UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM N-CSR
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Investment Company Act file number |
811-21172 |
DWS RREEF Real Estate Fund, Inc.
(Exact Name of Registrant as Specified in Charter)
345 Park Avenue
New York, NY 10154-0004
(Address of principal executive offices) (Zip code)
Registrant’s Telephone Number, including Area Code: (212) 454-7190
Paul Schubert
345 Park Avenue
New York, NY 10154-0004
(Name and Address of Agent for Service)
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Date of fiscal year end: |
12/31 |
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Date of reporting period: |
12/31/08 |
ITEM 1. REPORT TO STOCKHOLDERS
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DECEMBER 31, 2008 Annual
Report
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DWS RREEF Real Estate Fund, Inc. Ticker Symbol: SRQ
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Contents
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4 Performance Summary 6 Portfolio Management Review 13 Portfolio Summary 15 Investment Portfolio 19 Financial Statements 22 Financial Highlights 24 Notes to Financial Statements 33 Report of Independent Registered Public Accounting Firm 34 Tax Information 35 Dividend Reinvestment and Cash Purchase Plan 38 Investment Management Agreement Approval 43 Board Members and Officers 47 Additional Information |
Investments in funds involve risk. The fund involves additional risk due to its narrow focus. There are special risks associated with an investment in real estate, including credit risk, interest rate fluctuations and the impact of varied economic conditions. Closed-end funds, unlike open-end funds, are not continuously offered. There is a one-time public offering and once issued, shares of closed-end funds are traded in the open market through a stock exchange. Shares of closed-end funds frequently trade at a discount to net asset value. The price of the fund's shares is determined by a number of factors, several of which are beyond the control of the fund. Therefore, the fund cannot predict whether its shares will trade at, below or above net asset value.
This report is sent to the stockholders of DWS RREEF Real Estate Fund, Inc. for their information. It is not a prospectus, circular, or representation intended for use in the purchase or sale of shares of the fund or of any securities mentioned in the report.
DWS Investments is part of Deutsche Bank's Asset Management division and, within the US, represents the retail asset management activities of Deutsche Bank AG, Deutsche Bank Trust Company Americas, Deutsche Investment Management Americas Inc. and DWS Trust Company.
NOT FDIC/NCUA INSURED NO BANK GUARANTEE MAY LOSE VALUE NOT A DEPOSIT NOT INSURED BY ANY FEDERAL GOVERNMENT AGENCY
Performance Summary December 31, 2008
All performance shown is historical, assumes reinvestment of all dividend and capital gain distributions, and does not guarantee future results. Investment return and principal value fluctuate with changing market conditions so that, when sold, shares may be worth more or less than their original cost. Current performance may be lower or higher than the performance data quoted. Please visit www.dws-investments.com for the Fund's most recent month-end performance.
Returns and rankings based on net asset value during all periods shown reflect a fee waiver and/or expense reimbursement. Without this waiver/reimbursement, returns and rankings would have been lower.
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Average Annual Return as of 12/31/08 |
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1-Year |
3-Year |
5-Year |
Life of Fund* |
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Based on Net Asset
Value(a) |
-81.47% |
-42.89% |
-21.90% |
-11.68% |
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Based on Market Value(a) |
-86.41% |
-47.37% |
-27.01% |
-17.93% |
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NAREIT Equity REIT
Index(b) |
-37.73% |
-10.83% |
.91% |
6.95% |
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Lipper Closed-End Real Estate Funds
Category(c) |
-59.23% |
-26.61% |
-11.76% |
-1.84% |
Sources: Lipper Inc. and Deutsche Investment Management Americas Inc.
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Net Asset Value and Market Price |
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As of 12/31/08 |
As of 12/31/07 |
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Net Asset Value |
$ 2.84 |
$ 19.33 |
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Market Price |
$ 1.95 |
$ 17.54 |
Prices and Net Asset Value fluctuate and are not guaranteed.
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Distribution Information for Common Shareholders |
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Twelve Months as of 12/31/08: Income Dividends |
$ .88 |
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Capital Gain Distributions |
$ 1.35 |
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Return of Capital |
$ .86 |
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Lipper Rankings — Closed-End Real Estate Funds Category as of 12/31/08 |
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Period |
Rank |
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Number of Funds Tracked |
Percentile Ranking (%) |
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1-Year |
26 |
of |
29 |
87 |
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3-Year |
20 |
of |
22 |
87 |
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5-Year |
13 |
of |
14 |
87 |
Source: Lipper Inc. Rankings are historical and do not guarantee future results. Rankings are based on net asset value total return with distributions reinvested.
* The Fund commenced operations on October 31, 2002. Index comparison began on October 31, 2002.a Total return based on net asset value reflects changes in the Fund's net asset value during each period. Total return based on market value reflects changes in market value. Each figure assumes that dividend and capital gain distributions, if any, were reinvested. These figures will differ depending upon the level of any discount from or premium to NAV at which the Fund's shares traded during the period.
b The NAREIT Equity REIT Index is an unmanaged, unleveraged weighted index of REITs which own, or have "equity interest" in, real estate (rather than making loans secured by real estate collateral). Index returns assume reinvestment of dividends and, unlike Fund returns, do not reflect any fees or expenses. It is not possible to invest directly into an index.
c Lipper's Closed-End Real Estate Funds category represents Funds that invest primarily in equity securities of domestic and foreign companies engaged in the real estate industry. Lipper figures represent the average of the total returns based on net asset value reported by all of the closed-end funds designated by Lipper Inc. as falling into Closed-End Real Estate Funds Category. Category returns assume reinvestment of all distributions. It is not possible to invest directly into a Lipper category.
DWS RREEF Real Estate Fund, Inc.: A Team Approach to Investing
Deutsche Investment Management Americas Inc. ("DIMA" or the "Investment Manager"), which is part of Deutsche Asset Management, is the investment manager for DWS RREEF Real Estate Fund, Inc. DIMA and its predecessors have more than 80 years of experience managing mutual funds and DIMA provides a full range of investment advisory services to institutional and retail clients. RREEF America, L.L.C. ("RREEF" or the "Investment Advisor"), an indirect, wholly owned subsidiary of Deutsche Bank AG, is the investment advisor for the fund.
Deutsche Asset Management is a global asset management organization that offers a wide range of investing expertise and resources. This well-resourced global investment platform brings together a wide variety of experience and investment insight across industries, regions, asset classes and investing styles.
DIMA is an indirect, wholly owned subsidiary of Deutsche Bank AG. Deutsche Bank AG is an international commercial and investment banking institution that is engaged in a wide range of financial services, including investment management, mutual fund, retail, private and commercial banking, investment banking and insurance.
Portfolio Management Team
John F. Robertson, CFA
Managing Director of Deutsche Asset Management and of RREEF and Co-Manager of the fund.
• Joined RREEF in 1997 and Deutsche Asset Management in 2002.
• Prior to that, Assistant Vice President of Lincoln Investment Management responsible for REIT research.
• Over 15 years of investment industry experience.
• BA, Wabash College; MBA, Indiana University.
Jerry W. Ehlinger, CFA
Managing Director of Deutsche Asset Management and of RREEF and Co-Manager of the fund.
• Joined RREEF and Deutsche Asset Management in 2004.
• Prior to that, Senior Vice President at Heitman Real Estate Investment Management from 2000-2004.
• Prior to that, Senior Research Associate at Morgan Stanley Asset Management from 1996-2000.
• Over 10 years of investment industry experience.
• BA, University of Wisconsin-Whitewater, MS, University of Wisconsin-Madison.
John W. Vojticek
Managing Director of Deutsche Asset Management and of RREEF and Co-Manager of the fund.
• Joined RREEF and Deutsche Asset Management in September 2004.
• Prior to that, Principal at KG Redding and Associates, March 2004-September 2004.
• Prior to that, Managing Director of RREEF from 1996-March 2004, Deutsche Asset Management from 2002-March 2004.
• Over 10 years of investment industry experience.
• BS, University of Southern California.
Asad Kazim
Director of Deutsche Asset Management, Vice President of RREEF and Co-Manager of the fund.
• Joined RREEF and Deutsche Asset Management in 2002 and the fund in 2005.
• Prior to that, Financial Analyst at Clarion CRA Securities from 2000-2002.
• Over 5 years of investment industry experience.
• BS, The College of New Jersey.
In the following interview, Portfolio Managers John F. Robertson, Jerry W. Ehlinger, John W. Vojticek and Asad Kazim discuss the market environment, performance results and positioning of DWS RREEF Real Estate Fund, Inc. during its most recent annual period ended December 31, 2008.
The views expressed in the following discussion reflect those of the portfolio management team only through the end of the period of the report as stated on the cover. The management team's views are subject to change at any time based on market and other conditions and should not be construed as a recommendation. Past performance is no guarantee of future results. Current and future portfolio holdings are subject to risk.
Q: How did DWS RREEF Real Estate Fund, Inc. perform during its most recent annual period?
A: After holding up reasonably well amid increasing market volatility in the first nine months of 2008, US REITs were hit by unprecedented and intense volatility in October and November of 2008 arising from investor fears related to the worldwide credit crunch. For the 12-month period ended December 31, 2008, DWS RREEF Real Estate Fund, Inc. declined 81.47% based on net asset value (NAV). The fund's NAV return underperformed the -37.73% return of the NAREIT Equity REIT Index.1 Based on market price, the fund posted a -86.41% return. The fund had a closing value of $1.95 per share based on market price ($2.84 per share based on net asset value) as of December 31, 2008. The fund underperformed its benchmark and peer group by a wide margin mainly because of the fund's large leverage position, which badly hurt performance when investors began selling real estate assets indiscriminately during the early part of the fourth quarter as the worldwide credit crunch intensified. (Past performance is no guarantee of future results. Please see pages 4 and 5 for more complete performance information.) Over the same period, the Dow Jones Industrial Average, Standard & Poor's 500® (S&P 500) Index and the Nasdaq Composite Index returned -33.84%, -37.00% and -40.89%, respectively.2
1 The NAREIT Equity REIT Index is an unmanaged, unleveraged weighted index of REITs which own, or have equity interest in, real estate (rather than make loans secured by real estate collateral).Index returns assume reinvestment of dividends and, unlike fund returns, do not reflect fees or expenses. It is not possible to invest directly in an index.
2 The Dow Jones Industrial Average (Dow) is an unmanaged index of common stocks of major industrial companies. The Standard & Poor's 500 (S&P 500) Index is an unmanaged index widely regarded as representative of the equity market in general. The Nasdaq Composite Index (Nasdaq) is an unmanaged, broad-based, capitalization-weighted index of all Nasdaq National Market and SmallCap Market stocks.
Index returns assume reinvestment of dividends and, unlike fund returns, do not reflect fees or expenses. It is not possible to invest directly in an index.
Q: What factors influenced the performance of REITs during the period?
A: In the first half of 2008, volatility within the real estate securities market (and financial markets in general) was severe at times, but REITs nevertheless recorded several of their largest-ever single-day gains, as real estate investors responded positively to actions taken by the US Federal Reserve Board (the Fed) to restore liquidity to the markets and bolster the faltering US economy. However, in May and June of 2008, higher commodity and food prices began to take their toll on US consumer spending, and the retail REIT sector was hit especially hard. In the third quarter, as concern about a possible economic recession pulled down commodity prices and eased inflation concerns, REITs significantly outperformed the broader stock market.
In October 2008, the outperformance of the REIT sector ended abruptly. Volatility had been on the rise for the real estate securities market throughout the year, but at the start of the fourth quarter it suddenly skyrocketed. Investors had been worrying for some time about how much more expensive it would be for REIT companies to roll over debt that was coming due in the next 12 to 18 months. However, in October and November, with more and more bad news arising regarding failing US financial firms and a general drying up of liquidity and credit nationwide, concern over whether it would even be possible for US REITs to refinance short-term debt sparked massive declines in REIT prices. Other factors that contributed to REIT market volatility during the fourth quarter included large hedge fund transactions and forced selling by closed-end funds. In December 2008, the REIT market rebounded slightly from recent lows as investors regained some certainty in light of the completion of the presidential election, and an increase in the number of commercial real estate transactions.
Q: What contributed to and detracted from the fund's performance over the period?
A: During the annual period ended December 31, 2008, and especially during the fourth quarter of 2008, the portfolio was severely impacted by the extreme negative tone of the market as investors began to punish the many REITs that would be required to refinance debt over the next two years. Leveraged investment vehicles of almost any type were hit hard during 2008. This held true for closed-end real estate funds, exacerbating the concerns already surrounding the underlying real estate securities. Also, dividend cuts by REIT firms, although in many cases simply a way for companies to retain cash in this difficult credit environment, were viewed negatively by many investors.
In a declining market, the self-storage sector performed better than other sectors. Consequently, the fund's performance versus the benchmark was hurt by not holding the common stock of Public Storage, Inc. during the period. (The fund held a small position in Public Storage preferred stock.) In addition, the fund's overweight position in Duke Realty Corp.* subtracted from returns as the company's shares declined based on a weak balance sheet.3 The fund's direct investment in the resort firm, Canyon Ranch, was also a significant detractor as the market for direct real estate investment dried up during the year due to the credit crunch. One small positive in a very difficult environment was the fund's avoidance of ProLogis, a well-known REIT firm in the industrial sector. ProLogis was badly hurt by the darkening global economic outlook, short-term debt coming due and investor perception that its development pipeline had lost value. The fund's positions in several health care REITs contributed to performance relative to the benchmark as investors viewed the sector as defensive.
* Not held in the portfolio as of December 31, 2008.3 "Overweight" means that a fund holds a higher weighting in a given sector or security compared with its benchmark index; an "underweight" means that a fund holds a lower weighting.
Most significantly, the fund's performance was negatively affected by the leverage position it maintained throughout the year. As of December 31, 2008, the fund's outstanding leverage, in the form of auction-rate preferred shares, represented approximately 40.7% of the fund's total assets. Over time and in up markets, leverage will benefit the yield and total return of a portfolio. Of course, the opposite is true in down markets. The calendar year 2008 was the worst performance year in the history of the REIT asset class. As expected, the fund's leverage position exacerbated this poor performance. The fund's underperformance versus its benchmark was due mainly to the fund being significantly leveraged during a drastically negative market. (In contrast, the benchmark is not leveraged.) Similarly, the fund's underperformance relative to its peer group was principally due to the fund being more highly leveraged than other similar funds during 2008. The fund's leverage, as a percentage of total assets, increased as REIT prices plunged in the early part of the fourth quarter. In addition, to meet various asset coverage requirements, we began redeeming preferred shares and reducing the fund's leverage in late November 2008, which also detracted from potential upside when the market rallied late in the year. The extreme volatility during 2008, particularly in the fourth quarter, caused additional stress on fund performance.
Lastly, the extreme downward volatility in the REIT market during the fourth quarter caused the fund to sell portfolio assets at an inopportune time in order to meet various leverage asset coverage requirements.
Q: Describe the performance of the various REIT sectors.
A: Among REIT sectors, industrial stocks were the worst-performing sector by a wide margin, hurt badly by the significant economic slowdown that emerged over the course of last year. Prices of industrial REITs were propped up in the first half of 2008 because investors believed that some industrial companies' international development pipelines would boost revenue. However, as the credit crunch hit home in the fourth quarter, investors began to discount these development pipelines, and to judge harshly the industrial REITs that would need to roll over debt in the midst of a worldwide shortage of credit. Hotels as a sector also posted negative returns for the year, based on worries that a faltering US economy would negatively affect vacation-related and business travel. Regional malls also disappointed, as second-tier malls faced steeply declining sales and in some cases an inability to roll over debt.
In contrast, the self-storage and apartment sectors performed reasonably well. Self-storage has profited from homeowner dislocations stemming from the home loan/mortgage crisis. The Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), despite their well-publicized troubles, have been providing loans and other forms of liquidity to the apartment sector with the rest of the debt market largely frozen, though there are concerns about the availability of this liquidity going forward.
Q: What is your view concerning the prospects for the REIT market going forward?
A: We believe that volatility in the REIT market will persist well into 2009. If and when private real estate market write-downs come to the attention of investors, additional volatility could ensue. Though some REITs have shown an ability to refinance debt coming due, rolling over debt will continue to be expensive to nearly impossible for some companies because so many fewer financing options exist. Dividend cuts by REIT firms could also prompt additional volatility, though such actions may be prudent in the long run if they help to shore up balance sheets.
A major uncertainty for the REIT market over the coming year — as well as for investment markets in general — is the question of when credit flows will normalize. We have seen some signs of an increase in lending, but nowhere near what is required for normal business operations. Many REITs are attractively priced at present, but not all of them have the wherewithal (in terms of holding high-quality assets, and possessing a healthy balance sheet, able management and sufficient access to credit) to succeed in such a tremendously difficult economic environment. Over the coming months we will continue to search for high-quality REITs with experienced management teams that we believe are well positioned to succeed over the long term.
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Asset Allocation (As a % of Investment Portfolio excluding Securities Lending Collateral) |
12/31/08 |
12/31/07 |
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Common Stocks |
49% |
85% |
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Preferred Stocks |
30% |
12% |
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Cash Equivalents |
19% |
3% |
|
Time Deposit |
2% |
— |
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|
100% |
100% |
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Sector Diversification (As a % of Common and Preferred Stocks) |
12/31/08 |
12/31/07 |
|
|
|
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Shopping Centers |
29% |
12% |
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Health Care |
18% |
13% |
|
Storage |
15% |
4% |
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Hotels |
10% |
12% |
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Apartments |
10% |
14% |
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Diversified |
6% |
10% |
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Office |
6% |
12% |
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Regional Malls |
4% |
17% |
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Industrials |
2% |
6% |
|
|
100% |
100% |
Asset allocation and sector diversification are subject to change.
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Ten Largest Equity Holdings at December 31, 2008 (99.5% of Net Assets applicable to common shareholders) |
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1. Extra Space Storage, Inc. Owner and operator of self-storage properties |
21.3% |
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2. Inland Real Estate Corp. Acquires neighborhood retail centers and community centers |
17.3% |
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3. Ustadt Biddle Properties, Inc.
Owner of open air shopping centers and retail properties |
12.2% |
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4. LTC Properties, Inc. Investor in health care through mortgage origination and acquisition of properties |
8.7% |
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5. Associated Estates Realty
Corp. Operates as a self-administrated and self-managed real estate investment trust |
8.1% |
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6. Cogdell Spencer, Inc. Owns specialty office properties for the medical industry |
7.7% |
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7. Hospitality Properties Trust
Owner and leaser of hotel properties |
6.5% |
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8. Camden Property Trust Owner and manager of multifamily residential apartment communities |
6.3% |
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9. HRPT Properties Trust Investor in retirement communities |
5.8% |
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10. Saul Centers, Inc. Operates and manages a portfolio of shopping centers and office properties |
5.6% |
Portfolio holdings are subject to change.
For more complete details about the Fund's investment portfolio, see page 15. A quarterly Fact Sheet is available upon request. A complete list of the fund's portfolio holdings is posted as of the month end on www.dws-investments.com on or about the 15th day of the following month. More frequent posting of portfolio holdings information may be made from time to time on www.dws-investments.com. Please see the Additional Information section for contact information.
