ETFs explained. Published by: Supported by:

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1 ETFs explained Published by: Supported by:

2 db x-trackers Deutsche Bank ETFs db x-trackers Deutsche Bank ETFs Capture the Potential of the world s Emerging Markets: Brazil, China, India, Indonesia, Thailand and Vietnam Deutsche Bank ETFs SGX code BBG code CSI300 (China A-shares) KT4 XCSI SP S&P CNX Nifty (India) HE0 XNIF SP MSCI Indonesia KJ7 XMIN SP MSCI Thailand LG7 LG7 SP MSCI Brazil J0O XMBR SP Deutsche Bank ETFs SGX code BBG code MSCI China LG9 LG9 SP MSCI India LG8 LG8 SP FTSE Vietnam HD9 XFVT SP MSCI Malaysia LG6 LG6 SP MSCI Russia Capped J0R XMRC SP

3 db x-trackers Deutsche Bank ETFs: Tax-efficient Domiciled in Luxembourg; compared to US-domiciled ETFs which may be taxed up to 30% on their dividends UCITS III compliant Stringent risk control of your investments Largest number of ETFs in Singapore 42 db x-trackers ETFs trading now on SGX For further information: Hotline: Website: Bloomberg: DBETF <GO> Reuters: DBETF db x-trackers Deutsche Bank ETFs Important: The funds or securities referred to herein are not sponsored, endorsed, or promoted by MSCI and MSCI bears no liability with respect to any such funds or securities or any index on which such funds or securities are based. The Singapore Prospectus and the relevant Product Annex contain a more detailed description of the limited relationship MSCI has with Deutsche Bank AG, db x-trackers and any related ETFs. CSI indices are compiled and calculated by China Securities Index Co. Ltd ( CSI ). CSI will apply all necessary means to ensure the accuracy of the CSI300 Index. However, each of CSI, Shanghai Stock Exchange and Shenzhen Stock Exchange shall not be liable (whether in negligence or otherwise) to any person for any error in the CSI300 Index and/or under any obligation to advise any person of any error therein. All copyright in the index values and constituent list vests in CSI. The ETFs are sub-funds of db x-trackers, a Luxembourg-based investment company with variable capital. The ETFs may not be appropriate for all investors. Deutsche Bank has prepared this document without consideration of the particular circumstances, specific investment objectives, financial situation or needs of any particular investor. This is not an offer or a solicitation of an offer or a recommendation to buy or sell the shares in the ETFs in any jurisdiction. Please seek advice from a financial adviser as appropriate and read the relevant Singapore prospectus before deciding to invest in shares of the ETFs. These Singapore prospectuses are available at Investment involves risks such as possible loss of the principal amount invested. The value of the shares and the income from the ETFs may fall or rise. The listing of the shares in the ETFs does not guarantee a liquid market for the shares. Investors may only redeem shares in the ETFs with the manager directly under certain specified conditions as described in the relevant Singapore prospectus. Investors should note that the ETFs may invest, as a part of their investment policy, in financial derivative instruments such as index swap transaction(s) and that the net asset value of the relevant ETF may have a high volatility due to its investment policies or portfolio management techniques. The credit rating of DB, the current swap counterparty, is available at Deutsche Bank AG

4 ETFs explained Singapore Exchange: ETF Centre in Asia 3 Singapore Exchange: ETF Centre in Asia As the pioneer in Asia for ETF listing and trading since 2001, Singapore Exchange (SGX) has continued to take the lead in the ETF industry. In recognition of its contribution to the Asian ETF market, SGX was named The Best ETF Exchange in Asia by Republic Partners in The SGX ETF market is unique compared to other Asian exchanges as it has an international trading nature. SGX is today the trading venue for Asia s most diverse range of ETFs, representing a wide range of asset classes including commodities, fixed income, money markets and equities. A total of 75 ETFs are currently listed on SGX, the second highest number offered by an Asian exchange. About 90% of them provide exposure to underlying markets which are international, or non-singapore, in origin, making SGX s ETF suite among the most internationalised in Asia. The Singapore ETF market has been gaining good traction in Asia over the past years. ETF turnover on SGX has a positive cumulative average growth rate (CAGR) of 241% from Between November 2009 and 2010, it grew 59% to S$6.5 billion, achieving a record annual turnover for the past three consecutive years. Trading of ETFs on SGX Institutional investors are key participants in the Singapore ETF market. Depending on their investment objective, retail investors can also use ETFs to gain instant exposure to multiple markets without the hassle of individual stock picking, or dealing with different settlement and custody arrangements in the different markets. Listed on the exchange, ETFs are traded the same way as ordinary shares of listed companies. As its investment objective is to track the performance of the underlying index, ETFs offer investors an easier and more cost-effective way to gain beta (market) exposure to equities and other asset classes. Unlike mutual funds or unit trusts which are actively managed funds, ETFs are passively managed tracker funds. Investors therefore pay lower management fees - often less than 1% of the asset base - when they invest in ETFs than for traditional funds. Management fees of unit trusts or mutual funds are typically around 1-2%. ETF prices are transparent to the public and available throughout the trading day on the SGX website. This gives investors the flexibility to buy or sell their ETFs easily on the exchange at known prices. Retail investors can also choose to use ETFs as part of their overall portfolio allocation strategies. For instance, investors can hold broad-based ETFs as core holdings and overweight or underweight individual component stocks for additional outperformance. As an illustration, an investor wanting to outperform a particular benchmark, for example the Straits Times Index (STI), could allocate say, 80% of his investment into an ETF tracking the STI for broad exposure and the remaining 20% into selected component stocks that he thinks would outperform the index. This way, he effectively overweights the stock that he thinks would outperform the index. If his views are proven correct, his investment returns would be higher than the benchmark or market returns.

