation
DWS’s policy is to generally vote
case-by-case on proposals regarding proxy voting mechanics, taking into consideration whether
implementation of the proposal is likely to enhance or protect shareholder rights. Specific issues covered under
the policy include, but are not limited to, confidential voting of individual proxies and ballots, confidentiality of running
vote tallies, and the treatment of abstentions and/or broker non-votes in the company's vote-counting methodology.
While a variety of factors
may be considered in each analysis, the guiding principles are: transparency, consistency, and
fairness in the proxy voting process. The factors considered, as applicable to the proposal, may include:
•
The
scope and structure of the proposal;
•
The
company's stated confidential voting policy (or other relevant policies) and whether it ensures a “level
playing field”
by providing shareholder proponents with equal access to vote information prior to the annual meeting;
•
The
company's vote standard for management and shareholder proposals and whether it ensures consistency and
fairness in the proxy voting process and maintains the integrity of vote results;
•
Whether
the company's disclosure regarding its vote counting method and other relevant voting policies with respect
to management and shareholder proposals are consistent and clear;
•
Any
recent controversies or concerns related to the company's proxy voting mechanics;
•
Any
unintended consequences resulting from implementation of the proposal; and
•
Any
other factors that may be relevant.
Ratification Proposals: Management Proposals to Ratify
Existing Charter or Bylaw Provisions
DWS’s policy is to generally vote
against management proposals to ratify provisions of the company’s existing charter or
bylaws, unless these governance provisions align with best practice.
In addition, voting against/withhold
from individual directors, members of the governance committee, or the full board may
be warranted, considering:
•
The
presence of a shareholder proposal addressing the same issue on the same ballot;
•
The
board's rationale for seeking ratification;
•
Disclosure
of actions to be taken by the board should the ratification proposal fail;
•
Disclosure
of shareholder engagement regarding the board’s ratification request;
•
The
level of impairment to shareholders' rights caused by the existing provision;
•
The
history of management and shareholder proposals on the provision at the company’s past meetings;
•
Whether
the current provision was adopted in response to the shareholder proposal;
•
The
company's ownership structure; and
•
Previous
use of ratification proposals to exclude shareholder proposals.
Reimbursing Proxy Solicitation Expenses
DWS’s policy is to generally vote
case-by-case on proposals to reimburse proxy solicitation expenses.
When voting in conjunction
with support of a dissident slate, DWS’s policy is to generally vote for the reimbursement of
all appropriate proxy solicitation expenses associated with the election.
DWS’s policy is
to generally vote for shareholder proposals calling for the reimbursement of reasonable costs incurred in
connection with nominating one or more candidates in a contested election where the following apply:
•
The
election of fewer than 50 percent of the directors to be elected is contested in the election;
•
One
or more of the dissident’s candidates is elected;
•
Shareholders
are not permitted to cumulate their votes for directors; and
The election occurred, and the expenses
were incurred, after the adoption of this bylaw.
Reincorporation Proposals
Management or shareholder proposals to
change a company's state of incorporation should be evaluated case-by-case, giving
consideration to both financial and corporate governance concerns including the following:
•
Reasons
for reincorporation;
•
Comparison
of company's governance practices and provisions prior to and following the reincorporation; and
•
Comparison
of corporation laws of original state and destination state.
DWS’s policy is
to generally vote for reincorporation when the economic factors outweigh any neutral or negative governance
changes.
Shareholder Ability to Act by Written Consent
General Recommendation:
DWS’s policy is to generally vote against management and shareholder proposals to restrict
or prohibit shareholders' ability to act by written consent.
DWS’s policy is
to generally vote for management and shareholder proposals that provide shareholders with the ability to
act by written consent, taking into account the following factors:
•
Shareholders'
current right to act by written consent;
•
The
inclusion of exclusionary or prohibitive language;
•
Investor
ownership structure; and
•
Shareholder
support of, and management's response to, previous shareholder proposals.
DWS’s policy is
to vote case-by-case on shareholder proposals if, in addition to the considerations above, the company has
the following governance and antitakeover provisions:
•
An
unfettered18
right for shareholders to call special meetings at a 10 percent threshold;
•
A
majority vote standard in uncontested director elections;
•
No
non-shareholder-approved pill; and
•
An
annually elected board.
18
“Unfettered”
means no restrictions on agenda items, no restrictions on the number of shareholders who can group together
to reach the 10 percent threshold, and only reasonable limits on when a meeting can be called: no greater than
30 days after the last annual meeting and no greater than 90 prior to the next annual meeting.
Shareholder Ability to Call Special Meetings
DWS’s
policy is to generally vote against management or shareholder proposals to restrict or prohibit shareholders’ ability
to call special meetings.
DWS’s policy is
to generally vote for management or shareholder proposals that provide shareholders with the ability to
call special meetings taking into account the following factors:
•
Shareholders’
current right to call special meetings;
•
Minimum
ownership threshold necessary to call special meetings (10 percent preferred);
•
The
inclusion of exclusionary or prohibitive language;
•
Investor
ownership structure; and
•
Shareholder
support of, and management’s response to, previous shareholder proposals.
DWS’s policy is to generally vote
against proposals that ask the board to consider non-shareholder constituencies or other
non-financial effects when evaluating a merger or business combination.
State Antitakeover Statutes
DWS’s policy is to generally vote
case-by-case on proposals to opt in or out of state takeover statutes (including fair price
provisions, stakeholder laws, poison pill endorsements, severance pay and labor contract provisions, and anti-greenmail provisions).
Supermajority Vote Requirements
DWS’s policy is to generally vote
against proposals to require a supermajority shareholder vote.
•
DWS’s
policy is to generally vote for management or shareholder proposals to reduce supermajority vote requirements. However,
for companies with shareholder(s) who have significant ownership levels, DWS’s policy is to generally vote
case-by-case, taking into account:
•
Quorum
requirements; and
Virtual Shareholder Meetings
DWS’s policy is to generally vote
for management proposals allowing for the convening of shareholder meetings by electronic
means, so long as they do not preclude in-person meetings. Companies are encouraged to disclose the circumstances
under which virtual-only19
meetings would be held, and to allow for comparable rights and opportunities for
shareholders to participate electronically as they would have during an in-person meeting.
19
Virtual-only shareholder meeting” refers to a meeting of
shareholders that is held exclusively using technology without
a corresponding in-person meeting.
DWS’s policy is to vote case-by-case
on shareholder proposals concerning virtual-only meetings, considering:
•
Scope
and rationale of the proposal; and
•
Concerns
identified with the company’s prior meeting practices.
Adjustments to Par Value of Common Stock
DWS’s policy is to generally vote
for management proposals to reduce the par value of common stock unless the action
is being taken to facilitate an anti-takeover device or some other negative corporate governance action.
DWS’s policy is to vote for management
proposals to eliminate par value.
Common Stock Authorization
General Authorization Requests
DWS’s policy is to generally vote
case-by-case on proposals to increase the number of authorized shares of common stock
that are to be used for general corporate purposes:
•
if
share usage (outstanding plus reserved) is less than 50% of the current authorized shares, vote for an increase of
up to 50% of current authorized shares;
•
If
share usage is 50% to 100% of the current authorized, vote for an increase of up to 100% of current authorized shares;
•
If
share usage is greater than current authorized shares, vote for an increase of up to the current share usage;
or
•
In
the case of a stock split, the allowable increase is calculated (per above) based on the post-split adjusted authorization.
DWS’s policy is
to generally vote against proposed increases, even if within the above ratios, if the proposal or the company’s
prior or ongoing use of authorized shares is problematic, including, but not limited to:
•
The
proposal seeks to increase the number of authorized shares of the class of common stock that has superior voting
rights to other share classes;
•
On
the same ballot is a proposal for a reverse split for which support is warranted despite the fact that it would result
in an excessive increase in the share authorization;
•
The
company has a non-shareholder approved poison pill (including an NOL pill); or
•
The
company has previous sizeable placements (within the past 3 years) of stock with insiders at prices substantially below
market value, or with problematic voting rights, without shareholder approval.
However, DWS’s
policy is to generally vote for proposed increases beyond the above ratios or problematic situations when
there is disclosure of specific and severe risks to shareholders of not approving the request, such as:
•
In,
or subsequent to, the company’s most recent 10-k filing, the company discloses that there is substantial doubt about
its ability to continue as a going concern;
•
The
company states that there is a risk of imminent bankruptcy or imminent liquidation if shareholders do not approve
the increase in authorized capital; or
•
A
government body has in the past year required the company to increase capital ratios.
For companies incorporated
in states that allow increases in authorized capital without shareholder approval, DWS’s policy
is to generally vote withhold or against all nominees if a unilateral capital authorization increase does not conform to
the above policies.
Specific Authorization Requests
DWS’s policy is to generally vote
for proposals to increase the number of authorized common shares where the primary purpose
of the increase is to issue shares in connection with transaction(s) (such as acquisitions, SPAC transactions, private
placements, or similar transactions) on the same ballot, or disclosed in the proxy statement, that warrant support. For
such transactions, the allowable increase will be the greater of:
•
twice
the amount needed to support the transactions on the ballot, and
•
the
allowable increase as calculated for general issuances above.
DWS’s policy is to generally vote
against proposals to create a new class of common stock unless:
•
The
company discloses a compelling rationale for the dual-class capital structure, such as:
•
The
company's auditor has concluded that there is substantial doubt about the company's ability to continue as a
going concern; or
•
The
new class of shares will be transitory;
•
The
new class is intended for financing purposes with minimal or no dilution to current shareholders in both the short
term and long term; and
•
The
new class is not designed to preserve or increase the voting power of an insider or significant shareholder.
Issue Stock for Use with Rights Plan
General Recommendation:
DWS’s policy is to generally vote against proposals that increase authorized common stock
for the explicit purpose of implementing a non-shareholder-approved shareholder rights plan (poison pill).
Preemptive Rights
General Recommendation:
DWS’s policy is to generally vote case-by-case on shareholder proposals that seek pre-emptive rights,
taking into consideration:
•
The
size of the company;
•
The
shareholder base; and
•
The
liquidity of the stock.
Preferred Stock Authorization
General Authorization Requests
DWS’s policy is to generally vote
case-by-case on proposals to increase the number of authorized shares of preferred stock
that are to be used for general corporate purposes as follows:
•
If
share usage (outstanding plus reserved) is less than 50% of the current authorized shares, vote for an increase of
up to 50% of current authorized shares;
•
If
share usage is 50% to 100% of the current authorized, vote for an increase up to 100% of current authorized shares;
•
If
share usage is greater than current authorized shares, vote for an increase of up to the current share usage;
•
In
the case of a stock split, the allowable increase is calculated (per above) based on the post-split adjusted authorization;
or
•
If
no preferred shares are currently issued and outstanding, vote against the request, unless the company discloses a
specific use for the shares.
DWS’s policy is
to generally vote against proposed increases, even if within the above ratios, if the proposal or the company’s
prior or ongoing use of authorized shares is problematic, including, but not limited to:
•
If
the shares requested are blank check preferred shares that can be used for antitakeover purposes20;
•
The
company seeks to increase a class of non-convertible preferred shares entitled to more than one vote per share
on matters that do not solely affect the rights of preferred stockholders “supervoting
shares”);
•
The
company seeks to increase a class of convertible preferred shares entitled to a number of votes greater than the
number of common shares into which they are convertible (“supervoting
shares”)
on matters that do not solely affect the rights of preferred
stockholders;
•
The
stated intent of the increase in the general authorization is to allow the company to increase an existing designated
class of supervoting preferred shares;
•
On
the same ballot is a proposal for a reverse split for which support is warranted despite the fact that it would result
in an excessive increase in the share authorization;
•
The
company has a non-shareholder approved poison pill (including NOL pill); or
•
The
company has previous sizeable placements (within the past 3 years) of stock with insiders at prices substantially below
market value, or with problematic voting rights, without shareholder approval.
20
To be acceptable, appropriate disclosure would be needed that
the shares are “declawed”;
i.e., representation by the board that it will
not, without prior stockholder approval, issue or use the preferred stock for any defensive or anti-takeover
purpose or for the purpose of implementing any stockholder rights plan.
However, DWS’s
policy is to generally vote for proposed increases beyond the above ratios or problematic situations when
there is disclosure of specific and severe risks to shareholders of not approving the request, such as:
•
In,
or subsequent to, the company’s most recent 10-k filing, the company discloses that there is substantial doubt about
its ability to continue as a going concern;
•
The
company states that there is a risk of imminent bankruptcy or imminent liquidation if shareholders do not approve
the increase in authorized capital; or
•
A
government body has in the past year required the company to increase capital ratios.
For companies incorporated
in states that allow increases in authorized capital without shareholder approval, DWS’s policy
is to generally vote withhold or against all nominees if a unilateral capital authorization increase does not conform to
the above policies.
Specific Authorization Requests
DWS’s policy is to generally vote
for proposals to increase the number of authorized preferred shares where the primary purpose
of the increase is to issue shares in connection with transaction(s) (such as acquisitions, SPAC transactions, private
placements, or similar transactions) on the same ballot, or disclosed in the proxy statement, that warrant support. For
such transactions, the allowable increase will be the greater of:
•
twice
the amount needed to support the transactions on the ballot, and
•
the
allowable increase as calculated for general issuances above.
DWS’s policy is to generally vote
case-by-case on recapitalizations (reclassifications of securities), taking into account the
following:
•
More
simplified capital structure;
•
Fairness
of conversion terms;
•
Impact
on voting power and dividends;
•
Reasons
for the reclassification;
•
Conflicts
of interest; and
•
Other
alternatives considered.
DWS’s policy is to generally vote
for management proposals to implement a reverse stock split if:
•
The
number of authorized shares will be proportionately reduced; or
•
The
effective increase in authorized shares is equal to or less than the allowable increase calculated in accordance with
ISS's
Common Stock Authorization policy.
DWS’s policy is
to generally vote case-by-case on proposals that do not meet either of the above conditions, taking into
consideration the following factors:
•
Stock
exchange notification to the company of a potential delisting;
•
Disclosure
of substantial doubt about the company's ability to continue as a going concern without additional financing;
•
The
company's rationale; or
•
Other
factors as applicable.
Share Issuance Mandates at U.S. Domestic Issuers Incorporated
Outside the U.S.
For U.S. domestic Issuers incorporated
outside the U.S. and listed solely on a U.S. exchange, DWS’ policy is to generally vote
for resolutions to authorize the issuance of common shares up to 20% of currently issued common share capital, where
not tied to a specific transaction or financing proposal.
For pre-revenue or other
early-stage companies that are heavily reliant on periodic equity financing, DWS’ policy is to
generally vote for resolutions to authorize the issuance of common shares up to 50% of currently issued common share
capital. The burden of proof will be on the company to establish that it has a need for the higher limit.
Renewal of such mandates should be sought
at each year’s annual meeting.
DWS’s policy is to generally vote
case-by-case on share issuances for a specific transaction or financing proposal.
Share Repurchase Programs
For U.S.-incorporated companies, and foreign-incorporated
U.S. Domestic Issuers that are traded solely on U.S. exchanges, DWS’s
policy is to generally vote for management proposals to institute open-market share repurchase plans in which all
shareholders may participate on equal terms, or to grant the board authority to conduct open-market repurchases, in
the absence of company-specific concerns regarding:
•
The
use of buybacks to inappropriately manipulate incentive compensation metrics,
•
Threats
to the company's long-term viability, or
•
Other
company-specific factors as warranted.
DWS’s policy is
to generally vote case-by-case on proposals to repurchase shares directly from specified shareholders, balancing
the stated rationale against the possibility for the repurchase authority to be misused, such as to repurchase shares
from insiders at a premium to market price.
Share Repurchase Programs Shareholder Proposals
DWS’s policy is to generally vote
against shareholder proposals prohibiting executives from selling shares of company stock
during periods in which the company has announced that it may or will be repurchasing shares of its stock. DWS’s
policy is to generally vote for the proposal when there is a pattern of abuse by executives exercising options or
selling shares during periods of share buybacks.
Stock Distributions: Splits and Dividends
DWS’s policy is to generally vote
for management proposals to increase the common share authorization for stock split
or stock dividend, provided that the effective increase in authorized shares is equal to or is less than the allowable increase
calculated in accordance with ISS's
Common Stock Authorization policy.
DWS’s policy is to generally vote
case-by-case on the creation of tracking stock, weighing the strategic value of the transaction
against such factors as:
•
Adverse
governance changes;
•
Excessive
increases in authorized capital stock;
•
Unfair
method of distribution;
•
Diminution
of voting rights;
•
Adverse
conversion features;
•
Negative
impact on stock option plans; and
•
Alternatives
such as spin-off.
DWS’s policy is to generally vote
for proposals to restore or provide shareholders with rights of appraisal.