Following the Fund's fiscal first and third quarter-end, a complete portfolio holdings listing is filed with the SEC on Form N-Q. The form will be available on the SEC's Web site at www.sec.gov, and it also may be reviewed and copied at the SEC's Public Reference Room in Washington, D.C. Information on the operation of the SEC's Public Reference Room may be obtained by calling (800) SEC-0330.
Investment Portfolio as of December 31, 2008
(Ratios are shown as a percentage of Net Assets)
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Value ($) |
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Common Stocks 92.2% |
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Real Estate Investment Trusts ("REITs") 92.2% |
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Apartments 6.3% |
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Camden Property Trust |
90,000 |
2,820,600 |
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Diversified 8.3% |
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Capstead Mortgage Corp. |
119,600 |
1,288,092 |
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Hatteras Financial Corp. |
24,000 |
638,400 |
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Hatteras Financial Corp. 144A |
67,500 |
1,795,500 |
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|
3,721,992 |
|
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Health Care 17.9% |
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Cogdell Spencer, Inc. |
366,500 |
3,430,440 |
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Medical Properties Trust, Inc. |
111,890 |
706,026 |
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OMEGA Healthcare Investors, Inc. |
134,750 |
2,151,957 |
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Senior Housing Properties Trust |
97,450 |
1,746,304 |
|
|
8,034,727 |
|
|
Hotels 7.6% |
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Canyon Ranch Holdings LLC (Units) (a) |
230,400 |
483,840 |
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Hospitality Properties Trust |
195,300 |
2,904,111 |
|
|
3,387,951 |
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Industrial 3.0% |
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DCT Industrial Trust, Inc. |
256,050 |
1,295,613 |
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Office 5.8% |
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HRPT Properties Trust |
772,421 |
2,603,059 |
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Regional Malls 3.7% |
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CBL & Associates Properties, Inc. |
254,255 |
1,652,658 |
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Shopping Centers 18.3% |
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Developers Diversified Realty Corp. |
93,250 |
455,060 |
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Inland Real Estate Corp. |
596,650 |
7,744,517 |
|
|
8,199,577 |
|
|
Storage 21.3% |
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Extra Space Storage, Inc. |
922,071 |
9,515,773 |
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Total Common Stocks (Cost $61,896,329) |
41,231,950 |
|
|
|
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Preferred Stocks 57.7% |
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Real Estate Investment Trusts 57.7% |
||
|
Apartments 8.1% |
||
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Associated Estates Realty Corp., 8.7%, Series II |
220,750 |
3,609,262 |
|
Diversified 1.2% |
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NorthStar Realty Finance Corp., 8.25%, Series B |
68,000 |
566,440 |
|
Health Care 8.7% |
||
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LTC Properties, Inc., 8.0%, Series F |
184,250 |
3,869,250 |
|
Hotels 7.7% |
||
|
Eagle Hospitality Properties Trust, Inc., 8.25%, Series A |
176,800 |
17,680 |
|
Strategic Hotels & Resorts, Inc., 8.5%, Series A |
158,800 |
682,840 |
|
Strategic Hotels & Resorts, Inc., 8.25%, Series B |
53,550 |
232,943 |
|
Sunstone Hotel Investors, Inc., 8.0%, Series A |
190,550 |
2,448,567 |
|
W2007 Grace Acquisition I, Inc., 8.75%, Series B |
489,000 |
48,900 |
|
|
3,430,930 |
|
|
Office 3.5% |
||
|
Digital Realty Trust, Inc., 8.5%, Series A |
97,600 |
1,567,700 |
|
Regional Malls 2.7% |
||
|
Taubman Centers, Inc., 8.0%, Series G |
78,247 |
1,212,829 |
|
Shopping Centers 25.1% |
||
|
Cedar Shopping Centers, Inc., 8.875%, Series A |
150,000 |
2,082,000 |
|
Kimco Realty Corp., 7.75%, Series G |
66,300 |
1,193,400 |
|
Saul Centers, Inc., 9.0%, Series B |
191,800 |
2,493,400 |
|
Urstadt Biddle Properties, Inc., 8.5%, Series C |
75,000 |
5,456,250 |
|
|
11,225,050 |
|
|
Storage 0.7% |
||
|
Public Storage, Inc., 10.0%, Series A |
12,800 |
307,711 |
|
Total Preferred Stocks (Cost $56,054,399) |
25,789,172 |
|
|
|
||
|
Time Deposit 4.5% |
||
|
State Street Euro Dollar, 0.01%, 1/2/2009 (Cost $1,994,895) |
1,994,895 |
1,994,895 |
|
|
||
|
Cash Equivalents 35.7% |
||
|
Cash Management QP Trust, 1.42% (b) (Cost $15,938,800) |
15,938,800 |
15,938,800 |
|
|
% of Net Assets |
Value ($) |
|
|
|
|
|
Total Investment Portfolio (Cost $135,884,423)+ |
190.1 |
84,954,817 |
|
Other Assets and Liabilities, Net |
(11.8) |
(5,268,652) |
|
Preferred Stock, at Liquidation Value |
(78.3) |
(35,000,000) |
|
Net Assets Applicable to Common Shareholders |
100.0 |
44,686,165 |
(a) The Fund may purchase securities that are subject to legal or contractual restrictions on resale ("restricted securities"). Restricted securities are securities which have not been registered with the Securities and Exchange Commission under the Securities Act of 1933. The Fund may be unable to sell a restricted security and it may be more difficult to determine a market value for a restricted security. Moreover, if adverse market conditions were to develop during the period between the Fund's decision to sell a restricted security and the point at which the Fund is permitted or able to sell such security, the Fund might obtain a price less favorable than the price that prevailed when it decided to sell. This investment practice, therefore, could have the effect of increasing the level of illiquidity of the Fund. The future value of these securities is uncertain and there may be changes in the estimated value of these securities.
|
Schedule of Restricted Securities |
Acquisition Date |
Acquisition Cost ($) |
Value ($) |
Value as % of Net Assets |
|
Canyon Ranch Holdings LLC |
January 2005 |
5,760,000 |
483,840 |
1.1 |
144A: Security exempt from registration under Rule 144A of the Securities Act of 1933. These securities may be resold in transactions exempt from registration, normally to qualified institutional buyers.
At December 31, 2008, open interest rate swap contracts were as follows:
|
Effective/ |
Notional Amount ($) |
Cash Flows Paid by the Fund |
Cash Flows Received by the Fund |
Unrealized Depreciation ($) |
|
1/29/2008 1/29/2018 |
40,000,0001 |
Fixed — 4.27% |
USD — Floating LIBOR BBA |
(5,893,913) |
|
Counterparty: 1 UBS Securities LLC |
LIBOR: Represents the London InterBank Offered Rate.
Fair Value Measurements
Financial Accounting Standards Board Statement of Financial Accounting Standards No. 157, "Fair Value Measurements," establishes a three-tier hierarchy for measuring fair value and requires additional disclosure about the classification of fair value measurements.
Various inputs are used in determining the value of the Fund's investments. These inputs are summarized in three broad levels. Level 1 includes quoted prices in active markets for identical securities. Level 2 includes other significant observable inputs (including quoted prices for similar securities, interest rates, prepayment speeds and credit risk). Level 3 includes significant unobservable inputs (including the Fund's own assumptions in determining the fair value of investments). The inputs or methodology used for valuing securities are not necessarily an indication of the risk associated with investing in those securities.
The following is a summary of the inputs used as of December 31, 2008 in valuing the Fund's investments. For information on the Fund's policy regarding the valuation of investments, please refer to the Security Valuation section of Note A in the accompanying Notes to the Financial Statements.
|
Valuation Inputs |
Investments in Securities |
Other Financial Instruments++ |
|
Level 1 |
$ 64,675,202 |
$ — |
|
Level 2 |
19,729,195 |
(5,893,913) |
|
Level 3 |
550,420 |
— |
|
Total |
$ 84,954,817 |
$ (5,893,913) |
The following is a reconciliation of the Fund's Level 3 investments for which significant unobservable inputs were used in determining value at December 31, 2008:
|
|
Investments in Securities |
|
Balance as of January 1, 2008 |
$ 19,030,436 |
|
Total realized gain (loss) |
(3,756,517) |
|
Change in unrealized appreciation
(depreciation) |
(11,153,703) |
|
Net purchases (sales) |
(1,774,296) |
|
Net transfers in (out) of Level 3 |
(1,795,500) |
|
Balance as of December 31, 2008 |
$ 550,420 |
The accompanying notes are an integral part of the financial statements.
|
Statement of Assets and Liabilities as of December 31, 2008 |
|
|
Assets |
|
|
Investments: Investments in securities, at value (cost $119,945,623) |
$ 69,016,017 |
|
Investment in Cash Management QP Trust (cost $15,938,800) |
15,938,800 |
|
Total investments, at value
(cost $135,884,423) |
84,954,817 |
|
Dividends receivable |
778,172 |
|
Receivable for investments sold |
34,498 |
|
Interest receivable |
55,505 |
|
Prepaid credit facility arrangement
fee |
207,228 |
|
Other assets |
15,315 |
|
Total assets |
86,045,535 |
|
Liabilities |
|
|
Cash overdraft |
34,498 |
|
Distributions payable |
11,223 |
|
Unrealized depreciation on swap
contracts |
5,893,913 |
|
Payable for investments purchased |
33,640 |
|
Accrued investment management fee |
64,158 |
|
Other accrued expenses and payables |
321,938 |
|
Total liabilities |
6,359,370 |
|
Preferred Shares ($25,000 net asset and
liquidation value per share applicable to an aggregate of 1,400 shares issued
and outstanding) |
35,000,000 |
|
Net assets applicable to common shareholders, at value |
$ 44,686,165 |
|
Net Assets Applicable to Common Shareholders Consist of |
|
|
Undistributed net investment income |
193,565 |
|
Net unrealized appreciation (depreciation)
on: Investments |
(50,929,606) |
|
Interest rate swap contracts |
(5,893,913) |
|
Accumulated net realized gain (loss) |
(102,769,013) |
|
Cost of 434,160 shares held in
treasury |
(9,966,770) |
|
Paid-in capital |
214,051,902 |
|
Net assets applicable to common shareholders, at value |
$ 44,686,165 |
|
Net Asset Value |
|
|
Net Asset Value per common share
($44,686,165 ÷ 15,715,597 shares of common stock outstanding,
$.01 par value, 240,000,000 common shares authorized) |
$ 2.84 |
The accompanying notes are an integral part of the financial statements.
|
Statement of Operations for the year ended December 31, 2008 |
|
|
Investment Income |
|
|
Income: Dividends |
$ 20,122,958 |
|
Interest |
10,570 |
|
Interest — Cash Management
QP Trust |
207,931 |
|
Security lending income, including income from
Daily Assets Fund Institutional, net of borrower rebates |
271,386 |
|
Total Income |
20,612,845 |
|
Expenses: Management fee |
3,311,633 |
|
Administration fee |
12,800 |
|
Services to shareholders |
15,906 |
|
Custodian and accounting fees |
75,943 |
|
Professional fees |
173,371 |
|
Directors' fees and expenses |
11,300 |
|
Reports to shareholders |
94,589 |
|
Stock exchange listing fee |
15,265 |
|
Auction service fee |
371,483 |
|
Interest |
199,273 |
|
Other |
40,190 |
|
Total expenses before expense
reductions |
4,321,753 |
|
Expense reductions |
(770,133) |
|
Total expenses after expense
reductions |
3,551,620 |
|
Net investment income |
17,061,225 |
|
Realized and Unrealized Gain (Loss) |
|
|
Net realized gain (loss) from: Investments |
(100,561,955) |
|
Capital gains dividends received |
6,086,891 |
|
Interest rate swap contracts |
(11,350,901) |
|
|
(105,825,965) |
|
Changes in net unrealized appreciation
(depreciation) on: Investments |
(109,491,360) |
|
Interest rate swap contracts |
(5,605,070) |
|
|
(115,096,430) |
|
Net gain (loss) |
(220,922,395) |
|
Net increase (decrease) in net assets resulting
from operations |
(203,861,170) |
|
Distributions to Preferred
Shareholders |
(6,821,816) |
|
Net increase (decrease) in net assets, applicable to common shareholders |
$ (210,682,986) |
The accompanying notes are an integral part of the financial statements.
|
Statement of Changes in Net Assets |
||
|
|
Years Ended December 31, |
|
|
Increase (Decrease) in Net Assets |
2008 |
2007 |
|
Operations: Net investment income |
$ 17,061,225 |
$ 16,869,649 |
|
Net realized gain (loss) |
(105,825,965) |
48,752,015 |
|
Change in net unrealized appreciation
(depreciation) |
(115,096,430) |
(177,231,435) |
|
Net increase (decrease) in net assets resulting
from operations |
(203,861,170) |
(111,609,771) |
|
Distributions to Preferred Shareholders
|
(6,821,816) |
(8,571,470) |
|
Net increase (decrease) in net assets, applicable to common shareholders |
(210,682,986) |
(120,181,241) |
|
Distributions to common shareholders
from: Net investment income |
(13,755,054) |
(29,458,864) |
|
Net realized gains |
(21,260,082) |
(5,044,707) |
|
Return of capital |
(13,439,742) |
— |
|
Total distributions to common
shareholders |
(48,454,878) |
(34,503,571) |
|
Fund share transactions: Cost of shares repurchased |
— |
(4,907,210) |
|
Net increase (decrease) in net assets from Fund
share transactions |
— |
(4,907,210) |
|
Increase (decrease) in net assets |
(259,137,864) |
(159,592,022) |
|
Net assets at beginning of period applicable to
common shareholders |
303,824,029 |
463,416,051 |
|
Net assets at end of period applicable to
common shareholders (including undistributed net investment income of $193,565
and $1,167,189, respectively) |
$ 44,686,165 |
$ 303,824,029 |
|
Other Information |
||
|
Common shares outstanding at beginning of
period |
15,715,597 |
15,919,077 |
|
Shares repurchased |
— |
(203,480) |
|
Common shares outstanding at end of
period |
15,715,597 |
15,715,597 |
The accompanying notes are an integral part of the financial statements.
|
Years Ended December 31, |
2008 |
2007 |
2006 |
2005 |
2004 |
|
Selected Per Share Data Applicable to Common Shareholders |
|||||
|
Net asset value, beginning of period |
$ 19.33 |
$ 29.11 |
$ 24.19 |
$ 25.01 |
$ 20.54 |
|
Income (loss) from investment operations: Net investment incomea |
1.09 |
1.07 |
1.15 |
1.05 |
1.00 |
|
Net realized and unrealized gain (loss) |
(14.06) |
(8.16) |
7.42 |
1.68 |
6.34 |
|
Total from investment operations |
(12.97) |
(7.09) |
8.57 |
2.73 |
7.34 |
|
Distributions to Preferred Shareholders from net investment income (common share equivalent) |
(.43) |
(.55) |
(.49) |
(.32) |
(.15) |
|
Net increase (decrease) in net assets resulting from operations applicable to common shareholders |
(13.40) |
(7.64) |
8.08 |
2.41 |
7.19 |
|
Less distributions from: Net investment income |
(.88) |
(1.86) |
(1.58) |
(.93) |
(1.44) |
|
Net realized gains |
(1.35) |
(.32) |
(1.59) |
(2.34) |
(1.25) |
|
Return of capital |
(.86) |
— |
— |
— |
— |
|
Total distributions to common shareholders |
(3.09) |
(2.18) |
(3.17) |
(3.27) |
(2.69) |
|
Dilution resulting from issuance of
Preferred Sharesc |
— |
— |
— |
(.01) |
(.03) |
|
NAV accretion resulting from repurchases of
shares at valuea |
— |
.04 |
.01 |
.05 |
— |
|
Net asset value, end of period |
$ 2.84 |
$ 19.33 |
$ 29.11 |
$ 24.19 |
$ 25.01 |
|
Market price, end of period |
$ 1.95 |
$ 17.54 |
$ 25.21 |
$ 20.57 |
$ 21.73 |
|
Total Return |
|||||
|
Based on net asset
value (%)b,d |
(81.47) |
(26.51) |
36.79 |
12.16 |
39.07 |
|
Based on market price
(%)b,d |
(86.41) |
(22.97) |
39.27 |
9.82 |
29.39 |
|
Years Ended December 31, (continued) |
2008 |
2007 |
2006 |
2005 |
2004 |
|
Ratios to Average Net Assets and Supplemental Data |
|||||
|
Common share information at
period end: Net assets, end of period ($ millions) |
45 |
304 |
463 |
386 |
404 |
|
Ratios based on net assets of
common shares: Expenses before expense reductions (%) |
1.79 |
1.38 |
1.36 |
1.40 |
1.47 |
|
Expenses after expense reductions (%) |
1.47 |
1.04 |
1.02 |
1.05 |
1.11 |
|
Net investment income (%)e |
7.08 |
4.01 |
4.26 |
4.27 |
4.57 |
|
Common and Preferred Share information at
period end: Ratios based on net assets of common and Preferred Shares: Expenses before expense reductions (%) |
1.11 |
1.00 |
.99 |
1.00 |
1.01 |
|
Expenses after expense reductions (%) |
.91 |
.75 |
.74 |
.75 |
.76 |
|
Net investment income (%) |
4.38 |
2.91 |
3.11 |
3.04 |
3.15 |
|
Portfolio turnover rate (%) |
31 |
28 |
13 |
17 |
29 |
|
Preferred Share information at
period end: Aggregate amount outstanding ($ millions) |
35 |
160 |
160 |
160 |
160 |
|
Asset coverage per share ($)* |
56,919 |
72,473 |
97,409 |
85,358 |
88,101 |
|
Liquidation value per share ($) |
25,000 |
25,000 |
25,000 |
25,000 |
25,000 |
|
a
Based on average common shares outstanding
during the period. b Total return would have been lower had certain expenses not been reduced. c The Fund issued 4,800 and 1,600 Preferred Shares on January 15, 2003 and January 12, 2004, respectively. d Total return based on net asset value reflects changes in the Fund's net asset value during the period. Total return based on market value reflects changes in market value. Each figure includes reinvestments of distributions. These figures will differ depending upon the level of any discount from or premium to net asset value at which the Fund's shares trade during the period. e Net investment income ratios for the years ended December 31, 2008, 2007, 2006, 2005 and 2004 do not reflect distributions to Preferred Shareholders. Ratios reflecting such payments are 4.25%, 1.97%, 2.45%, 2.98% and 3.88%, respectively. * Asset coverage per share equals net assets of common shares plus the liquidation value of the Preferred Shares divided by the total number of Preferred Shares outstanding at the end of the period. |
|||||
A. Significant Accounting Policies
DWS RREEF Real Estate Fund, Inc. (the ``Fund'') is registered under the Investment Company Act of 1940, as amended (the ``1940 Act''), as a closed-end, diversified management investment company organized as a Maryland corporation. The Fund is authorized to issue 250,000,000 shares, of which 240,000,000 shares are classified as Common Shares, $0.01 par value per share, and 10,000,000 shares are classified as Preferred Shares, $.01 par value per share.
The Fund's financial statements are prepared in accordance with accounting principles generally accepted in the United States of America which require the use of management estimates. Actual results could differ from those estimates. The policies described below are followed consistently by the Fund in the preparation of its financial statements.