5 Investors may have some misconception on ETF liquidity and be concerned with trading in ETFs with low turnovers, as a low turnover is often associated with low liquidity which affects the ease of getting into and out of the market. However this is not the case for the Singapore ETF market as all ETFs listed in and after 2006 have a Designated Market Maker (DMM) to provide two-way bid/ask quotes throughout the trading day. This means that investors are able to buy or sell ETFs to the DMM even if the ETF has not been traded that day. What should investors know before trading ETFs? As is the case with any other investment product, investors should fully understand ETFs before investing in them. This includes understanding the underlying structure of the ETF, its investment objectives and the risks associated with it. For example, ETFs listed on SGX have different replication structures such as cash-based replication and synthetic replication and each of these has its own merits and accompanying risks. Similar to all equity investments, ETFs are subject to market risks which may erode or increase investment returns of the ETF. Other common risks may include tracking error risk where the ETF is unable to closely track the performance of the underlying index and the ETF s return may deviate from the benchmark index, and foreign exchange risk where investors may be exposed to fluctuations in foreign exchange rate for those ETFs with underlying assets not denominated in the same local currency. Investors are strongly encouraged to attend the educational seminars on ETFs or refer to the ETF materials provided by SGX, ETF issuers and other industry associations for a better understanding of the benefits and risks of investing in ETFs. Investors should also seek advice from a financial adviser before investing or employing any investment strategies. Disclaimer This is not an offer or solicitation to buy or sell, nor financial advice or recommendation for any investment product, and has been published for general circulation only. It does not address the specific investment objectives, financial situation or particular needs of any person. Advice should be sought from a financial adviser regarding the suitability of any investment product before investing or adopting any investment strategies. Investment products are subject to significant investment risks, including the possible loss of the principal amount invested. Past performance of investment products is not indicative of their future performance. Examples provided are for illustrative purposes only. While SGX and its affiliates have taken reasonable care to ensure the accuracy and completeness of the information provided, they will not be liable for any loss or damage of any kind (whether direct, indirect or consequential losses or other economic loss of any kind) suffered due to any omission, error, inaccuracy, incompleteness, or otherwise, any reliance on such information. 4 Singapore Exchange: ETF Centre in Asia

6 ETFs explained The ABCs of ETFs What are Exchange Traded Funds? Exchange Traded Funds (ETFs) are openended funds listed and traded on stock exchanges which are designed to track the performance of an underlying index. Investors can buy and sell ETFs during trading hours in the same way as any other listed security through an ordinary stock brokerage account. ETFs tracking global indices are traded on the Singapore Exchange ( SGX ), thus making global markets easily accessible to local investors. What are the benefits of ETFs? How do ETFs compare to stocks and unit trusts? Exchange Traded Fund Unit Trust Stock Diversification Continuous Trading & Pricing Sales Charges 3-5% Brokerage Commission Management Fees 0%-0.99%^ 1-2% p.a. Traded Through Broker Cash Settlement T+3* Upfront T+3* ^ Typical of Singapore listed ETFs * T+3 means three business days after trade date 5 The ABCs of ETFs 1. Access to global markets and asset classes. 2. Listed on SGX and easily traded through an ordinary securities account. 3. Competitive bid/ask prices and liquidity provided by market makers. 4. Low minimum investment size and no sales charge. 5. Not subject to expiries, roll-overs or margin calls. What are the costs involved with an investment in ETFs? Total Expense Ratio (which includes management fee, administrative costs etc). Trading costs including brokerage commission and other transaction fees. Replication costs such as potential tracking error. What are the steps to invest in an ETF? First: Assess your financial goals to select the appropriate investment target (eg the underlying asset class or market). Second: Compare the available ETFs in terms of: i. Underlying index ii. Total Expense Ratio (TER), which includes management fees and other administrative expense iii. Historical tracking error iv. Taxation (may differ depending on the domicile of the ETF) Third: Carefully read the prospectus of the funds and understand the various risks when investing in a particular ETF. Fourth: Trade the ETF during SGX trading hours through your broker or online trading account.