Asset Purchases
DWS’s policy is to generally vote
case-by-case on asset purchase proposals, considering the following factors:
•
Financial
and strategic benefits;
•
How
the deal was negotiated;
•
Other
alternatives for the business; and
DWS’s policy is to generally vote
case-by-case on asset sales, considering the following factors:
•
Impact
on the balance sheet/working capital;
•
Potential
elimination of diseconomies;
•
Anticipated
financial and operating benefits;
•
Anticipated
use of funds;
•
Value
received for the asset;
•
How
the deal was negotiated; and
DWS’s policy is to generally vote
case-by-case on bundled or “conditional”
proxy proposals. In the case of items that are
conditioned upon each other, examine the benefits and costs of the packaged items. In instances when the joint effect
of the conditioned items is not in shareholders’ best interests, vote against the proposals. If the combined effect
is positive, support such proposals.
DWS’s
policy is to generally vote case-by-case on proposals regarding conversion of securities. When evaluating these proposals,
the investor should review the dilution to existing shareholders, the conversion price relative to market value,
financial issues, control issues, termination penalties, and conflicts of interest.
DWS’s policy is
to vote for the conversion if it is expected that the company will be subject to onerous penalties or will
be forced to file for bankruptcy if the transaction is not approved.
Corporate Reorganization/Debt Restructuring/Prepackaged
Bankruptcy Plans/Reverse Leveraged Buyouts/Wrap Plans
DWS’s policy is to generally vote
case-by-case on proposals to increase common and/or preferred shares and to issue shares
as part of a debt restructuring plan, after evaluating:
•
Dilution
to existing shareholders' positions;
•
Terms
of the offer - discount/premium in purchase price to investor, including any fairness opinion; termination penalties;
exit strategy;
•
Financial
issues - company's financial situation; degree of need for capital; use of proceeds; effect of the financing on
the company's cost of capital;
•
Management's
efforts to pursue other alternatives;
•
Control
issues - change in management; change in control, guaranteed board and committee seats; standstill provisions;
voting agreements; veto power over certain corporate actions; and
•
Conflict
of interest - arm's length transaction, managerial incentives.
DWS’s policy is
to generally vote for the debt restructuring if it is expected that the company will file for bankruptcy if
the transaction is not approved.
Formation of Holding Company
DWS’s policy is to generally vote
case-by-case on proposals regarding the formation of a holding company, taking into
consideration the following:
•
The
reasons for the change;
•
Any
financial or tax benefits;
•
Increases
in capital structure; and
•
Changes
to the articles of incorporation or bylaws of the company.
Absent compelling financial
reasons to recommend for the transaction, DWS’s policy is to generally vote against the formation
of a holding company if the transaction would include either of the following:
•
Increases
in common or preferred stock in excess of the allowable maximum (see discussion under “Capital”);
or
•
Adverse
changes in shareholder rights.
Going Private and Going Dark Transactions (LBOs and
Minority Squeeze-outs)
DWS’s policy is to generally vote
case-by-case on going private transactions, taking into account the following:
•
How
the deal was negotiated;
•
Other
alternatives/offers considered; and
DWS’s policy is
to vote case-by-case on going dark transactions, determining whether the transaction enhances shareholder value
by taking into consideration:
•
Whether
the company has attained benefits from being publicly-traded (examination of trading volume, liquidity, and
market research of the stock); and
•
Balanced
interests of continuing vs. cashed-out shareholders, taking into account the following:
•
Are
all shareholders able to participate in the transaction?
•
Will
there be a liquid market for remaining shareholders following the transaction?
•
Does
the company have strong corporate governance?
•
Will
insiders reap the gains of control following the proposed transaction?
•
Does
the state of incorporation have laws requiring continued reporting that may benefit shareholders?
DWS’s policy is to generally vote
case-by-case on proposals to form joint ventures, taking into account the following:
•
Percentage
of assets/business contributed;
•
Financial
and strategic benefits;
•
Other
alternatives; and
DWS’s policy is to generally vote
case-by-case on liquidations, taking into account the following:
•
Management’s
efforts to pursue other alternatives;
•
Appraisal
value of assets; and
•
The
compensation plan for executives managing the liquidation.
DWS’s policy is
to generally vote for the liquidation if the company will file for bankruptcy if the proposal is not approved.
DWS’s policy is to generally vote
case-by-case on mergers and acquisitions. Review and evaluate the merits and drawbacks of
the proposed transaction, balancing various and sometimes countervailing factors including:
•
Valuation
- Is the value to be received by the target shareholders (or paid by the acquirer) reasonable? While the fairness
opinion may provide an initial starting point for assessing valuation reasonableness, emphasis is placed on
the offer premium, market reaction, and strategic rationale.
•
Market
reaction - How has the market responded to the proposed deal?
A negative market reaction should cause closer scrutiny of a
deal.
•
Strategic
rationale - Does the deal make sense strategically? From where
is the value derived? Cost and revenue synergies should not be
overly aggressive or optimistic, but reasonably achievable. Management should also have
a favorable track record of successful integration of historical acquisitions.
•
Negotiations
and process - Were the terms of the transaction negotiated at
arm's-length? Was the process fair and equitable? A fair process
helps to ensure the best price for shareholders. Significant negotiation “wins”
can also signify the deal makers' competency. The comprehensiveness
of the sales process (e.g., full auction, partial auction, no
auction) can also affect shareholder value.
•
Conflicts
of interest - Are insiders benefiting from the transaction disproportionately
and inappropriately as compared to non-insider shareholders?
As the result of potential conflicts, the directors and officers of the company may be
more likely to vote to approve a merger than if they did not hold these interests. Consider whether these interests
may have influenced these directors and officers to support or recommend the merger. The CIC figure presented
in the “ISS
Transaction Summary”
section of this report is an aggregate figure that can in certain cases be
a misleading indicator of the true value transfer from shareholders to insiders. Where such figure appears to be
excessive, analyze the underlying assumptions to determine whether a potential conflict exists.
•
Governance
- Will the combined company have a better or worse governance profile than the current governance profiles
of the respective parties to the transaction? If the governance profile is to change for the worse, the burden
is on the company to prove that other issues (such as valuation) outweigh any deterioration in governance.
Private Placements/Warrants/Convertible Debentures
DWS’s
policy is to generally vote case-by-case on proposals regarding private placements, warrants, and convertible debentures
taking into consideration:
•
Dilution
to existing shareholders' position: The amount and timing of shareholder ownership dilution should be weighed
against the needs and proposed shareholder benefits of the capital infusion. Although newly issued common
stock, absent pre-emptive rights, is typically dilutive to existing shareholders, share price appreciation is
often the necessary event to trigger the exercise of “out
of the money”
warrants and convertible debt. In these instances from a value
standpoint, the negative impact of dilution is mitigated by the increase in the company's stock
price that must occur to trigger the dilutive event.
•
Terms
of the offer (discount/premium in purchase price to investor, including any fairness opinion, conversion features,
termination penalties, exit strategy):
−
The
terms of the offer should be weighed against the alternatives of the company and in light of company's financial
condition. Ideally, the conversion price for convertible debt and the exercise price for warrants should be
at a premium to the then prevailing stock price at the time of private placement.
−
When
evaluating the magnitude of a private placement discount or premium, consider factors that influence the
discount or premium, such as, liquidity, due diligence costs, control and monitoring costs, capital scarcity, information
asymmetry, and anticipation of future performance.
−
The
company's financial condition;
−
Degree
of need for capital;
−
Effect
of the financing on the company's cost of capital;
−
Current
and proposed cash burn rate; and
−
Going
concern viability and the state of the capital and credit markets.
•
Management's
efforts to pursue alternatives and whether the company engaged in a process to evaluate alternatives: A
fair, unconstrained process helps to ensure the best price for shareholders. Financing alternatives can include joint
ventures, partnership, merger, or sale of part or all of the company.
−
Guaranteed
board and committee seats;
−
Veto
power over certain corporate actions; and
−
Minority
versus majority ownership and corresponding minority discount or majority control premium.
−
Conflicts
of interest should be viewed from the perspective of the company and the investor;
and
−
Were
the terms of the transaction negotiated at arm's length? Are managerial incentives aligned with shareholder interests?
−
The
market's response to the proposed deal. A negative market reaction is a cause for concern. Market reaction
may be addressed by analysing the one-day impact on the unaffected stock price.
DWS’s policy is
to generally vote for the private placement, or for the issuance of warrants and/or convertible debentures in
a private placement, if it is expected that the company will file for bankruptcy if the transaction is not approved.
Reorganization/Restructuring Plan (Bankruptcy)
DWS’s policy is to generally vote
case-by-case on proposals to common shareholders on bankruptcy plans of reorganization, considering
the following factors including, but not limited to:
•
Estimated
value and financial prospects of the reorganized company;
•
Percentage
ownership of current shareholders in the reorganized company;
•
Whether
shareholders are adequately represented in the reorganization process (particularly through the existence of
an Official Equity Committee);
•
The
cause(s) of the bankruptcy filing, and the extent to which the plan of reorganization addresses the cause(s);
•
Existence
of a superior alternative to the plan of reorganization; and
•
Governance
of the reorganized company.
Special Purpose Acquisition Corporations (SPACs)
DWS’s policy is to generally vote
case-by-case on SPAC mergers and acquisitions taking into account the following:
•
Valuation
- Is the value being paid by the SPAC reasonable? SPACs generally lack an independent fairness opinion and
the financials on the target may be limited. Compare the conversion price with the intrinsic value of the target company
provided in the fairness opinion. Also, evaluate the proportionate value of the combined entity attributable to
the SPAC IPO shareholders versus the pre-merger value of SPAC. Additionally, a private company discount may
be applied to the target, if it is a private entity.
•
Market
reaction - How has the market responded to the proposed deal?
A negative market reaction may be a cause for concern. Market
reaction may be addressed by analysing the one-day impact on the unaffected stock price.
•
Deal
timing - A main driver for most transactions is that the SPAC
charter typically requires the deal to be complete within 18
to 24 months, or the SPAC is to be liquidated. Evaluate the valuation, market reaction, and potential conflicts
of interest for deals that are announced close to the liquidation date.
•
Negotiations
and process - What was the process undertaken to identify potential
target companies within specified industry or location specified
in charter? Consider the background of the sponsors.
•
Conflicts
of interest - How are sponsors benefiting from the transaction
compared to IPO shareholders? Potential conflicts could arise
if a fairness opinion is issued by the insiders to qualify the deal rather than a third party or if
management is encouraged to pay a higher price for the target because of an 80 percent rule (the charter requires that
the fair market value of the target is at least equal to 80 percent of net assets of the SPAC). Also, there may be
sense of urgency by the management team of the SPAC to close the deal since its charter typically requires a
transaction to be completed within the 18-24 month timeframe.
•
Voting
agreements - Are the sponsors entering into enter into any voting
agreements/tender offers with shareholders who are likely to
vote against the proposed merger or exercise conversion rights?
•
Governance
- What is the impact of having the SPAC CEO or founder on key committees following the proposed merger?
Special Purpose Acquisition Corporations (SPACs) - Proposals
for Extensions
DWS’s policy is to generally vote
case-by-case on SPAC extension proposals taking into account the length of the requested
extension, the status of any pending transaction(s) or progression of the acquisition process, any added incentive
for non-redeeming shareholders, and any prior extension requests.
•
Length
of request: Typically, extension requests range from two to six
months, depending on the progression of the SPAC's acquisition
process.
•
Pending
transaction(s) or progression of the acquisition process: Sometimes
an initial business combination was already put to a shareholder
vote, but, for varying reasons, the transaction could not be consummated by the termination
date and the SPAC is requesting an extension. Other times, the SPAC has entered into a definitive transaction
agreement, but needs additional time to consummate or hold the shareholder meeting.
•
Added
incentive for non-redeeming shareholders: Sometimes the SPAC
sponsor (or other insiders) will contribute, typically as a loan
to the company, additional funds that will be added to the redemption value of each public share
as long as such shares are not redeemed in connection with the extension request. The purpose of the “equity
kicker”
is to incentivize shareholders to hold their shares through the end of the requested extension or until
the time the transaction is put to a shareholder vote, rather than electing redemption at the extension proposal meeting.
•
Prior
extension requests: Some SPACs request additional time beyond
the extension period sought in prior extension requests.
DWS’s policy is to generally vote
case-by-case on spin-offs, considering:
•
Tax
and regulatory advantages;
•
Planned
use of the sale proceeds;
•
Benefits
to the parent company;
•
Corporate
governance changes; and
•
Changes
in the capital structure.
Value Maximization Shareholder Proposals
DWS’s policy is to generally vote
case-by-case on shareholder proposals seeking to maximize shareholder value by:
•
Hiring
a financial advisor to explore strategic alternatives;
•
Selling
the company; or
•
Liquidating
the company and distributing the proceeds to shareholders.
These proposals should be evaluated based
on the following factors:
•
Prolonged
poor performance with no turnaround in sight;
•
Signs
of entrenched board and management (such as the adoption of takeover defenses);
•
Strategic
plan in place for improving value;
•
Likelihood
of receiving reasonable value in a sale or dissolution; and
•
The
company actively exploring its strategic options, including retaining a financial advisor.
Advisory Votes on Executive Compensation—Management
Proposals (Say-on-Pay)
DWS’s policy is to generally vote
case-by-case on ballot items related to executive pay and practices, as well as certain aspects
of outside director compensation.
DWS’s policy is to vote against
Advisory Votes on Executive Compensation (Say-on-Pay or “SOP”)
if:
•
There
is an unmitigated misalignment between CEO pay and company performance (pay for performance);
•
The
company maintains significant problematic pay practices; or
•
The
board exhibits a significant level of poor communication and responsiveness to shareholders.
DWS’s policy is
to generally vote against or withhold from the members of the Compensation Committee and potentially the
full board if:
•
There
is no SOP on the ballot, and an against vote on an SOP would otherwise be warranted due to pay-for-performance misalignment,
problematic pay practices, or the lack of adequate responsiveness on compensation issues raised previously,
or a combination thereof;
•
The
board fails to respond adequately to a previous SOP proposal that received less than 70 percent support of votes
cast;
•
The
company has recently practiced or approved problematic pay practices, such as option repricing or option backdating;
or
•
The
situation is egregious.
Frequency of Advisory Vote on Executive Compensation
(“Say When
on Pay”)
DWS’s policy is to generally vote
for annual advisory votes on compensation, which provide the most consistent and clear
communication channel for shareholder concerns about companies' executive pay programs.
Voting on Golden Parachutes in an Acquisition, Merger,
Consolidation, or Proposed Sale
DWS’s policy is to generally vote
case-by-case on say on Golden Parachute proposals, including consideration of existing change-in-control
arrangements maintained with named executive officers but also considering new or extended arrangements.
Features that may result
in an “against”
recommendation include one or more of the following, depending on the number,
magnitude, and/or timing of issue(s):
•
Single-
or modified-single-trigger cash severance;
•
Single-trigger
acceleration of unvested equity awards;
•
Full
acceleration of equity awards granted shortly before the change in control;
•
Acceleration
of performance awards above the target level of performance without compelling rationale;
•
Excessive
cash severance (generally ˃3x base salary and bonus);
•
Excise
tax gross-ups triggered and payable; or
•
Excessive
golden parachute payments (on an absolute basis or as a percentage of transaction equity value);
•
Recent
amendments that incorporate any problematic features (such as those above) or recent actions (such as extraordinary
equity grants) that may make packages so attractive as to influence merger agreements that may not
be in the best interests of shareholders; or
•
The
company's assertion that a proposed transaction is conditioned on shareholder approval of the golden parachute advisory
vote.
Recent amendment(s) that
incorporate problematic features will tend to carry more weight on the overall analysis. However,
the presence of multiple legacy problematic features will also be closely scrutinized.
In
cases where the golden parachute vote is incorporated into a company's advisory vote on compensation (management say-on-pay),
DWS will evaluate the say-on-pay proposal in accordance with these guidelines, which may give higher weight
to that component of the overall evaluation.
Equity-Based and Other Incentive Plans
DWS’s policy is to generally vote
case-by-case on certain equity-based compensation plans21
depending on a combination of certain plan features
and equity grant practices, where positive factors may counterbalance negative factors, and vice
versa, as evaluated using an “Equity
Plan Scorecard”
(EPSC) approach with three pillars:
•
Plan
Cost: The total estimated cost of the company’s equity
plans relative to industry/market cap peers, measured by the
company's estimated Shareholder Value Transfer (SVT) in relation to peers and considering both:
−
SVT
based on new shares requested plus shares remaining for future grants, plus outstanding unvested/unexercised grants;
and
−
SVT
based only on new shares requested plus shares remaining for future grants.
−
Quality
of disclosure around vesting upon a change in control (CIC);
−
Discretionary
vesting authority;
−
Liberal
share recycling on various award types;
−
Lack
of minimum vesting period for grants made under the plan; and
−
Dividends
payable prior to award vesting.