Security Valuation. Investments are stated at value determined as of the close of regular trading on the New York Stock Exchange on each day the exchange is open for trading. Equity securities are valued at the most recent sale price or official closing price reported on the exchange (US or foreign) or over-the-counter market on which the security is traded most extensively. Securities for which no sales are reported are valued at the calculated mean between the most recent bid and asked quotations on the relevant market or, if a mean cannot be determined, at the most recent bid quotation.
Money market instruments purchased with an original or remaining maturity of sixty days or less, maturing at par, are valued at amortized cost. Investments in open-end investment companies and Cash Management QP Trust are valued at their net asset value each business day.
Securities and other assets for which market quotations are not readily available or for which the above valuation procedures are deemed not to reflect fair value are valued in a manner that is intended to reflect their fair value as determined in accordance with procedures approved by the Directors.
The Fund adopted Financial Accounting Standards Board ("FASB") Statement of Financial Accounting Standards No. 157, "Fair Value Measurements," effective at the beginning of the Fund's year. Disclosure about the classification of fair value measurements is included at the end of the Fund's Investment Portfolio.
New Accounting Pronouncement. In March 2008, the FASB issued Statement of Financial Accounting Standards No. 161 ("FAS 161"), "Disclosures about Derivative Instruments and Hedging Activities". FAS 161 requires enhanced disclosure about an entity's derivative and hedging activities including qualitative disclosures about the objectives and strategies for using derivatives, quantitative disclosures about fair value amounts of gains and losses on derivative instruments, and disclosures about credit-risk-related contingent features in derivative agreements. FAS 161 is effective for fiscal years and interim periods beginning after November 15, 2008. Management is currently reviewing the enhanced disclosure requirements for the adoption of FAS 161.
Swap Agreements. The Fund may enter into interest rate swap transactions to reduce the interest rate risk inherent in the Fund's underlying investments and issued preferred shares. The use of interest rate swaps is a highly specialized activity that involves investment techniques and risks different from those associated with ordinary portfolio security transactions. In an interest rate swap, the Fund agrees to pay to the other party to the interest rate swap (which is known as the "counterparty") a fixed rate payment in exchange for the counterparty agreeing to pay to the Fund a variable rate payment, or the Fund agrees to receive from the counterparty a fixed rate payment in exchange for the counterparty agreeing to receive from the Fund a variable rate payment, the accruals for which would begin at a specified date in the future (the "effective date").The payment obligations are based on the notional amount of the swap. Certain risks may arise when entering into swap transactions including counterparty default, liquidity or unfavorable changes in interest rates. The Fund generally intends, but is not obligated, to terminate its interest rate swaps before the effective date. Payments received or made at the end of the measurement period when the swap is terminated are recorded as realized gain or loss in the Statement of Operations. The value of the swap is adjusted daily based upon a price supplied by a board approved pricing vendor and the change in value is recorded as unrealized appreciation or depreciation.
Securities Lending. The Fund retains beneficial ownership of the securities it has loaned and continues to receive interest and dividends paid by the issuer of securities and to participate in any changes in their market value. The Fund requires the borrowers of the securities to maintain collateral with the Fund consisting of liquid, unencumbered assets having a value at least equal to the value of the securities loaned. When the collateral falls below specified amounts, the lending agents will use their best efforts to obtain additional collateral on the next business day to meet required amounts under the security lending agreement. The Fund may invest the cash collateral into a joint trading account in an affiliated money market fund pursuant to Exemptive Orders issued by the SEC. The Fund receives compensation for lending its securities either in the form of fees or by earning interest on invested cash collateral net of borrower rebates and fees paid to a lending agent. Either the Fund or the borrower may terminate the loan. There may be risks of delay and costs in recovery of securities or even loss of rights in the collateral should the borrower of the securities fail financially. The 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.
Federal Income Taxes. The Fund's policy is to comply with the requirements of the Internal Revenue Code, as amended, which are applicable to regulated investment companies and to distribute all of its taxable income to its shareholders.
At December 31, 2008, the Fund had a net tax basis capital loss carryforward of approximately $6,156,000, which may be applied against any realized net taxable capital gains of each succeeding year until fully utilized or until December 31, 2016, the expiration date, whichever occurs first.
In addition, from November 1, 2008 through December 31, 2008, the Fund incurred approximately $95,637,000 of net realized capital losses. As permitted by tax regulations, the Fund intends to elect to defer these losses and treat them as arising in the year ending December 31, 2009.
The Fund has reviewed the tax positions for the open tax years as of December 31, 2008 and has determined that no provision for income tax is required in the Fund's financial statements. The Fund's federal tax returns for the prior three years remain subject to examination by the Internal Revenue Service.
Distribution of Income and Gains. Distributions from net investment income of the Fund are usually declared and distributed to shareholders quarterly. Net realized gains from investment transactions, in excess of available capital loss carryforwards, would be taxable to the Fund if not distributed, and, therefore, will be distributed to shareholders at least annually.
The timing and characterization of certain income and capital gains distributions are determined annually in accordance with federal tax regulations which may differ from accounting principles generally accepted in the United States of America. These differences primarily relate to certain securities sold at a loss. As a result, net investment income and net realized gain (loss) on investment transactions for a reporting period may differ significantly from distributions during such period. Accordingly, the Fund may periodically make reclassifications among certain of its capital accounts without impacting the net asset value of the Fund.
The Fund had a level distribution during the year. The Fund estimates that at times it will distribute more than its income, therefore, a portion of the distributions may be a return of capital.
At December 31, 2008, the Fund's components of distributable earnings (accumulated losses) on a tax basis were as follows:
|
Capital loss carryforwards |
$ (6,156,000) |
|
Unrealized appreciation (depreciation) on
investments |
$ (53,441,937) |
In addition, the tax character of distributions paid to common and Preferred Shareholders by the Fund is summarized as follows:
|
|
Years Ended December 31, |
|
|
|
2008 |
2007 |
|
Distributions from ordinary income*
(common) |
$ 13,755,054 |
$ 21,000,075 |
|
Distributions from ordinary income*
(Preferred) |
$ 2,679,825 |
$ 5,216,895 |
|
Distributions from long-term capital gains
(common) |
$ 21,260,082 |
$ 13,503,496 |
|
Distributions from long-term capital gains
(Preferred) |
$ 4,141,991 |
$ 3,354,575 |
|
Distributions from return of capital
(common) |
$ 13,439,742 |
— |
Preferred Shares. As of December 31, 2008, the Fund had 700 shares of Series A and 700 shares of Series B preferred shares ("Preferred Shares") outstanding, each at a liquidation value of $25,000 per share. During the year ended December 31, 2008, the Fund redeemed a total of 5,000 of its Preferred Shares (2,500 shares of each of its Series A and B Preferred Shares) at their liquidation preference of $25,000 per share, aggregating to $125,000,000 in order to ensure compliance with the Fund's asset coverage requirements. The Fund redeemed the Preferred Shares with the proceeds from sales of portfolio assets, resulting in a reduction of the Fund's overall leverage. Common shareholders may experience capital gains, and the Fund may have incurred brokerage expenses as the result of such sales.
The Preferred Shares are senior to, and have certain class-specific preferences over, the Fund's common shares. The dividend rate on each series of Preferred Shares is set through a "Dutch" auction process, and the dividends are generally paid every seven days. In the auction process, holders of the Preferred Shares indicate the dividend rate at which they would be willing to hold or sell their Preferred Shares. An auction fails if there are more Preferred Shares offered for sale than there are buyers. If an auction fails, the Preferred Shares' dividend rate adjusts to a "maximum rate," which, based on current Preferred Share ratings (AAA as of December 31, 2008), is the greater of (i) 125% of the applicable AA Composite Commercial Paper Rate and (ii) 2.5% plus the applicable AA Composite Commercial Paper Rate. In addition, existing Preferred Shareholders 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. Preferred Shareholders 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 Preferred Shares, although such secondary trading may be limited and may only be available for shareholders willing to sell at a discount.
During the year ended December 31, 2008, the dividend rates ranged from 2.600% to 5.700% for Series A and 2.550% to 5.482% for Series B. The 1940 Act requires that the Preferred Shareholders of the Fund, voting as a separate class, have the right to: a) elect at least two directors at all times, and b) elect a majority of the directors at any time when dividends on the Preferred Shares are unpaid for two full years. Unless otherwise required by law or under the Fund's Articles Supplementary, each Preferred Share is entitled to one vote and Preferred Shareholders will vote together with common shareholders as a single class and have the same voting rights. Dividends on the Preferred Shares are all cumulative. The Fund is subject to certain limitations and restrictions while the Preferred Shares are outstanding. Under its Articles Supplementary, the Fund is required to maintain asset coverage of at least 200% with respect to the Preferred Shares as of the last business day of each month in which any Preferred Shares are outstanding.
Since February 2008, the Fund, like many other closed-end funds throughout the industry, has experienced failed auctions on its auction rate Preferred Shares. Auctions have failed because there were not enough bids to cover the shares for sale, indicating a lack of liquidity in the market. While repeated auction fails have affected the liquidity for the auction rate Preferred Shares, a failed auction does not represent a default or loss of capital of the Fund's auction rate Preferred Shares and the auction rate Preferred Shareholders have continued to receive dividends at the previously defined "maximum rate". As of December 31, 2008, the Preferred Shares of the Fund continue to be triple-A rated by its respective rating agencies. Prolonged auction failures may increase the cost of leverage to the Fund.
Contingencies. In the normal course of business, the Fund may enter into contracts with service providers that contain general indemnification clauses. The Fund's maximum exposure under these arrangements is unknown as this would involve future claims that may be made against the Fund that have not yet been made. However, based on experience, the Fund expects the risk of loss to be remote.
Real Estate Investment Trusts. The Fund recharacterizes distributions received from a Real Estate Investment Trust ("REIT") investment based on information provided by the REIT into the following categories: ordinary income, long-term and short-term capital gains, and return of capital. If information is not available timely from a REIT, the recharacterization will be estimated and a recharacterization will be made in the following year when such information becomes available. Distributions received from REITs in excess of income are recorded as either a reduction of cost of investments or realized gains. The Fund distinguishes between dividends on a tax basis and a financial reporting basis and only distributions in excess of tax basis earnings and profits are reported in the financial statements as a return of capital for tax reporting purposes.
Other. Investment transactions are accounted for on a trade date plus one basis for daily net asset value calculations. However, for financial reporting purposes, investment security transactions are reported on trade date. Interest income is recorded on the accrual basis. Dividend income is recorded on the ex-dividend date net of foreign withholding taxes. Realized gains and losses from investment transactions are recorded on an identified cost basis.
B. Purchases and Sales of Securities
During the year ended December 31, 2008 purchases and sales of investment securities (excluding short-term investments) aggregated $124,974,560 and $297,991,831, respectively.
C. Related Parties
Management Agreement. Under the Investment Management Agreement with Deutsche Investment Management Americas Inc. ("DIMA" or the "Investment Manager"), an indirect, wholly owned subsidiary of Deutsche Bank AG, the Investment Manager is responsible for managing the Fund's affairs and supervising all aspects of the Fund's operations, subject at all times to the general supervision of the Fund's Board of Directors (the "Board").
Pursuant to the Investment Management Agreement, the Investment Manager has delegated the day to day management of the Fund's investment portfolio to RREEF America, L.L.C. (the "Investment Advisor"), also an indirect, wholly owned subsidiary of Deutsche Bank AG and an affiliate of DB Real Estate, the real estate investment management group of Deutsche Asset Management. Subject to the general supervision of the Board and the Investment Manager, the Investment Advisor is responsible for managing the investment operations of the Fund and the composition of the Fund's holdings of securities and other investments. The Investment Manager, not the Fund, compensates the Investment Advisor for its services. The Investment Management Fee payable under the Investment Management Agreement is equal to an annual rate of 0.85% of the Fund's average daily total managed assets, computed and accrued daily and payable monthly. Total managed assets equal the net asset value of the common shares plus the liquidation preference of any Preferred Shares plus the principal amount of any borrowings used for leverage.
In addition, for the period January 1, 2008 through October 31, 2008 the Investment Manager had contractually agreed to waive a portion of its Investment Management Fee in the amount of 0.20% of the Fund's average daily total managed assets. Effective October 31, 2008, such waiver will decline by 0.05% in each year, with all waivers expiring November 1, 2011. Accordingly, for the year ended December 31, 2008, the Investment Manager did not impose a portion of its Investment Management Fee pursuant to the Investment Management Agreement aggregating $766,893 and the amount imposed aggregated $2,544,740, which was equivalent to an annual effective rate of 0.65% of the Fund's average daily total managed assets.
Service Provider Fees. DWS Investments Service Company ("DISC"), an affiliate of the Investment Manager and Investment Advisor, is the transfer agent, dividend-paying agent and shareholder service agent for the Fund. Pursuant to a sub-transfer agency agreement between DISC and DST Systems, Inc. ("DST"), DISC has delegated certain transfer agent, dividend-paying agent and shareholder service agent functions to DST. DISC compensates DST out of the shareholder servicing fee it receives from the Fund. For the year ended December 31, 2008, the amount charged to the Fund by DISC aggregated $15,847, of which $4,134 is unpaid.
DWS Investments Fund Accounting Corporation ("DIFA"), an affiliate of the Investment Manager and Investment Advisor, is responsible for determining the daily net asset value per share and maintaining the portfolio and general accounting records of the Fund. Pursuant to a sub-accounting agreement between DIFA and State Street Bank and Trust Company ("SSB"), DIFA has delegated certain fund accounting functions to SSB. DIFA compensates SSB for the accounting service fee it receives from the Fund. The amount charged to the Fund for the year ended December 31, 2008 by DIFA aggregated $63,102, of which $4,725 is unpaid.
Deutsche Bank Trust Company Americas ("DBTCA"), an affiliate of the Investment Manager and the Investment Advisor, is the auction agent with respect to the Preferred Shares. The auction agent will pay each broker dealer a service charge from funds provided by the Fund (the "Auction Service Fee"). The Auction Service Fee charged to the Fund for the year ended December 31, 2008 aggregated $371,483, of which $990 is unpaid.
In addition, DBTCA, as auction agent, is paid an administration fee. The amount charged to the Fund for the year ended December 31, 2008 aggregated $12,800, of which $825 is unpaid.
Directors' Fees and Expenses. The Fund paid each Director not affiliated with the Advisor retainer fees plus specified amounts for various committee services and for the Board Chairperson and Vice Chairperson.
In connection with the board consolidation on April 1, 2008, of the two DWS Funds Boards of Directors, certain Independent Board Members retired prior to their normal retirement date, and received a one-time retirement benefit. DIMA has agreed to reimburse the Funds for the cost of this benefit. During the year ended December 31, 2008, the Fund paid its allocated portion of the retirement benefit of $1,574 to the non-continuing Independent Board Members, and the Fund was reimbursed by DIMA for this payment.
Typesetting and Filing Service Fees. Under an agreement with DIMA, DIMA is compensated for providing typesetting and certain regulatory filing services to the Fund. For the year ended December 31, 2008, the amount charged to the Fund by DIMA included in the Statement of Operations under "reports to shareholders" aggregated $12,594, of which $8,203 is unpaid.
Cash Management QP Trust. Pursuant to an Exemptive Order issued by the SEC, the Fund may invest in the Cash Management QP Trust (the "QP Trust") and other affiliated funds managed by the Investment Manager. The QP Trust seeks to provide as high a level of current income as is consistent with the preservation of capital and the maintenance of liquidity. The QP Trust does not pay the Investment Manager a management fee for the affiliated funds' investments in the QP Trust.
D. Fee Reductions
The Fund has entered into an arrangement with its custodian and transfer agent whereby credits realized as a result of uninvested cash balances are used to reduce a portion of the Fund's custodian expenses. During the year ended December 31, 2008, the Fund's custodian fee was reduced by $633 and $1,033, respectively, for custodian and transfer agent credits earned.
E. Common Share Repurchases
The Fund is authorized to effect periodic repurchases of its common shares in the open market from time to time when the Fund's common shares trade at a discount to their net asset value. During the year ended December 31, 2007, the Fund purchased 203,480 shares of common stock on the open market at a total cost of $4,907,210 ($24.12 average per share). The average discount of the purchases, comparing the purchase price to the net asset value at the time of purchase was 10.7%. These shares are held in treasury.
F. Real Estate Concentration Risk
The Fund concentrates its investments in real estate securities, including REITs. A fund with a concentrated portfolio is vulnerable to the risks of the industry in which it invests and is subject to greater risks and market fluctuations than funds investing in a broader range of industries. Real estate securities are susceptible to the risks associated with direct ownership of real estate such as declines in property values; increases in property taxes, operating expenses, interest rates or competition; zoning changes; and losses from casualty and condemnation.
G. Line of Credit
Until August 25, 2008, the Fund shared in a $490 million revolving credit facility with other affiliated funds (the "Participants") provided by a syndication of banks. The Fund was able to borrow for temporary or emergency purposes. The Participants are charged an annual commitment fee, which is allocated based on net assets among each of the Participants. Interest is calculated at the Federal Funds Rate plus 0.35 percent. The Fund was able to borrow up to a maximum of 5 percent of its net assets under the agreement (see Note H).
H. Secured Credit Facility
The Fund entered into a secured credit facility with a commercial bank effective August 26, 2008. The secured credit facility had an initial term of 364 days and initially allowed the Fund to borrow in an aggregate amount up to $160,000,000 ($35,000,000 effective January 14, 2009). A commitment fee was charged to the Fund and is included with "interest expense" on the Statement of Operations. An arrangement fee incurred by the Fund in connection with this facility was deferred and has been amortized on a straight line basis over the term of the facility.
As a condition to its participation in the new secured credit facility, the Fund's participation in the above mentioned $490 million line of credit was terminated.
Effective February 5, 2009, the secured credit facility was terminated. The facility was originally intended to facilitate the redemption of the Fund's Preferred Shares. In the fourth quarter of 2008, using cash on hand, the Fund redeemed a total of 5,000 of its Preferred Shares (2,500 shares of each of its Series A and B Preferred Shares) with the proceeds from sales of portfolio assets. See Note A. Significant Accounting Policies — Preferred Shares.
Report of Independent Registered Public Accounting Firm
To the Board of Directors and Shareholders of DWS RREEF Real Estate Fund, Inc.:
In our opinion, the accompanying statement of assets and liabilities, including the investment portfolio, and the related statements of operations and of changes in net assets and the financial highlights present fairly, in all material respects, the financial position of DWS RREEF Real Estate Fund, Inc. (the "Fund") at December 31, 2008, and the results of its operations, the changes in its net assets and the financial highlights for each of the periods indicated therein, in conformity with accounting principles generally accepted in the United States of America. These financial statements and financial highlights (hereafter referred to as "financial statements") are the responsibility of the Fund's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these financial statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits, which included confirmation of securities at December 31, 2008 by correspondence with the custodian and brokers, provide a reasonable basis for our opinion.
|
Boston,
Massachusetts |
PricewaterhouseCoopers LLP |
The Fund reported long-term capital gain distributions of $1.35 per share to common shareholders and $4.1 million to preferred shareholders during its year ended December 31, 2008, of which approximately 100% represents 15% rate gains and 0.0% represents 25% rate gains.
Please consult a tax advisor if you have questions about federal or state income tax laws, or on how to prepare your tax returns. If you have specific questions about your account, please call (800) 294-4366.