7 Do ETFs pay dividends? The returns of an equity ETF include dividends paid by the underlying stocks in the index. These dividends can be distributed or reinvested and therefore will be reflected in the price of the ETF. ETFs that track a price return index will typically distribute the dividends to investors on a regular basis. Dividend payments for ETFs tracking a total return net (TRN) index are typically reinvested, net of any applicable withholding tax, back into the underlying index. Who should consider ETFs as part of their investment strategy? ETFs are unique in that the same investment instrument can be used by both retail and institutional investors. ETFs are embraced by self-directed retail investors who recognise the benefits of a liquid, transparent and convenient investment tool to diversify their investment portfolio in a cost-efficient manner. As ETF shares can be traded intraday, they are a highly flexible investment tool for achieving index exposure on both a long and short-term basis. 6 The ABCs of ETFs ETFs have no sales charge and typically charge lower management fees than traditional funds. Graphic courtesy of SGX

8 ETFs explained Replication Strategies 7 Replication strategies What is the Net Asset Value (NAV) and what does it tell me? The NAV per share of an ETF is calculated daily and equals the sum of the ETF s assets minus its liabilities, which includes all accrued fees and expenses, divided by the number of shares outstanding. Change to the NAV of an ETF primarily reflect movements in the value of the underlying index. So the NAV of an ETF should rise by approximately 8% if its underlying index rises by 8%. Investors can use the indicative NAV (inav) which is the estimated NAV of an ETF intraday to determine whether the ETF is being quoted at a competitive price. What is tracking error? Statistically, tracking error is the annualised daily standard deviation or daily return difference between an ETF and its underlying index. In practical terms, tracking error is often used interchangeably with performance difference as a measure of the efficiency with which an ETF tracks its underlying index. The lower the tracking error, the closer the performance of the ETF is to that of the underlying index. Tracking error is generally influenced by a number of factors including the total expense ratio of the ETF. Costs The underlying index ETF without tracking error ETF with tracking error incurred from transacting the assets of the ETF and the liquidity of the constituents of the underlying index can also contribute to tracking error. How does an ETF replicate its index? ETFs use different replication methods to track the performance of an index. Three methods are commonly used: Direct Replication: The ETF directly invests in the same constituents and in the same proportion as the underlying index to track the performance of such index. Statistical or Representative Sampling: The ETF invests in a selected number of constituents of the underlying index to track the performance of such index. Synthetic Replication: The ETF invests in transferable securities or enters into one or more swap transactions to exchange the performance of such transferable securities or swap transactions against the performance of the underlying index. ETFs tracking markets such as China and India, which have foreign investment or tax limitations, may adopt a replication technique called synthetic representative sampling. Under this structure, ETF managers who do not have direct access to those markets will invest in access products which are derivative instruments issued by third party providers which provide a return linked to the underlying securities in the index.

9 What is the counterparty risk exposure of ETFs using different replication strategies? For ETFs using direct replication and statistical replication strategies, investors will be subject to counterparty risk exposure when the relevant ETF engages in stock lending activities. In the event that the relevant lender becomes insolvent or defaults, investors may suffer losses. Synthetic replication ETFs using swaps, other derivative instruments or debt instruments to gain exposure to the benchmark are exposed to the counterparty risk of the swap or derivative issuers and may suffer losses if the counterparties default or fail to honour their contractual commitments. Before investing in any ETF, investors should refer to and understand the related risks associated with each ETF, and be aware of the arrangements in respect of collateral, the composition of the collateral and the proportion of collateral. Such information can generally be obtained on the website of the ETF providers. AUM ($ billion) Historical Growth of ETF Market 1,400 1,200 1, What is the UCITS III regulatory system? ETFs listed in Singapore are regulated by the Monetary Authority of Singapore (MAS) and SGX. ETF providers which are listed or registered overseas are also regulated by the relevant foreign regulatory bodies and stock exchanges. Many ETFs domiciled in Europe are compliant with the Undertakings for Collective Investment in Transferable Securities III (UCITS III). UCITS III is a set of pan-european fund regulatory standards which govern funds including ETFs. Generally, UCITS III compliant funds can be sold in 27 European Union countries. For UCITS III compliant funds, the net exposure to a single counterparty is limited to a maximum of 10% of the fund s NAV on a daily basis. UCITS III compliant funds are globally distributed in 56 countries including Singapore*. * Source: Association of the Luxembourg Fund Industry 3,000 2,500 2,000 1,500 1, Number of ETFs 8 Replication strategies Q Q4E Asia Pacific ($) Europe ($) US ($) Number of ETFs Source: Deutsche Bank Research -