−
The
company’s three-year burn rate relative to its industry/market cap peers;
−
Vesting
requirements in CEO's recent equity grants (3-year look-back);
−
The
estimated duration of the plan (based on the sum of shares remaining available and the new shares requested,
divided by the average annual shares granted in the prior three years);
−
The
proportion of the CEO's most recent equity grants/awards subject to performance conditions;
−
Whether
the company maintains a sufficient claw-back policy; and
−
Whether
the company maintains sufficient post-exercise/vesting share-holding requirements.
21
Proposals evaluated under the EPSC policy generally include those
to approve or amend (1) stock option plans for employees
and/or employees and directors, (2) restricted stock plans for employees and/or employees and directors, and
(3) omnibus stock incentive plans for employees and/or employees and directors; amended plans will be further evaluated
case-by-case.
DWS’s policy is
to generally vote against the plan proposal if the combination of above factors indicates that the plan is
not, overall, in shareholders' interests, or if any of the following egregious factors (“overriding
factors”)
apply:
•
Awards
may vest in connection with a liberal change-of-control definition;
•
The
plan would permit repricing or cash buyout of underwater options without shareholder approval (either by expressly
permitting it – for NYSE and Nasdaq listed companies – or by not prohibiting it when the company has a
history of repricing – for non-listed companies);
•
The
plan is a vehicle for problematic pay practices or a significant pay-for-performance disconnect under certain circumstances;
•
The
plan is excessively dilutive to shareholders' holdings;
•
The
plan contains an evergreen (automatic share replenishment) feature; or
•
Any
other plan features are determined to have a significant negative impact on shareholder interests.
Further Information on certain EPSC Factors:
Shareholder Value Transfer (SVT)
The cost of the equity
plans is expressed as Shareholder Value Transfer (SVT), which is measured using a binomial option
pricing model that assesses the amount of shareholders’ equity flowing out of the company to employees and directors.
SVT is expressed as both a dollar amount and as a percentage of market value, and includes the new shares proposed,
shares available under existing plans, and shares granted but unexercised (using two measures, in the case of
plans subject to the Equity Plan Scorecard evaluation, as noted above). All award types are valued. For omnibus plans,
unless limitations are placed on the most expensive types of awards (for example, full-value awards), the assumption is
made that all awards to be granted will be the most expensive types.
For proposals that are
not subject to the Equity Plan Scorecard evaluation, Shareholder Value Transfer is reasonable if
it falls below a company-specific benchmark. The benchmark is determined as follows: The top quartile performers in
each industry group (using the Global Industry Classification Standard: GICS) are identified. Benchmark SVT levels for
each industry are established based on these top performers’ historic SVT. Regression analyses are run on each industry
group to identify the variables most strongly correlated to SVT. The benchmark industry SVT level is then adjusted
upwards or downwards for the specific company by plugging the company-specific performance measures, size
and cash compensation into the industry cap equations to arrive at the company’s benchmark.22
22
For plans evaluated under the Equity Plan Scorecard policy, the
company's SVT benchmark is considered along with other factors.
Three-Year Value-Adjusted Burn Rate
A “Value-Adjusted
Burn Rate”
is used for stock plan valuations. Value-Adjusted Burn Rate benchmarks will be calculated as
the greater of: (1) an industry-specific threshold based on three-year burn rates within the company's GICS group segmented
by S&P 500, Russell 3000 index (less the S&P 500) and non-Russell 3000 index; and (2) a de minimis threshold
established separately for each of the S&P 500, the Russell 3000 index less the S&P 500, and the non-Russell 3000
index. Year-over-year burn-rate benchmark changes will be limited to a predetermined range above or below the prior
year's burn-rate benchmark.
The Value-Adjusted Burn rate is calculated
as follows:
Value-Adjusted Burn Rate
= ((# of options * option’s dollar value using a Black-Scholes model) + (# of full-value awards *
stock price)) / (Weighted average common shares * stock price).
Egregious Factors
Liberal Change in Control Definition
DWS’s policy is
to generally vote against equity plans if the plan has a liberal definition of change in control and the equity
awards could vest upon such liberal definition of change in control, even though an actual change in control may
not occur. Examples of such a definition include, but are not limited to, announcement or commencement of a tender
offer, provisions for acceleration upon a “potential”
takeover, shareholder approval of a merger or other transactions, or
similar language.
DWS’s policy is
to generally vote against plans that expressly permit the repricing or exchange of underwater stock options/stock
appreciate rights (SARs) without prior shareholder approval. “Repricing”
typically includes the ability to do any of the following:
•
Amend
the terms of outstanding options or SARs to reduce the exercise price of such outstanding options or SARs;
•
Cancel
outstanding options or SARs in exchange for options or SARs with an exercise price that is less than the exercise
price of the original options or SARs;
•
Cancel
underwater options in exchange for stock awards; or
•
Provide
cash buyouts of underwater options.
DWS’s policy is
to generally vote against or withhold from members of the Compensation Committee who approved repricing
(as defined above or otherwise determined by ISS), without prior shareholder approval, even if such repricings are
allowed in their equity plan.
DWS’s policy is
to generally vote against plans that do not expressly prohibit repricing or cash buyout of underwater options
without shareholder approval if the company has a history of repricing/buyouts without shareholder approval, and
the applicable listing standards would not preclude them from doing so.
Problematic Pay Practices or Significant Pay-for-Performance
Disconnect
If the equity plan on
the ballot is a vehicle for problematic pay practices, DWS’s policy is to generally vote against the plan.
DWS’s policy is
to generally vote against an equity plan if the plan is determined to be a vehicle for pay-for-performance misalignment.
Considerations in voting against the equity plan may include, but are not limited to:
•
Severity
of the pay-for-performance misalignment;
•
Whether
problematic equity grant practices are driving the misalignment; and/or
•
Whether
equity plan awards have been heavily concentrated to the CEO and/or the other NEOs.
Amending Cash and Equity Plans (including Approval for
Tax Deductibility (162(m))
General Recommendation:
DWS’s policy is to generally vote case-by-case on amendments to cash and equity incentive plans.
DWS’s policy is
to generally vote for proposals to amend executive cash, stock, or cash and stock incentive plans if the
proposal:
•
Addresses
administrative features only; or
•
Seeks
approval for Section 162(m) purposes only and the plan administering committee consists entirely of independent directors.
Note that if the company is presenting the plan to shareholders for the first time for any reason (including after
the company’s initial public offering), or if the proposal is bundled with other material plan amendments, then
the recommendation will be case-by-case (see below).
DWS’s policy is
to generally vote against proposals to amend executive cash, stock, or cash and stock incentive plans if
the proposal:
•
Seeks
approval for Section 162(m) purposes only, and the plan administering committee does not consist entirely of
independent directors.
DWS’s policy is
to generally vote case-by-case on all other proposals to amend c ash incentive plans. This includes plans
presented to shareholders for the first time after the company's IPO and/or proposals that bundle material amendment(s) other
than those for Section 162(m) purposes.
DWS’s policy is
to generally vote case-by-case on all other proposals to amend equity incentive plans, considering the
following:
•
If
the proposal requests additional shares and/or the amendments include a term extension or addition of full value
awards as an award type, the recommendation will be based on the Equity Plan Scorecard evaluation as well
as an analysis of the overall impact of the amendments;
•
If
the plan is being presented to shareholders for the first time (including after the company's IPO), whether or not
additional shares are being requested, the recommendation will be based on the Equity Plan Scorecard evaluation as
well as an analysis of the overall impact of any amendments;
and
•
If
there is no request for additional shares and the amendments do not include a term extension or addition of full
value awards as an award type, then the recommendation will be based entirely on an analysis of the overall impact
of the amendments, and the EPSC evaluation will be shown only for informational purposes.
In the first two case-by-case
evaluation scenarios, the EPSC evaluation/score is the more heavily weighted consideration.
Specific Treatment of Certain Award Types in Equity
Plan Evaluations
Dividend Equivalent Rights
Options that have Dividend
Equivalent Rights (DERs) associated with them will have a higher calculated award value than
those without DERs under the binomial model, based on the value of these dividend streams. The higher value will
be applied to new shares, shares available under existing plans, and shares awarded but not exercised per the plan
specifications. DERS transfer more shareholder equity to employees and non-employee directors and this cost should
be captured.
Operating Partnership (OP) Units in Equity Plan Analysis
of Real Estate Investment Trusts (REITs)
For Real Estate Investment
Trusts (REITS), include the common shares issuable upon conversion of outstanding Operating Partnership
(OP) units in the share count for the purposes of determining: (1) market capitalization in the Shareholder Value
Transfer (SVT) analysis and (2) shares outstanding in the burn rate analysis.
Other Compensation Plans
401(k) Employee Benefit Plans
DWS’s policy is to generally vote
for proposals to implement a 401(k) savings plan for employees.
Employee Stock Ownership Plans (ESOPs)
General Recommendation: DWS’s
policy is to generally vote for proposals to implement an ESOP or increase authorized shares
for existing ESOPs, unless the number of shares allocated to the ESOP is excessive (more than five percent of
outstanding shares).
Employee Stock Purchase Plans—Qualified Plans
DWS’s policy is to generally vote
case-by-case on qualified employee stock purchase plans. DWS’s policy is to generally vote
for employee stock purchase plans where all of the following apply:
•
Purchase
price is at least 85 percent of fair market value;
•
Offering
period is 27 months or less; and
•
The
number of shares allocated to the plan is 10 percent or less of the outstanding shares.
DWS’s policy is
to generally vote against qualified employee stock purchase plans where when the plan features do not
meet all of the above criteria.
Employee Stock Purchase Plans—Non-Qualified Plans
DWS’s policy is to generally vote
case-by-case on nonqualified employee stock purchase plans. DWS’s policy is to generally
vote for nonqualified employee stock purchase plans with all the following features:
•
Broad-based
participation;
•
Limits
on employee contribution, which may be a fixed dollar amount or expressed as a percent of base salary;
•
Company
matching contribution up to 25 percent of employee’s contribution, which is effectively a discount of 20
percent from market value; and
•
No
discount on the stock price on the date of purchase when there is a company matching contribution.
DWS’s policy is
to generally vote against nonqualified employee stock purchase plans when the plan features do not meet
all of the above criteria. If the matching contribution or effective discount exceeds the above, DWS may evaluate the
SVT cost of the plan as part of the assessment.
Option Exchange Programs/Repricing Options
DWS’s policy is to generally vote
case-by-case on management proposals seeking approval to exchange/reprice options taking
into consideration:
•
Historic
trading patterns—the
stock price should not be so volatile that the options are likely to be back “in-the-money”
over the near term;
•
Rationale
for the re-pricing—was
the stock price decline beyond management's control;
•
Is
this a value-for-value exchange;
•
Are
surrendered stock options added back to the plan reserve;
•
Timing—repricing
should occur at least one year out from any precipitous drop in company's stock price;
•
Option
vesting—does
the new option vest immediately or is there a black-out period;
•
Term
of the option—the
term should remain the same as that of the replaced option;
•
Exercise
price—should
be set at fair market or a premium to market; and
•
Participants—executive
officers and directors must be excluded.
If the surrendered options
are added back to the equity plans for re-issuance, then also take into consideration the company’s
total cost of equity plans and its three-year average burn rate.
In addition to the above
considerations, evaluate the intent, rationale, and timing of the repricing proposal. The proposal should
clearly articulate why the board is choosing to conduct an exchange program at this point in time. Repricing underwater
options after a recent precipitous drop in the company’s stock price demonstrates poor timing and warrants additional
scrutiny. Also, consider the terms of the surrendered options, such as the grant date, exercise price and vesting
schedule. Grant dates of surrendered options should be far enough back (two to three years) so as not to suggest
that repricings are being done to take advantage of short-term downward price movements. Similarly, the exercise
price of surrendered options should be above the 52-week high for the stock price.
DWS’s policy is to generally vote
for shareholder proposals to put option repricings to a shareholder vote.
Stock Plans in Lieu of Cash
DWS’s policy is to generally vote
case-by-case on plans that provide participants with the option of taking all or a portion
of their cash compensation in the form of stock.
DWS’s policy is
to generally vote for non-employee director-only equity plans that provide a dollar-for-dollar cash-for-stock exchange.
DWS’s policy is
to generally vote case-by-case on plans which do not provide a dollar-for-dollar cash for stock exchange. In
cases where the exchange is not dollar-for-dollar, the request for new or additional shares for such equity program will
be considered using the binomial option pricing model. In an effort to capture the total cost of total compensation, DWS
will not make any adjustments to carve out the in-lieu-of cash compensation.
Transfer Stock Option (TSO) Programs
One-time Transfers: DWS’s policy
is to generally vote against or withhold from compensation committee members if
they fail to submit one-time transfers to shareholders for approval.
DWS’s
policy is to generally vote case-by-case on one-time transfers. DWS’s policy is to generally vote for such proposals if:
•
Executive
officers and non-employee directors are excluded from participating;
•
Stock
options are purchased by third-party financial institutions at a discount to their fair value using option pricing models
such as Black-Scholes or a Binomial Option Valuation or other appropriate financial models; and
•
There
is a two-year minimum holding period for sale proceeds (cash or stock) for all participants.
Additionally, management
should provide a clear explanation of why options are being transferred to a third-party institution
and whether the events leading up to a decline in stock price were beyond management's control. A review of
the company's historic stock price volatility should indicate if the options are likely to be back “in-the-money”
over the near term.
Ongoing TSO program:
DWS’s policy is to generally vote against equity plan proposals if the details of ongoing TSO programs
are not provided to shareholders. Since TSOs will be one of the award types under a stock plan, the ongoing TSO
program, structure and mechanics must be disclosed to shareholders. The specific criteria to be considered in evaluating
these proposals include, but not limited, to the following:
•
Cost
of the program and impact of the TSOs on company’s total option expense; and
•
Option
repricing policy.
Amendments to existing
plans that allow for introduction of transferability of stock options should make clear that only
options granted post-amendment shall be transferable.
Shareholder Ratification of Director Pay Programs
DWS’s policy is to generally vote
case-by-case on management proposals seeking ratification of non-employee director compensation,
based on the following factors:
•
If
the equity plan under which non-employee director grants are made is on the ballot, whether or not it warrants support;
and
•
An
assessment of the following qualitative factors:
−
The
relative magnitude of director compensation as compared to companies of a similar profile;
−
The
presence of problematic pay practices relating to director compensation;
−
Director
stock ownership guidelines and holding requirements;
−
Equity
award vesting schedules;
−
The
mix of cash and equity-based compensation;
−
Meaningful
limits on director compensation;
−
The
availability of retirement benefits or perquisites; and
−
The
quality of disclosure surrounding director compensation.
Equity Plans for Non-Employee Directors
DWS’s policy is to generally vote
case-by-case on compensation plans for non-employee directors, based on:
•
The
total estimated cost of the company’s equity plans relative to industry/market cap peers, measured by the company’s
estimated Shareholder Value Transfer (SVT) based on new shares requested plus shares remaining for
future grants, plus outstanding unvested/unexercised grants;
•
The
company’s three-year burn rate relative to its industry/market cap peers (in certain circumstances); and
•
The
presence of any egregious plan features (such as an option repricing provision or liberal CIC vesting risk).
On occasion, non-employee
director stock plans will exceed the plan cost or burn-rate benchmarks when combined with
employee or executive stock plans. In such cases, DWS’s policy is to generally vote case-by-case on the plan taking
into consideration the following qualitative factors:
•
The
relative magnitude of director compensation as compared to companies of a similar profile;
•
The
presence of problematic pay practices relating to director compensation;
•
Director
stock ownership guidelines and holding requirements;
•
Equity
award vesting schedules;
•
The
mix of cash and equity-based compensation;
•
Meaningful
limits on director compensation;
•
The
availability of retirement benefits or perquisites; and
•
The
quality of disclosure surrounding director compensation.
Non-Employee Director Retirement Plans
DWS’s policy is to generally vote
against retirement plans for non-employee directors. DWS’s policy is to generally vote
for shareholder proposals to eliminate retirement plans for non-employee directors.
Shareholder Proposals on Compensation
Bonus Banking/Bonus Banking “Plus”
DWS’s
policy is to generally vote case-by-case on proposals seeking deferral of a portion of annual bonus pay, with ultimate
payout linked to sustained results for the performance metrics on which the bonus was earned (whether for the
named executive officers or a wider group of employees), taking into account the following factors:
•
The
company’s past practices regarding equity and cash compensation;
•
Whether
the company has a holding period or stock ownership requirements in place, such as a meaningful retention ratio
(at least 50 percent for full tenure); and
•
Whether
the company has a rigorous claw-back policy in place.