Dividend Reinvestment and Cash Purchase Plan
The Board of Directors of the Fund has established a Dividend Reinvestment and Cash Purchase Plan (the "Plan") for stockholders who have not elected in writing to receive dividends and distributions in cash (each a "Participant"). A Plan Agent (currently, Computershare Inc.) has been appointed by the Fund's Board of Directors to act as agent for each Participant.
A summary of the Plan is set forth below. Shareholders may obtain a copy of the entire Dividend Reinvestment and Cash Purchase Plan by visiting the Fund's Web site at www.dws-investments.com or by calling (800) 294-4366.
Whenever the Fund declares an income dividend or a capital gains distribution payable in shares of common stock or cash at the option of the stockholders, each Participant is deemed to have elected to take such dividend or distribution entirely in additional shares of common stock of the Fund. If the market price per share of the Fund's common stock on the valuation date equals or exceeds the net asset value per share on the valuation date, the number of additional shares of common stock to be issued by the Fund and credited to the Participant's account shall be determined by dividing the dollar amount of the dividend or capital gains distribution payable on the Participant's shares by the greater of the following amounts per share of the Fund's common stock on the valuation date: (a) the net asset value, or (b) 95% of the market price. If the market price per share of the common stock on the valuation date is less than the net asset value per share on the valuation date, the Plan Agent shall apply the dollar amount of the dividend or capital gains distribution on such Participant's shares (less such Participant's pro rata share of brokerage commissions incurred with respect to the Plan Agent's open-market purchases in connection with the reinvestment of such dividend and distribution) to the purchase on the open market of shares of the common stock for the Participant's account. Should the Fund declare an income dividend or capital gains distribution payable only in cash, the amount of such dividend or distribution on each Participant's shares (less such Participant's pro rata share of brokerage commissions incurred with respect to open-market purchases in connection with the reinvestment of such dividend or distribution) shall be applied to the purchase on the open market of shares of common stock for the Participant's account. Each Participant, semiannually, also has the option of sending additional funds, in any amount from $100 to $3,000, for the purchase on the open market of shares of common stock for such Participant's account. Voluntary payments will be invested by the Plan Agent on or shortly after the 15th of February and August, and in no event more than 45 days after such dates, except where temporary curtailment or suspension of purchases is necessary to comply with applicable provisions of federal securities law. Optional cash payments received from a Participant on or prior to the fifth day preceding the 15th of February or August will be applied by the Plan Agent to the purchase of additional shares of common stock as of that investment date. Funds received after the fifth day preceding the 15th of February or August and prior to the 30th day preceding the next investment date will be returned to the Participant. No interest will be paid on optional cash payments held until investment. Consequently, Participants are strongly urged to make their optional cash payments shortly before the 15th of February or August. Optional cash payments should be made in US dollars and be sent by first-class mail, postage prepaid, to DWS Investments Service Company (the "Transfer Agent") at the following address:
DWS RREEF Real
Estate Fund, Inc.
Dividend Reinvestment and Cash Purchase Plan
210 West 10th Street, Kansas City, MO 64105
(800) 294-4366
Participants may withdraw their entire voluntary cash payment by written notice received by the Plan Agent not less than 48 hours before such payment is to be invested.
Investment of voluntary cash payments and other open-market purchases may be made on any securities exchange where the shares of common stock are traded, in the OTC market or in negotiated transactions.
A statement reflecting the amount of cash received by the Transfer Agent will be issued on receipt of each cash deposit. The statements are the record of the costs of shares and should be retained for tax purposes.
The reinvestment of dividends and capital gains distributions does not relieve the Participant of any tax that may be payable on such dividends and distributions. The Transfer Agent will report to each Participant the taxable amount of dividends and distributions credited to his or her account.
The service fees for handling capital gains distributions or income dividends will be paid by the Fund. Participants will be charged a $1.00 service fee for each optional cash investment and a pro rata share of brokerage commissions on all open-market purchases.
Participants may terminate their accounts under the Plan by notifying the Transfer Agent in writing. Such termination will be effective immediately if such Participant's notice is received by the Transfer Agent not less than 10 days prior to any dividend or distribution record date; otherwise, such termination will be effective as soon as practicable upon completion of the reinvestment of capital gains distributions or income dividends. The Plan may be terminated by the Fund upon notice in writing mailed to Participants at least 30 days prior to any record date for the payment of any dividend or distribution by the Fund. The terms and conditions of the Plan may be amended or supplemented by the Fund at any time or times, but, except when necessary or appropriate to comply with applicable law or the rules or policies of the Securities and Exchange Commission, any securities exchange on which shares of the Fund's common stock are listed, or any other regulatory authority and with certain other limited exceptions, only by mailing to Participants appropriate written notice at least 30 days prior to the effective date thereof.
If a Participant elects, by notice to the Plan Agent in writing in advance of such termination, to have the Plan Agent sell part or all of such Participant's shares and remit the proceeds to such Participant, the Plan Agent is authorized to deduct a fee of 5% of the gross proceeds, to a maximum of $3.50, plus brokerage commissions for this transaction and any transfer taxes.
All correspondence and inquiries concerning the Plan, and requests for additional information about the Plan, should be directed to the Transfer Agent at P.O. Box 219066, Kansas City, Missouri 64105 or (800) 294-4366.
Investment Management Agreement Approval
The Board of Directors, including the Independent Directors, approved the renewal of your Fund's investment management agreement (the "Agreement") with Deutsche Investment Management Americas Inc. ("DIMA") the sub-advisory agreement (the "Sub-Advisory Agreement," and together with the Agreement, the "Agreements") between DIMA and RREEF America LLC ("RREEF") in September 2008.
In terms of the process that the Board followed prior to approving the Agreements, shareholders should know that:
• At the present time, all but one of your Fund's Directors are independent of DIMA and its affiliates.
• The Directors meet frequently to discuss fund matters. Each year, the Directors dedicate part or all of several meetings to contract review matters. Over the course of several months, the Board's Contract Committee, in coordination with the Board's Equity Oversight Committee, reviewed comprehensive materials received from DIMA, independent third parties and independent counsel. These materials included an analysis of the Fund's performance, fees and expenses, and profitability compiled by the Fund's independent fee consultant. The Board also received extensive information throughout the year regarding performance of the Fund.
• The Directors regularly meet privately with their independent counsel (and, as needed, other advisors) to discuss contract review and other matters. In addition, the Directors were also advised by the Fund's independent fee consultant in the course of their review of the Fund's contractual arrangements and considered a comprehensive report prepared by the independent fee consultant in connection with their deliberations (the "IFC Report").
• In connection with reviewing the Agreements, the Board also reviewed the terms of the Fund's transfer agency agreement and other material service agreements.
• Based on its evaluation of the information provided, the Contract Committee presented its findings and recommendations to the Independent Directors as a group. The Independent Directors reviewed the Contract Committee's findings and recommendations and presented their recommendations to the full Board.
In connection with the contract review process, the Contract Committee and the Board considered the factors discussed below, among others. The Board also considered that DIMA and its predecessors have managed the Fund since its inception, and the Board believes that a long-term relationship with a capable, conscientious advisor is in the best interests of the Fund. The Board considered, generally, that shareholders invested in the Fund knowing that DIMA managed the Fund, and that the Agreement was approved by the Fund's shareholders at a special meeting held in 2006. As you may know, DIMA and RREEF are part of Deutsche Bank, a major global banking institution that is engaged in a wide range of financial services. The Board believes that there are significant advantages to being part of a global asset management business that offers a wide range of investing expertise and resources, including hundreds of portfolio managers and analysts with research capabilities in many countries throughout the world.
While shareholders may focus primarily on fund performance and fees, the Fund's Board considers these and many other factors, including the quality and integrity of DIMA's personnel and such other issues as back-office operations, fund valuations, and compliance policies and procedures.
Nature, Quality and Extent of Services. The Board considered the terms of the Agreement, including the scope of services provided under the Agreement. The Board noted that, under the Agreement, DIMA and RREEF provide portfolio management and administrative services to the Fund. The Board considered the experience and skills of senior management and investment personnel, the resources made available to such personnel, the ability of DIMA and RREEF to attract and retain high-quality personnel, and the organizational depth and stability of DIMA and RREEF. The Board reviewed the Fund's performance over short-term and long-term periods and compared those returns to various agreed-upon performance measures, including market indices and a peer universe compiled by the independent fee consultant using information supplied by Lipper Inc. ("Lipper"). The Board also noted that it has put a process into place of identifying "Focus Funds" (e.g., funds performing poorly relative to their benchmark or a peer group compiled by Lipper), and receives more frequent reporting and information from DIMA regarding such funds, along with DIMA's remedial plans to address underperformance. The Board believes this process is an effective manner of identifying and addressing underperforming funds. Based on the information provided, the Board noted that for the one-, three- and five-year periods ended December 31, 2007, the Fund's performance was in the 3rd quartile, 3rd quartile and 2nd quartile, respectively, of the applicable Lipper universe (the 1st quartile being the best performers and the 4th quartile being the worst performers). The Board also observed that the Fund has underperformed its benchmark in each of the one-, three- and five-year periods ended December 31, 2007. The Board also noted the disappointing investment performance of the Fund in recent periods and continued to discuss with senior management of DIMA and RREEF the factors contributing to such underperformance and actions being taken to improve performance. The Board observed that the Fund had experienced improved relative performance during the first six months of 2008.
On the basis of this evaluation and the ongoing review of investment results by the Board, the Board concluded that the nature, quality and extent of services provided by DIMA historically have been and continue to be satisfactory.
Fees and Expenses. The Board considered the Fund's investment management fee schedule and sub-advisory fee schedule, operating expenses, and total expense ratios, and comparative information provided by Lipper and the independent fee consultant regarding investment management fee rates paid to other investment advisors by similar funds (1st quartile being the most favorable and 4th quartile being the least favorable). With respect to management fees paid to other investment advisors by similar funds, the Board noted that the contractual fee rates paid by the Fund were lower than the median (1st quartile) of the applicable Lipper peer group (based on Lipper data provided as of December 31, 2007). With respect to the sub-advisory fee paid to RREEF, the Board noted that the fee is paid by DIMA out of its fee and not directly by the Fund. The Board noted that the Fund's total (net) operating expenses (excluding 12b-1 fees) were expected to be lower than the median (1st quartile) of the applicable Lipper expense universe (based on Lipper data provided as of December 31, 2007) ("Lipper Universe Expenses"). The Board considered the Fund's management fee rate as compared to fees charged by DIMA and certain of its affiliates for comparable mutual funds and considered differences in fund and fee structures between the DWS Funds. The Board also considered how the Fund's total (net) operating expenses compared to the total (net) operating expenses of a more customized peer group selected by Lipper (based on such factors as asset size). The Board concluded that the Fund's fee schedule represents an appropriate sharing between the Fund and DIMA of such economies of scale as may exist in the management of the Fund at current asset levels.
On the basis of the information provided, the Board concluded that management fees were reasonable and appropriate in light of the nature, quality and extent of services provided by DIMA and RREEF.
Profitability. The Board reviewed detailed information regarding revenues received by DIMA under the Agreement. The Board considered the estimated costs and pre-tax profits realized by DIMA from advising the DWS Funds, as well as estimates of the pre-tax profits attributable to managing the Fund in particular. The Board also received information regarding the estimated enterprise-wide profitability of the DWS Investments organization with respect to all fund services in totality and by fund. The Board reviewed DIMA's methodology in allocating its costs to the management of the Fund. Based on the information provided, the Board concluded that the pre-tax profits realized by DIMA in connection with the management of the Fund were not unreasonable. The Board also reviewed information regarding the profitability of certain similar investment management firms. The Board noted that while information regarding the profitability of such firms is limited (and in some cases is not necessarily prepared on a comparable basis), DIMA and its affiliates' overall profitability with respect to the DWS Investments fund complex (after taking into account distribution and other services provided to the funds by DIMA and its affiliates) was lower than the overall profitability levels of many comparable firms for which such data was available.
Other Benefits to DIMA and Its Affiliates. The Board also considered the character and amount of other incidental benefits received by DIMA and its affiliates, including any fees received by DIMA for administrative services provided to the Fund and any fees received by an affiliate of DIMA for distribution services. The Board also considered benefits to DIMA related to brokerage and soft-dollar allocations, including allocating brokerage to pay for research generated by parties other than the executing broker dealers, which pertain primarily to funds investing in equity securities, along with the incidental public relations benefits to DIMA related to DWS Funds advertising and cross-selling opportunities among DWS Investments products and services. The Board concluded that management fees were reasonable in light of these fallout benefits.
Compliance. The Board considered the significant attention and resources dedicated by DIMA to documenting and enhancing its compliance processes in recent years. The Board noted in particular (i) the experience and seniority of DIMA's chief compliance officer; (ii) the large number of compliance personnel who report to DIMA's chief compliance officer; and (iii) the substantial commitment of resources by DIMA and its affiliates to compliance matters.
Based on all of the information considered and the conclusions reached, the Board (including a majority of the Independent Directors) determined that the continuation of the Agreements is in the best interests of the Fund. In making this determination the Board did not give particular weight to any single factor identified above. The Board considered these factors over the course of numerous meetings, certain of which were in executive session with only the Independent Directors and their counsel present. It is possible that individual Directors may have weighed these factors differently in reaching their individual decisions to approve the continuation of the Agreements.
The following table presents certain information regarding the Board Members and Officers of the Corporation as of December 31, 2008. Each Board Member's year of birth is set forth in parentheses after his or her name. Unless otherwise noted, (i) each 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 Independent Board Member is c/o Dawn-Marie Driscoll, PO Box 100176, Cape Coral, FL 33904. Except as otherwise noted below, 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 fund. The Board Members may also serve in similar capacities with other funds in the fund complex. The Length of Time Served represents the year in which the Board Member joined the board of one or more DWS funds now overseen by the Board.
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Independent Board Members |
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Name, Year of Birth, Position with the Fund and Length of Time Served1 |
Business Experience and Directorships During the Past Five Years |
Number of Funds in DWS Fund Complex Overseen |
|
Paul K. Freeman (1950) Chairperson since 20092 Board Member since 1993 |
Consultant, World Bank/Inter-American
Development Bank; Governing Council of the Independent Directors Council
(governance, executive committees); formerly, Project Leader, International
Institute for Applied Systems Analysis (1998-2001); Chief Executive Officer,
The Eric Group, Inc. (environmental insurance) (1986-1998) |
134 |
|
Dawn-Marie Driscoll (1946) Board Member since 1987 |
President, Driscoll Associates (consulting
firm); Executive Fellow, Center for Business Ethics, Bentley University;
formerly, Partner, Palmer & Dodge (1988-1990); Vice President of Corporate
Affairs and General Counsel, Filene's (1978-1988). Directorships: Trustee of 20
open-end mutual funds managed by Sun Capital Advisers, Inc. (since 2007);
Director of ICI Mutual Insurance Company (since 2007); Advisory Board, Center
for Business Ethics, Bentley University; Trustee, Southwest Florida Community
Foundation (charitable organization). Former Directorships: Investment Company
Institute (audit, executive, nominating committees) and Independent Directors
Council (governance, executive committees) |
134 |
|
John W. Ballantine (1946) Board Member since 1999 |
Retired; formerly, Executive Vice President and
Chief Risk Management Officer, First Chicago NBD Corporation/The First National
Bank of Chicago (1996-1998); Executive Vice President and Head of International
Banking (1995-1996). Directorships: Healthways, Inc. (provider of disease and
care management services); Portland General Electric (utility company);
Stockwell Capital Investments PLC (private equity). Former Directorships: First
Oak Brook Bancshares, Inc. and Oak Brook Bank |
134 |
|
Henry P. Becton, Jr. (1943) Board Member since 1990 |
Vice Chair, WGBH Educational Foundation.
Directorships: Association of Public Television Stations; Becton Dickinson and
Company3 (medical technology company); Belo Corporation3
(media company); Boston Museum of Science; Public Radio International; PRX, The
Public Radio Exchange; The PBS Foundation. Former Directorships: American
Public Television; Concord Academy; New England Aquarium; Mass. Corporation for
Educational Telecommunications; Committee for Economic Development; Public
Broadcasting Service |
134 |
|
Keith R. Fox (1954) Board Member since 1996 |
Managing General Partner, Exeter Capital
Partners (a series of private investment funds). Directorships: Progressive
Holding Corporation (kitchen goods importer and distributor); Box Top Media
Inc. (advertising); The Kennel Shop (retailer) |
134 |
|
Kenneth C. Froewiss (1945) Board Member since 2001 |
Clinical Professor of Finance, NYU Stern School
of Business (1997-present); Member, Finance Committee, Association for Asian
Studies (2002-present); Director, Mitsui Sumitomo Insurance Group (US)
(2004-present); prior thereto, Managing Director, J.P. Morgan (investment
banking firm) (until 1996) |
134 |
|
Richard J. Herring (1946) Board Member since 1990 |
Jacob Safra Professor of International Banking
and Professor, Finance Department, The Wharton School, University of
Pennsylvania (since July 1972); Co-Director, Wharton Financial Institutions
Center (since July 2000); Director, Japan Equity Fund, Inc. (since September
2007), Thai Capital Fund, Inc. (since September 2007), Singapore Fund, Inc.
(since September 2007). Formerly, Vice Dean and Director, Wharton Undergraduate
Division (July 1995-June 2000); Director, Lauder Institute of International
Management Studies (July 2000-June 2006) |
134 |
|
William McClayton (1944) Board Member since 2004 |
Managing Director, Diamond Management &
Technology Consultants, Inc. (global management consulting firm)
(2001-present); Directorship: Board of Managers, YMCA of Metropolitan Chicago;
formerly: Senior Partner, Arthur Andersen LLP (accounting) (1966-2001);
Trustee, Ravinia Festival |
134 |
|
Rebecca W. Rimel (1951) Board Member since 1995 |
President and Chief Executive Officer, The Pew
Charitable Trusts (charitable organization) (1994 to present); Trustee, Thomas
Jefferson Foundation (charitable organization) (1994 to present); Trustee,
Executive Committee, Philadelphia Chamber of Commerce (2001-2007); Trustee, Pro
Publica (2007-present) (charitable organization). Formerly, Executive Vice
President, The Glenmede Trust Company (investment trust and wealth management)
(1983-2004); Board Member, Investor Education (charitable organization)
(2004-2005); Director, Viasys Health Care3
(January 2007-June 2007) |
134 |
|
William N. Searcy, Jr. (1946) Board Member since 1993 |
Private investor since October 2003; Trustee of
20 open-end mutual funds managed by Sun Capital Advisers, Inc. (since October
1998). Formerly, Pension & Savings Trust Officer, Sprint
Corporation3 (telecommunications) (November 1989-September
2003) |
134 |
|
Jean Gleason Stromberg (1943) Board Member since 1997 |
Retired. Formerly, Consultant (1997-2001);
Director, US Government Accountability Office (1996-1997); Partner, Fulbright
& Jaworski, L.L.P. (law firm) (1978-1996). Directorships: The William and
Flora Hewlett Foundation; Business Leadership Council, Wellesley College.