10 ETFs explained Interview with Deutsche Bank experts Marco Montanari Director and Head of db x-trackers ETFs - Asia, Deutsche Bank Q: Who are the investors buying ETFs in the US and Europe? A: ETFs now manage more than US$ 1 trillion globally. While this is still small compared to the overall mutual fund industry, ETFs are also much younger. The European ETF market is dominated by institutional investors while more than 50% of ETF investors in the US are estimated to be retail. Institutional investors in Europe typically buy ETFs over the counter (OTC) rather than through an exchange. However, exchange reporting for ETF trades is mandatory in the US. This, combined with the widespread usage of ETF usage among retail investors, explains in part the higher exchange traded volumes for ETFs listed in the US. by investment banks to improve the tracking of the underlying index and benefit from the know-how of the banks trading desks. This approach is very different from the approach of ETF providers in the US which are mainly asset managers. By outsourcing the tracking risk of the ETF to investment banks, synthetic replication ETFs are able to precisely track underlyings which would have been very challenging to track through direct investment (eg credit, money market, alternative, forex, etc). Interestingly, during the credit crunch in 2007 and 2008, synthetic replication ETFs actually recorded more robust growth in terms of assets under management and new issuances than physical replication ETFs listed in Europe. 9 Interview with Marco Montanari Q: What are the other major differences between the US and Europe ETF markets? A: The first ETF in the US was launched in 1993 while the first ETF in Europe was launched in The ETF industry in terms of assets under management is still much smaller in Europe than in the US but the European ETF market is growing faster and has already surpassed the US in terms of the number of ETFs. Synthetic replication ETFs are very common in Europe. The synthetic replication structure was developed Q: The ETFs provided by Deutsche Bank AG use a synthetic replication strategy. How does it work? A: I think a good example is our CSI300 China A-Share ETF. Our ETF enters an OTC derivative contract with Deutsche Bank to receive the return of the underlying index. Deutsche Bank, which holds a QFII quota, will buy the underlying China A-shares to hedge its exposure. Deutsche Bank will post collateral in order to mitigate the counterparty exposure of the ETF. db x-trackers ETFs are UCITS III

11 compliant and, under UCITS III, the collateral has to be worth at least 90% of the NAV of the fund on a daily basis. The collateral is deposited with an independent custodian who checks it daily and is diversified in accordance with UCITS III regulations. Information concerning the selection and composition of the collateral is published on our website, If Deutsche Bank defaults, the ETF manager will act in the best interests of the investor and take measures including, among other things, refunding the investors holding the funds with proceeds obtained from disposing of the collateral. 10 For more information, please visit: Interview with Marco Montanari

12 ETFs explained Interview with Deutsche Bank experts (cont.) Marco Montanari Director and Head of db x-trackers ETFs, Asia, Deutsche Bank AG 11 Interview with Marco Montanari Q: What is db x-trackers strategy in Asia and how does it differentiate itself from other ETF providers? A: We ve put the ETF supermarket concept into practice in Asia. In the year and a half that db x-trackers has been in Asia, we ve established ourselves as the largest ETF provider in Singapore and Hong Kong in terms of product offering. We are not simply bringing our ETFs listed in Europe to Singapore, we ve also launched many new products tailored to meet local demand such as our China A-share, Indonesia, Thailand, and Vietnam ETFs. Asia is home to some of the world s most dynamic economies and, going forward, we are confident that ETFs which provide efficient access to these markets will continue to grow in popularity among the global investment community. Market Share of ETF Turnover 11.1% 19.9% 2.6% 0.4% 0.3% 5.1% 29.0% 31.6% Source: Reuters, as of 30 December 2010 db x-trackers BlackRock State Street Global Advisors Lyxor Int'l Asset Mgt UOB Asset Mgt CIMB-Principal Asset Mgt Daiwa Asset Mgt DBS Asset Mgt Q: How do you see the ETF market in Singapore developing? A: There are more ETFs available in Singapore than in any other market in Asia outside of Japan. The ETFs listed on SGX give investors access to a wide range of global markets and asset classes. Many of the products in Singapore such as the short S&P 500 ETF, Australia bond and money market ETFs, and commodities ETFs tracking Optimised Yield indices, are unique in Asia. This diverse and growing product range has contributed to an increase in ETF turnover. By the end of November, ETF turnover in Singapore reached S$ 6.51bn compared to S$ 4.61bn for all of % of this increase has been due to the growth of Deutsche Bank db x-trackers ETFs. Singapore has a vibrant community of investors and ETFs are a suitable option for self-directed investors looking for relatively low cost and flexible products. There is still a lot to do in terms of investor education but we are confident that ETFs will continue to grow in popularity. Growth of ETF Market in Singapore Turnover (S$ mm) $7,000 $6,000 $5,000 $4,000 $3,000 $2,000 $1,000 $ 2009 db x-trackers $4,016 $588 Source: SGX, as of 30 November YTD other issuers $4,519 $1,989

13 Q: What can investors expect from Deutsche Bank db x-trackers in Singapore in 2011? A: Today, our ETFs account for the largest share of ETF turnover on SGX. There are 12 db x-trackers ranked in the top 20 most traded ETFs on SGX which demonstrates the success we ve had in building an ETF platform with many products that appeal to investors. Going forward, we plan to maintain our momentum by continuing to launch innovative, quality ETFs to allow investors to take advantage of global investment trends. We will also continue to participate in investor education events aimed at increasing awareness for ETFs. We have a dedicated team that holds regular seminars in Singapore and a website which contains a lot of useful information on ETFs. In addition, investors can also call our hotline with questions. Deutsche Bank has a longterm commitment to the Singapore ETF market which we consider to be a key centre for ETFs in Asia. 12 Interview with Marco Montanari With ETFs, it is much easier to build a diversified portfolio of stocks and commodities. Graphic courtesy of SGX