Compensation Consultants—Disclosure of Board or
Company’s Utilization
DWS’s policy is to generally vote
for shareholder proposals seeking disclosure regarding the company, board, or compensation committee’s
use of compensation consultants, such as company name, business relationship(s), and fees paid.
Disclosure/Setting Levels or Types of Compensation for
Executives and Directors
DWS’s policy is to generally vote
for shareholder proposals seeking additional disclosure of executive and director pay
information, provided the information requested is relevant to shareholders' needs, would not put the company at
a competitive disadvantage relative to its industry, and is not unduly burdensome to the company.
DWS’s policy is
to generally vote against shareholder proposals seeking to set absolute levels on compensation or otherwise
dictate the amount or form of compensation (such as types of compensation elements or specific metrics) to
be used for executive or directors.
DWS’s policy is
to generally vote against shareholder proposals that mandate a minimum amount of stock that directors must
own in order to qualify as a director or to remain on the board.
DWS’s policy is
to generally vote case-by-case on all other shareholder proposals regarding executive and director pay,
taking into account relevant factors, including but not limited to: company performance, pay level and design versus
peers, history of compensation concerns or pay-for-performance disconnect, and/or the scope and prescriptive nature
of the proposal.
Golden Coffins/Executive Death Benefits
DWS’s policy is to generally vote
for proposals calling for companies to adopt a policy of obtaining shareholder approval for
any future agreements and corporate policies that could oblige the company to make payments or awards following the
death of a senior executive in the form of unearned salary or bonuses, accelerated vesting or the continuation in force
of unvested equity grants, perquisites and other payments or awards made in lieu of compensation. This would not
apply to any benefit programs or equity plan proposals for which the broad-based employee population is eligible.
Hold Equity Past Retirement or for a Significant Period
of Time
DWS’s policy is to generally vote
case-by-case on shareholder proposals asking companies to adopt policies requiring senior
executive officers to retain a portion of net shares acquired through compensation plans. The following factors will
be taken into account:
•
The
percentage/ratio of net shares required to be retained;
•
The
time period required to retain the shares;
•
Whether
the company has equity retention, holding period, and/or stock ownership requirements in place and the
robustness of such requirements;
•
Whether
the company has any other policies aimed at mitigating risk taking by executives;
•
Executives'
actual stock ownership and the degree to which it meets or exceeds the proponent’s suggested holding
period/retention ratio or the company’s existing requirements; and
•
Problematic
pay practices, current and past, which may demonstrate a short-term versus long-term focus.
DWS’s policy is to generally vote
case-by-case on proposals calling for an analysis of the pay disparity between corporate executives
and other non-executive employees. The following factors will be considered:
•
The
company’s current level of disclosure of its executive compensation setting process, including how the company considers
pay disparity;
•
If
any problematic pay practices or pay-for-performance concerns have been identified at the company; and
•
The
level of shareholder support for the company's pay programs.
DWS’s policy is
to generally vote against proposals calling for the company to use the pay disparity analysis or pay ratio
in a specific way to set or limit executive pay.
Pay for Performance/Performance-Based Awards
DWS’s policy is to generally vote
case-by-case on shareholder proposals requesting that a significant amount of future long-term
incentive compensation awarded to senior executives shall be performance-based and requesting that the board
adopt and disclose challenging performance metrics to shareholders, based on the following analytical steps:
•
First,
vote for shareholder proposals advocating the use of performance-based equity awards, such as performance contingent
options or restricted stock, indexed options or premium-priced options, unless the proposal is overly restrictive
or if the company has demonstrated that it is using a “substantial”
portion of performance-based awards for its top executives. Standard
stock options and performance-accelerated awards do not meet the criteria to be
considered as performance-based awards. Further, premium-priced options should have a meaningful premium to
be considered performance-based awards; and
•
Second,
assess the rigor of the company’s performance-based equity program. If the bar set for the performance-based program
is too low based on the company’s historical or peer group comparison, generally vote for the proposal. Furthermore,
if target performance results in an above target payout, vote for the shareholder proposal due to program’s
poor design. If the company does not disclose the performance metric of the performance-based equity program,
vote for the shareholder proposal regardless of the outcome of the first step to the test.
DWS’s policy is
to generally vote for the shareholder proposal if the company does not meet both of the above two steps.
Pay for Superior Performance
DWS’s policy is to generally vote
case-by-case on shareholder proposals that request the board establish a pay-for-superior performance
standard in the company's executive compensation plan for senior executives. These proposals generally include
the following principles:
•
Set
compensation targets for the plan’s annual and long-term incentive pay components at or below the peer group
median;
•
Deliver
a majority of the plan’s target long-term compensation through performance-vested, not simply time-vested, equity
awards;
•
Provide
the strategic rationale and relative weightings of the financial and non-financial performance metrics or criteria
used in the annual and performance-vested long-term incentive components of the plan;
•
Establish
performance targets for each plan financial metric relative to the performance of the company’s peer companies;
and
•
Limit
payment under the annual and performance-vested long-term incentive components of the plan to when the
company’s performance on its selected financial performance metrics exceeds peer group median performance.
Consider the following factors in evaluating
this proposal:
•
What
aspects of the company’s annual and long-term equity incentive programs are performance driven?
•
If
the annual and long-term equity incentive programs are performance driven, are the performance criteria and hurdle
rates disclosed to shareholders or are they benchmarked against a disclosed peer group?
•
Can
shareholders assess the correlation between pay and performance based on the current disclosure?
•
What
type of industry and stage of business cycle does the company belong to?
Pre-Arranged Trading Plans (10b5-1 Plans)
DWS’s policy is to generally vote
for shareholder proposals calling for the addition of certain safeguards in prearranged trading
plans (10b5-1 plans) for executives. Safeguards may include:
•
Adoption,
amendment, or termination of a 10b5-1 Plan must be disclosed in a Form 8-K;
•
Amendment
or early termination of a 10b5-1 Plan is allowed only under extraordinary circumstances, as determined by
the board;
•
Request
that a certain number of days that must elapse between adoption or amendment of a 10b5-1 Plan and initial
trading under the plan;
•
Reports
on Form 4 must identify transactions made pursuant to a 10b5-1 Plan;
•
An
executive may not trade in company stock outside the 10b5-1 Plan;
or
•
Trades
under a 10b5-1 Plan must be handled by a broker who does not handle other securities transactions for the
executive.
Prohibit Outside CEOs from Serving
on Compensation Committees
General Recommendation:
DWS’s policy is to generally vote against proposals seeking a policy to prohibit any outside CEO
from serving on a company’s compensation committee, unless the company has demonstrated problematic pay practices
that raise concerns about the performance and composition of the committee.
Recoupment of Incentive or Stock Compensation in Specified
Circumstances
DWS’s policy is to generally vote
case-by-case on proposals to recoup incentive cash or stock compensation made to
senior executives if it is later determined that the figures upon which incentive compensation is earned turn out to
have been in error, or if the senior executive has breached company policy or has engaged in misconduct that may be
significantly detrimental to the company's financial position or reputation, or if the senior executive failed to manage or
monitor risks that subsequently led to significant financial or reputational harm to the company. Many companies have
adopted policies that permit recoupment in cases where an executive's fraud, misconduct, or negligence significantly contributed
to a restatement of financial results that led to the awarding of unearned incentive compensation. However, such
policies may be narrow given that not all misconduct or negligence may result in significant financial restatements. Misconduct,
negligence or lack of sufficient oversight by senior executives may lead to significant financial loss or reputational
damage that may have long-lasting impact.
In considering whether
to support such shareholder proposals, DWS will take into consideration the following factors:
•
If
the company has adopted a formal recoupment policy;
•
The
rigor of the recoupment policy focusing on how and under what circumstances the company may recoup incentive
or stock compensation;
•
Whether
the company has chronic restatement history or material financial problems;
•
Whether
the company’s policy substantially addresses the concerns raised by the proponent;
•
Disclosure
of recoupment of incentive or stock compensation from senior executives or lack thereof; or
•
Any
other relevant factors.
Severance and
Golden Parachute
Agreements
DWS’s policy is
to generally vote case-by-case on shareholder proposals requiring
that executive severance (including
change-in-control
related) arrangements
or payments be submitted
for shareholder ratification.
Factors that will be considered include,
but not limited to:
•
The
company’s
severance or change-in-control agreements in place,
and
the presence of problematic features
(such
as excessive severance entitlements, single
triggers, excise
tax gross-ups, etc.);
•
Any
existing limits on cash severance payouts or policies which require shareholder ratification of severance payments exceeding
a certain level;
•
Any
recent severance-related controversies; and
•
Whether
the proposal is overly prescriptive,
such
as requiring shareholder approval of
severance that does not exceed market norms.
Share Buyback Impact on Incentive
Program Metrics
DWS’s policy is to generally vote
case-by-case on proposals requesting the company exclude the impact of share buybacks
from the calculation of incentive program metrics, considering the following factors:
•
The
frequency and timing of the company's share buybacks;
•
The
use of per-share metrics in incentive plans;
•
The
effect of recent buybacks on incentive metric results and payouts; and
•
Whether
there is any indication of metric result manipulation.
Supplemental Executive Retirement Plans (SERPs)
DWS’s policy is to generally vote
for shareholder proposals requesting to put extraordinary benefits contained in SERP agreements
to a shareholder vote unless the company’s executive pension plans do not contain excessive benefits beyond
what is offered under employee-wide plans.
DWS’s policy is
to generally vote for shareholder proposals requesting to limit the executive benefits provided under the
company’s supplemental executive retirement plan (SERP) by limiting covered compensation to a senior executive’s annual
salary or those pay elements covered for the general employee population.
DWS’s policy is to generally vote
for proposals calling for companies to adopt a policy of not providing tax gross-up payments
to executives, except in situations where gross-ups are provided pursuant to a plan, policy, or arrangement applicable
to management employees of the company, such as a relocation or expatriate tax equalization policy.
Termination of Employment Prior to Severance Payment/Eliminating
Accelerated Vesting of Unvested Equity
DWS’s policy is to generally vote
case-by-case on shareholder proposals seeking a policy requiring termination of employment
prior to severance payment and/or eliminating accelerated vesting of unvested equity.
The following factors will be considered:
•
The
company's current treatment of equity upon employment termination and/or in change-in-control situations (i.e.,
vesting is double triggered and/or pro rata, does it allow for the assumption of equity by acquiring company, the
treatment of performance shares, etc.); and
•
Current
employment agreements, including potential poor pay practices such as gross-ups embedded in those agreements.
DWS’s policy is
to generally vote for proposals seeking a policy that prohibits automatic acceleration of the vesting of
equity awards to senior executives upon a voluntary termination of employment or in the event of a change in control
(except for pro rata vesting considering the time elapsed and attainment of any related performance goals between
the award date and the change in control).
ROUTINE
/ MISCELLANEOUS
DWS’s policy is to generally vote
against proposals to provide management with the authority to adjourn an annual or
special meeting absent compelling reasons to support the proposal.
DWS’s policy is
to generally vote for proposals that relate specifically to soliciting votes for a merger or transaction if
supporting that merger or transaction. DWS’s policy is to generally vote against proposals if the wording is too vague or
if the proposal includes “other
business.”
Amend Quorum Requirements
DWS’s policy is to generally vote
case-by-case on proposals to reduce quorum requirements for shareholder meetings below
a majority of the shares outstanding, taking into consideration:
•
The
new quorum threshold requested;
•
The
rationale presented for the reduction;
•
The
market capitalization of the company (size, inclusion in indices);
•
The
company’s ownership structure;
•
Previous
voter turnout or attempts to achieve quorum;
•
Any
provisions or commitments to restore quorum to a majority of shares outstanding, should voter turnout improve sufficiently;
and
•
Other
factors as appropriate.
In general, a quorum threshold kept as
close to a majority of shares outstanding as is achievable is preferred.
DWS’s policy is
to generally vote case-by-case on directors who unilaterally lower the quorum requirements below a majority
of the shares outstanding, taking into consideration the factors listed above.
DWS’s policy is to generally vote
for bylaw or charter changes that are of a housekeeping nature (updates or corrections).
General Recommendation:
DWS’s policy is to generally vote for proposals to change the corporate name unless there
is compelling evidence that the change would adversely impact shareholder value.
Change Date, Time, or Location of Annual Meeting
DWS’s
policy is to generally vote for management proposals to change the date, time, or location of the annual meeting unless
the proposed change is unreasonable.
DWS’s policy is
to generally vote against shareholder proposals to change the date, time, or location of the annual meeting
unless the current scheduling or location is unreasonable.
DWS’s policy is to generally vote
against proposals to approve other business when it appears as a voting item.
SOCIAL AND ENVIRONMENTAL ISSUES
DWS’s policy will consider the Coalition
for Environmentally Responsible Economies (“CERES”)
guidance
on certain environmental
and social matters contained in the CERES Roadmap 2030 as well as the recommendations of the
ISS Sustainability Proxy Voting Guidelines
“Sustainability”
Policy on social and sustainability issues. DWS will rely on ISS to
identify shareholder proposals addressing CERES Roadmap 2030 to examine theses proxy items and to provide DWS
with a voting recommendation based on ISS’s application of the Guidelines including any factors set forth in the
Guidelines. DWS will generally vote such proxies in accordance with ISS’s
recommendations for topics covered under CERES Roadmap 2030.
DWS’s policy is
to generally vote for social and environmental shareholder proposals that are in the best economic interest
of clients. DWS’s general policy is to vote for disclosure reports that seek additional information particularly when
it appears companies have not adequately addressed shareholders' social, workforce, and environmental concerns. In
determining vote recommendations on shareholder social, workforce, and environmental proposals, DWS will analyze the
following factors:
•
Whether
the proposal itself is well framed and reasonable;
•
Whether
adoption of the proposal would have either a positive or negative impact on the company’s short-term or
long-term share value
•
Whether
the company’s analysis and voting recommendation to shareholders is persuasive
•
The
degree to which the company’s stated position on the issues could affect its reputation or sales, or leave it vulnerable
to boycott or selective purchasing
•
Whether
the subject of the proposal is best left to the discretion of the board
•
Whether
the issues presented in the proposal are best dealt with through legislation, government regulation, or company-specific
action
•
The
company’s approach compared with its peers or any industry standard practices for addressing the issue(s) raised
by the proposal
•
Whether
the company has already responded in an appropriate or sufficient manner to the issue(s) raised by the proposal
•
Whether
there are significant controversies, fines, penalties or litigation associated with the company’s practices related
to the issue(s) raised in the proposal
•
If
the proposal requests increased disclosure or greater transparency, whether sufficient information is publicly available
to shareholders and whether it would be unduly burdensome for the company to compile and avail the requested
information to shareholders in a more comprehensive or amalgamated fashion
•
Whether
implementation of the proposal would achieve the objectives sought in the proposal
Endorsement of Principles
DWS’s policy is to generally vote
case-by-case on proposals seeking a company's endorsement of principles that support
a particular public policy position. Endorsing a set of principles may require a company to take a stand on an issue
that is beyond its own control and may limit its flexibility with respect to future developments. Management and
the board should be afforded the flexibility to make decisions on specific public policy positions based on their own
assessment of the most beneficial strategies for the company.
DWS’s policy is to generally vote
for proposals seeking a report on a company’s animal welfare standards, or animal welfare-related
risks, considering whether:
•
The
company has already published a set of animal welfare standards and monitors compliance;
•
The
company’s standards are comparable to industry peers; and
•
There
are no recent significant fines, litigation, or controversies related to the company’s and/or its suppliers' treatment
of animals.
DWS’s policy is to generally vote
case-by-case on proposals to phase out the use of animals in product testing, considering whether:
•
The
company is conducting animal testing programs that are unnecessary or not required by regulation;
•
The
company is conducting animal testing when suitable alternatives are commonly accepted and used by industry peers;
or
•
There
are recent, significant fines or litigation related to the company’s treatment of animals.
DWS’s policy is to generally vote
case-by-case on proposals requesting the implementation of Controlled Atmosphere Killing
(CAK) methods at company and/or supplier operations unless such methods are required by legislation or generally accepted
as the industry standard.
DWS’s
policy is to generally vote case-by-case on proposals requesting a report on the feasibility of implementing CAK
methods at company and/or supplier operations considering the availability of existing research conducted by the
company or industry groups on this topic and any fines or litigation related to current animal processing procedures at
the company.
Genetically Modified Ingredients
DWS’s policy is to generally vote
case-by-case on proposals requesting that a company voluntarily label genetically engineered
(GE) ingredients in its products.
DWS’s policy is
to generally vote for proposals asking for a report on the feasibility of labeling products containing GE
ingredients, taking into account:
•
The
potential impact of such labelling on the company's business;
•
The
quality of the company’s disclosure on GE product labelling, related voluntary initiatives, and how this disclosure compares
with industry peer disclosure; and
•
Company’s
current disclosure on the feasibility of GE product labelling.