Former Directorships: Service Source, Inc., Mutual Fund Directors Forum
(2002-2004), American Bar Retirement Association (funding vehicle for
retirement plans) (1987-1990 and 1994-1996) |
134 |
|
Robert H. Wadsworth (1940) Board Member since 1999 |
President, Robert H. Wadsworth &
Associates, Inc. (consulting firm) (1983 to present); Director, The Phoenix
Boys Choir Association |
137 |
|
Interested Board Member |
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Name, Year of Birth, Position with the Fund and Length of Time Served1 |
Business Experience and Directorships During the Past Five Years |
Number of Funds in Fund Complex Overseen |
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Axel Schwarzer4 (1958) Board Member since 2006 |
Managing Director5, Deutsche Asset
Management; Head of Deutsche Asset Management Americas; CEO of DWS Investments;
formerly, board member of DWS Investments, Germany (1999-2005); formerly, Head
of Sales and Product Management for the Retail and Private Banking Division of
Deutsche Bank in Germany (1997-1999); formerly, various strategic and
operational positions for Deutsche Bank Germany Retail and Private Banking
Division in the field of investment funds, tax driven instruments and asset
management for corporates (1989-1996) |
134 |
|
Officers6 |
|
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Name, Year of Birth, Position with the Fund and Length of Time Served7 |
Principal Occupation(s) During Past 5 Years and Other Directorships Held |
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Michael G. Clark8 (1965) President, 2006-present |
Managing Director5, Deutsche Asset
Management (2006-present); President of DWS family of funds; Director, ICI
Mutual Insurance Company (since October 2007); formerly, Director of Fund Board
Relations (2004-2006) and Director of Product Development (2000-2004), Merrill
Lynch Investment Managers; Senior Vice President Operations, Merrill Lynch
Asset Management (1999-2000) |
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John Millette9 (1962) Vice President and Secretary, 1999-present |
Director5, Deutsche Asset
Management |
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Paul H. Schubert8 (1963) Chief Financial Officer, 2004-present Treasurer, 2005-present |
Managing Director5, Deutsche Asset
Management (since July 2004); formerly, Executive Director, Head of Mutual Fund
Services and Treasurer for UBS Family of Funds (1998-2004); Vice President and
Director of Mutual Fund Finance at UBS Global Asset Management
(1994-1998) |
|
Caroline Pearson9 (1962) Assistant Secretary, 1997-present |
Managing Director5, Deutsche Asset
Management |
|
Rita Rubin10 (1970) Assistant Secretary, 2009-present |
Vice President and Counsel, Deutsche Asset
Management (since October 2007); formerly, Vice President, Morgan Stanley
Investment Management (2004-2007); Attorney, Shearman & Sterling LLP
(2004); Vice President and Associate General Counsel, UBS Global Asset
Management (2001-2004) |
|
Paul Antosca9 (1957) Assistant Treasurer, 2007-present |
Director5, Deutsche Asset Management
(since 2006); Vice President, The Manufacturers Life Insurance Company (U.S.A.)
(1990-2006) |
|
Jack Clark9 (1967) Assistant Treasurer, 2007-present |
Director5, Deutsche Asset Management
(since 2007); formerly, Vice President, State Street Corporation
(2002-2007) |
|
Diane Kenneally9 (1966) Assistant Treasurer, 2007-present |
Director5, Deutsche Asset
Management |
|
Jason Vazquez10 (1972) Anti-Money Laundering Compliance Officer, 2007-present |
Vice President, Deutsche Asset Management
(since 2006); formerly, AML Operations Manager for Bear Stearns (2004-2006),
Supervising Compliance Principal and Operations Manager for AXA Financial
(1999-2004) |
|
Robert Kloby10 (1962) Chief Compliance Officer, 2006-present |
Managing Director5, Deutsche Asset
Management (2004-present); formerly, Chief Compliance Officer/Chief Risk
Officer, Robeco USA (2000-2004); Vice President, The Prudential Insurance
Company of America (1988-2000); E.F. Hutton and Company (1984-1988)
|
|
J. Christopher Jackson10
(1951) Chief Legal Officer, 2006-present |
Director5, Deutsche Asset Management
(2006-present); formerly, Director, Senior Vice President, General Counsel and
Assistant Secretary, Hansberger Global Investors, Inc. (1996-2006); Director,
National Society of Compliance Professionals (2002-2005) (2006-2009) |
2 Mr. Freeman assumed the Chairperson role as of January 1, 2009. Prior to that Ms. Driscoll served as Chairperson of certain DWS funds since 2004.
3 A publicly held company with securities registered pursuant to Section 12 of the Securities Exchange Act of 1934.
4 The mailing address of Axel Schwarzer is c/o Deutsche Investment Management Americas Inc., 345 Park Avenue, New York, New York 10154. Mr. Schwarzer is an interested Board Member by virtue of his positions with Deutsche Asset Management. As an interested person, Mr. Schwarzer receives no compensation from the fund.
5 Executive title, not a board directorship.
6 As a result of their respective positions held with the Advisor, these individuals are considered "interested persons" of the Advisor within the meaning of the 1940 Act. Interested persons receive no compensation from the fund.
7 The length of time served represents the year in which the officer was first elected in such capacity for one or more DWS funds.
8 Address: 345 Park Avenue, New York, New York 10154.
9 Address: One Beacon Street, Boston, MA 02108.
10 Address: 280 Park Avenue, New York, New York 10017.
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Automated Information Line |
DWS Investments Closed-End Fund Info Line (800) 349-4281 |
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Web Site |
www.dws-investments.com Obtain quarterly fact sheets, financial reports, press releases and webcasts when available. |
|
Written Correspondence |
Deutsche Investment Management Americas Inc. 345 Park AvenueNew York, NY 10154 |
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Proxy Voting |
The fund's policies and procedures for voting
proxies for portfolio securities and information about how the fund voted
proxies related to its portfolio securities during the 12-month period
ended June 30
are available on our Web site —
www.dws-investments.com (click on "proxy voting"at the bottom of the page)
— or on the SEC's Web site — www.sec.gov. To obtain a written copy
of the fund's policies and procedures without charge, upon request, call us
toll free at (800) 621-1048. |
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Legal Counsel |
Ropes & Gray LLP One International PlaceBoston, MA 02110 |
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Dividend Reinvestment Plan Agent |
Computershare Inc. P.O. Box 43078Providence, RI 02940-3078 |
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Shareholder Service Agent |
DWS Investments Service Company P.O. Box 219066Kansas City, MO 64121-9066 (800) 294-4366 |
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Custodian and Transfer Agent |
State Street Bank and Trust Company 225 Franklin StreetBoston, MA 02110 |
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Independent Registered Public Accounting Firm |
PricewaterhouseCoopers LLP 125 High StreetBoston, MA 02110 |
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AMEX Symbol |
SRQ |
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CUSIP Numbers |
Common Shares |
233384 106 |
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Auction Rate Preferred Shares Series
A |
233384 205 |
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Auction Rate Preferred Shares Series
B |
233384 304 |
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ITEM 2. |
CODE OF ETHICS |
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As of the end of the period, December 31, 2008 DWS RREEF Real Estate Fund, Inc. has a code of ethics, as defined in Item 2 of Form N-CSR, that applies to its Principal Executive Officer and Principal Financial Officer.
There have been no amendments to, or waivers from, a provision of the code of ethics during the period covered by this report that would require disclosure under Item 2.
A copy of the code of ethics is filed as an exhibit to this Form N-CSR.
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ITEM 3. |
AUDIT COMMITTEE FINANCIAL EXPERT |
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The Funds’ audit committee is comprised solely of trustees who are “independent” (as such term has been defined by the Securities and Exchange Commission (“SEC”) in regulations implementing Section 407 of the Sarbanes-Oxley Act (the “Regulations”)). The Funds’ Board of Trustees has determined that there are several “audit committee financial experts” (as such term has been defined by the Regulations) serving on the Funds’ audit committee including Mr. William McClayton, the chair of the Funds’ audit committee. The SEC has stated that an audit committee financial expert is not an “expert” for any purpose, including for purposes of Section 11 of the Securities Act of 1933 and the designation or identification of a person as an audit committee financial expert pursuant to this Item 3 of Form N-CSR does not impose on such person any duties, obligations or liability that are greater than the duties, obligations and liability imposed on such person as a member of the audit committee and board of directors in the absence of such designation or identification. |
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ITEM 4. |
PRINCIPAL ACCOUNTANT FEES AND SERVICES |
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DWS RREEF REAL ESTATE FUND, INC.
FORM N-CSR DISCLOSURE RE: AUDIT FEES
The following table shows the amount of fees that PricewaterhouseCoopers, LLP (“PWC”), the Fund’s independent registered public accounting firm, billed to the Fund during the Fund’s last two fiscal years. The Audit Committee approved in advance all audit services and non-audit services that PWC provided to the Fund.
The Audit Committee has delegated certain pre-approval responsibilities to its Chairman (or, in his absence, any other member of the Audit Committee).
Services that the Fund’s Independent Registered Public Accounting Firm Billed to the Fund
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Fiscal Year |
Audit Fees Billed to Fund |
Audit-Related |
Tax Fees Billed to Fund |
All |
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2008 |
$63,800 |
$0 |
$0 |
$10,000 |
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2007 |
$61,800 |
$0 |
$0 |
$10,000 |
Services that the Fund’s Independent Registered Public Accounting Firm Billed to the Adviser and Affiliated Fund Service Providers
The following table shows the amount of fees billed by PWC to Deutsche Investment Management Americas, Inc. (“DeIM” or the “Adviser”), and any entity controlling, controlled by or under common control with DeIM (“Control Affiliate”) that provides ongoing services to the Fund (“Affiliated Fund Service Provider”), for engagements directly related to the Fund’s operations and financial reporting, during the Fund’s last two fiscal years.
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Fiscal Year |
Audit-Related |
Tax Fees Billed to Adviser and Affiliated Fund Service Providers |
All |
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2008 |
$0 |
$19,000 |
$0 |
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2007 |
$58,500 |
$25,000 |
$0 |
The “Audit-Related Fees” were billed for services in connection with the agreed-upon procedures related to fund mergers and the above “Tax Fees” were billed in connection with tax consultation and agreed-upon procedures.
Non-Audit Services
The following table shows the amount of fees that PWC billed during the Fund’s last two fiscal years for non-audit services. The Audit Committee pre-approved all non-audit services that PWC provided to the Adviser and any Affiliated Fund Service Provider that related directly to the Fund’s operations and financial reporting. The Audit Committee requested and received information from PWC about any non-audit services that PWC rendered during the Fund’s last fiscal year to the Adviser and any Affiliated Fund Service Provider. The Committee considered this information in evaluating PWC’s independence.
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Fiscal Year |
Total (A) |
Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (engagements related directly to the operations and financial reporting of the Fund) (B) |
Total Non-Audit Fees billed to Adviser and Affiliated Fund Service Providers (all other engagements) (C) |
Total of (A), (B) |
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2008 |
$10,000 |
$19,000 |
$0 |
$29,000 |
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2007 |
$10,000 |
$25,000 |
$600,000 |
$635,000 |
All other engagement fees were billed for services provided by PWC for services related to consulting on an IT project.
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PwC advised the Fund's Audit Committee that PwC has identified two matters that it determined to be inconsistent with the SEC's auditor independence rules. In the first instance, an employee of PwC had power of attorney over an account which included DWS funds. The employee did not perform any audit services for the DWS Funds, but did work on a non audit project for Deutsche Bank AG. In the second instance, an employee of PwC served as a nominee shareholder (effectively equivalent to a Trustee) of various companies/trusts since 2001. Some of these companies held shares of Aberdeen, a sub advisor to certain DWS Funds, and of certain funds sponsored by subsidiaries of Deutsche Bank AG. The trustee relationship has ceased. PwC informed the Audit Committee that these matters could have constituted an investment in an affiliate of an audit client in violation of the Rule 2-01(c)(1) of Regulation S-X. PwC advised the Audit Committee that PwC believes its independence had not been impacted as it related to the audits of the Fund. In reaching this conclusion, PwC noted that during the time of its audit, the engagement team was not aware of the investment and that PwC does not believe these situations affected PwC's ability to act objectively and impartially and to issue a report on financial statements as the funds' independent auditor.
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ITEM 5. |
AUDIT COMMITTEE OF LISTED REGISTRANTS |
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The registrant has a separately-designated standing audit committee established in accordance with Section 3(a)(58)(A) of the Securities Exchange Act of 1934, as amended. The registrant's audit committee consists of William McClayton (Chairman), Keith R. Fox, Kenneth C. Froewiss, Henry P. Becton, Jr., John W. Ballantine and William N. Searcy.
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ITEM 6. |
SCHEDULE OF INVESTMENTS |
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Not Applicable |
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ITEM 7. |
DISCLOSURE OF PROXY VOTING POLICIES AND PROCEDURES FOR CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
Proxy Voting and Guidelines
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I. |
INTRODUCTION |
AM has adopted and implemented the following policies and procedures, which it believes are reasonably designed to ensure that proxies are voted in the best economic interest of clients, in accordance with its fiduciary duties and local regulation. These Proxy Voting Policies, Procedures and Guidelines shall apply to all accounts managed by US domiciled advisers and to all US client accounts managed by non US regional offices. Non US regional offices are required to maintain procedures and to vote proxies as may be required by law on behalf of their non US clients. In
addition, AM’s proxy policies reflect the fiduciary standards and responsibilities for ERISA accounts.
The attached guidelines represent a set of global recommendations that were determined by the Global Proxy Voting Sub-Committee (“the GPVSC”). These guidelines were developed to provide AM with a comprehensive list of recommendations that represent how AM will generally vote proxies for its clients. The recommendations derived from the application of these guidelines are not intended to influence the various AM legal entities either directly or indirectly by parent or affiliated companies. In addition, the organizational structures and documents of the various AM legal entities allows, where necessary or appropriate, the execution by individual AM subsidiaries of the proxy voting rights independently of any DB parent or affiliated company. This applies in particular to non U.S. fund management companies. The individuals that make proxy voting decisions are also free to act independently, subject to the normal and customary supervision by the management/boards of these AM legal entities.
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II. |
AM’S PROXY VOTING RESPONSIBILITIES |
Proxy votes are the property of AM’s advisory clients.1 As such, AM’s authority and responsibility to vote such proxies depend upon its contractual relationships with its clients. AM has delegated responsibility for effecting its advisory clients’ proxy votes to Institutional Shareholder Services (“ISS”), an independent third-party proxy voting specialist. ISS votes AM’s advisory clients’ proxies in accordance with AM’s proxy guidelines or AM’s specific instructions. Where a client has given specific instructions as to how a proxy should be voted, AM will notify ISS to carry out those instructions. Where no specific instruction exists, AM will follow the procedures in voting the proxies set forth in this document. Certain Taft-Hartley clients may direct AM to have ISS vote their proxies in accordance with Taft Hartley voting Guidelines
Clients may in certain instances contract with their custodial agent and notify AM 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.
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III. |
POLICIES |
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1. |
Proxy voting activities are conducted in the best economic interest of clients |
AM has adopted the following policies and procedures to ensure that proxies are voted in accordance with the best economic interest of its clients, as determined by AM in good faith after appropriate review.
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2. |
The Global Proxy Voting Sub-Committee |
The Global Proxy Voting Sub-Committee (the “GPVSC”) is an internal working group established by the applicable AM’s Investment Risk Oversight Committee pursuant to a written charter. The GPVSC is responsible for overseeing AM’s proxy voting activities, including:
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1 purposes of these Policies and Procedures, “clients” refers to persons or entities: for which AM serves as investment adviser or sub-adviser; for which AM votes proxies; and that have an economic or beneficial ownership interest in the portfolio securities of issuers soliciting such proxies.
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(i) |
adopting, monitoring and updating guidelines, attached as Exhibit A (the “Guidelines”), that provide how AM will generally vote proxies pertaining to a comprehensive list of common proxy voting matters; |
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(ii) |
voting proxies where (A) the issues are not covered by specific client instruction or the Guidelines; (B) the Guidelines specify that the issues are to be determined on a case-by-case basis; or (C) where an exception to the Guidelines may be in the best economic interest of AM’s clients; and |
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(iii) |
monitoring the Proxy Vendor Oversight’s proxy voting activities (see below). |
AM’s Proxy Vendor Oversight, a function of AM’s Operations Group, is responsible for coordinating with ISS to administer AM’s proxy voting process and for voting proxies in accordance with any specific client instructions or, if there are none, the Guidelines, and overseeing ISS’ proxy responsibilities in this regard.
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3. |
Availability of Proxy Voting Policies and Procedures and proxy voting record |
Copies of these Policies and Procedures, as they may be updated from time to time, are made available to clients as required by law and otherwise at AM’s discretion. Clients may also obtain information on how their proxies were voted by AM as required by law and otherwise at AM’s discretion; however, AM must not selectively disclose its investment company clients’ proxy voting records. The 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 12-month periods ended June 30 (see “Recordkeeping” below), if so required by relevant law.
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IV. |
PROCEDURES |
The key aspects of AM’s proxy voting process are as follows:
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1. |
The GPVSC’s Proxy Voting Guidelines |
The Guidelines set forth the GPVSC’s standard voting positions on a comprehensive list of common proxy voting matters. The GPVSC 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 GPVSC will review the Guidelines as necessary to support the best economic interests of AM’s clients and, in any event, at least annually. The GPVSC will make changes to the Guidelines, whether as a result of the annual review or otherwise, taking solely into account the best economic interests of clients. Before changing the Guidelines, the GPVSC will thoroughly review and evaluate the proposed change and the reasons therefore, and the GPVSC Chair will ask GPVSC members whether anyone outside of the AM organization (but within Deutsche Bank and its affiliates) or any entity that identifies itself as a AM 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 GPVSC Chair, the Chair will promptly notify the Conflicts of Interest Management Sub-Committee (see below) and will defer the approval, if possible. Lastly, the GPVSC 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 AM or an affiliate serves as investment adviser or sponsor. Investment companies, particularly closed-end investment companies, are different from traditional operating companies. These differences may call for differences in voting positions on the same matter. Further, the manner in which AM votes investment company proxies may differ from proposals for which a AM-advised or sponsored investment company solicits proxies from its shareholders. As reflected in the Guidelines, proxies solicited by closed-end (and open-end) investment companies are generally voted in accordance with the pre-determined guidelines of ISS. See Section IV.3.B.
Funds (“Underlying Funds”) in which Topiary Fund Management Fund of Funds (each, a “Fund”) invest, may from time to time seek to revise their investment terms (i.e. liquidity, fees, etc.) or investment structure. In such event, the Underlying Funds may require approval/consent from its investors to effect the relevant changes. Topiary Fund Management has adopted Proxy Voting Procedures which outline the process for these approvals.
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2. |
Specific proxy voting decisions made by the GPVSC |
The Proxy Vendor Oversight will refer to the GPVSC all proxy proposals (i) that are not covered by specific client instructions or the Guidelines; or (ii) that, according to the Guidelines, should be evaluated and voted on a case-by-case basis.
Additionally, if, the Proxy Vendor Oversight, the GPVSC Chair or any member of the GPVSC, a portfolio manager, a research analyst or a sub-adviser believes that voting a particular proxy in accordance with the Guidelines may not be in the best economic interests of clients, that individual may bring the matter to the attention of the GPVSC Chair and/or the Proxy Vendor Oversight.2
If the Proxy Vendor Oversight refers a proxy proposal to the GPVSC or the GPVSC determines that voting a particular proxy in accordance with the Guidelines is not in the best economic interests of clients, the GPVSC will evaluate and vote the proxy, subject to the procedures below regarding conflicts.