14 ETFs explained STRATEGY. STRATEGY. STRATEGY. by Lucas Weatherill CIO and Principal of Maiora Global Macro, Lucas Weatherill has over 18 years experience in financial markets, the last 16 in global macro investing. He was previously Chief Investment Strategist and Head of Institutional Fixed Income, Asia Pacific for Deutsche Asset Management, and Head of Strategic Solutions for Asia at Schroders in Singapore and Sydney. Prior to that he was a global market strategist at Prudential Portfolio Managers in Sydney. Maiora Global Macro is a Singapore-based boutique offering macro-based long only and hedge fund products to sophisticated investors. 13 Strategy. Strategy. Strategy. The two most important things to get right in investing are breadth and timing. Don t buy overpriced assets and make sure that you have quite a few themes running in your portfolio at any given time. How many themes will really depend on how high your confidence level is in what is going to happen in the investment world. With the massive increase in exchange traded products that are available to investors everywhere, the breadth side at least is a lot easier for investors. As for timing well the real trick is aligning your time frame as an investor with these opportunities, and then having the investment discipline to stick with it. The late, great Sir John Templeton once said that the time to buy is when there is blood on the streets (at least figuratively) and that the real money is made buying when everyone else is selling. These ideas are pulled together in the discipline of behavioural finance the science/art of taking advantage of the opportunities that are created by the over-reaction of the masses. All easily said, but not so easily done when your investments may be falling while everyone else s seem to be rising. Enough of the preamble; what actually seems attractive at the moment? This is mostly determined by how long you can hold the asset for. For those with a medium to longterm holding period the two areas that stand out are certain equity markets and parts of the commodity space. The figurative blood on the street is now dripping down the sidewalks of Europe Ireland is a prime example but Spain and Portugal are also coming under substantial pressure. This is driving valuation for a lot of continental European equity markets into the pretty reasonable space, although there are risks that the Euro may come under increased pressure and undermine the value of these investments from an Asian investor s perspective. Another quick investment tip be aware of the currency in which your asset is priced. A good investment idea can be undone by unexpected currency moves. At the other economic extreme is the Chinese A-share market which has come under pressure from tightening liquidity as the central authorities are concerned by the steady rise in inflation. This leads to an important point while economics is interesting (well sort of) and makes for great big picture stories and even quite a few anecdotes, both falling and rising economic fortunes can present market opportunities. Don t mistake a country s GDP growth for its stock market. There are many forces that drive share price returns, the most significant of which is actually the valuation of the market. The markets we focus on typically first come to our attention due to improved valuations, which generally come more from falling share prices than improving fundamentals.

15 In the commodity space, however, value is at best an ethereal concept. That being said, gold offers the kind of characteristics that hedge against many of the financial market s weaknesses and can, perhaps, be thought of as an insurance policy rather than a true investment. Agricultural commodities (and there are plenty of ETFs that offer a broad exposure to this space) can also offer a hedge against emerging market inflation. Emerging market inflation is actually quite a different phenomenon from developed market inflation. In poorer countries, food is a much larger portion of the weekly spend and is commensurately of greater weight in the CPI. As to whether agricultural commodities cause the inflation or just react to it, I think the jury is still out. The correlation is pretty strong though. For those with lower return expectations and higher income requirements, some exposure to higher yielding bonds also makes sense. Emerging Market (EM) government debt and high yielding (HY) corporate bonds offer substantially higher yields than safe government bonds. EM debt is currently yielding about 5% while HY is yielding about 7.5% (both in US dollars). While both have substantially greater risk than a bank account, used in moderation they can meaningfully raise the income available to investors. For those seeking real safety it is hard to go past the Singapore government for true AAA credit quality. With 10-year bonds yielding close to 2.3%, this makes for a great hold-tomaturity investment. A balanced risk profile should start with a bit of everything mentioned above but, as always, please seek professional advice before committing to high risk investments. If you don t have the time to monitor them yourself, make sure someone can do this on your behalf. Also be careful about the fees that you pay particularly if your risk profile is conservative as a lot of return can be eaten away if the products are overpriced. DISCLAIMER The information and opinions in this article were provided by the author specified (the "Author"). Such information and opinions are not and do not reflect the opinion of Deutsche Bank AG or any of its affiliates (collectively, "Deutsche Bank") and are not endorsed by Deutsche Bank in any way. Deutsche Bank provides a forum for the Author's market commentaries and/or investment strategy ideas. Such market commentaries and/or ideas do not constitute research or recommendation from Deutsche Bank and may even be inconsistent with research or recommendation from analysts employed by Deutsche Bank. The Author is not an employee or affiliate of Deutsche Bank, and the Author is not bound by the compliance policies of Deutsche Bank in relation to investment research. Deutsche Bank does not have any editorial control over the contents and opinions of the article produced by the Author other than a right to publish the article in full or in part with a right to amend any clerical errors. In particular, Deutsche Bank makes no representation as to the accuracy or completeness of such information used by the Author in this article and does not take any steps to verify any information set out in the article. Opinions, forecasts and projections in this article constitute the judgment of the Author only as of the date of this article and are subject to change without notice. The Author may have a conflict of interest that could affect the objectivity of this article. The Author may not be licensed to carry out any regulated activities (such as advising on securities) and may therefore not be subject to prudential or conduct regulation by any regulatory authority. This article is provided for informational purposes only. An investor should make his own decision as to whether or not to adopt any investment strategy or engage in any transaction. It is not to be construed as an offer to buy or sell or a solicitation of an offer to buy or sell any products or to participate in any particular trading strategy by Deutsche Bank or the Author in any jurisdiction. 14 Strategy. Strategy. Strategy.