DWS’s policy is
to generally vote case-by-case on proposals seeking a report on the social, health, and environmental effects
of genetically modified organisms (GMOs).
DWS’s policy is
to generally vote against proposals to phase out GE ingredients from the company's products, or proposals
asking for reports outlining the steps necessary to eliminate GE ingredients from the company’s products.
Reports on Potentially Controversial Business/Financial
Practices
DWS’s policy is to generally vote
for requests for reports on a company’s potentially controversial business or financial practices
or products, taking into account:
•
Whether
the company has adequately disclosed mechanisms in place to prevent abuses;
•
Whether
the company has adequately disclosed the financial risks of the products/practices in question;
•
Whether
the company has been subject to violations of related laws or serious controversies; and
•
Peer
companies’ policies/practices in this area.
Pharmaceutical Pricing, Access to Medicines, and Prescription
Drug Reimportation
DWS’s policy is to generally vote
against
proposals requesting that companies implement specific price restraints on pharmaceutical
products taking into account whether the company fails to adhere to legislative guidelines or industry norms
in its product pricing practices.
DWS’s policy is
to generally vote for proposals requesting that a company report on its product pricing or access to medicine
policies, considering:
•
The
potential for reputational, market, and regulatory risk exposure;
•
Existing
disclosure of relevant policies;
•
Deviation
from established industry norms;
•
Relevant
company initiatives to provide research and/or products to disadvantaged consumers;
•
Whether
the proposal focuses on specific products or geographic regions;
•
The
potential burden and scope of the requested report; and
•
Recent
significant controversies, litigation, or fines at the company.
DWS’s policy is
to generally vote for proposals requesting that a company report on the financial and legal impact of its
prescription drug reimportation policies unless such information is already publicly disclosed.
DWS’s policy is
to generally vote case-by-case on proposals requesting that companies adopt specific policies to encourage or
constrain prescription drug reimportation.
Product Safety and Toxic/Hazardous Materials
DWS’s policy is to generally vote
for proposals requesting that a company report on its policies, initiatives/procedures, and
oversight mechanisms related to toxic/hazardous materials or product safety in its supply chain, considering whether:
•
The
company already discloses similar information through existing reports such as a supplier code of conduct and/or
a sustainability report;
•
The
company has formally committed to the implementation of a toxic/hazardous materials and/or product safety and
supply chain reporting and monitoring program based on industry norms or similar standards within a specified time
frame; or
•
The
company has not been recently involved in relevant significant controversies, fines, or litigation.
DWS’s policy is
to generally vote for resolutions requesting that companies develop a feasibility assessment to phase-out of
certain toxic/hazardous materials, or evaluate and disclose the potential financial and legal risks associated with utilizing
certain materials, considering:
•
The
company’s current level of disclosure regarding its product safety policies, initiatives, and oversight mechanisms;
•
Current
regulations in the markets in which the company operates; and
•
Recent
significant controversies, litigation, or fines stemming from toxic/hazardous materials at the company.
DWS’s policy is to generally vote
against
resolutions requiring that a company reformulate its products.
Tobacco-Related Proposals
DWS’s policy is to generally vote
case-by-case on resolutions regarding the advertisement of tobacco products, considering:
•
Recent
related fines, controversies, or significant litigation;
•
Whether
the company complies with relevant laws and regulations on the marketing of tobacco;
•
Whether
the company’s advertising restrictions deviate from those of industry peers;
•
Whether
the company entered into the Master Settlement Agreement, which restricts marketing of tobacco to youth;
and
•
Whether
restrictions on marketing to youth extend to foreign countries.
DWS’s policy is to generally vote
case-by-case on proposals regarding second-hand smoke, considering;
•
Whether
the company complies with all laws and regulations;
•
The
degree that voluntary restrictions beyond those mandated by law might hurt the company’s competitiveness; and
•
The
risk of any health-related liabilities.
DWS’s policy is
to generally vote against
resolutions to cease production of tobacco-related products, to avoid selling products
to tobacco companies, to spin-off tobacco-related businesses, or prohibit investment in tobacco equities. Such
business decisions are better left to company management or portfolio managers.
DWS’s policy is
to generally vote against
proposals regarding tobacco product warnings. Such decisions
are better left to public health authorities.
Say on Climate (SoC) Management Proposals
DWS’s policy is to generally vote
case-by-case on management proposals that request shareholders to approve the company’s
transition action plan23,
taking into account the completeness and rigor of the plan.
23
Variations of this request also include climate transition related
ambitions, or commitment to reporting on the implementation of
a climate plan.
Information that will be considered where
available includes the following:
•
The
extent to which the company’s climate related disclosures are in line with TCFD recommendations and meet other
market standards;
•
Disclosure
of its operational and supply chain Green House Gas (GHG) emissions (Scopes 1, 2, and 3);
•
The
completeness and rigor of company’s short-, medium-, and long-term targets for reducing operational and supply
chain GHG emissions (Scopes 1, 2 and 3 if relevant);
•
Whether
the company has sought and received third-party approval that its targets are science-based;
•
Whether
the company has made a commitment to be “net
zero”
for operational and supply chain emissions (Scopes 1, 2, and
3) by 2050;
•
Whether
the company discloses a commitment to report on the implementation of its plan in subsequent years;
•
Whether
the company’s climate data has received third-party assurance;
•
Disclosure
of how the company’s lobbying activities and its capital expenditures align with company strategy;
•
Whether
there are specific industry decarbonization challenges; and
•
The
company’s related commitment, disclosure, and performance compared to its industry peers.
Say on Climate (SoC) Shareholder Proposals
DWS’s policy is to generally vote
case-by-case on shareholder proposals that request the company to disclose a report on
providing its GHG emissions levels and reduction targets and/or its upcoming/approved climate transition action plan
and provide shareholders the opportunity to express approval or disapproval of its GHG emissions reduction plan, taking
into account information such as the following:
•
The
completeness and rigor of the company’s climate-related disclosure;
•
The
company’s actual GHG emissions performance;
•
Whether
the company has been the subject of recent, significant violations, fines litigation, or controversy related to
its GHG emissions; and
•
Whether
the proposal’s request is unduly burdensome (scope or timeframe) or overly prescriptive.
Climate Change/Greenhouse Gas (GHG) Emissions
DWS’s policy is to generally vote
for resolutions requesting that a company disclose information on the financial, physical,
or regulatory risks it faces related to climate change on its operations and investments or on how the company identifies,
measures, and manages such risks, considering:
•
Whether
the company already provides current, publicly-available information on the impact that climate change may
have on the company as well as associated company policies and procedures to address related risks and/or opportunities;
•
The
company's level of disclosure compared to industry peers; and
•
Whether
there are significant controversies, fines, penalties, or litigation associated with the company's climate change-related
performance.
DWS’s policy is
to generally vote for proposals requesting a report on greenhouse
gas (GHG) emissions from company operations and/or products and
operations, considering whether:
•
The
company already discloses current, publicly available information
on the impacts that GHG emissions may have on the company as
well as associated company policies and procedures to address related risks and/or opportunities;
•
The
company's level of disclosure is comparable to that of industry peers; or
•
There
are no significant, controversies, fines, penalties, or litigation associated with the company's GHG emissions.
DWS’s
policy is to generally vote for proposals that call for the adoption of GHG reduction goals from products and operations,
taking into account:
•
Whether
the company provides disclosure of year-over-year GHG emissions performance data;
•
Whether
company disclosure lags behind industry peers;
•
The
company's actual GHG emissions performance;
•
The
company's current GHG emission policies, oversight mechanisms, and related initiatives; and
•
Whether
the company has been the subject of recent, significant violations, fines, litigation, or controversy related to
GHG emissions.
DWS’s policy is to generally vote
for proposals requesting that a company report on its energy efficiency policies, considering
whether:
•
The
company complies with applicable energy efficiency regulations and laws, and discloses its participation in energy
efficiency policies and programs, including disclosure of benchmark data, targets, and performance measures; or
•
The
proponent requests adoption of specific energy efficiency goals within specific timelines.
DWS’s policy is to generally vote
for requests for reports on the feasibility of developing renewable energy resources unless
the report would be duplicative of existing disclosure or irrelevant to the company’s line of business.
DWS’s policy is
to generally vote case-by-case on proposals seeking increased investment in renewable energy resources taking
into consideration whether the terms of the resolution are overly restrictive.
DWS’s policy is
to generally vote for proposals that call for the adoption of renewable energy goals, taking into account:
•
The
scope and structure of the proposal;
•
The
company's current level of disclosure on renewable energy use and GHG emissions; and
•
The
company's disclosure of policies, practices, and oversight implemented to manage GHG emissions and mitigate climate
change risks.
DWS’s policy is to generally vote
for requests for reports on a company's efforts to diversify the board, considering whether:
•
The
gender and racial minority representation of the company’s board is reasonably inclusive in relation to companies of
similar size and business; or
•
The
board already reports on its nominating procedures and gender and racial minority initiatives on the board and
within the company.
DWS’s policy is
to generally vote for proposals asking a company to increase the gender and racial minority representation on
its board, taking into account:
•
The
degree of existing gender and racial minority diversity on the company’s board and among its executive officers;
•
The
level of gender and racial minority representation that exists at the company’s industry peers;
•
The
company’s established process for addressing gender and racial minority board representation;
•
Whether
the proposal includes an overly prescriptive request to amend nominating committee charter language;
•
The
independence of the company’s nominating committee;
•
Whether
the company uses an outside search firm to identify potential director nominees; and
•
Whether
the company has had recent controversies, fines, or litigation regarding equal employment practices.
DWS’s policy is to generally vote
for proposals requesting a company disclose its diversity policies or initiatives, or proposals
requesting disclosure of a company’s comprehensive workforce diversity data, including requests for EEO-1 data,
considering whether:
•
The
company publicly discloses equal opportunity policies and initiatives in a comprehensive manner;
•
The
company already publicly discloses comprehensive workforce diversity data; or
•
The
company has no recent significant EEO-related violations or litigation.
DWS’s policy is
to generally vote for shareholder proposals requesting nondiscrimination in salary, wages and all benefits.
DWS’s policy is
to generally vote for shareholder proposals calling for action on equal employment opportunity and antidiscrimination.
DWS’s policy is
to generally vote case-by-case on proposals seeking information on the diversity efforts of suppliers and
service providers.
Gender Identity, Sexual Orientation
and Domestic Partner Benefits
DWS’s policy is to generally vote
for proposals seeking to amend a company’s EEO statement or diversity policies to
prohibit discrimination based on sexual orientation and/or gender identity,
unless the change would be unduly burdensome.
Generally, vote for proposals to extend company benefits to domestic
partners.
DWS’s policy is
to generally vote for shareholder proposals seeking reports on a company’s initiatives to create a workplace
free of discrimination on the basis of sexual orientation or gender identity.
DWS’s
policy is to generally vote against shareholder proposals that seek to eliminate protection already afforded to gay
and lesbian employees.
Gender, Race / Ethnicity Pay Gap
DWS’s policy is to generally vote
case-by-case on
requests for reports on a company's pay data by gender or race /ethnicity,
or a report on a company’s policies and goals to reduce any gender, or race /ethnicity pay gaps, taking into account:
•
The
company's current policies and disclosure related to both its diversity and inclusion policies and practices and
its compensation philosophy on fair and equitable compensation practices;
•
Whether
the company has been the subject of recent controversy, litigation, or regulatory actions related to gender, race,
or ethnicity pay gap issues;
•
The
company’s disclosure regarding gender, race, or ethnicity pay gap policies or initiatives is compared to its industry
peers; and
•
Local
laws regarding categorization of race and/or ethnicity and definitions of ethnic and/or racial minorities.
Racial Equity and/or Civil Rights Audit Guidelines
DWS’s policy is to generally vote
for proposals asking a company to conduct an independent racial equity and/or civil rights
audit, taking into account:
•
The
company's established process or framework for addressing racial inequity and discrimination internally;
•
Whether
the company adequately discloses workforce diversity and inclusion metrics and goals;
•
Whether
the company has issued a public statement related to its racial justice efforts in recent years; or has committed
to internal policy review;
•
Whether
the company has engaged with impacted communities, stakeholders, and civil rights experts;
•
The
company’s track record in recent years of racial justice measures and outreach externally;
•
Whether
the company has been the subject of recent controversy, litigation, or regulatory actions related to racial inequity
or discrimination.
Environment and Sustainability
Facility and Workplace Safety
DWS’s policy is to generally vote
for requests for workplace safety reports, including reports on accident risk reduction efforts,
taking into account:
•
The
company’s current level of disclosure of its workplace health and safety performance data, health and safety management
policies, initiatives, and oversight mechanisms;
•
The
nature of the company’s business, specifically regarding company and employee exposure to health and safety
risks;
•
Recent
significant controversies, fines, or violations related to workplace health and safety; and
•
The
company's workplace health and safety performance relative to industry peers.
DWS’s policy is
to generally vote case-by-case on resolutions requesting that a company report on or implement safety/security risk
procedures associated with their operations and/or facilities, considering:
•
The
company’s compliance with applicable regulations and guidelines;
•
The
company’s current level of disclosure regarding its security and safety policies, procedures, and compliance monitoring;
and
•
The
existence of recent, significant violations, fines, or controversy regarding the safety and security of the company’s operations
and/or facilities.
General Environmental Proposals and Community Impact
Assessments
DWS’s policy is to generally vote
for requests for reports on policies and/or the potential (community) social and/or environmental
impact of company operations, considering:
•
Current
disclosure of applicable policies and risk assessment report(s) and risk management procedures;
•
The
impact of regulatory non-compliance, litigation, remediation, or reputational loss that may be associated with failure
to manage the company’s operations in question, including the management of relevant community and stakeholder
relations;
•
The
nature, purpose, and scope of the company’s operations in the specific region(s);
•
The
degree to which company policies and procedures are consistent with industry norms; and
•
The
scope of the resolution.
DWS’s policy is to generally vote
for proposals requesting greater disclosure of a company's (natural gas) hydraulic fracturing
operations, including measures the company has taken to manage and mitigate the potential community and
environmental impacts of those operations, considering:
•
The
company's current level of disclosure of relevant policies and oversight mechanisms;
•
The
company's current level of such disclosure relative to its industry peers;
•
Potential
relevant local, state, or national regulatory developments; and
•
Controversies,
fines, or litigation related to the company's hydraulic fracturing operations.
Operations in Protected Areas
DWS’s policy is to generally vote
for requests for reports on potential environmental damage as a result of company operations
in protected regions, considering whether:
•
Operations
in the specified regions are not permitted by current laws or regulations;
•
The
company does not currently have operations or plans to develop operations in these protected regions; or
•
The
company’s disclosure of its operations and environmental policies in these regions is comparable to industry peers.
DWS’s policy is
to generally vote for shareholder proposals asking companies to prepare reports or adopt policies on operations
that include mining, drilling or logging in environmentally sensitive areas.
DWS’s policy is
to generally vote for shareholder proposals seeking to curb or reduce the sale of products manufactured from
materials extracted from environmentally sensitive areas such as old growth forests.
DWS’s policy is to generally vote
for proposals to report on an existing recycling program or adopt a new recycling program,
taking into account:
•
The
nature of the company’s business;
•
The
current level of disclosure of the company's existing related programs;
•
The
timetable and methods of program implementation prescribed by the proposal;
•
The
company’s ability to address the issues raised in the proposal; and
•
How
the company's recycling programs compare to similar programs of its industry peers.
DWS’s policy is to generally vote
for proposals requesting that a company report on its policies, initiatives, and oversight mechanisms
related to social, economic, and environmental sustainability, considering whether:
•
The
company already discloses similar information through existing reports or policies such as an environment, health,
and safety (EHS) report; a comprehensive code of corporate conduct; and/or a diversity report; or
•
The
company has formally committed to the implementation of a reporting program based on Global Reporting Initiative
(GRI) guidelines or a similar standard within a specified time frame.
DWS’s policy is to generally vote
for proposals requesting a company report on, or adopt a new policy on, water-related risks
and concerns, taking into account:
•
The
company's current disclosure of relevant policies, initiatives, oversight mechanisms, and water usage metrics;
•
Whether
or not the company's existing water-related policies and practices are consistent with relevant internationally recognized
standards and national/local regulations;
•
The
potential financial impact or risk to the company associated with water-related concerns or issues; and
•
Recent,
significant company controversies, fines, or litigation regarding water use by the company and its suppliers.
DWS’s policy is to generally vote
against proposals restricting a company from making charitable contributions.
Charitable contributions
are generally useful for assisting worthwhile causes and for creating goodwill in the community. In
the absence of bad faith, self-dealing, or gross negligence, management should determine which, and if, contributions are
in the best interests of the company.