The GPVSC endeavors to hold meetings to decide how to vote particular proxies sufficiently before the voting deadline so that the procedures below regarding conflicts can be completed before the GPVSC’s voting determination.
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3. |
Certain proxy votes may not be cast |
In some cases, the GPVSC may determine that it is in the best economic interests of its clients not to vote certain proxies. If the conditions below are met with regard to a proxy proposal, AM will abstain from voting:
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Neither the Guidelines nor specific client instructions cover an issue; |
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ISS does not make a recommendation on the issue; |
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The GPVSC cannot convene on the proxy proposal at issue to make a determination as to what would be in the client’s best interest. (This could happen, for example, if the Conflicts of Interest Management Sub-committee found that there was a material conflict or if despite all best efforts being made, the GPVSC quorum requirement could not be met). |
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2 Proxy Vendor Oversight generally monitors upcoming proxy solicitations for heightened attention from the press or the industry and for novel or unusual proposals or circumstances, which may prompt the Proxy Vendor Oversight to bring the solicitation to the attention of the GPVSC Chair. AM portfolio managers, AM research analysts and sub-advisers also may bring a particular proxy vote to the attention of the GPVSC Chair, as a result of their ongoing monitoring of portfolio securities held by advisory clients and/or their review of the periodic proxy voting record reports that the GPVSC Chair distributes to AM portfolio managers and AM research analysts.
In addition, it is AM’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 GPVSC 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.
The Proxy Vendor Oversight will coordinate with the GPVSC Chair 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.
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4. |
Conflict of Interest Procedures |
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A. |
Procedures to Address Conflicts of Interest and Improper Influence |
Overriding Principle. In the limited circumstances where the GPVSC votes proxies,3 the GPVSC will vote those proxies in accordance with what it, in good faith, determines to be the best economic interests of AM’s clients.4
Independence of the GPVSC. As a matter of Compliance policy, the GPVSC and the Proxy Vendor Oversight are structured to be independent from other parts of Deutsche Bank. Members of the GPVSC and the employee responsible for Proxy Vendor Oversight are employees of AM. 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 AM without prior approval of Legal and Compliance. They can have no contact with employees of Deutsche Bank outside of the Private Client and Asset Management division (“PCAM”) 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 AM (and within AM only on a need to know basis).
Conflict Review Procedures. There will be a committee (the “Conflicts of Interest Management Sub-Committee”) established within AM that will monitor for potential material conflicts of interest in connection with proxy proposals that are to be evaluated by the GPVSC. Promptly upon a determination that a vote shall be presented to the GPVSC, the GPVSC Chair 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 AM 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 GPVSC’s decision on the particular vote at issue. GPVSC should provide the Conflicts of Interest Management Sub-Committee a reasonable amount of time (no less than 24 hours) to perform all necessary and appropriate reviews. To the extent that a conflicts review can not be sufficiently completed by the Conflicts of Interest Management Sub-Committee the proxies will be voted in accordance with the standard guidelines.
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3 mentioned above, the GPVSC votes proxies (i) where neither a specific client instruction nor a Guideline directs how the proxy should be voted, (ii) where the Guidelines specify that an issue is to be determined on a case by case basis or (iii) where voting in accordance with the Guidelines may not be in the best economic interests of clients.
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The Proxy Vendor Oversight, who serves as the non-voting secretary of the GPVSC, 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) AM 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; (iii) and any communications with members of the GPVSC (or anyone participating or providing information to the GPVSC) and any person outside of the AM organization (but within Deutsche Bank and its affiliates) or any entity that identifies itself as a AM 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) AM 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 GPVSC chair.
If notified that AM has a material conflict of interest as described above, the GPVSC chair will obtain instructions as to how the proxies should be voted either from (i) if time permits, the effected clients, or (ii) in accordance with the standard guidelines. If notified that certain individuals should be recused from the proxy vote at issue, the GPVSC Chair shall do so in accordance with the procedures set forth below.
Note: Any AM 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. Compliance shall call a meeting of the conflict review committee to evaluate such conflict and determine a recommended course of action.
Procedures to be followed by the GPVSC. At the beginning of any discussion regarding how to vote any proxy, the GPVSC Chair (or his or her delegate) will inquire as to whether any GPVSC member (whether voting or ex officio) or any person participating in the proxy voting process has a personal conflict of interest or has actual knowledge of an actual or apparent conflict that has not been reported to the Conflicts of Interest Management Sub-Committee.
The GPVSC Chair also will inquire of these same parties whether they have actual knowledge regarding whether any director, officer or employee outside of the AM organization (but within Deutsche Bank and its affiliates) or any entity that identifies itself as a AM advisory client, has: (i) requested that AM, the Proxy Vendor Oversight (or any member thereof) or a GPVSC member vote a particular proxy in a certain manner; (ii) attempted to influence AM, the Proxy Vendor Oversight (or any member thereof), a GPVSC member or any other person in connection with proxy voting activities; or (iii) otherwise communicated with a GPVSC member or any other person participating or providing information to the GPVSC 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 GPVSC Chair, the Chair will promptly notify the Conflicts of Interest Management Sub-Committee and, if possible, will delay the vote until the Conflicts of Interest Management Sub-Committee can complete the conflicts report. If a delay is not possible, the Conflicts of Interest Management Sub-Committee will instruct the GPVSC whether anyone should be recused from the proxy voting process, or whether AM 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 effected clients. These inquiries and discussions will be properly reflected in the GPVSC’s minutes.
Duty to Report. Any AM employee, including any GPVSC 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 of the AM organization (but within Deutsche Bank and its affiliates) or any entity that identifies itself as a AM advisory client to influence, how AM votes its proxies has a duty to disclose the existence of the situation to the GPVSC Chair (or his or her designee) and the details of the matter to the Conflicts of Interest Management Sub-Committee. In the case of any person participating in the deliberations on a specific vote, such disclosure should be made before engaging in any activities or participating in any discussion pertaining to that vote.
Recusal of Members. The GPVSC will recuse from participating in a specific proxy vote any GPVSC 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 effect their independent judgment, in respect of such vote. The GPVSC will also exclude from consideration the views of any person (whether requested or volunteered) if the GPVSC 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 GPVSC voting members pursuant to the paragraph above, there are three or more GPVSC voting members remaining, those remaining GPVSC members will determine how to vote the proxy in accordance with these Policies and Procedures. If there are fewer than three GPVSC voting members remaining, the GPVSC Chair will vote the proxy in accordance with the standard guidelines, will obtain instructions as to how to have the proxy voted from, if time permits, the effected clients and otherwise from ISS.
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B. |
Investment Companies and Affiliated Public Companies |
Investment Companies. As reflected in the Guidelines, all proxies solicited by open-end and closed-end investment companies are voted in accordance with the pre-determined guidelines of ISS, unless the investment company client directs AM to vote differently on a specific proxy or specific categories of proxies. However, regarding investment companies for which AM or an affiliate serves as investment adviser or principal underwriter, such proxies are voted in the same proportion as the vote of all other shareholders (i.e., “mirror” or “echo” voting). Master fund proxies solicited from feeder funds are voted in accordance with applicable provisions of Section 12 of the Investment Company Act of 1940.
Subject to participation agreements with certain Exchange Traded Funds ("ETF") issuers that have received exemptive orders from the U.S. Securities and Exchange Commission allowing investing DWS funds to exceed the limits set forth in Section 12(d)(1)(A) and (B) of the Investment Company Act of 1940, DeAM will echo vote proxies for ETFs in which Deutsche Bank holds more than 25% of outstanding voting shares globally when required to do so by participation agreements and SEC orders.
Affiliated Public Companies. For proxies solicited by non-investment company issuers of or within the Deutsche Bank organization, e.g., Deutsche bank itself, these proxies will be voted in the same proportion as the vote of other shareholders (i.e., “mirror” or “echo” voting).
Note: With respect to the QP Trust (not registered under the Investment Company Act of 1940), the Fund is not required to engage in echo voting and the investment adviser will use these Guidelines, and may determine, with respect to the QP Trust, to vote contrary to the positions in the Guidelines, consistent with the Fund’s best interest.
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C. |
Other Procedures That Limit Conflicts of Interest |
AM 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:
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Deutsche Bank Americas Restricted Activities Policy. This policy provides for, among other things, independence of AM employees from CIB, and information barriers between AM and other affiliates. Specifically, no AM employee may be subject to the supervision or control of any employee of CIB. No AM employee shall have his or her compensation based upon his or her contribution to any business activity within the Bank outside of the business of AM, without the prior approval of Legal or Compliance. Further, no employee of CIB shall have any input into the compensation of a AM employee without the prior approval of Legal or Compliance. Under the information barriers section of this policy, as a general rule, AM employees who are associated with the investment process should have no contact with employees of Deutsche Bank or its affiliates, outside of PCAM, regarding specific clients, business matters, or initiatives. Further, under no circumstances should proxy votes be discussed with any Deutsche Bank employee outside of AM (and should only be discussed on a need-to-know basis within AM). |
Other relevant internal policies include the Deutsche Bank Americas Code of Professional Conduct, the Deutsche Asset Management Information Sharing Procedures, the Deutsche Asset Management Code of Ethics, the Sarbanes-Oxley Senior Officer Code of Ethics, and the Deutsche Bank Group Code of Conduct. The GPVSC expects that these policies, procedures and internal controls will greatly reduce the chance that the GPVSC (or, its members) would be involved in, aware of or influenced by, an actual or apparent conflict of interest.
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V. |
RECORDKEEPING |
At a minimum, the following types of records must be properly maintained and readily accessible in order to evidence compliance with this policy.
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AM will maintain a record of each vote cast by AM that includes among other things, company name, meeting date, proposals presented, vote cast and shares voted. |
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The 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.
Proxy Edge print-screen of actual vote election.
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AM will retain these Policies and Procedures and the Guidelines; will maintain records of client requests for proxy voting information; and will retain any documents the Proxy Vendor Oversight or the GPVSC prepared that were material to making a voting decision or that memorialized the basis for a proxy voting decision. |
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The GPVSC also will create and maintain appropriate records documenting its compliance with these Policies and Procedures, including records of its deliberations and decisions regarding conflicts of interest and their resolution. |
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With respect to AM’s investment company clients, ISS will create and maintain records of each company’s proxy voting record for 12-month periods ended June 30. AM 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 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 applicable AM Records Management Policy.
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 AM office.
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VI. |
THE GPVSC’S OVERSIGHT ROLE |
In addition to adopting the Guidelines and making proxy voting decisions on matters referred to it as set forth above, the GPVSC will monitor the proxy voting process by reviewing summary proxy information presented by ISS. The GPVSC will use this review process to determine, among other things, whether any changes should be made to the Guidelines. This review will take place at least quarterly and will be documented in the GPVSC’s minutes.
Attachment A – Global Proxy Voting Guidelines
Deutsche Asset Management
Global Proxy Voting Guidelines
As Amended October 2008
Table of contents
Board Of Directors And Executives
Election Of Directors
Classified Boards Of Directors
Board And Committee Independence
Liability And Indemnification Of Directors
Qualifications Of Directors
Removal Of Directors And Filling Of Vacancies
Proposals To Fix The Size Of The Board
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H |
Proposals to Restrict Chief Executive Officer’s Service on Multiple Boards |
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I |
Proposals to Restrict Supervisory Board Members Service on Multiple Boards |
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J |
Proposals to Establish Audit Committees |
Capital Structure
Authorization Of Additional Shares
Authorization Of “Blank Check” Preferred Stock
Stock Splits/Reverse Stock Splits
Dual Class/Supervoting Stock
Large Block Issuance
Recapitalization Into A Single Class Of Stock
Share Repurchases
Reductions In Par Value
Corporate Governance Issues
Confidential Voting
Cumulative Voting
Supermajority Voting Requirements
Shareholder Right To Vote
Compensation
Establishment of a Remuneration Committee
Executive And Director Stock Option Plans
Employee Stock Option/Purchase Plans
Golden Parachutes
Proposals To Limit Benefits Or Executive Compensation
Option Expensing
Management board election and motion
Remuneration (variable pay)
Long-term incentive plans
Shareholder Proposals Concerning “Pay For Superior Performance”
Executive Compensation Advisory
Anti-Takeover Related Issues
Shareholder Rights Plans (“Poison Pills”)
Reincorporation
Fair-Price Proposals
Exemption From State Takeover Laws
Non-Financial Effects Of Takeover Bids
Mergers & Acquisitions
Social & Political Issues
Labor & Human Rights
Diversity & Equality
Health & Safety
Government/Military
Tobacco
Environmental Issues
Miscellaneous Items
Ratification Of Auditors
Limitation Of Non-Audit Services Provided By Independent Auditor
Audit Firm Rotation
Transaction Of Other Business
Motions To Adjourn The Meeting
Bundled Proposals
Change Of Company Name
Proposals Related To The Annual Meeting
Reimbursement Of Expenses Incurred From Candidate Nomination
Investment Company Proxies
International Proxy Voting
These 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 AM or an affiliate serves as investment adviser or sponsor.
NOTE: Because of the unique structure and regulatory scheme applicable to closed-end investment companies, the voting guidelines (particularly those related to governance issues) generally will be inapplicable to holdings of closed-end investment companies. As a result, determinations on the appropriate voting recommendation for closed-end investment company shares will be made on a case-by-case basis.
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I. |
Board of Directors and Executives |
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A. |
Election of Directors |
Routine: AM Policy is to vote “for” the uncontested election of directors. Votes for a director in an uncontested election will be withheld in cases where a director has shown an inability to perform his/her duties in the best interests of the shareholders.
Proxy contest: In a proxy contest involving election of directors, a case-by-case voting decision will be made based upon analysis of the issues involved and the merits of the incumbent and dissident slates of directors. AM will incorporate the decisions of a third party proxy research vendor, currently, Institutional Shareholder Services (“ISS”) subject to review by the Proxy Voting Sub-Committee (GPVSC) as set forth in the AM’s Proxy Voting Policies and Procedures.
Rationale: The large majority of corporate directors fulfill their fiduciary obligation and in most cases support for management’s nominees is warranted. As the issues relevant to a contested election differ in each instance, those cases must be addressed as they arise.
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B. |
Classified Boards of Directors |
AM policy is to vote against proposals to classify the board and for proposals to repeal classified boards and elect directors annually.
Rationale: Directors should be held accountable on an annual basis. By entrenching the incumbent board, a classified board may be used as an anti-takeover device to the detriment of the shareholders in a hostile take-over situation.
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C. |
Board and Committee Independence |
AM policy is to vote:
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1. |
“For” proposals that require that a certain percentage (majority up to 66 2/3%) of members of a board of directors be comprised of independent or unaffiliated directors. |
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2. |
“For” proposals that require all members of a company's compensation, audit, nominating, or other similar committees be comprised of independent or unaffiliated directors. |
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3. |
“Against” shareholder proposals to require the addition of special interest, or constituency, representatives to boards of directors. |
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4. |
“For” separation of the Chairman and CEO positions. |
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5. |
“Against” proposals that require a company to appoint a Chairman who is an independent director. |
Rationale: Board independence is a cornerstone of effective governance and accountability. A board that is sufficiently independent from management assures that shareholders' interests are adequately represented. However, the Chairman of the board must have sufficient involvement in and experience with the operations of the company to perform the functions required of that position and lead the company.
No director qualifies as 'independent' unless the board of directors affirmatively determines that the director has no material relationship with the listed company (either directly or as a partner, shareholder or officer of an organization that has a relationship with the company).
Whether a director is in fact not "independent" will depend on the laws and regulations of the primary market for the security and the exchanges, if any, on which the security trades.
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D. |
Liability and Indemnification of Directors |
AM policy is to vote “for” management proposals to limit directors' liability and to broaden the indemnification of directors, unless broader indemnification or limitations on directors' liability would effect shareholders' interests in pending litigation.
Rationale: While shareholders want directors and officers to be responsible for their actions, it is not in the best interests of the shareholders for them to be to risk averse. If the risk of personal liability is too great, companies may not be able to find capable directors willing to serve. We support expanding coverage only for actions taken in good faith and not for serious violations of fiduciary obligation or negligence.
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E. |
Qualifications of Directors |
AM policy is to follow management’s recommended vote on either management or shareholder proposals that set retirement ages for directors or require specific levels of stock ownership by directors.
Rationale: As a general rule, the board of directors, and not the shareholders, is most qualified to establish qualification policies.
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F. |
Removal of Directors and Filling of Vacancies |
AM policy is to vote “against” proposals that include provisions that directors may be removed only for cause or proposals that include provisions that only continuing directors may fill board vacancies.
Rationale: Differing state statutes permit removal of directors with or without cause. Removal of directors for cause usually requires proof of self-dealing, fraud or misappropriation of corporate assets, limiting shareholders' ability to remove directors except under extreme circumstances. Removal without cause requires no such showing.
Allowing only incumbent directors to fill vacancies can serve as an anti-takeover device, precluding shareholders from filling the board until the next regular election.
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G. |
Proposals to Fix the Size of the Board |
AM policy is to vote:
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1. |
“For” proposals to fix the size of the board unless: (a) no specific reason for the proposed change is given; or (b) the proposal is part of a package of takeover defenses. |
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2. |
“Against” proposals allowing management to fix the size of the board without shareholder approval. |
Rationale: Absent danger of anti-takeover use, companies should be granted a reasonable amount of flexibility in fixing the size of its board.
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H. |
Proposals to Restrict Chief Executive Officer’s Service on Multiple Boards |
AM policy is to vote “For” proposals to restrict a Chief Executive Officer from serving on more than three outside boards of directors.
Rationale: Chief Executive Officer must have sufficient time to ensure that shareholders’ interests are represented adequately.
Note: A director’s service on multiple closed-end fund boards within a fund complex are treated as service on a single Board for the purpose of the proxy voting guidelines.
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I. |
Proposals to Restrict Supervisory Board Members Service on Multiple Boards (For FFT Securities) |
AM policy is to vote “for” proposals to restrict a Supervisory Board Member from serving on more than five supervisory boards.
Rationale: We consider a strong, independent and knowledgeable supervisory board as important counter-balance to executive management to ensure that the interests of shareholders are fully reflected by the company.
Full information should be disclosed in the annual reports and accounts to allow all shareholders to judge the success of the supervisory board controlling their company.
Supervisory Board Member must have sufficient time to ensure that shareholders’ interests are represented adequately.
Note: A director’s service on multiple closed-end fund boards within a fund complex are treated as service on a single Board for the purpose of the proxy voting guidelines.
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J. |
Proposals to Establish Audit Committees (For FFT and U.S. Securities) |
AM policy is to vote “for” proposals that require the establishment of audit committees.
Rationale: The audit committee should deal with accounting and risk management related questions, verifies the independence of the auditor with due regard to possible conflicts of interest. It also should determine the procedure of the audit process.
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II. |
Capital Structure |
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A. |
Authorization of Additional Shares (For U.S. Securities) |
AM policy is to vote “for” proposals to increase the authorization of existing classes of stock that do not exceed a 3:1 ratio of shares authorized to shares outstanding for a large cap company, and do not exceed a 4:1 ratio of shares authorized to shares outstanding for a small-midcap company (companies having a market capitalization under one billion U.S. dollars.).