16 ETFs explained Spotlight on Indices Indices tracking the same markets or asset classes may have very different constituents and features. Investors are advised to look carefully at how the underlying index tracked by an ETF is constructed before selecting their investment. 15 Spotlight on indices Equities What is a dividend index? A dividend index is constructed based on the dividend yield of the underlying constituents. Companies with higher historical dividend yields, rather than market capitalisation, will have larger weights in the index. What is a capped index? To increase diversification, the weights of some index constituents (not their performance) will be capped. For example, the MSCI Russia Capped Index shares the same constituents as the MSCI Russia Index, but the heavyweight stocks of MSCI Russia Capped Index are subject to a cap whereby constituents with a weighting above 25% are subject to a daily weighting cap of 22.5%. Fixed Income What are inflation-linked bond indices? Inflation-linked bond indices track the price of bonds that pay a coupon linked to the inflation rate. Inflation-linked bonds are designed to provide investors with protection against inflation. For example, unlike US Treasuries which pay a fixed coupon, the interest payment of Treasury Inflation- Protected Securities (TIPS) issued by the US government will increase when the rate of inflation in the US rises. Short What is a short daily index? The aim of a short daily index is to provide the inverse daily performance of the corresponding long index (with dividends reinvested) on a daily basis. The starting point for the short daily index calculation on each day is the closing value of the short daily index from the previous day so the index is reset on a daily basis. What is the impact of the daily reset? The daily resetting of the short daily index ensures that the index level cannot become zero or negative. However, it also means that the returns of the short daily index will not be inversely proportional to the returns of the corresponding long index for periods longer than one day due to the compounding effect illustrated on page 16. As the fourth example shows, the short daily index is likely to underperform versus the corresponding long index during periods where markets are volatile and exhibit large day-to-day movements even though the cumulative movement over the week is minimal.

17 Example of compounding effect: 1 - Steadily falling market Day Daily change Long Index Short Daily Index -2% -2% -2% -2% Cumulative change % % 2 - Steadily rising market Day Daily change Long Index Short Daily Index -2% -2% -2% -2% Cumulative change % % 3 - Market is flat overall and not volatile Day Daily change Long Index Short Daily Index -1.0% 1.0% -0.5% 1.5% Cumulative change % % 4 - Market is flat overall and volatile Day Daily change Long Index Short Daily Index 8% 6% 7% 7% Cumulative change % % Money Market What is a money market index? A money market index reflects the value of a daily rolled deposit earning the short-term money market reference rate. For example, the SORA Total Return Index reflects the value of a Singapore dollar deposit (SGD) earning the Singapore Overnight Rate Average (SORA) rate published at the end of each business day by the Monetary Authority of Singapore. A money market index in its reference currency will not decrease in value unless interest rates become negative. Uses of money market ETFs Money market ETFs can serve as an alternative to daily deposits when they are traded in the same currency as the underlying money market (blue line). Alternatively, money market ETFs can be traded in a currency other than the underlying currency as a way to gain forex exposure. For example, an investor trading the Australia Money Market ETF in SGD instead of the Australia dollar (AUD) will benefit if the AUD appreciates versus the SGD and vice versa (orange line). 140% 130% 120% 110% 100% 90% 80% Jan 06 Jan 07 Jan 08 Jan 09 Jan 10 Jan 11 AUD Money Market in AUD AUD Money Market in SGD Source: Bloomberg, as of 30 December Spotlight on indices

18 db x-trackers Deutsche Bank ETFs 1 st Australian money market ETF linked to the RBA rate currently at 4.75% * Rate as of 2 November 2010 published by the RBA and subject to change. All-in fee: 0.2% p.a. only

19 n Transparent: Listed on SGX in Australian Dollar (AUD), linked to the interbank overnight rate published by the Reserve Bank of Australia (RBA) n Flexible: Also tradable in both SGD and USD, involving exposure to AUD n UCITS III compliant: Regulation adopted by more than 25 countries Deutsche Bank Group is the market maker for all db x-trackers ETFs. Deutsche Bank ETFs has assets under management of more than USD50 billion across four different continents 1. db x-trackers Deutsche Bank ETFs ETF Trading Currency SGX code BBG AUD KV5 KV5 SP SGD (Exposed to AUD) KV7 KV7 SP USD (Exposed to AUD) KV6 KV6 SP For further information: Hotline: Website: info.dbx-trackers@db.com Bloomberg: DBETF <GO> Reuters: DBETF Source: Bloomberg, April 2010 Important: This advertisement is issued by Deutsche Bank AG acting through its Singapore branch. For Singapore regulatory purposes, db x-trackers II is the responsible person for the db x-trackers II ETFs. Without limitation, this advertisement does not constitute an offer, an invitation to offer or a recommendation to enter into any transaction. Deutsche Bank AG is not acting as your financial adviser or in any other fiduciary capacity. Investment involves risks. db x-trackers II ETFs may not be suitable for all investors. Prospective investors should carefully read the Singapore prospectus for further details on db x-trackers II ETFs features and risks, and should consider seeking independent professional advice in making their assessment. The fund is not in any way sponsored, endorsed, sold or promoted by the index sponsor(s) of any indices referred to herein (except for Deutsche Bank AG). The index sponsors of the indices referred to herein (including Deutsche Bank AG) make no warranty or representation whatsoever either as to the results obtained from use of their indices and/or the figures at which the said indices stand at any particular day or otherwise. These index sponsors shall not be liable to any person for any error in their indices and shall not be under any obligation to advise any person of any error therein Deutsche Bank AG 1