Data Security, Privacy, and Internet Issues
DWS’s policy is to generally vote
case-by-case on
proposals requesting the disclosure or implementation of data security, privacy,
or information access and management policies and procedures, considering:
•
The
level of disclosure of company policies and procedures relating to data security, privacy, freedom of speech, information
access and management, and Internet censorship;
•
Engagement
in dialogue with governments or relevant groups with respect to data security, privacy, or the free flow
of information on the Internet;
•
The
scope of business involvement and of investment in countries whose governments censor or monitor the Internet
and other telecommunications;
•
Applicable
market-specific laws or regulations that may be imposed on the company; and
•
Controversies,
fines, or litigation related to data security, privacy, freedom of speech, or Internet censorship.
Environmental, Social, and Governance (ESG) Compensation-Related
Proposals
DWS’s policy is to generally vote
for proposals seeking a report or additional disclosure on the company’s approach, policies,
and practices on incorporating environmental and social criteria into its executive compensation strategy, considering:
•
The
scope and prescriptive nature of the proposal;
•
The
company’s current level of disclosure regarding its environmental and social performance and governance;
•
The
degree to which the board or compensation committee already discloses information on whether it has considered related
environmental or social criteria; and
•
Whether
the company has significant controversies or regulatory violations regarding social and/or environmental issues.
Human Rights, Human Capital Management, and International
Operations
DWS’s policy is to generally vote
for proposals requesting a report on company or company supplier labor and/or human
rights standards and policies unless such information is already publicly disclosed.
DWS’s policy is
to generally vote for proposals to implement company or company supplier labor and/or human rights standards
and policies, considering:
•
The
degree to which existing relevant policies and practices are disclosed;
•
Whether
or not existing relevant policies are consistent with internationally recognized standards;
•
Whether
company facilities and those of its suppliers are monitored and how;
•
Company
participation in fair labor organizations or other internationally recognized human rights initiatives;
•
Scope
and nature of business conducted in markets known to have higher risk of workplace labor/human rights abuse;
•
Recent,
significant company controversies, fines, or litigation regarding human rights at the company or its suppliers;
•
The
scope of the request; and
•
Deviation
from industry sector peer company standards and practices.
DWS’s policy is
to generally vote for proposals requesting that a company conduct an assessment of the human rights risks
in its operations or in its supply chain, or report on its human rights risk assessment process, considering:
•
The
degree to which existing relevant policies and practices are disclosed, including information on the implementation of
these policies and any related oversight mechanisms;
•
The
company’s industry and whether the company or its suppliers operate in countries or areas where there is a
history of human rights concerns;
•
Recent
significant controversies, fines, or litigation regarding human rights involving the company or its suppliers, and
whether the company has taken remedial steps; and
•
Whether
the proposal is unduly burdensome or overly prescriptive.
DWS’s policy is to generally vote
case-by-case on
requests for a report on a company’s use of mandatory arbitration on
employment-related claims, taking into account:
•
The
company's current policies and practices related to the use of mandatory arbitration agreements on workplace claims;
•
Whether
the company has been the subject of recent controversy, litigation, or regulatory actions related to the use
of mandatory arbitration agreements on workplace claims; and
•
The
company's disclosure of its policies and practices related to the use of mandatory arbitration agreements compared
to its peers.
Operations in High Risk Markets
DWS’s policy is to generally vote
case-by-case on
requests for a report on a company’s potential financial and reputational risks
associated with operations in “high-risk”
markets, such as a terrorism-sponsoring state or politically/socially unstable region,
taking into account:
•
The
nature, purpose, and scope of the operations and business involved that could be affected by social or political disruption;
•
Current
disclosure of applicable risk assessment(s) and risk management procedures;
•
Compliance
with U.S. sanctions and laws;
•
Consideration
of other international policies, standards, and laws; and
•
Whether
the company has been recently involved in recent, significant controversies, fines, or litigation related to
its operations in “high-risk”
markets.
DWS’s policy is to generally vote
case-by-case on
proposals calling for companies to report on the risks associated with
outsourcing/plant closures, considering:
•
Controversies
surrounding operations in the relevant market(s);
•
The
value of the requested report to shareholders;
•
The
company’s current level of disclosure of relevant information on outsourcing and plant closure procedures; and
•
The
company’s existing human rights standards relative to industry peers.
DWS’s policy is to generally vote
case-by-case on
requests for a report on company actions taken to strengthen policies and
oversight to prevent workplace sexual harassment, or a report on risks posed by a company’s failure to prevent workplace
sexual harassment, taking into account:
•
The
company’s current policies, practices, oversight mechanisms related to preventing workplace sexual harassment;
•
Whether
the company has been the subject of recent controversy, litigation, or regulatory actions related to workplace sexual
harassment issues; and
•
The
company’s disclosure regarding workplace sexual harassment policies or initiatives compared to its industry peers.
Weapons and Military Sales
DWS’s policy is to generally vote
against
reports on foreign military sales or offsets, taking into account
when such disclosures may involve sensitive
and confidential information. Moreover, companies must comply
with government controls and reporting on foreign military sales.
DWS’s policy is
to generally vote case-by-case on
shareholder proposals seeking a report on the renouncement of future
landmine production.
DWS’s policy is
to generally vote against
shareholder proposals requesting a report on the involvement, policies, and procedures
related to depleted uranium and nuclear weapons.
DWS’s policy is
to generally vote case-by-case on proposals that call for outright restrictions on foreign military sales.
DWS’s policy is
to generally vote for shareholder proposals asking companies to review and amend, if necessary, the company’s
code of conduct and statements of ethical criteria for military production related contract bids, awards and
execution.
DWS’s policy is to generally vote
case-by-case on
proposals requesting information on a company’s lobbying (including direct,
indirect, and grassroots lobbying) activities, policies, or procedures, considering:
•
The
company’s current disclosure of relevant lobbying policies, and management and board oversight;
•
The
company’s disclosure regarding trade associations or other groups that it supports, or is a member of, that engage
in lobbying activities; and
•
Recent
significant controversies, fines, or litigation regarding the company’s lobbying-related activities.
DWS’s policy is to generally vote
for proposals requesting greater disclosure of a company's political contributions and
trade association spending policies and activities, considering:
•
The
company's policies, and management and board oversight related to its direct political contributions and payments
to trade associations or other groups that may be used for political purposes;
•
The
company's disclosure regarding its support of, and participation in, trade associations or other groups that may
make political contributions; and
•
Recent
significant controversies, fines, or litigation related to the company's political contributions or political activities.
DWS’s
policy is to generally vote against
proposals barring a company from making political contributions. Businesses are
affected by legislation at the federal, state, and local level; barring political contributions can put the company at a
competitive disadvantage.
DWS’s policy is
to generally vote against
proposals to publish in newspapers and other media a company's political contributions.
Such publications could present significant cost to the company without providing commensurate value to
shareholders.
Political Expenditures and Lobbying Congruency
DWS’s policy is to generally vote
case-by-case on
proposals requesting greater disclosure of a company’s alignment of
political contributions, lobbying and electioneering spending with a company’s publicly stated values and policies, unless
the terms of the proposal are unduly restrictive. Additionally, DWS will consider whether:
•
The
company's policies, management, board oversight, governance processes and level of disclosure related to direct
political contributions, lobbying activities, and payments to trade associations, political action committees, or
other groups that may be used for political purposes;
•
The
company’s disclosure regarding: the reasons for its support of candidates for public offices; the reasons for support
of and participation in trade associations or other groups that may make political contributions; and other political
activities;
•
Any
incongruencies identified between a company’s direct and indirect political expenditures and its publicly stated values
and priorities; and
•
Recent
significant controversies related to the company’s direct and indirect lobbying, political contributions or political
activities.
DWS’s policy is
to generally vote case-by-case on proposals requesting comparison of a company’s political spending to
objectives that can mitigate material risk for the company, such as limiting global warming.
DWS’s policy is to generally vote
against
proposals asking a company to affirm political nonpartisanship in the workplace, considering
whether:
•
There
are no recent, significant controversies, fines, or litigation regarding the company’s political contributions or
trade association spending; and
•
The
company has procedures in place to ensure that employee contributions to company-sponsored political action
committees (PACs) are strictly voluntary and prohibit coercion.
DWS’s policy is
to generally vote against
shareholder proposals calling for the disclosure of prior government service of
the company’s key executives and whether such service had
a bearing on the business of the company.
REGISTERED
INVESTMENT COMPANY PROXIES
DWS’s policy is to generally vote
case-by-case on the election of directors and trustees.
Closed End Fund - Unilateral Opt-In to Control Share
Acquisition Statutes
For closed-end management investment companies
(CEFs), DWS’s policy is to generally vote on a case-by-case basis for
nominating/governance committee members (or other directors on a case-by-case basis) at CEFs that have not provided
a compelling rationale for opting-in to a Control Share Acquisition Statute, nor submitted a by-law amendment to
a shareholder vote.
Converting Closed-end Fund to Open-end Fund
DWS’s policy is to generally vote
case-by-case on conversion proposals, considering the following factors:
•
Past
performance as a closed-end fund;
•
Market
in which the fund invests;
•
Measures
taken by the board to address the discount; and
•
Past
shareholder activism, board activity, and votes on related proposals.
DWS’s policy is to generally vote
case-by-case on proxy contests, considering the following factors:
•
Past
performance relative to its peers;
•
Market
in which the fund invests;
•
Measures
taken by the board to address the issues;
•
Past
shareholder activism, board activity, and votes on related proposals;
•
Strategy
of the incumbents versus the dissidents;
•
Independence
of directors;
•
Experience
and skills of director candidates;
•
Governance
profile of the company; and
•
Evidence
of management entrenchment.
Investment Advisory Agreements
DWS’s policy is to generally vote
case-by-case on investment advisory agreements, considering the following factors:
•
Proposed
and current fee schedules;
•
Fund
category/investment objective;
•
Performance
benchmarks;
•
Share
price performance as compared with peers;
•
Resulting
fees relative to peers; and
•
Assignments
(where the advisor undergoes a change of control).
Approving New Classes or Series of Shares
DWS’s policy is to generally vote
case-by-case on the establishment of new classes or series of shares.
Preferred Stock Proposals
DWS’s policy is to generally vote
case-by-case on the authorization for or increase in preferred shares, considering the
following factors:
•
Stated
specific financing purpose;
•
Possible
dilution for common shares; and
•
Whether
the shares can be used for antitakeover purposes.
DWS’s policy is to generally vote
case-by-case on policies under the Investment Advisor Act of 1940, considering the following
factors:
•
Potential
competitiveness;
•
Regulatory
developments;
•
Current
and potential returns; and
•
Current
and potential risk.
DWS’s policy is
to generally vote for these amendments as long as the proposed changes do not fundamentally alter the
investment focus of the fund and do comply with the current SEC interpretation.
Changing a Fundamental Restriction
to a Nonfundamental Restriction
DWS’s policy is to generally vote
case-by-case on proposals to change a fundamental restriction to a non-fundamental restriction,
considering the following factors:
•
The
fund's target investments;
•
The
reasons given by the fund for the change; and
•
The
projected impact of the change on the portfolio.
Change Fundamental Investment Objective to Nonfundamental
DWS’s policy is to generally vote
case-by-case on proposals to change a fund’s fundamental investment objective to non-fundamental.
DWS’s policy is to generally vote
case-by-case on name change proposals, considering the following factors:
•
Political/economic
changes in the target market;
•
Consolidation
in the target market; and
•
Current
asset composition.
Change in Fund's Subclassification
DWS’s policy is to generally vote
case-by-case on changes in a fund's sub-classification, considering the following factors:
•
Potential
competitiveness;
•
Current
and potential returns;
•
Risk
of concentration; and
•
Consolidation
in target industry.
Business Development Companies—Authorization to
Sell Shares of Common Stock at a Price below Net Asset Value
DWS’s policy is to generally vote
case-by-case on proposals authorizing the board to issue shares below Net Asset Value
(NAV) if:
•
The
proposal to allow share issuances below NAV has an expiration date no more than one year from the date shareholders
approve the underlying proposal, as required under the Investment Company Act of 1940;
•
The
sale is deemed to be in the best interests of shareholders by (1) a majority of the company's independent directors
and (2) a majority of the company's directors who have no financial interest in the issuance; and
•
The
company has demonstrated responsible past use of share issuances by either:
•
Outperforming
peers in its 8-digit GICS group as measured by one- and three-year median TSRs; or
•
Providing
disclosure that its past share issuances were priced at levels that resulted in only small or moderate discounts
to NAV and economic dilution to existing non-participating shareholders.
Disposition of Assets/Termination/Liquidation
DWS’s policy is to generally vote
case-by-case on proposals to dispose of assets, to terminate or liquidate, considering the
following factors:
•
Strategies
employed to salvage the company;
•
The
fund’s past performance;
•
The
terms of the liquidation.
Changes to the Charter Document
DWS’s policy is to generally vote
case-by-case on changes to the charter document, considering the following factors:
•
The
degree of change implied by the proposal;
•
The
efficiencies that could result;
•
The
state of incorporation; and
•
Regulatory
standards and implications.
Changing the Domicile of a Fund
DWS’s policy is to generally vote
case-by-case on re-incorporations, considering the following factors:
•
Regulations
of both states;
•
Required
fundamental policies of both states; and
•
The
increased flexibility available.
Authorizing the Board to Hire and Terminate Subadvisors
Without Shareholder Approval
DWS’s
policy is to generally vote case-by-case on proposals authorizing the board to hire or terminate subadvisors
without shareholder approval if the investment advisor
currently employs only one subadvisor.
DWS’s policy is to generally vote
case-by-case on distribution agreement proposals, considering the following factors:
•
Fees
charged to comparably sized funds with similar objectives;
•
The
proposed distributor’s reputation and past performance;
•
The
competitiveness of the fund in the industry; and
•
The
terms of the agreement.
DWS’s policy is to generally vote
case-by-case on the establishment of a master-feeder structure.
DWS’s policy is to generally vote
case-by-case on merger proposals, considering the following factors:
•
Resulting
fee structure;
•
Performance
of both funds;
•
Continuity
of management personnel; and
•
Changes
in corporate governance and their impact on shareholder rights.
Shareholder Proposals for Mutual Funds
Establish Director Ownership Requirement
DWS’s policy is to generally vote
case-by-case on shareholder proposals that mandate a specific minimum amount of
stock that directors must own in order to qualify as a director or to remain on the board.
Reimburse Shareholder for Expenses Incurred
DWS’s policy is to generally vote
case-by-case on shareholder proposals to reimburse proxy solicitation expenses. When
supporting the dissidents, vote for the reimbursement of the proxy solicitation expenses.
Terminate the Investment Advisor
DWS’s
policy is to generally vote case-by-case on proposals to terminate the investment advisor, considering the following
factors:
•
Performance
of the fund’s Net Asset Value (NAV);
•
The
fund’s history of shareholder relations; and
•
The
performance of other funds under the advisor’s management.
INTERNATIONAL PROXY VOTING
The above guidelines pertain
to issuers organized in the United States. Proxies solicited by other issuers are voted in
accordance with international guidelines or the recommendation of ISS and in accordance with applicable law and regulation.
Classification of Directors – U.S.
1.1.
Current
employee or current officer1
of the company or one of its affiliates2.
2.
Non-Independent
Non-Executive Director
2.1.
Director
identified as not independent by the board.
Controlling/Significant
Shareholder
2.2.
Beneficial
owner of more than 50 percent of the company's voting power (this may be aggregated if voting
power is distributed among more than one member of a group).
Current Employment
at Company or Related Company
2.3.
Non-officer
employee of the firm (including employee representatives).
2.4.
Officer1,
former officer, or general or limited partner of a joint venture or partnership with the company.
2.5.
Former
CEO of the company.3, 4
2.6.
Former
non-CEO officer1
of the company or an affiliate2
within the past five years.
2.7.
Former
officer1
of an acquired company within the past five years.4
2.8.
Officer1
of a former parent or predecessor firm at the time the company was sold or split off within the
past five years.
2.9.
Former
interim officer if the service was longer than 18 months. If the service was between 12 and 18
months, an assessment of the interim officer’s employment agreement will be made.5
2.10.
Immediate
family member6
of a current or former officer1
of the company or its affiliates2
within the last five years.
2.11.
Immediate
family member6
of a current employee of company or its affiliates2
where additional factors raise concern (which may include, but
are not limited to, the following: a director related to numerous
employees; the company or its affiliates employ relatives of numerous board members; or a
non-Section 16 officer in a key strategic role).
Professional,
Transactional, and Charitable Relationships
Director who (or whose immediate family
member6)
currently provides professional services7
in excess of the $10,000 per year to the company, an affiliate2
or an individual officer of the company or
2.12.
(an
affiliate; or who is (or whose immediate family member6
is) a partner, employee or controlling shareholder of, an organization
which provides services.
Director who (or whose immediate family
member6)
currently has any material transactional relationship8
with the company or its affiliates2.