Rationale: While companies need an adequate number of shares in order to carry on business, increases requested for general financial flexibility must be limited to protect shareholders from their potential use as an anti-takeover device. Requested increases for specifically designated, reasonable business purposes (stock split, merger, etc.) will be considered in light of those purposes and the number of shares required.
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B. |
Authorization of “Blank Check” Preferred Stock (For U.S. Securities) |
AM policy is to vote:
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1. |
“Against” proposals to create blank check preferred stock or to increase the number of authorized shares of blank check preferred stock unless the company expressly states that the stock will not be used for anti-takeover purposes and will not be issued without shareholder approval. |
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2. |
“For” proposals mandating shareholder approval of blank check stock placement. |
Rationale: Shareholders should be permitted to monitor the issuance of classes of preferred stock in which the board of directors is given unfettered discretion to set voting, dividend, conversion and other rights for the shares issued.
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C. |
Stock Splits/Reverse Stock Splits |
AM policy is to vote “for” stock splits if a legitimate business purpose is set forth and the split is in the shareholders' best interests. A vote is cast “for” a reverse stock split only if the number of shares authorized is reduced in the same proportion as the reverse split or if the effective increase in authorized shares (relative to outstanding shares) complies with the proxy guidelines for common stock increases (see, Section II.A, above.)
Rationale: Generally, stock splits do not detrimentally effect shareholders. Reverse stock splits, however, may have the same result as an increase in authorized shares and should be analyzed accordingly.
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D. |
Dual Class/Supervoting Stock |
AM policy is to vote “against” proposals to create or authorize additional shares of super-voting stock or stock with unequal voting rights.
Rationale: The “one share, one vote” principal ensures that no shareholder maintains a voting interest exceeding their equity interest in the company.
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E. |
Large Block Issuance (For U.S. Securities) |
AM policy is to address large block issuances of stock on a case-by-case basis, incorporating the recommendation of an independent third party proxy research firm (currently ISS) subject to review by the GPVSC as set forth in AM’s Proxy Policies and Procedures.
Additionally, AM supports proposals requiring shareholder approval of large block issuances.
Rationale: Stock issuances must be reviewed in light of the business circumstances leading to the request and the potential impact on shareholder value.
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F. |
Recapitalization into a Single Class of Stock |
AM policy is to vote “for” recapitalization plans to provide for a single class of common stock, provided the terms are fair, with no class of stock being unduly disadvantaged.
Rationale: Consolidation of multiple classes of stock is a business decision that may be left to the board and/management if there is no adverse effect on shareholders.
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G. |
Share Repurchases |
AM policy is to vote “for” share repurchase plans provided all shareholders are able to participate on equal terms.
Rationale: Buybacks are generally considered beneficial to shareholders because they tend to increase returns to the remaining shareholders.
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H. |
Reductions in Par Value |
AM policy is to vote “for” proposals to reduce par value, provided a legitimate business purpose is stated (e.g., the reduction of corporate tax responsibility.)
Rationale: Usually, adjustments to par value are a routine financial decision with no substantial impact on shareholders.
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III. |
Corporate Governance Issues |
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A. |
Confidential Voting |
AM policy is to vote “for” proposals to provide for confidential voting and independent tabulation of voting results and to vote “against” proposals to repeal such provisions.
Rationale: Confidential voting protects the privacy rights of all shareholders. This is particularly important for employee-shareholders or shareholders with business or other affiliations with the company, who may be vulnerable to coercion or retaliation when opposing management. Confidential voting does not interfere with the ability of corporations to communicate with all shareholders, nor does it prohibit shareholders from making their views known directly to management.
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B. |
Cumulative Voting (For U.S. Securities) |
AM policy is to vote “against” shareholder proposals requesting cumulative voting and “for”management proposals to eliminate it. The protections afforded shareholders by cumulative voting are not necessary when a company has a history of good performance and does not have a concentrated ownership interest. Accordingly, a vote is cast “against” cumulative voting and “for” proposals to eliminate it if:
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a) |
The company has a five year return on investment greater than the relevant industry index, |
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b) |
All directors and executive officers as a group beneficially own less than 10% of the outstanding stock, and |
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c) |
No shareholder (or voting block) beneficially owns 15% or more of the company. |
Thus, failure of any one of the three criteria results in a vote for cumulative voting in accordance with the general policy.
Rationale: Cumulative voting is a tool that should be used to ensure that holders of a significant number of shares may have board representation; however, the presence of other safeguards may make their use unnecessary.
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C. |
Supermajority Voting Requirements |
AM policy is to vote “against” management proposals to require a supermajority vote to amend the charter or bylaws and to vote “for” shareholder proposals to modify or rescind existing supermajority requirements.
*Exception made when company holds a controlling position and seeks to lower threshold to maintain control and/or make changes to corporate by-laws.
Rationale: Supermajority voting provisions violate the democratic principle that a simple majority should carry the vote. Setting supermajority requirements may make it difficult or impossible for shareholders to remove egregious by-law or charter provisions. Occasionally, a company with a significant insider held position might attempt to lower a supermajority threshold to make it easier for management to approve provisions that may be detrimental to shareholders. In that case, it may not be in the shareholders interests to lower the supermajority provision.
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D. |
Shareholder Right to Vote |
AM policy is to vote “against” proposals that restrict the right of shareholders to call special meetings, amend the bylaws, or act by written consent. Policy is to vote “for” proposals that remove such restrictions.
Rationale: Any reasonable means whereby shareholders can make their views known to management or effect the governance process should be supported.
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IV. |
Compensation |
Annual Incentive Plans or Bonus Plans are often submitted to shareholders for approval. These plans typically award cash to executives based on company performance. Deutsche Bank believes that the responsibility for executive compensation decisions rest with the board of directors and/or the compensation committee, and its policy is not to second-guess the board’s award of cash compensation amounts to executives unless a particular award or series of awards is deemed excessive. If stock options are awarded as part of these bonus or incentive plans, the provisions must meet Deutsche Bank’s criteria regarding stock option plans, or similar stock-based incentive compensation schemes, as set forth below.
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A. |
Establishment of a Remuneration Committee (For FFT Securities) |
AM policy is to vote “for” proposals that require the establishment of a remuneration committee.
Rationale: Corporations should disclose in each annual report or proxy statement their policies on remuneration. Essential details regarding executive remuneration including share options, long-term incentive plans and bonuses, should be disclosed in the annual report, so that investors can judge whether corporate pay policies and practices meet the standard.
The remuneration committee shall not comprise any board members and should be sensitive to the wider scene on executive pay. It should ensure that performance-based elements of executive pay are designed to align the interests of shareholders.
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B. |
Executive and Director Stock Option Plans |
AM policy is to vote “for” stock option plans that meet the following criteria:
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(1) |
The resulting dilution of existing shares is less than (a) 15 percent of outstanding shares for large capital corporations or (b) 20 percent of outstanding shares for small-mid capital companies (companies having a market capitalization under one billion U.S. dollars.) |
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(2) |
The transfer of equity resulting from granting options at less than FMV is no greater than 3% of the over-all market capitalization of large capital corporations, or 5% of market cap for small-mid capital companies. |
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(3) |
The plan does not contain express repricing provisions and, in the absence of an express statement that options will not be repriced; the company does not have a history of repricing options. |
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(4) |
The plan does not grant options on super-voting stock. |
AM will support performance-based option proposals as long as a) they do not mandate that all options granted by the company must be performance based, and b) only certain high-level executives are subject to receive the performance based options.
AM will support proposals to eliminate the payment of outside director pensions.
Rationale: Determining the cost to the company and to shareholders of stock-based incentive plans raises significant issues not encountered with cash-based compensation plans. These include the potential dilution of existing shareholders' voting power, the transfer of equity out of the company resulting from the grant and execution of options at less than FMV and the authority to reprice or replace underwater options. Our stock option plan analysis model seeks to allow reasonable levels of flexibility for a company yet still protect shareholders from the negative impact of excessive stock compensation. Acknowledging that small mid-capital corporations often rely more heavily on stock option plans as their main source of executive compensation and may not be able to compete with their large capital competitors with cash compensation, we provide slightly more flexibility for those companies.
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C. |
Employee Stock Option/Purchase Plans |
AM policy is to vote for employee stock purchase plans (ESPP's) when the plan complies with Internal Revenue Code 423, allowing non-management employees to purchase stock at 85% of FMV.
AM policy is to vote “for” employee stock option plans (ESOPs) provided they meet the standards for stock option plans in general. However, when computing dilution and transfer of equity, ESOPs are considered independently from executive and director option plans.
Rationale: ESOPs and ESPP’s encourage rank-and-file employees to acquire an ownership stake in the companies they work for and have been shown to promote employee loyalty and improve productivity.
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D. |
Golden Parachutes |
AM policy is to vote “for” proposals to require shareholder approval of golden parachutes and for proposals that would limit golden parachutes to no more than three times base compensation. Policy is to vote “against” more restrictive shareholder proposals to limit golden parachutes.
Rationale: In setting a reasonable limitation, AM considers that an effective parachute should be less attractive than continued employment and that the IRS has opined that amounts greater than three times annual salary, are excessive.
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E. |
Proposals to Limit Benefits or Executive Compensation |
AM policy is to vote “against”
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1. |
Proposals to limit benefits, pensions or compensation and |
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2. |
Proposals that request or require disclosure of executive compensation greater than the disclosure required by Securities and Exchange Commission (SEC) regulations. |
Rationale: Levels of compensation and benefits are generally considered to be day-to-day operations of the company, and are best left unrestricted by arbitrary limitations proposed by shareholders.
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F. |
Option Expensing |
AM policy is to support proposals requesting companies to expense stock options.
Rationale: Although companies can choose to expense options voluntarily, the Financial Accounting Standards Board (FASB) does not yet require it, instead allowing companies to disclose the theoretical value of options as a footnote. Because the expensing of stock options lowers earnings, most companies elect not to do so. Given the fact that options have become an integral component of compensation and their exercise results in a transfer of shareholder value, AM agrees that their value should not be ignored and treated as “no cost” compensation. The expensing of stock options would promote more modest and appropriate use of stock options in executive compensation plans and present a more accurate picture of company operational earnings.
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G. |
Management board election and motion (For FFT Securities) |
AM policy is to vote “against”:
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the election of board members with positions on either remuneration or audit committees; |
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the election of supervisory board members with too many supervisory board mandates; |
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“automatic ” election of former board members into the supervisory board. |
Rationale: Management as an entity, and each of its members, are responsible for all actions of the company, and are - subject to applicable laws and regulations - accountable to the shareholders as a whole for their actions.
Sufficient information should be disclosed in the annual company report and account to allow shareholders to judge the success of the company.
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H. |
Remuneration (variable pay): (For FFT Securities) |
Executive remuneration for Management Board
AM policy is to vote “for” remuneration for Management Board that is transparent and linked to results.
Rationale: Executive compensation should motivate management and align the interests of management with the shareholders. The focus should be on criteria that prevent excessive remuneration; but enable the company to hire and retain first-class professionals.
Shareholder interests are normally best served when management is remunerated to optimise long-term returns. Criteria should include suitable measurements like return on capital employed or economic value added.
Interests should generally also be correctly aligned when management own shares in the company – even more so if these shares represent a substantial portion of their own wealth.
Its disclosure shall differentiate between fixed pay, variable (performance related) pay and long-term incentives, including stock option plans with valuation ranges as well as pension and any other significant arrangements.
Executive remuneration for Supervisory Board
AM policy is to vote “for” remuneration for Supervisory Board that is at least 50% in fixed form.
Rationale: It would normally be preferable if performance linked compensation were not based on dividend payments, but linked to suitable result based parameters. Consulting and procurement services should also be published in the company report.
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I. |
Long-term incentive plans (For FFT Securities) |
AM policy is to vote “for” long-term incentive plans for members of a management board that reward for above average company performance.
Rationale: Incentive plans will normally be supported if they:
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directly align the interests of members of management boards with those of shareholders; |
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establish challenging performance criteria to reward only above average performance; |
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measure performance by total shareholder return in relation to the market or a range of comparable companies; |
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are long-term in nature and encourage long-term ownership of the shares once exercised through minimum holding periods; |
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do not allow a repricing of the exercise price in stock option plans. |
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J. |
Shareholder Proposals Concerning “Pay for Superior Performance” |
AM policy is to address pay for superior performance proposals on a case-by-case basis, incorporating the recommendation of an independent third party proxy research firm (currently ISS) subject to review by the GPVSC as set forth in AM’s Proxy Policies and Procedures.
Rationale: While AM agrees that compensation issues are better left to the discretion of management, they appreciate the need to monitor for excessive compensation practices on a case by case basis. If, after a review of the ISS metrics, AM is comfortable with ISS’s applying this calculation and will vote according to their recommendation.
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K. |
Executive Compensation Advisory |
AM policy is to follow management’s recommended vote on shareholder proposals to propose an advisory resolution seeking to ratify the compensation of the company’s named executive officers (NEOs) on an annual basis.
Rationale: AM believes that controls exist within senior management and corporate compensation committees, ensuring fair compensation to executives. This might allow shareholders to require approval for all levels of management’s compensation.
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V. |
Anti-Takeover Related Issues |
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A. |
Shareholder Rights Plans (“Poison Pills”) |
AM policy is to vote “for” proposals to require shareholder ratification of poison pills or that request boards to redeem poison pills, and to vote “against” the adoption of poison pills if they are submitted for shareholder ratification.
Rationale: Poison pills are the most prevalent form of corporate takeover defenses and can be (and usually are) adopted without shareholder review or consent. The potential cost of poison pills to shareholders during an attempted takeover outweighs the benefits.
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B. |
Reincorporation |
AM policy is to examine reincorporation proposals on a case-by-case basis. The voting decision is based on: (1) differences in state law between the existing state of incorporation and the proposed state of incorporation; and (2) differences between the existing and the proposed charter/bylaws/articles of incorporation and their effect on shareholder rights. If changes resulting from the proposed reincorporation violate the corporate governance principles set forth in these guidelines, the reincorporation will be deemed contrary to shareholder’s interests and a vote cast “against.”
Rationale: Reincorporations can be properly analyzed only by looking at the advantages and disadvantages to their shareholders. Care must be taken that anti-takeover protection is not the sole or primary result of a proposed change.
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C. |
Fair-Price Proposals |
AM policy is to vote “for” management fair-price proposals, provided that: (1) the proposal applies only to two-tier offers; (2) the proposal sets an objective fair-price test based on the highest price that the acquirer has paid for a company's shares; (3) the supermajority requirement for bids that fail the fair-price test is no higher than two-thirds of the outstanding shares; (4) the proposal contains no other anti-takeover provisions or provisions that restrict shareholders rights.
A vote is cast for shareholder proposals that would modify or repeal existing fair-price requirements that do not meet these standards.
Rationale: While fair price provisions may be used as anti-takeover devices, if adequate provisions are included, they provide some protection to shareholders who have some say in their application and the ability to reject those protections if desired.
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D. |
Exemption from state takeover laws |
AM policy is to vote “for” shareholder proposals to opt out of state takeover laws and to vote “against” management proposals requesting to opt out of state takeover laws.
Rationale: Control share statutes, enacted at the state level, may harm long-term share value by entrenching management. They also unfairly deny certain shares their inherent voting rights.
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E. |
Non-financial Effects of Takeover Bids |
Policy is to vote “against” shareholder proposals to require consideration of non-financial effects of merger or acquisition proposals.
Rationale: Non-financial effects may often be subjective and are secondary to AM’s stated purpose of acting in its client’s best economic interest.
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VI. |
Mergers & Acquisitions |
Evaluation of mergers, acquisitions and other special corporate transactions (i.e., takeovers, spin-offs, sales of assets, reorganizations, restructurings and recapitalizations) are performed on a case-by-case basis incorporating information from an independent proxy research source (currently ISS.) Additional resources including portfolio management and research analysts may be considered as set forth in AM’s Policies and Procedures.
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VII. |
Social, Environmental & Political Issues |
Social and environmental issues are becoming increasingly important to corporate success. We incorporate social and environmental considerations into both our investment decisions and our proxy voting decisions – particularly if the financial performance of the company could be impacted.
With increasing frequency, shareholder proposals are submitted relating to social and political responsibility issues. Almost universally, the company management will recommend a vote “against” these proposals. These types of proposals cover an extremely wide range of issues. Many of the issues tend to be controversial and are subject to more than one reasonable, yet opposing, theory of support. More so than with other types of proxy proposals, social and political responsibility issues may not have a connection to the economic and corporate governance principles effecting shareholders’ interests. AM’s policy regarding social and political responsibility issues, as with any other issue, is designed to protect our client shareholders’ economic interests.
Occasionally, a distinction is made between a shareholder proposal requesting direct action on behalf of the board and a request for a report on (or disclosure of) some information. In order to avoid unduly burdening any company with reporting requirements, AM’s policy is to vote against shareholder proposals that demand additional disclosure or reporting than is required by the Securities and Exchange Commission unless it appears there is a legitimate issue and the company has not adequately addressed shareholders' concerns.
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A. |
Labor & Human Rights |
AM policy is to vote “against” adopting global codes of conduct or workplace standards exceeding those mandated by law.
Rationale: Additional requirements beyond those mandated by law are deemed unnecessary and potentially burdensome to companies
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B. |
Diversity & Equality |
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1. |
AM policy is to vote “against” shareholder proposals to force equal employment opportunity, affirmative action or board diversity. |
Rationale: Compliance with State and Federal legislation along with information made available through filings with the EEOC provides sufficient assurance that companies act responsibly and make information public.
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2. |
AM policy is also to vote “against” proposals to adopt the Mac Bride Principles. The Mac Bride Principles promote fair employment, specifically regarding religious discrimination. |
Rationale: Compliance with the Fair Employment Act of 1989 makes adoption of the Mac Bride Principles redundant. Their adoption could potentially lead to charges of reverse discrimination.
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C. |
Health & Safety |
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1. |
AM policy is to vote “against” adopting a pharmaceutical price restraint policy or reporting pricing policy changes. |
Rationale: Pricing is an integral part of business for pharmaceutical companies and should not be dictated by shareholders (particularly pursuant to an arbitrary formula.) Disclosing pricing policies may also jeopardize a company’s competitive position in the marketplace.
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2. |
AM policy is to vote “against” shareholder proposals to control the use or labeling of and reporting on genetically engineered products. |
Rationale: Additional requirements beyond those mandated by law are deemed unnecessary and potentially burdensome to companies.
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D. |
Government/Military |
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1. |
AM policy is to vote against shareholder proposals regarding the production or sale of military arms or nuclear or space-based weapons, including proposals seeking to dictate a company's interaction with a particular foreign country or agency. |
Rationale: Generally, management is in a better position to determine what products or industries a company can and should participate in. Regulation of the production or distribution of military supplies is, or should be, a matter of government policy.
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2. |
AM policy is to vote “against” shareholder proposals regarding political contributions and donations. |
Rationale: The Board of Directors and Management, not shareholders, should evaluate and determine the recipients of any contributions made by the company.
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3. |
AM policy is to vote “against” shareholder proposals regarding charitable contributions and donations. |
Rationale: The Board of Directors and Management, not shareholders, should evaluate and determine the recipients of any contributions made by the company.