20 ETFs explained Exposure to Commodities 19 Exposure to Commodities How are commodity indices different? It is important to note that not all commodity indices are the same: major differences exist depending on whether the index tracks future or spot (current) prices, the weight of the index components, and if applicable, how the index rolls the futures. Futures are contracts which define the price of a commodity at a delivery date in the future. These differences can have a major impact on index performance so it is vital that investors understand them. DBLCI-OY Balanced Index Dow Jones UBS Commodity Index S&P GSCI Reuters Jefferies CRB Inde-x Agriculture 29% 34% 12% 34% Energy 36% 27% 72% 39% Industrial Metals 18% 18% 8% 13% Precious Metals 18% 15% 3% 7% Livestock 0% 6% 5% 7% No. of Commodities Source: Index providers, as of December 2010 Why do commodity returns differ from movements in spot prices? For commodity indices composed of futures contracts, the returns will depend on not just spot price movements but also on roll yields. Rolling is the process by which a commodities index shifts its exposure by selling an expiring futures contract to buy a longer dated one. The roll yield is the difference between the price of the contract sold and the contract bought. Roll yields are positive in a market where prices of future contracts are decreasing (backwardation) but negative in a market where prices of future contracts are increasing (contango). Why do some commodity ETFs track indices based on futures prices while others track spot prices? Commodity ETFs can adopt different strategies to gain exposure to the underlying asset class. ETFs tracking precious metals (ie gold, silver) which can be stored in a vault typically give investors a return linked to the spot price of the underlying commodity. However, agriculture (ie corn, wheat), energy (ie crude oil, natural gas) and other raw materials cannot easily be stored physically. ETFs tracking these or a basket of commodities will typically track indices based on futures to avoid taking physical delivery of the underlyings. What are optimum yield indices? Traditional commodities indices such as the DJ UBS or S&P GSCI automatically roll into the nearest month futures contract regardless of the roll yield. Some index providers have moved away from a fixed rolling schedule and developed indices which adopt a dynamic methodology, for example Optimum Yield (OY). Under the OY strategy, the index analyses the full list of tradable futures contracts that expire in the next 13 months to select the contract that will maximise the positive roll yield in backwardated markets and minimise the negative roll yield in contango markets.

21 Accessing China with ETFs What are the main differences between different China ETFs? There are two main types of ETF that give investors access to China those that track H-shares and those that track A-shares. The same Chinese company can issue both A-shares and H-shares but companies that issue A-shares do not have to issue H-shares and vice versa. H-shares are stocks issued by companies incorporated in the People s Republic of China (PRC) but are listed in Hong Kong Dollars on the Stock Exchange of Hong Kong. H-shares can be purchased by international investors with no restrictions. Examples of indices with H-shares include the MSCI China Index, FTSE China 25 Index and the HSCEI. A-shares are stocks issued by companies incorporated in the PRC but are listed in Renminbi (RMB) on the Shanghai or Shenzhen stock exchanges. International investors can buy A-shares only if they hold a Qualified Foreign Institutional Investors (QFII) quota. Examples of well known A-share indices include the CSI300 Index, Shanghai SE Composite Index, and FTSE China A50 Index. Why do China A-share ETFs often trade at a premium? Under normal market conditions, the trading price of an ETF should be close to its indicative NAV. However, some ETFs, especially those that invest in restricted markets, may trade at a price above or below their NAV. Foreign access to the China A-share market is restricted to Qualified Foreign Institutional Investors (QFII). As the amount of QFII quota and hence access to the underlying China A-shares is limited, the premium of the A-share ETFs will reflect the supply and demand for quota. How will exchange rates affect the returns of an ETF? Investors are exposed to the currency of the underlying index of an ETF which may be different from its trading currency. For example, the CSI300 Index is denominated in RMB while an ETF tracking the CSI300 Index is traded in USD. Thus, any appreciation in the RMB against the USD would be advantageous to the price of the ETF, and vice versa. A Singapore investor will be exposed to the movement of the underlying currency versus his home currency, regardless of the trading currency. Performance of H versus A-share indices 175% 150% 125% 100% 75% 50% 25% 0% -25% -50% -75% CSI 300 Index MSCI China Yearly Index Returns (RMB) FTSE China A50 Index FTSE China 25 Index Source: Bloomberg and Deutsche Bank, as of 30 December Accessing China with ETFs