2.13.
;
or who is (or whose immediate family member6
is) a partner in, or a controlling shareholder or an executive
officer of, an organization which has the material transactional relationship8
(excluding investments in the company through a private placement).
2.14.
Director
who (or whose immediate family member6)
is) a trustee, director, or employee of a charitable or non-profit
organization that receives material grants or endowments8
from the company or its affiliates2.
2.15.
Party
to a voting agreement9
to vote in line with management on proposals being brought to shareholder
vote.
2.16.
Has
(or an immediate family member6
has) an interlocking relationship as defined by the SEC involving
members of the board of directors or its Compensation Committee.10
2.17.
Founder11
of the company but not currently an employee.
2.18.
Director
with pay comparable to Named Executive Officers.
2.19.
Any
material12
relationship with the company.
3.1.
No
material12
connection to the company other than a board seat.
1
The definition of officer will generally follow that of a “Section
16 officer”
(officers subject to Section 16 of the Securities
and Exchange Act of 1934) and includes the chief executive, operating, financial, legal, technology, and accounting
officers of a company (including the president, treasurer, secretary, controller, or any vice president in charge
of a principal business unit, division, or policy function). Current interim officers are included in this category. For
private companies, the equivalent positions are applicable. A non-employee director serving as an officer due to statutory
requirements (e.g.,
corporate secretary) will generally be classified as a Non-Independent Non-Executive Director
under 2.19: “Any
material relationship with the company.”
However, if the company provides explicit disclosure that
the director is not receiving additional compensation exceeding $10,000 per year for serving in that capacity, then
the director will be classified as an Independent Director.
2
“Affiliate”
includes a subsidiary, sibling company, or parent company. 50 percent control ownership is used by the parent
company as the standard for applying its affiliate designation. The manager/advisor of an externally managed issuer
(EMI) is considered an affiliate.
3 Includes
any former CEO of the company prior to the company’s initial public offering (IPO).
4
When there is a former CEO of a special purpose acquisition company
(SPAC) serving on the board of an acquired company,
DWS will generally classify such directors as independent unless determined otherwise taking into account the
following factors: the applicable listing standards determination of such director’s independence; any operating ties
to the firm; and the existence of any other conflicting relationships or related party transactions.
5
ISS will look at the terms of the interim officer’s employment
contract to determine if it contains severance pay, long-term
health and pension benefits, or other such standard provisions typically contained in contracts of permanent, non-temporary
CEOs. DWS will also consider if a formal search process was under way for a full-time officer at the time.
6
“Immediate
family member”
follows the SEC’s definition of such and covers spouses, parents, children, stepparents, step-children,
siblings, in-laws, and any person (other than a tenant or employee) sharing the household of any director, nominee
for director, executive officer, or significant shareholder of the company.
7
Professional services can be characterized as advisory in nature,
generally involve access to sensitive company information or
to strategic decision-making, and typically have a commission- or fee-based payment structure. Professional services generally
include but are not limited to the following: investment banking/financial advisory services, commercial banking (beyond
deposit services), investment services, insurance services, accounting/audit services, consulting services, marketing
services, legal services, property management services, realtor services, lobbying services, executive search services,
and IT consulting services. The following would generally be considered transactional relationships and not professional
services: deposit services, IT tech support services, educational services, and construction services. The case
of participation in a banking syndicate by a non-lead bank should be considered a transactional (and hence subject to
the associated materiality test) rather than a professional relationship. “Of
Counsel”
relationships are only considered immaterial
if the individual does not receive any form of compensation (in excess of $10,000 per year) from, or is a retired
partner of, the firm providing the professional service. The case of a company providing a professional service to
one of its directors or to an entity with which one of its directors is affiliated, will be considered a transactional rather
than a professional relationship. Insurance services and marketing services are assumed to be professional services
unless the company explains why such services are not advisory.
8
A material transactional relationship, including grants to non-profit
organizations, exists if the company makes annual payments
to, or receives annual payments from, another entity, exceeding the greater of: $200,000 or 5 percent of the
recipient’s gross revenues, for a company that follows NASDAQ listing standards; or the greater of $1,000,000 or
2 percent of the recipient’s gross revenues, for a company that follows NYSE listing standards. For a company that follows
neither of the preceding standards, DWS will apply the NASDAQ-based materiality test. (The recipient is the party
receiving the financial proceeds from the transaction).
9
Dissident directors who are parties to a voting agreement pursuant
to a settlement or similar arrangement may be classified
as Independent Directors if an analysis of the following factors indicates that the voting agreement does not
compromise their alignment with all shareholders’ interests: the terms of the agreement; the duration of the standstill
provision in the agreement; the limitations and requirements of actions that are agreed upon; if the dissident director
nominee(s) is subject to the standstill; and if there any conflicting relationships or related party transactions.
10
Interlocks include: executive officers serving as directors on
each other’s compensation or similar committees (or, in
the absence of such a committee, on the board); or executive officers sitting on each other’s boards and at least one
serves on the other’s compensation or similar committees (or, in the absence of such a committee, on the board).
11
The operating involvement of the founder with the company will
be considered; if the founder was never employed by the company,
DWS may deem him or her an Independent Director.
12
For purposes of DWS’s director independence classification,
“material”
will be defined as a standard of relationship (financial,
personal or otherwise) that a reasonable person might conclude could potentially influence one’s objectivity in
the boardroom in a manner that would have a meaningful impact on an individual's ability to satisfy requisite fiduciary standards
on behalf of shareholders.
PART C. OTHER INFORMATION
Item 28. |
Exhibits |
|
|
|
|
|
|
|
(a) |
(1) |
Amended
and Restated Declaration of Trust dated June 2, 2008. (Incorporated by reference to Post-Effective Amendment No. 45 to the Registration
Statement, as filed on November 26, 2008.) |
|
|
|
|
|
|
(2) |
Amended
and Restated Establishment and Designation of Series and Classes of Shares of Beneficial Interest, Without Par Value dated January 22,
2009. (Incorporated by reference to Post-Effective Amendment No. 46 to the Registration Statement, as filed on October
2, 2009.) |
|
|
|
|
|
|
(3) |
Amended
and Restated Establishment and Designation of Series and Classes of Shares of Beneficial Interest, Without Par Value dated January 12,
2011. (Incorporated by reference to Post-Effective Amendment No. 51 to the Registration Statement, as filed on May 18, 2011.) |
|
|
|
|
|
|
(4) |
Certification
of Correction dated January 28, 2011. (Incorporated by reference to Post-Effective Amendment No. 51 to the Registration Statement,
as filed on May 18, 2011.) |
|
|
|
|
|
|
(5) |
Amendment
of Amended and Restated Declaration of Trust, dated July 9, 2014. (Incorporated by reference to Post-Effective Amendment No. 64 to
the Registration Statement, as filed on July 29, 2014.) |
|
|
|
|
|
|
(6) |
Amended
and Restated Establishment and Designation of Series and Classes of Shares of Beneficial Interest, With $0.01 Par Value dated July 9,
2014. (Incorporated by reference to Post-Effective Amendment No. 64 to the Registration Statement, as filed on July 29, 2014.) |
|
|
|
|
|
|
(7) |
Amended
and Restated Establishment and Designation of Series and Classes of Shares of Beneficial Interest, Without Par Value dated March 6, 2015.
(Incorporated by reference to Post-Effective Amendment No. 68 to the Registration Statement, as filed on July 29, 2015.) |
|
|
|
|
|
|
(8) |
Amended
and Restated Establishment and Designation of Series and Classes of Shares of Beneficial Interest, Without Par Value dated February 12,
2016. (Incorporated by reference to Post-Effective Amendment No. 72 to the Registration Statement, as filed on July 28, 2016.) |
|
|
|
|
|
|
(9) |
Amended
and Restated Establishment and Designation of Series and Classes of Shares of Beneficial Interest, Without Par Value dated December 2,
2016. (Incorporated by reference to Post-Effective Amendment No. 76 to the Registration Statement, as filed on March 30, 2017.) |
|
|
|
|
|
|
(10) |
Amendment,
Statement of Change of Principal Office, dated February 9, 2018. (Incorporated by reference to Post-Effective Amendment No. 82 to
the Registration Statement, as filed on July 27, 2018.) |
|
|
|
|
|
|
(11) |
Amended
and Restated Establishment and Designation of Series and Classes of Shares of Beneficial Interest, Without Par Value, dated May 16, 2018.
(Incorporated by reference to Post-Effective Amendment No. 82 to the Registration Statement, as filed on July 27, 2018.) |
|
|
|
|
|
|
(12) |
Amendment
of Amended and Restated Declaration of Trust, dated May 16, 2018. (Incorporated by reference to Post-Effective Amendment No. 82 to
the Registration Statement, as filed on July 27, 2018.) |
|
|
|
|
|
|
(13) |
Amendment,
Statement of Change of Principal Office, dated November 22, 2019. (Incorporated by reference to Post-Effective Amendment No. 90 to
the Registration Statement, as filed on July 28, 2020.) |
|
|
|
|
|
|
(14) |
Amended
and Restated Establishment and Designation of Series and Classes of Shares of Beneficial Interest, Without Par Value, dated September
25, 2020. (Incorporated by reference to Post-Effective Amendment No. 93 to the Registration Statement, as filed on November 25, 2020.) |
|
|
|
|
|
|
(15) |
Amendment,
Statement of Change of Principal Office, dated November 20, 2020. (Incorporated by reference to Post-Effective Amendment No. 94 to
the Registration Statement, as filed on July 28, 2021.) |
|
|
|
|
|
|
(16) |
Amended
and Restated Establishment and Designation of Series and Classes of Shares of Beneficial Interest, Without Par Value, dated September
22, 2022. (Incorporated by reference to Post-Effective Amendment No. 97 to the Registration Statement, as filed on November 29, 2022.) |
|
|
|
|
|
(b) |
|
Amended
and Restated Bylaws dated December 1, 2015. (Incorporated by reference to Post-Effective Amendment No. 70 to the Registration Statement,
as filed on November 30, 2015.) |
|
|
|
|
|
(c) |
(1) |
Instruments defining the rights of shareholders, including the relevant portions of
the Amended and Restated Declaration of Trust, dated June 2, 2008, as amended through September 22, 2022 (see Section 5.2). Referenced
in exhibits (a)(1) through (a)(16) to this Item, above. |
|
|
|
|
|
|
(2) |
Instruments defining the rights of shareholders, including the relevant portions of
the Amended and Restated Bylaws, dated December 1, 2015 (see Article 9). Referenced in exhibit (b) to this Item, above. |
|
|
|
|
|
(d) |
|
Amended
and Restated Investment Management Agreement between the Registrant, on behalf of DWS California Tax-Free Income Fund, and Deutsche Investment
Management Americas Inc. (now known as DWS Investment Management Americas, Inc.), dated May 1, 2008 and amended October 1, 2021; and between
the Registrant, on behalf of DWS New York Tax-Free Income Fund, and Deutsche Investment Management Americas Inc. (now known as DWS Investment
Management Americas, Inc.), dated September 1, 2008 and amended October 1, 2021; and between the Registrant, on behalf of DWS Massachusetts
Tax-Free Fund, and Deutsche Investment Management Americas Inc. (now known as DWS Investment Management Americas, Inc.), dated August
1, 2011 and amended October 1, 2021. (Incorporated by reference to Post-Effective Amendment No. 95 to the Registration Statement,
as filed on November 24, 2021.) |
|
|
|
|
|
(e) |
(1) |
Master
Distribution Agreement between the Registrant and DWS Investments Distributors, Inc. (now known as DWS Distributors, Inc.), dated January
13, 2010. (Incorporated by reference to Post-Effective Amendment No. 50 to the Registration Statement, as filed on November 30, 2010.)
|
|
|
|
|
|
|
(2) |
Appendix
A, as amended September 30, 2022, to the Master Distribution Agreement dated January 13, 2020. (Incorporated by reference to Post-Effective
Amendment No. 97 to the Registration Statement, as filed on November 29, 2022.) |
|
|
|
|
|
|
(3) |
Form
of Selling Group Agreement. (Incorporated by reference to Post-Effective Amendment No. 97 to the Registration Statement, as filed
on November 29, 2022.) |
|
|
|
|
|
(f) |
|
Not applicable. |
|
|
|
|
|
(g) |
(1) |
Master
Custodian Agreement between the Registrant and State Street Bank and Trust Company dated November 17, 2008. (Incorporated by reference
to Post-Effective Amendment No. 46 to the Registration Statement, as filed on October 2, 2009.) |
|
|
|
|
|
|
(2) |
Amendment,
effective as of January 20, 2017, to the Master Custodian Agreement between the Registrant and State Street Bank and Trust Company, dated
November 17, 2008. (Incorporated by reference to Post-Effective Amendment No. 76 to the Registration Statement, as filed on March
30, 2017.) |
|
|
|
|
|
|
(3) |
Amendment,
effective as of January 1, 2020, to the Master Custodian Agreement between the Registrant and State
Street Bank and Trust Company, dated November 17, 2008. (Incorporated by reference
to Post-Effective Amendment No. 90 to the Registration Statement, as filed on July 28, 2020.) |
|
|
|
|
|
|
(4) |
Appendix
A, effective as of July 2, 2018, to the Master Custodian Agreement between the Registrant and State Street Bank and Trust Company, dated
November 17, 2008. (Incorporated by reference to Post-Effective Amendment No. 82 to the Registration Statement, as filed on July 27,
2018.) |
|
|
|
|
|
(h) |
(1) |
Agency
Agreement, dated April 1, 2007, between the Registrant and DWS Scudder Investments Service Company (now known as DWS Service Company).
(Incorporated by reference to Post-Effective Amendment No. 44 to the Registration Statement, as filed on November 30, 2007.) |
|
|
|
|
|
|
(2) |
Amendment
No. 1, made as of July 13, 2016, to the Agency Agreement dated April 1, 2007. (Incorporated by reference to Post-Effective Amendment
No. 74 to the Registration Statement, as filed on November 29, 2016.) |
|
|
|
|
|
|
(3) |
Amended
& Restated Shareholder Services Agreement for Class A and Class C shares between the Registrant and DeAWM Distributors, Inc. (now
known as DWS Distributors, Inc.), dated February 12, 2016. (Incorporated by reference to Post-Effective Amendment No. 72 to the Registration
Statement, as filed on July 28, 2016.) |
|
|
|
|
|
|
(4) |
Amended
and Restated Administrative Services Agreement between the Registrant, on behalf of DWS California Tax-Free Income Fund, DWS Massachusetts
Tax-Free Fund, and DWS New York Tax-Free Income Fund, and DWS Investment Management Americas, Inc., dated as of August 19, 2022. (Portions
omitted.) (Incorporated by reference to Post-Effective Amendment No. 97 to the Registration Statement, as filed on November 29, 2022.) |
|
|
|
|
|
|
(5) |
Sub-Administration
and Sub-Accounting Agreement among State Street Bank and Trust Company and Deutsche Investment Management Americas Inc. (now known
as DWS Investment Management Americas, Inc.), Scudder Fund Accounting Corporation, and Investment
Company Capital Corp. dated April 1, 2003. (Portions omitted.) (Incorporated by
reference to Post-Effective Amendment No. 68 to the Registration Statement, as filed on July 29, 2015.) |
|
|
|
|
|
|
(6) |
Amendment,
effective as of January 20, 2017, to the Sub-Administration and Sub-Accounting Agreement dated April 1, 2003. (Incorporated by reference
to Post-Effective Amendment No. 80 to the Registration Statement, as filed on November 29, 2017.) |
|
|
|
|
|
|
(7) |
Amendment,
effective as of June 29, 2018, to the Sub-Administration and Sub-Accounting Agreement dated April 1, 2003. (Incorporated by reference
to Post-Effective Amendment No. 82 to the Registration Statement, as filed on July 27, 2018.) |
|
|
|
|
|
|
(8) |
Amendment,
effective as of January 1, 2020, to the Sub-Administration and Sub-Accounting Agreement, dated April 1, 2003. (Portions omitted.)
(Incorporated by reference to Post-Effective Amendment No. 90 to the Registration Statement, as filed on July 28, 2020.) |
|
|
|
|
|
|
(9) |
Amendment, effective as of June 1, 2024, to the Sub-Administration
and Sub-Accounting Agreement, dated April 1, 2003. (Filed herein.) |
|
|
|
|
|
|
(10) |
Schedule
A, dated as of July 2, 2018, to the Sub-Administration and Sub-Accounting Agreement dated April 1, 2003.