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E. |
Tobacco |
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1. |
AM policy is to vote “against” shareholder proposals requesting additional standards or reporting requirements for tobacco companies as well as “against” requesting companies to report on the intentional manipulation of nicotine content. |
Rationale: Where a tobacco company’s actions meet the requirements of legal and industry standards, imposing additional burdens may detrimentally effect a company's ability to compete. The disclosure of nicotine content information could affect the company's rights in any pending or future litigation.
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2. |
Shareholder requests to spin-off or restructure tobacco businesses will be opposed. |
Rationale: These decisions are more appropriately left to the Board and management, and not to shareholder mandate.
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VIII. |
Environmental Issues |
AM policy is to follow management's recommended vote on CERES Principles or other similar environmental mandates (e.g., those relating to Greenhouse gas emissions or the use of nuclear power).
Rationale: Environmental issues are extensively regulated by outside agencies and compliance with additional requirements often involves significant cost to companies.
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IX. |
Miscellaneous Items |
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A. |
Ratification of Auditors |
AM policy is to vote “for” a) the management recommended selection of auditors and b) proposals to require shareholder approval of auditors.
Rationale: Absent evidence that auditors have not performed their duties adequately, support for management’s nomination is warranted.
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B. |
Limitation of non-audit services provided by independent auditor |
AM policy is to support proposals limiting non-audit fees to 50% of the aggregate annual fees earned by the firm retained as a company's independent auditor.
Rationale: In the wake of financial reporting problems and alleged audit failures at a number of companies, AM supports the general principle that companies should retain separate firms for audit and consulting services to avoid potential conflicts of interest. However, given the protections afforded by the recently enacted Sarbanes-Oxley Act of 2002 (which requires Audit Committee pre-approval for non-audit services and prohibits auditors from providing specific types of services), and the fact that some non-audit services are legitimate audit-related services, complete separation of audit and consulting fees may not be warranted. A reasonable limitation is appropriate to help ensure auditor independence and it is reasonable to expect that audit fees exceed non-audit fees.
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C. |
Audit firm rotation |
AM policy is to support proposals seeking audit firm rotation unless the rotation period sought is less than five years.
Rationale: While the Sarbanes-Oxley Act mandates that the lead audit partner be switched every five years, AM believes that rotation of the actual audit firm would provide an even stronger system of checks and balances on the audit function.
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D. |
Transaction of Other Business |
AM policy is to vote against “transaction of other business” proposals.
Rationale: This is a routine item to allow shareholders to raise other issues and discuss them at the meeting. As the nature of these issues may not be disclosed prior to the meeting, we recommend a vote against these proposals. This protects shareholders voting by proxy (and not physically present at a meeting) from having action taken at the meeting that they did not receive proper notification of or sufficient opportunity to consider.
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E. |
Motions to Adjourn the Meeting |
AM Policy is to vote against proposals to adjourn the meeting.
Rationale: Management may seek authority to adjourn the meeting if a favorable outcome is not secured. Shareholders should already have had enough information to make a decision. Once votes have been cast, there is no justification for management to continue spending time and money to press shareholders for support.
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F. |
Bundled Proposals |
AM policy is to vote against bundled proposals if any bundled issue would require a vote against it if proposed individually.
Rationale: Shareholders should not be forced to “take the good with the bad” in cases where the proposals could reasonably have been submitted separately.
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G. |
Change of Company Name |
AM policy is to support management on proposals to change the company name.
Rationale: This is generally considered a business decision for a company.
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H. |
Proposals Related to the Annual Meeting |
AM Policy is to vote in favor of management for proposals related to the conduct of the annual meeting (meeting time, place, etc.)
Rationale: These are considered routine administrative proposals.
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I. |
Reimbursement of Expenses Incurred from Candidate Nomination |
AM policy is to follow management’s recommended vote on shareholder proposals related to the amending of company bylaws to provide for the reimbursement of reasonable expenses incurred in connection with nominating one or more candidates in a contested election of directors to the corporation’s board of directors.
Rationale: Corporations should not be liable for costs associated with shareholder proposals for directors.
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J. |
Investment Company Proxies |
Proxies solicited by investment companies are voted in accordance with the recommendations of an independent third party, currently ISS. However, regarding investment companies for which AM or an affiliate serves as investment adviser or principal underwriter, such proxies are voted in the same proportion as the vote of all other shareholders. Proxies solicited by master funds from feeder funds will be voted in accordance with applicable provisions of Section 12 of the Investment Company Act of 1940.
Investment companies, particularly closed-end investment companies, are different from traditional operating companies. These differences may call for differences in voting positions on the same matter. For example, AM could vote “for” staggered boards of closed-end investment companies, although AM generally votes “against” staggered boards for operating companies. Further, the manner in which AM votes investment company proxies may differ from proposals for which a AM-advised investment company solicits proxies from its shareholders. As reflected in the Guidelines, proxies solicited by closed-end (and open-end) investment companies are voted in accordance with the pre-determined guidelines of an independent third-party.
Subject to participation agreements with certain Exchange Traded Funds ("ETF") issuers that have received exemptive orders from the U.S. Securities and Exchange Commission allowing investing DWS funds to exceed the limits set forth in Section 12(d)(1)(A) and (B) of the Investment Company Act of 1940, DeAM will echo vote proxies for ETFs in which Deutsche Bank holds more than 25% of outstanding voting shares globally when required to do so by participation agreements and SEC orders.
Note: With respect to the QP Trust (not registered under the Investment Company Act of 1940), the Fund is not required to engage in echo voting and the investment adviser will use these Guidelines, and may determine, with respect to the QP Trust, to vote contrary to the positions in the Guidelines, consistent with the Fund’s best interest.
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K. |
International Proxy Voting |
The above guidelines pertain to issuers organized in the United States, Canada and Germany. 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.
IMPORTANT: The information contained herein is the property of Deutsche Bank Group and may not be copied, used or disclosed in whole or in part, stored in a retrieval system or transmitted in any form or by any means (electronic, mechanical, reprographic, recording or otherwise) without the prior written permission of Deutsche Bank Group.
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ITEM 8. |
PORTFOLIO MANAGERS OF CLOSED-END MANAGEMENT INVESTMENT COMPANIES |
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Portfolio Manager Team Disclosure
The Fund is managed by a Team of investment professionals who collaborate to develop and implement the Fund’s investment strategy. Each Portfolio Manager on the Team has authority over all aspects of the Fund's investment portfolio, including but not limited to, purchases and sales of individual securities, portfolio construction techniques, portfolio risk assessment, and the management of daily cash flows in accordance with portfolio holdings.
The following individuals handle the day-to-day management of the Fund.
John F. Robertson, CFA
Managing Director of Deutsche Asset Management and of RREEF and Co-Manager of the Fund.
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• |
Joined RREEF in 1997, Deutsche Asset Management 2002 and the Fund in 2002. |
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|
• |
Prior to that, Assistant Vice President of Lincoln Investment Management responsible for REIT research. |
|
|
• |
Over 15 years of investment industry experience. |
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|
• |
BA, Wabash College; MBA, Indiana University. |
Jerry W. Ehlinger, CFA
Managing Director of Deutsche Asset Management and of RREEF and Co-Manager of the Fund.
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|
• |
Joined RREEF and Deutsche Asset Management in 2004 and the Fund in 2005. |
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• |
Prior to that, Senior Vice President at Heitman Real Estate Investment Management from 2000-2004. |
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|
• |
Prior to that, Senior Research Associate at Morgan Stanley Asset Management from 1996-2000. |
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• |
Over 10 years of investment industry experience. |
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• |
BA, University of Wisconsin-Whitewater, MS, University of Wisconsin-Madison. |
John W. Vojticek
Managing Director of Deutsche Asset Management and of RREEF and Co-Manager of the Fund.
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|
• |
Joined RREEF and Deutsche Asset Management in 2004 and the Fund in 2004. |
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• |
Prior to that, Principal at KG Redding and Associates, March 2004–September 2004. |
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|
• |
Prior to that, Managing Director of RREEF from 1996–March 2004 and Deutsche Asset Management from 2002–March 2004. |
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|
• |
Over 10 years of investment industry experience. |
|
|
• |
BS, University of Southern California. |
Asad Kazim
Director of Deutsche Asset Management. Vice President of RREEF and Co-Manager of the Fund.
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|
• |
Joined RREEF and Deutsche Asset Management in 2002 and the Fund in 2005. |
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• |
Prior to that, Financial Analyst at Clarion CRA Securities from 2000-2002. |
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|
• |
Over 5 years of investment industry experience. |
|
|
• |
BS, The College of New Jersey. |
Compensation of Portfolio Managers
Portfolio managers are eligible for total compensation comprised of base salary and discretionary incentive compensation.
Base Salary – Base salary generally represents a smaller percentage of portfolio managers’ total compensation than discretionary incentive compensation. Base salary is linked to job function, responsibilities and financial services industry peer comparison through the use of extensive market data surveys.
Discretionary Incentive Compensation – Generally,discretionary incentive compensation comprises a greater proportion of total compensation as a portfolio manager’s seniority and compensation levels increase. Discretionary incentive compensation is determined based on an analysis of a number of factors, including among other things, the performance of Deutsche Bank, the performance of the Asset Management division, and the employee’s individual contribution. In evaluating individual contribution, management will consider a combination of quantitative and qualitative factors. A portion of the portfolio manager’s discretionary incentive compensation may be delivered in long-term equity programs (usually in the form of Deutsche Bank equity) (the “Equity Plan”). Top performing portfolio managers may earn discretionary incentive compensation that is a multiple of their base salary.
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• |
The quantitative analysis of a portfolio manager’s individual performance is based on, among other factors, performance of all of the accounts managed by the portfolio manager (which includes the fund and any other accounts managed by the portfolio manager) over a one-, three-, and five-year period relative to the appropriate Morningstar and Lipper peer group universes and/or benchmark index(es) with respect to each account. Additionally, the portfolio manager’s retail/institutional asset mix is weighted, as appropriate for evaluation purposes. Generally the benchmark index used is a benchmark index set forth in the fund's prospectus to which the fund's performance is compared. Additional or different appropriate peer group or benchmark indices may also be used. Primary weight is given to pre-tax portfolio performance over three-year and five-year time periods (adjusted as appropriate if the portfolio manager has served for less than five years) with lesser consideration given to portfolio performance over a one-year period. The increase or decrease in a fund’s assets due to the purchase or sale of fund shares is not considered a material factor. |
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• |
The qualitative analysis of a portfolio manager’s individual performance is based on, among other things, the results of an annual management and internal peer review process, and management's assessment of overall portfolio manager contributions to investor relations, the investment process and overall performance (distinct from fund and other account performance). Other factors, including contributions made to the investment team, as well as adherence to Compliance Policies and Procedures, Risk Management procedures, the firm’s Code of Ethics and “living the values” of the Advisor are also factors. |
The quantitative analysis of a portfolio manager’s performance is given more weight in determining discretionary incentive compensation than the qualitative portion.
Certain portfolio managers may also participate in the Equity Plan. The amount of equity awarded under the long-term equity programs is generally based on the individual’s total compensation package and may comprise from 0% to 30% of the total compensation award. As discretionary incentive compensation increases, the percentage of compensation
awarded in Deutsche Bank equity also increases. Portfolio managers may receive a portion of their equity compensation in the form of shares in the proprietary mutual funds that they manage or support.
Fund Ownership of Portfolio Managers
The following table shows the dollar range of shares owned beneficially and of record by each member of the Fund’s portfolio management team in the Fund as well as in all DWS Funds as a group (i.e. those funds advised by Deutsche Asset Management or its affiliates), 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.
|
Name of |
Dollar Range of Fund Shares Owned |
Dollar Range of All DWS Fund Shares Owned |
|
Jerry W. Ehlinger |
- |
$50,001-$100,000 |
|
John F. Robertson |
- |
$500,001-$1,000,000 |
|
Asad Kazim |
- |
$10,001-$50,000 |
|
John W. Vojticek |
- |
$10,001-$50,000 |
Conflicts of Interest
In addition to managing the assets of the Fund, the Fund’s portfolio managers may have responsibility for managing other client accounts of the Advisor or its affiliates. The tables below show, for each 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 each portfolio manager. Total assets attributed to each portfolio manager in the tables below include total assets of each account managed by them, although the manager may only manage a portion of such account’s assets. 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.
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 |
|
Jerry W. Ehlinger |
7 |
$1,452,607,142 |
- |
- |
|
John F. Robertson |
12 |
$3,901,879,411 |
- |
- |
|
Asad Kazim |
7 |
$1,452,607,142 |
- |
- |
|
John W. Vojticek |
11 |
$4,332,131,143 |
- |
- |
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 |
|
Jerry W. Ehlinger |
5 |
$292,440,500 |
2 |
$30,002,911 |
|
John F. Robertson |
19 |
$1,083,077,360 |
2 |
$30,002,911 |
|
Asad Kazim |
5 |
$292,440,500 |
2 |
$30,002,911 |
|
John W. Vojticek |
9 |
$513,674,648 |
2 |
$30,002,911 |
Other Accounts Managed:
|
Name of Portfolio Manager |
Number of Other Accounts |
Total Assets of Other Accounts |
Number of Other Accounts with Performance- Based Fee |
Total Assets of Performance- Based Fee Accounts |
|
Jerry W. Ehlinger |
30 |
$1,711,840,540 |
3 |
$271,162,496 |
|
John F. Robertson |
52 |
$3,062,970,622 |
5 |
$364,248,429 |
|
Asad Kazim |
30 |
$1,536,792,614 |
3 |
$271,162,496 |
|
John W. Vojticek |
44 |
$2,433,349,053 |
5 |
$364,248,429 |
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 Funds. The Advisor 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 Funds and other client accounts.
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:
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• |
Certain investments may be appropriate for the Fund and also for other clients advised by the Advisor, including other client accounts managed by the Fund’s portfolio management team. Investment decisions for the Fund and other clients are made with a view to achieving their respective investment objectives and after consideration of such factors as their current holdings, availability of cash for investment and the size of their investments generally. A particular security may be bought or sold for only one client or in different amounts and at different times for more than one but less than all clients. Likewise, because clients of the Advisor may have differing investment strategies, a particular security may be bought for one or more clients when one or more other clients are selling the security. The investment results achieved for the Fund may differ from the results achieved for other clients of the Advisor. In addition, purchases or sales of the same security may be made for two or more clients on the same day. In such event, such transactions will be allocated among the clients in a manner believed by the Advisor to be most equitable to each client, generally utilizing a pro rata |
allocation methodology. In some cases, the allocation procedure could potentially have an adverse effect or positive effect on the price or amount of the securities purchased or sold by the Fund. Purchase and sale orders for the Fund may be combined with those of other clients of the Advisor in the interest of achieving the most favorable net results to the Fund and the other clients.
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• |
To the extent that a portfolio manager has responsibilities for managing multiple client accounts, a portfolio manager will need to divide time and attention among relevant accounts. The Advisor attempts to minimize these conflicts by aligning its portfolio management teams by investment strategy and by employing similar investment models across multiple client accounts. |
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• |
In some cases, an apparent conflict may arise where the Advisor has an incentive, such as a performance-based fee, in managing one account and not with respect to other accounts it manages. The Advisor will not determine allocations based on whether it receives a performance-based fee from the client. Additionally, the Advisor has in place supervisory oversight processes to periodically monitor performance deviations for accounts with like strategies. |
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• |
The Advisor and its affiliates and the investment team of the Funds may manage other mutual funds and separate accounts on 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 potential conflicts of interest. Included in these procedures are specific guidelines developed to ensure 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 Deutsche Bank AG, a multi-national financial services company. 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 other than managing asset management accounts, such other 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. These are considerations of which advisory clients should be aware and which may cause conflicts that could be to the disadvantage of the Advisor’s advisory clients. 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 the Fund’s Board.
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ITEM 9. |
PURCHASES OF EQUITY SECURITIES BY CLOSED-END MANAGEMENT INVESTMENT COMPANY AND AFFILIATED PURCHASERS |
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(a) |
(b) |
(c) |
(d) |
|
Period |
Total Number of Shares Purchased |
Average Price Paid per Share |
Total Number of Shares Purchased as Part of Publicly Announced Plans or Programs |
Maximum Number of Shares that May Yet Be Purchased Under the Plans or Programs |
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|
January 1 through January 31 |
0 |
$0 |
n/a |
n/a |
|
February 1 through February 28 |
0 |
$0 |
n/a |
n/a |
|
March 1 through March 31 |
0 |
$0 |
n/a |
n/a |
|
April 1 through April 30 |
0 |
$0 |
n/a |
n/a |
|
May 1 through May 31 |
0 |
$0 |
n/a |
n/a |
|
June 1 through June 30 |
0 |
$0 |
n/a |
n/a |
|
July 1 through July 31 |
0 |
$0 |
n/a |
n/a |
|
August 1 through August 31 |
0 |
$0 |
n/a |
n/a |
|
September 1 through September 30 |
0 |
$0 |
n/a |
n/a |
|
October 1 through October 31 |
0 |
$0 |
n/a |
n/a |
|
November 1 through November 30 |
0 |
$0 |
n/a |
n/a |
|
December 1 through December 31 |
0 |
$0 |
n/a |
n/a |
|
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|
|
|
|
Total |
0 |
$0 |
n/a |
n/a |
|
ITEM 10. |
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS |
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The primary function of the Nominating and Governance Committee is to identify and recommend individuals for membership on the Board and oversee the administration of the Board Governance Guidelines. Shareholders may recommend candidates for Board positions by forwarding their correspondence by U.S. mail or courier service to Chairman of the Board, P.O. Box 100176, Cape Coral, FL 33910. |
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ITEM 11. |
CONTROLS AND PROCEDURES |
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(a) The Chief Executive and Financial Officers concluded that the Registrant’s Disclosure Controls and Procedures are effective based on the evaluation of the Disclosure Controls and Procedures as of a date within 90 days of the filing date of this report. |
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(b) There have been no changes in the registrant’s internal control over financial reporting that occurred during the second fiscal quarter of the period covered by this report that has materially affected, or is reasonably likely to materially affect, the registrant’s internal controls over financial reporting. |
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ITEM 12. |
EXHIBITS |
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(a)(1) Code of Ethics pursuant to Item 2 of Form N-CSR is filed and attached hereto as EX-99.CODE ETH. |
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(a)(2) Certification pursuant to Rule 30a-2(a) under the Investment Company Act of 1940 (17 CFR 270.30a-2(a)) is filed and attached hereto as Exhibit 99.CERT. |
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(b) Certification pursuant to Rule 30a-2(b) under the Investment Company Act of 1940 (17 CFR 270.30a-2(b)) is furnished and attached hereto as Exhibit 99.906CERT. |
Form N-CSR Item F
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
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Registrant: |
DWS RREEF Real Estate Fund, Inc. |
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By: |
/s/Michael G. Clark |
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|
Michael G. Clark |
President
|
Date: |
March 2, 2009 |
Pursuant to the requirements of the Securities Exchange Act of 1934 and the Investment Company Act of 1940, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.
|
Registrant: |
DWS RREEF Real Estate Fund, Inc. |
|
By: |
/s/Michael G. Clark |
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|
Michael G. Clark |
President
|
Date: |
March 2, 2009 |
|
By: |
/s/Paul Schubert |
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|
Paul Schubert |
Chief Financial Officer and Treasurer
Date: March 2, 2009