22 ETFs explained ETF Liquidity and Volume: Not the Same 21 ETF liquidity and volume What are the trading arrangements of ETFs? Major investment banks and dealers are involved in the provision of liquidity for and the trading of ETFs listed on SGX. The designated liquidity provider for an ETF is obligated to quote bid and offer prices for the ETF during trading hours and meet maximum spread and minimum quantity requirements. The list of Designated Market Makers for each ETF is provided on the SGX website. If an ETF shows zero turnover, does this mean the ETF is not liquid? As the designated liquidity provider for an ETF is obligated to quote bid and offer prices for the ETF during trading hours, this means that even though an ETF might have zero turnover, investors will still be able to buy or sell the ETF to the market maker. Do ETFs with large assets under management (AUM) have better liquidity? The AUM of an ETF reflects the number of shares of the ETF outstanding. However, ETFs are open-ended funds which do not trade with a fixed number of shares. The creation and redemption process ensures that market makers will have the capacity to create sufficient shares to meet the settlement requirements resulting from their trading activity on the stock exchange that day. As the liquidity of an ETF depends on the liquidity of the constituents of the underlying index, the liquidity of two ETFs tracking the same index will be similar regardless of their respective AUMs Does the price of an ETF depend on the demand for the ETF? The price of an ETF depends mainly on the price of the index tracked by the ETF. This means that, unlike stocks, the main factor driving the price of an ETF is not demand and supply of the ETF itself but the demand and supply of the constituents of the underlying index. How do time-zone factors influence the trading prices of ETFs? An ETF listed in a different time-zone from its underlying index may trade at a risk price that diverges from its NAV. Trading an ETF when its underlying index is open helps to ensure that the trading price of the ETF stays relatively close to the indicative NAV with a tight bid/offer spread.

23 What are the Risks of Investing in ETFs? Please note that the risk factors set out below are not exhaustive. Prospective investors should refer to the prospectus of the ETF for more information on risk factors. ETFs are linked to indices which can perform positively or negatively. As a result, the value of an investment in ETFs can rise or fall. The net asset value or traded price of the shares of ETFs can at any time fall below the price at which the investor purchased them. This can result in losses, up to and including a total loss of the amount initially invested. Shares of ETFs are denominated in various currencies which can differ from the local currency of the investor. In addition, the currency in which the funds shares are traded on SGX-ST may differ from the currency in which the shares of ETFs are denominated. In such case, or if the local currency of the investor is different from the currency in which the shares are denominated, exchange rate fluctuations could negatively impact the value or the return of an investment in the shares. The investment objective of certain ETFs is to track the performance of certain emerging markets. Generally, investments in emerging markets are subject to a greater risk of loss than investments in a developed market due, among other factors, to greater political, economic, foreign exchange, liquidity and regulatory risks. Investing in short ETFs may not be suitable as a long-term investment. In particular, ETFs tracking short indices exhibit a phenomenon known as path dependency which refers to the fact that, when performance is observed over periods of time longer than a day, the point-to-point performance of a short index may not be symmetrical to the point-to-point performance of the corresponding long index over the same period of time. This phenomenon is accentuated if the long index is volatile. ETFs may be partially or totally exposed to financial derivative transactions. As a result, investors will bear the counterparty risk exposure arising from such derivative transactions. If any counterparty fails to perform its obligations under the derivative transactions, the relevant ETFs may suffer losses and their ability to achieve their investment objective may be impaired. Under certain circumstances, the returns on the shares of ETFs may not be directly comparable to the returns achieved by an investment in the constituents of the underlying index of the relevant ETF. As ETF issuers must comply with the respective regulatory restrictions and changes in law which may affect them, its shares or the investment restrictions, a change of investment objective and policy of an ETF may be necessary. The index and/or other assets of ETFs and the derivative techniques for linking them can also be subject to changes in laws and regulations and/or regulatory restrictions which can detrimentally impact their value. 22 Risks of investing in ETFs

24 db x-trackers Deutsche Bank ETFs db x-trackers ETFs abundant liquidity committed by Deutsche Bank Here s to flexible trading, to provide liquidity when it matters. Deutsche Bank as the market maker is fuelling our db x-trackers ETFs with abundant liquidity allowing investors to trade our ETFs throughout market hours. Tight spreads combined with large trading size that s what made Deutsche Bank one of the world's fastest growing ETF providers 1 and why we are the winner of the Exchange-traded funds, Asia Pacific Award 2 as well as ETF Provider of the Year, Asia 3. Your advantages with db x-trackers ETFs: n Abundant liquidity n Low tracking error n Low-cost index investment n Long and short exposure to equity markets n Access to money markets n Opportunities in emerging markets n Hedge against the risk of rising inflation n Exposure to the Eurozone fixed income markets db x-trackers Deutsche Bank ETFs For further information: info.dbx-trackers@db.com Website: Bloomberg: DBETF<GO> Reuters: DBETF 1 Source: Deutsche Bank Research, January Exchange-traded funds, Asia Pacific" Award in the AsianInvestor Investment Performance Awards ETF Provider of the Year, Asia Award 2010 by Structured Products. Important: This advertisement has been approved and/or communicated by Deutsche Bank AG London. This advertisement is intended as a branding exercise only and not an offer to enter into any transaction Deutsche Bank AG