(Incorporated by reference to Post-Effective Amendment No. 82 to the Registration Statement, as filed on July 27, 2018.) |
|
|
|
|
|
|
(11) |
Form of Mutual Fund Rule 22c-2 Information Sharing Agreement
among the Registrant, DWS Distributors, Inc. and certain financial intermediaries. (Filed herein.) |
|
|
|
|
|
|
(12) |
Form of Expense Limitation Agreement, dated October 1, 2007,
between the Registrant and Deutsche Investment Management Americas Inc. (now known as DWS Investment Management Americas, Inc.) (Filed
herein.) |
|
|
|
|
|
(i) |
(1) |
Legal
Opinion and Consent of Counsel with respect to Scudder California Tax-Free Income Fund (now known as DWS California Tax-Free Income Fund)
and Scudder New York Tax-Free Income Fund (now known as DWS New York Tax-Free Income Fund). (Incorporated by reference to Post-Effective
Amendment No. 37 to the Registration Statement, as filed on December 27, 2002.) |
|
|
|
|
|
|
(2) |
Legal
Opinion and Consent of Counsel with respect to DWS Massachusetts Tax-Free Fund. (Incorporated by reference to Post-Effective Amendment
No. 52 to the Registration Statement, as filed on July 28, 2011.) |
|
|
|
|
|
|
(3) |
Legal
Opinion and Consent of Counsel with respect to Institutional Class shares of DWS California Tax-Free Income Fund, DWS Massachusetts Tax-Free
Fund, and DWS New York Tax-Free Income Fund. (Incorporated by reference to Post-Effective Amendment No. 93 to the Registration Statement,
as filed on November 25, 2020.) |
|
|
|
|
|
(j) |
|
Consent of Independent Registered Public Accounting Firm.
(Filed herein.) |
|
|
|
|
|
(k) |
|
Not applicable. |
|
|
|
|
|
(l) |
|
Not applicable. |
|
|
|
|
|
(m) |
(1) |
Rule
12b-1 Plan for Scudder New York Tax-Free Income Fund (now known as DWS New York Tax-Free Income Fund) – Class A shares, dated July
1, 2001. (Incorporated by reference to Post-Effective Amendment No. 66 to the Registration Statement, as filed on November 26, 2014.) |
|
|
|
|
|
|
(2) |
Amended
and Restated Rule 12b-1 Plan for Deutsche New York Tax-Free Income Fund (now known as DWS New York Tax-Free Income Fund) – Class
C shares, dated February 10, 2017. (Incorporated by reference to Post-Effective Amendment No. 76 to the Registration Statement, as
filed on March 30, 2017.) |
|
|
|
|
|
|
(3) |
Rule
12b-1 Plan for Scudder California Tax-Free Income Fund (now known as DWS California Tax-Free Income Fund) – Class A shares, dated
July 1, 2001. (Incorporated by reference to Post-Effective Amendment No. 36 to the Registration Statement, as filed on December 28,
2001.) |
|
|
|
|
|
|
(4) |
Amended
and Restated Rule 12b-1 Plan for Deutsche California Tax-Free Income Fund (now known as DWS California Tax-Free Income Fund) – Class
C shares, dated February 10, 2017. (Incorporated by reference to Post-Effective Amendment No. 76 to the Registration Statement, as
filed on March 30, 2017.) |
|
|
|
|
|
|
(5) |
Rule
12b-1 Plan for DWS Massachusetts Tax-Free Fund – Class A shares, dated August 1, 2011. (Incorporated by reference to Post-Effective
Amendment No. 52 to the Registration Statement, as filed on July 28, 2011.) |
|
|
|
|
|
|
(6) |
Amended
and Restated Rule 12b-1 Plan for Deutsche Massachusetts Tax-Free Fund (now known as DWS Massachusetts Tax-Free Fund) – Class C shares,
dated February 10, 2017. (Incorporated by reference to Post-Effective Amendment No. 76 to the Registration Statement, as filed on
March 30, 2017.) |
|
|
|
|
|
(n) |
|
Amended
and Restated Multi-Distribution System Plan, pursuant to Rule 18f-3, dated September 30, 2022. (Incorporated by reference to Post-Effective
Amendment No. 97 to the Registration Statement, as filed on November 29, 2022.) |
|
|
|
|
|
(o) |
|
Reserved. |
|
|
|
|
|
(p) |
(1) |
Code
of Ethics – DWS Group (U.S. Registered Entities), dated April 24, 2023. (Incorporated by reference to Post-Effective Amendment
No. 98 to the Registration Statement, as filed on July 27, 2023.) |
|
|
|
|
|
|
(2) |
DWS
Funds and Germany Funds Code of Ethics, dated May 19, 2023. (Incorporated by reference to Post-Effective Amendment No. 98 to the Registration
Statement, as filed on July 27, 2023.) |
|
|
|
|
|
Item 29. |
Persons Controlled By or Under Common Control with the Fund |
None.
Item 30. Indemnification
Article IV of the Registrant’s Amended
and Restated Declaration of Trust (which is referenced as Exhibit (a)(1) to Item 28, above) (the “Declaration of Trust”) provides
in effect that the Registrant will indemnify its officers and trustees under certain circumstances. However, in accordance with Sections
17(h) and 17(i) of the Investment Company Act of 1940, as amended, (the “1940 Act”), and its own terms, said Article of the
Declaration of Trust does not protect the Registrant’s officers and trustees against any liability to the Registrant or its shareholders
to which such officer or trustee would otherwise be subject by reason of willful misfeasance, bad faith, gross negligence, or reckless
disregard of the duties involved in the conduct of his or her office.
Each of the trustees who is not an “interested
person” (as defined under the 1940 Act) of the Registrant (a “Non-interested Trustee”) has entered into an indemnification
agreement with the Registrant, which agreement provides that the Registrant shall indemnify the Non-interested Trustee against certain
liabilities which such Non-interested Trustee may incur while acting in the capacity as a trustee, officer or employee of the Registrant
to the fullest extent permitted by law, now or in the future, and requires indemnification and advancement of expenses unless prohibited
by law. The indemnification agreement cannot be altered without the consent of the Non-
interested
Trustee and is not affected by amendments of the Declaration of Trust. In addition, the indemnification agreement adopts certain presumptions
and procedures which may make the process of indemnification and advancement of expenses more timely, efficient and certain. In accordance
with Section 17(h) of the 1940 Act, the indemnification agreement does not protect a Non-interested Trustee against any liability to the
Registrant or its shareholders to which such Non-interested Trustee would otherwise be subject by reason of willful misfeasance, bad faith,
gross negligence, or reckless disregard of the duties involved in the conduct of his or her office.
The Registrant has purchased insurance policies
insuring its officers and trustees against certain liabilities which such officers and trustees may incur while acting in such capacities
and providing reimbursement to the Registrant for sums which it may be permitted or required to pay to its officers and trustees by way
of indemnification against such liabilities, subject to certain deductibles.
Item 31. Business
and Other Connections of Investment Advisor
During the last two fiscal years, no director
or officer of DWS Investment Management Americas, Inc., the investment advisor, has engaged in any other business, profession, vocation
or employment of a substantial nature other than that of the business of investment management and, through affiliates, investment banking.
Item 32. Principal
Underwriters
(a)
DWS Distributors, Inc. acts as principal underwriter
of the Registrant’s shares and acts as principal underwriter for registered open-end management investment companies and other funds
managed by DWS Investment Management Americas, Inc.
(b)
Information on the officers and directors
of DWS Distributors, Inc., principal underwriter for the Registrant, is set forth below. The principal business address is 222 South Riverside
Plaza, Chicago, Illinois 60606-5808.
DWS Distributors, Inc.
Name and Principal
Business
Address |
Positions and Offices with
DWS
Distributors, Inc. |
Positions and
Offices
with Registrant |
|
|
|
Nicole Grogan
875 Third Avenue
New York, NY 10022-6225 |
Chairperson of the Board, Director, and Vice President |
None |
|
|
|
Brian Maute
222 South Riverside Plaza
Chicago, IL 60606-5808 |
Director, President, and Chief Executive Officer |
None |
|
|
|
Chuck Fiedler
222 South Riverside Plaza
Chicago, IL 60606-5808 |
Director and Vice President |
None |
|
|
|
Michelle Reuter
222 South Riverside Plaza
Chicago, IL 60606-5808 |
Vice President |
None |
|
|
|
John Shields
101 California Street
San Francisco, CA 94111-5802 |
Vice President |
None |
|
|
|
Joel (JJ) Wilczewski
222 South Riverside Plaza
Chicago, IL 60606-5808 |
Vice President |
None |
|
|
|
Amanda Ikuss
875 Third Avenue
New York, NY 10022-6225 |
Chief Operating Officer |
None |
|
|
|
Nancy Tanzil
875 Third Avenue
New York, NY 10022-6225 |
Chief Financial Officer and Treasurer |
None |
|
|
|
Nicole Chelel
875 Third Avenue
New York, NY 10022-6225 |
Chief Compliance Officer |
None |
|
|
|
Christian Rijs
875 Third Avenue
New York, NY 10022-6225 |
Anti-Money Laundering Compliance Officer |
Anti-Money Laundering Compliance Officer |
|
|
|
Ciara Crawford
875 Third Avenue
New York, NY 10022-6225 |
Secretary
|
Assistant Secretary
|
Maci Joplin
5201 Gate Parkway
Jacksonville, FL 32256-7284 |
Assistant Secretary |
None |
(c) Not applicable.
Item 33. Location
of Accounts and Records
The accounts and records of
the Registrant are located, in whole or in part, at the office of the Registrant and the following locations:
Advisor and Administrator (Accounting Agent, as applicable) |
DWS Investment Management Americas, Inc.
875 Third Avenue
New York, NY 10022-6225 |
|
|
|
DWS Investment Management Americas, Inc.
100 Summer Street
Boston, MA 02110-2146 |
|
|
|
DWS Investment Management Americas, Inc.
5201 Gate Parkway
Jacksonville, FL 32256-7284 |
|
|
Custodian and Sub-Administrator (Sub-Accounting Agent, as applicable) |
State Street Bank and Trust Company
One Congress Street, Suite 1
Boston, MA 02114-2016 |
|
|
Sub-Transfer Agent |
SS&C GIDS, Inc.
333 West 11th Street
Kansas City, MO 64105-1628 |
|
|
Distributor |
DWS Distributors, Inc.
222 South Riverside Plaza
Chicago, IL 60606-5808 |
|
|
Storage Vendor |
Iron Mountain Incorporated
12646 NW 115th Avenue
Medley, FL 33178-3179 |
|
Item 34. |
Management Services |
Not applicable.
Not applicable.
SIGNATURES
Pursuant to the requirements
of the Securities Act of 1933 and the Investment Company Act of 1940, the Registrant certifies that it meets all of the requirements for
effectiveness of this Registration Statement pursuant to Rule 485(b) under the Securities Act of 1933 and has duly caused this amendment
to its Registration Statement to be signed on its behalf by the undersigned, thereto duly authorized, in the City of New York and the
State of New York on the 23rd day of July 2024.
DEUTSCHE DWS STATE TAX-FREE INCOME SERIES
By: /s/Hepsen
Uzcan
Hepsen Uzcan*
President
Pursuant to the requirements of
the Securities Act of 1933, this Post-Effective Amendment to its Registration Statement has been signed below by the following persons
in the capacities and on the dates indicated:
SIGNATURE |
TITLE |
DATE |
|
|
|
/s/Hepsen
Uzcan |
|
|
Hepsen Uzcan* |
President |
July
23, 2024 |
|
|
|
/s/Diane
Kenneally |
|
|
Diane Kenneally |
Chief
Financial Officer and Treasurer |
July
23, 2024 |
|
|
|
/s/
Mary Schmid Daugherty |
|
|
Mary Schmid Daugherty* |
Trustee |
July
23, 2024 |
|
|
|
/s/
Dawn-Marie Driscoll |
|
|
Dawn-Marie Driscoll* |
Trustee |
July
23, 2024 |
|
|
|
/s/
Keith R. Fox |
|
|
Keith R. Fox* |
Chairperson
and Trustee |
July
23, 2024 |
|
|
|
/s/
Richard J. Herring |
|
|
Richard J. Herring* |
Trustee |
July
23, 2024 |
|
|
|
/s/
Chad D. Perry |
|
|
Chad D. Perry* |
Trustee |
July
23, 2024 |
|
|
|
/s/
Rebecca W. Rimel |
|
|
Rebecca W. Rimel* |
Trustee |
July
23, 2024 |
|
|
|
/s/
Catherine Schrand |
|
|
Catherine Schrand* |
Trustee |
July
23, 2024 |
|
|
|
/s/
William N. Searcy, Jr. |
|
|
William N. Searcy,
Jr.* |
Trustee |
July
23, 2024 |
|
|
|
|
|
|
|
|
|
*By:
/s/Caroline Pearson
Caroline Pearson**
Chief Legal Officer
Power of Attorney
We, the undersigned Trustees or Directors, as the case may be, of the following
investment companies:
Cash Account Trust
Deutsche DWS Asset Allocation Trust
Deutsche DWS Equity 500 Index Portfolio
Deutsche DWS Global/International Fund, Inc.
Deutsche DWS Income Trust
Deutsche DWS Institutional Funds
Deutsche DWS International Fund, Inc.
Deutsche DWS Investment Trust
Deutsche DWS Investments VIT Funds
Deutsche DWS Market Trust
Deutsche DWS Money Funds
Deutsche DWS Money Market Trust
Deutsche DWS Municipal Trust
Deutsche DWS Portfolio Trust
Deutsche DWS Securities Trust
Deutsche DWS State Tax-Free Income Series
Deutsche DWS Tax Free Trust
Deutsche DWS Variable Series I
Deutsche DWS Variable Series II
DWS Municipal Income Trust
DWS Strategic Municipal Income Trust
Government Cash Management Portfolio
Investors Cash Trust
hereby constitute and appoint John Millette, Caroline Pearson and James
M. Wall, and each of them, severally, with full powers of substitution, or if more than one acts, a majority of them, our true and lawful
attorneys and agents to execute in our names, place and stead (in such capacity) any and all amendments to enable each Trust or Corporation
(collectively, the "Funds") to comply with the Securities Act of 1933, as amended (the "1933 Act") and/or the Investment
Company Act of 1940, as amended (the "1940 Act"), and any rules, regulations or requirements of the Securities and Exchange Commission
in respect thereof, in connection with the Funds' Registration Statements on Form N-1A pursuant to the 1933 Act and/or the 1940 Act,
together with any and all pre- and post-effective amendments thereto, including specifically, but without limiting the generality of
the foregoing, the power and authority to sign in the name and on behalf of the undersigned as a Trustee or Director of a Fund such Registration
Statement and any and all such pre- and post-effective amendments filed with the Securities and Exchange Commission under the 1933 Act
and/or the 1940 Act, and any other instruments or documents related thereto, and the undersigned does hereby ratify and confirm all that
each said attorney-in-fact and agent, or substitute or substitutes therefor, shall lawfully do or cause to be done by virtue hereof.
This power of attorney is effective for all documents filed on or after
March 27, 2024
SIGNATURE |
TITLE |
DATE |
|
|
|
/s/Dawn-Marie
Driscoll |
|
|
Dawn-Marie Driscoll |
Trustee/Director |
March 29,
2024 |
|
|
|
/s/Keith
R. Fox |
|
|
Keith R. Fox |
Trustee/Director |
March 29,
2024 |
|
|
|
/s/Richard J. Herring |
|
|
Richard J. Herring |
Trustee/Director |
March 29, 2024 |
|
|
|
/s/Chad
D. Perry |
|
|
Chad D. Perry |
Trustee/Director |
March 29,
2024 |
|
|
|
/s/Rebecca W. Rimel |
|
|
Rebecca W. Rimel |
Trustee/Director |
March 29,
2024 |
|
|
|
/s/Catherine
Schrand |
|
|
Catherine Schrand |
Trustee/Director |
March 29,
2024 |
|
|
|
/s/William N. Searcy, Jr. |
|
|
William N. Searcy, Jr. |
Trustee/Director |
March 29,
2024 |
|
|
|
DEUTSCHE DWS State
Tax-Free Income Series
EXHIBIT INDEX
(h)(9)
(h)(11)
(h)(12)
(j)
EXHIBIT
LIST FOR INTERACTIVE DATA FILES
|
Ex. Number |
Description |
|
|
|
|
EX-101.INS |
XBRL Instance Document – the instance document does not appear on the Interactive Data File because its XBRL tags are embedded within
the Inline XBRL document. |
|
|
|
|
EX-101.SCH |
XBRL Taxonomy Extension Schema Document |
|
|
|
|
EX-101.CAL |
XBRL Taxonomy Extension Calculation Linkbase Document |
|
|
|
|
EX-101.DEF |
XBRL Taxonomy Extension Definition Linkbase Document |
|
|
|
|
EX-101.LAB |
XBRL Taxonomy Extension Label Linkbase Document |
|
|
|
|
EX-101.PRE |
XBRL Taxonomy Extension Presentation Linkbase Document |